☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 ☒ 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).

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

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 ☒

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

As of ~~November 14, 2018~~May 15, 2019 there were19,304,921 shares of ~~Common Stock outstanding.~~common stock outstanding

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

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

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

SORL Auto Parts, Inc. (together with its subsidiaries, “we,” “us,” “our” or the “Company” or “SORL”), a Delaware corporation incorporated on March 24, 1982, is principally engaged in the manufacture and distribution of vehicle brake systems and other key safety-related components, through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd. (the “Joint Venture” or “Ruian”). The Company distributes products both in China and internationally under SORL trademarks. The Company’s product range includes 140 categories and over 2,000 different specifications.

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

On November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese individual investor. The joint venture was named SORL International Holding, Ltd. (“SIH”) based in Hong Kong. SORL held a 60% interest in the joint venture, MGR held a 30% interest, and the Taiwanese individual investor held a 10% interest. SIH was primarily devoted to expanding ~~SORL's~~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.

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~~2018 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.~~2018. 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,~~2018, 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.

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

The preparation of financial statements in conformity with ~~U.S~~U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting ~~period.~~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.

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, current deposits on loan agreements, other current assets, ~~accounts payable and bank acceptance notes to vendors,~~ short term bank loans, ~~deposits received from customers,~~ current portion of long term loans, deposits received from customers, deferred income, current income tax payable, accrued expenses, current operating lease liabilities, 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~~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~~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, current consists of bank deposits used to pledge bank acceptance notes, ~~and~~ deposits for obtaining letters of credit from a local ~~bank.~~

~~Restricted cash, non-current represents deposits guaranteed for construction projects.~~

The Company entered into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated limits. Within the stipulated credit limits, the Company can issue bank, acceptance notes to its suppliers as payments for the purchases. In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge notes receivable to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company. The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months. As of September 30, 2018 and ~~December 31, 2017, restricted cash of $15,995,561 and $0, respectively, was used to pledge the bank acceptance notes.~~

The Company obtained letters of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that the Company would make timely payment to its sellers for any purchases. Deposits of $159,902 and $275,474, respectively, were required for this purpose as of September 30, 2018 and December 31, 2017.

The Company obtained letters of credit from China Zheshang Bank, which agreed to provide guarantee for the Company’s construction projects on land use rights at the intersection of Xianghe Road and North Wansong Road, Binhai New District, Ruian City, Zhejiang Province, China. Deposits of $3,488,778 and $0, respectively, were required by China Zheshang Bank for this purpose during the construction period as of September 30, 2018 and December 31, 2017, and were included in restricted cash, non-current.

~~As of September 30, 2018, the Company had a~~ bank deposit ~~of $2,907,315~~ held as a guarantee for the loans obtained by Wenzhou Lichuang Automobile Parts Co., Ltd., a related party, from ~~China Merchant Bank.~~the bank. Also see Note ED for ~~details.~~details on the guarantee provided to related party.

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,~~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 or repayments from related~~ parties. Bank acceptance notes do not bear interest. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, bank acceptance notes from customers in the amount of ~~$91,703,928~~$65,408,481 and ~~$95,914,724,~~$58,458,890, 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 inon the accompanying unaudited consolidated statements of income ~~(loss)~~ and comprehensive ~~income (loss).~~income.

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.

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.

On January 1, 2019, the ~~FASB issued~~Company adopted Accounting Standards Update (ASU) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively ASC ~~606. ASC 606 outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP and supersedes~~Topic 842), using the revenue recognition guidance existed at the time. The main principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.modified retrospective method. The Company applied the ASC and its related updates on a full retrospective basis as of January 1, 2018. The adoption of ASC 606 did not impact the previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. See Note M for additional information.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The Company adopted ASU 2016-18 effective January 1, 2018. As a result of the adoption, net cash used in investing activities was adjusted to exclude the change in restricted cash, resulting in a decrease of $4,871,113 in net cash used in investing activities in the amount previously reported for the nine months ended September 30, 2017. Restricted cash was included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.

In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118". The amendments in this ASU add SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act was signed into law. The amendments are effective upon addition to the FASB Accounting Standards Codification. The Company adopted this standard and evaluated the impact from the Tax Cut and Jobs Act pursuant to SAB 118, see Note N for further disclosures.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the impact of the adoption of ASU No. 2018-09 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, andelected the transition method which allows entities to initially apply the requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption of ASU 2018-10 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizesby recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. The ~~amendments also provide lessors~~Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient toand did not ~~separate non-lease components from the associated~~reassess whether an existing or expired land easement is a lease ~~component and, instead, to account~~or contains a lease if it has not historically been accounted for ~~those components~~ as a ~~single component in certain circumstances. For~~lease.

The primary impact of applying ASC Topic 842 is the ~~entities that have not adopted~~initial recognition of $1.6million of lease liabilities and corresponding right-of-use assets on the Company’s consolidated balance sheet as of January 1, 2019, for leases classified as operating leases under ASC Topic ~~842,~~840, as well as enhanced disclosure of the ~~effective date for this ASU are the same~~Company’s leasing arrangements. There is no cumulative effect to retained earnings or other components of equity recognized as ~~those for ASU 2016-02, which is effective for fiscal years beginning after December 15, 2018,~~of January 1, 2019 and ~~interim periods within those fiscal years. The Company is currently evaluating the impact of~~ the adoption of ~~ASU No. 2018-11 on its~~this standard did not impact the consolidated ~~financial statements.~~

~~In August 2018,~~statement of income and comprehensive income or consolidated statement of cash flows of the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.Company. The Company ~~is currently evaluating the potential impacts~~does not have finance lease arrangements as of ~~ASU 2018-13 on its consolidated financial statements.~~March 31, 2019. See Note N for further discussion.

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

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

The Company continues to purchase primarily packaging materials from Ruili Group. In addition, the Company purchases automotive components from other related parties, including Guangzhou Kormee, Ruian Kormee, Ruili Meilian, Shanghai Dachao, Wenzhou Lichuang, Hangzhou Hangcheng, Changchun Kormee, and ~~Ningbo Ruili. As of September 30, 2018, the Company did not receive all the materials~~molds from Ningbo Ruili ~~purchased during the three and nine months then ended. The unreceived purchases from the relate party are recorded as prepayments, current on the accompanying consolidated balance sheets.~~used in its production.

The Company sells certain automotive products to the Ruili Group. The Company also sells parts to Guangzhou Kormee, Ruian Kormee, Shanghai Tabouk, ~~Ruian~~Changchun Kormee and Ruili Meilian.

The following related party transactions occurred ~~during~~for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:

	As of March 31, 2019		As of December 31, 2018
ADVANCES TO RELATED PARTY

Ruili Group Co., Ltd.	$	98,136,035	$	79,739,417

Total	$	98,136,035	$	79,739,417

ACCOUNTS RECEIVABLE FROM RELATED PARTY

Shanghai Tabouk Auto Components Co., Ltd	$	341,110	$	261,889

Total	$	341,110	$	261,889

PREPAYMENT TO RELATED PARTY

Ningbo Ruili Equipment Co., Ltd.	$	5,129,110	$	3,670,573

Total	$	5,129,110	$	3,670,573

ACCOUNTS PAYABLE TO RELATED PARTIES

Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.		24,562,350		7,877,485
Shanghai Dachao Electric Technology Co., Ltd.		28,958		56,883
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		622,908		5,628,155
Wenzhou Lichuang Auto Parts Co., Ltd.		4,953,700		9,898,777
Changchun Kormee Auto Electric Co., Ltd.		-		9,206
Hangzhou HangCheng Friction Material Co., Ltd.		-		334,694

Total	$	30,167,916	$	23,805,200

As of September 30, 2018 As of December 31, 2017
2018 2017
ADVANCES TO RELATED PARTIES

Ruili Group Co., Ltd. 49,372,965 5,711,605
Shanghai Ruili Real Estate Development Co., Ltd. - 65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd. $ - $ 1,537,122

Total advances to related parties $ 49,372,965 $ 72,318,224

2018 2017
ACCOUNTS RECEIVABLE

Shanghai Tabouk Auto Components Co., Ltd $ 1,506,254 $ 1,297,734
Total accounts receivable $ 1,506,254 $ 1,297,734

PREPAYMENTS, CURRENT

Ningbo Ruili Equipment Co., Ltd. $ 3,094,333 $ 999,527
Total prepayments, current $ 3,094,333 $ 999,527

ACCOUNTS PAYABLE TO RELATED PARTIES

Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd. 10,651,384 3,414,719
Shanghai Dachao Electric Technology Co., Ltd. 111,574 83,178
Ruili MeiLian Air Management System(LangFang)Co.,Ltd 2,682,174 1,993,787
Wenzhou Lichuang Automobile Parts Co., Ltd. 9,336,927 10,405,120
Total accounts payable to related parties $ 22,782,059 $ 15,896,804

DUE TO RELATED PARTY

Wenzhou Ruili Kormee Automotive Electronics Co., Ltd. $ 4,481,484 $ 1,572,963
Total due to related party $ 4,481,484 $ 1,572,963

	As of March 31, 2019		As of December 31, 2018
DUE TO RELATED PARTY

Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.	$	6,820,963	$	5,959,752

	$	6,820,963	$	5,959,752

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~~were due on demand, unsecured, and bear no interest during the year ended December 31, 2017. In year 2018, the Company charged Ruili Group an interest on the average balance advanced to them. The Company recorded interests of $1,394,267 with Ruili Group during the three months ended March 31, 2019, representing an effective interest rate of ~~5.22%~~approximately 6.33% per annum. ~~The advances to Shanghai Ruili and Kunshan Yuetu were fully repaid as of September 30, 2018.~~

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company obtained ~~loans~~net proceeds of ~~$311,692,664~~$739,289 in cash ~~and $33,721,267 in the form of bank acceptance notes~~ from related parties. ~~Repayments in cash and bank acceptance notes to related parties totaled $334,470,193 and $5,846,083, respectively.~~ In the same period, the Company ~~advanced to its related parties in the total amount~~provided Ruili Group net proceeds of $214,800,362 and received cash repayments from related parties amounted to $222,337,244. During the nine months ended September 30, 2017, the Company obtained loans of $93,191,843 in cash and $23,515,527 in the form of bank acceptance notes from related parties. Repayments in cash to related parties amounted to $113,071,629.$15,305,460.

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

During the nine months ended September 30, 2018, the Company made a bank deposit of $2,907,315 used as a guarantee for loans obtained by Wenzhou Lichuang from China Merchant Bank. The amount was included in restricted cash, current. Also see Note B.

The Company provided a guarantee for the credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 50,000,000 (approximately $7,699,889) for a period from July 29, 2015 until two years after the due date of each loan withdrawn by Ruili Group under the credit line. The credit line was replaced by the one issued by the same bank in the amount of RMB 40,000,000 (approximately ~~$5,766,181)~~$ 5,828,185) for a period of 12 months starting on October 24, 2016. The credit line was renewed on October 19, 2017 for 6 months. On April ~~23,~~13, 2018, Ruili Group and the bank reached another extension agreement and the guarantee will be provided by the Company until April ~~23, 2021.~~

The Company provided a guarantee for the credit line granted to Ruili Group by China Guangfa Bank in a maximum amount of RMB 69,000,000 (approximately $10,092,000) for the period from November 16, 2016 to January 16, 2018. The credit line was renewed on December 21, 2017 for a period of 12, ~~months, and the guarantee was accordingly extended by the Company as of September 30, 2018 and will expire on December 20, 2018.~~2019.

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~~210,000,000 (approximately ~~$26,328,000)~~$ 30,597,972) for the period from ~~June 30, 2017~~July 20, 2018 to ~~June 30,~~July 20, 2028.

The Company provided a guarantee for the credit line granted to Ruili Group by China Guangfa Bank in a maximum amount of RMB 71,000,000 (approximately $10,345,029) for the period from February 12, 2019 to January 16, 2020.

The Company also has a bank deposit in the amount of RMB 20,000,000 (approximately $2,914,093) used as a guarantee for loans obtained by Wenzhou Lichuang from China Merchant Bank. The amount was included in restricted cash, current.

The Company has short term bank loans guaranteed or pledged by related parties. See Note KJ for more details.

NOTE FE - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following:

	September 30,			December 31,			March 31,			December 31,
	2018			2017			2019			2018
Accounts receivable	$	176,566,068		$	148,312,117		$	192,913,727		$	163,903,305
Less: allowance for doubtful accounts		(12,816,673	)		(13,927,156	)		(14,042,200	)		(13,855,508	)
Accounts receivable, net	$	163,749,395		$	134,384,961		$	178,871,527		$	150,047,797

No customer individually accounted for more than 10% of ~~our~~the Company’s revenues or accounts receivable for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018. The changes in the allowance for doubtful accounts ~~on September 30, 2018~~at March 31, 2019 and December 31, ~~2017~~2018 are summarized as follows:

September 30, December 31,
2018 2017
Beginning balance $ 13,927,156 $ 11,686,417
Add: Increase (Decrease) to allowance (420,037 ) 1,474,872
Effects on changes in foreign exchange rate (690,446 ) 765,867
Ending balance $ 12,816,673 $ 13,927,156

	March 31,			December 31,
	2019			2018
Beginning balance	$	13,855,508		$	13,927,156
Add: Increase (Decrease) to allowance		(79,426	)		610,610
Effects on changes in foreign exchange rate		266,118			(682,258	)
Ending balance	$	14,042,200		$	13,855,508

NOTE GF - INVENTORIES, NET

~~On September 30, 2018~~At March 31, 2019 and December 31, ~~2017,~~2018, inventories ~~were~~ consisted of the following:

September 30, December 31,
2018 2017
Raw materials $ 46,744,244 $ 27,657,266
Work-in-process 46,420,898 40,805,434
Finished goods 65,958,328 45,837,864
Less: write-down of inventories - -
Total inventories $ 159,123,470 $ 114,300,564

	March 31,			December 31,
	2019			2018
Raw Materials	$	43,083,794		$	53,821,973
Work in process		78,087,090			89,516,949
Finished Goods		68,229,467			62,674,252
Less: Write-down of inventories		(2,016,212	)		(1,727,747	)
Total Inventory	$	187,384,139		$	204,285,427

The write-down of inventories amounted to $691,570 and $nil for the three months ended March 31, 2019 and 2018, respectively.

NOTE HG - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, ~~were~~net, consisted of the following ~~on September 30, 2018~~at March 31, 2019 and December 31, ~~2017:~~2018:

September 30, December 31,
2018 2017
Machinery $ 127,444,462 $ 119,296,564
Molds 1,271,764 1,338,912
Office equipment 3,831,723 2,998,443
Vehicles 4,684,074 3,681,194
Buildings 18,573,731 20,127,148
Construction in progress 2,928,101 -
Leasehold improvements 462,419 486,834
Sub-Total 159,196,274 147,929,095

Less: Accumulated depreciation (72,247,221 ) (68,101,089 )

Property, plant and equipment, net $ 86,949,053 $ 79,828,006

	March 31,			December 31,
	2019			2018
Machinery	$	138,421,155		$	130,912,861
Molds		1,299,283			1,274,729
Office equipment		4,013,170			3,566,772
Vehicles		6,322,725			5,956,822
Buildings		21,007,127			20,610,137
Construction in progress		15,458,570			8,641,271
Leasehold improvements		472,424			463,497
Sub-Total		186,994,454			171,426,089

Less: Accumulated depreciation		(79,931,250	)		(75,372,703	)

Property, plant and equipment, net	$	107,063,204		$	96,053,386

Depreciation expense charged to operations was ~~$8,399,291~~$3,117,643 and ~~$6,353,494~~$2,711,374 for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

NOTE ~~I –~~H - LAND USE RIGHTS, NET

The balances for land use rights, net, as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are as the following:

September 30, December 31,
2018 2017
Cost $ 22,231,948 $ 15,477,081
Less: accumulated amortization (986,049 ) (564,947 )

Land use rights, net $ 21,245,899 $ 14,912,134

In September 2017, the Company entered into an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection of Xianghe Road and North Wansong Road, Binhai New District, Ruian City, Zhejiang Province, China (the “Wansong Land”). Full payment of RMB 51.81 million (approximately $7.93 million) was made as of December 31, 2017. The Company obtained the title to the land use rights in April 2018. The Wansong Land has a total area of 17,029 square meters.

	March 31,			December 31,
	2019			2018
Cost	$	22,713,004		$	22,283,776
Less: Accumulated amortization		(1,357,013	)		(1,159,321	)
Land use rights, net	$	21,355,991		$	21,124,455

In December 2017, the Company entered into an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection of Fengjin Road and Wenhua Road, Binhai New District, Ruian City, Zhejiang Province, China. Prepayment of RMB 14.40 million (approximately $2.14 million) was made as down payment in 2017. During the nine months ended September 30, 2018, the Company paid additional amount of RMB 57.62 million (approximately $8.99 million). As of ~~September 30,~~December 31, 2018, the purchase price of RMB 72.02 million (approximately $11.13 ~~million)~~million ) was fully paid. As of the filing date, the title to the land use rights has not been transferred. The payments were included inas prepayment, non-current as of ~~September 30,~~March 31, 2019 and December 31, 2018 on the accompanying consolidated balance sheets.

In April 2018, the Company entered into an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection of Tengda Road and Wanghai Road, Economic Development District, Ruian City, Zhejiang Province, China. Prepayment of RMB 42.54 million (approximately $6.43 million) was made during the ~~nine months~~year ended ~~September 30,~~December 31, 2018. As of the filing date, the title to the land use rights has not been ~~transferred.~~transferred to the Company. The payments were included in prepayment, non-current as of ~~September 30,~~March 31, 2019 and December 31, 2018 on the accompanying consolidated balance sheets.

Amortization expenses were ~~$458,179~~$173,687 and ~~$141,816~~$132,523 for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

NOTE JI - DEFERRED TAX ASSETS

Deferred tax assets consisted of the following as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

	March 31,			December 31,
	2019			2018
Deferred tax assets
Allowance for doubtful accounts	$	2,235,493		$	2,205,048
Revenue (net of cost)		331,492			308,046
Unpaid accrued expenses		(87,797	)		501,276
Warranty		1,087,357			1,059,468
Deferred tax assets		3,566,545			4,073,838
Valuation allowance		-			-
Net deferred tax assets	$	3,566,545		$	4,073,838

September 30, December 31,
2018 2017
Deferred tax assets – non-current

Allowance for doubtful accounts $ 2,047,506 $ 2,137,837
Revenue (net of cost) 414,571 160,766
Unpaid accrued expenses (16,874 ) 955,287
Warranty 1,104,744 986,534
Deferred tax assets 3,549,947 4,240,424
Valuation allowance ― ―
Net deferred tax assets – non-current $ 3,549,947 $ 4,240,424

Deferred taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability to realize in the foreseeable future. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable tax rate.

NOTE ~~K – SHORT-TERM~~J - SHORT TERM BANK LOANS

Bank loans represented the following as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

September 30, December 31,
2018 2017
Secured $ 141,375,325 $ 125,380,899
Unsecured 2,616,584 -
Total short term bank loans $ 143,991,909 $ 125,380,899

	March 31,		December 31,
	2019		2018
Secured	$	212,363,818	$	217,940,471
Total short term bank loan	$	212,363,818	$	217,940,471

The Company obtained those short term loans from Bank of China, Bank of Ningbo, Agricultural Bank of China, China ~~Zheshang Bank, China CITIC Bank, China~~ Minsheng Bank, Industrial ~~Bank Co., Ltd., Oversea-Chinese Banking Corporation Limited, Industrial and Commercial Bank of China, Huaxia~~ Bank and China Construction Bank ~~respectively,~~ to finance general working capital as well as new acquisition of property, plant, and ~~acquire long-lived assets.~~equipment. Interest rate for the loans outstanding during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 ranged from 1.35% to ~~5.22%~~5.44% per annum. The maturity dates of the loans existing as of ~~September 30, 2018~~March 31, 2019 ranged from ~~August 8, 2018~~June 6, 2019 to ~~November 16, 2019. As of September 30, 2018 and December 31, 2017, the Company’s accounts receivable of $76,540 and $5,472,169, respectively, were pledged as collateral under loan arrangements.~~March 20, 2020. The interest expenses, ~~for short-term bank loans,~~ including discount fees, were ~~$2,543,723~~$3,435,416 and ~~$804,499~~$2,294,328 for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. ~~The interest expenses for short-term bank loans, including discount fees, were $7,428,780 and $1,827,835 for the nine months ended September 30, 2018 and 2017, respectively.~~

As of ~~September 30, 2018,~~March 31, 2019, corporate or personal guarantees provided for those bank loans were as follows:

$ 5,557,517 Guaranteed by Ruili Group, a related party
$ 7,195,691 Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
$ 26,165,833 Pledged by HangZhou RuiLi Property Development Co.,Ltd, a related party, with its property. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$ 22,650,493 Pledged by Ruili Group, a related party, with its land use rights and properties
$ 16,571,694 Pledged by the Company with its bank acceptance notes
$ 58,146,296 Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
$ 5,087,801 Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Guaranteed by Ruili Group, a related party

$	32,672,459	Pledged by Ruili Group, a related party, with its land use rights and properties.

$	66,830,027	Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

$	7,201,307	Guaranteed by Ruili Group, a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

$	5,710,518	Guaranteed by Ruili Group, a related party.

$	38,612,906	Pledged by Hangzhou Ruili Property Development Ltd., a related party, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

$	37,127,794	Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Shanghai Ruili, a related party. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

$	7,425,559	Pledged by the Company with bank deposits.

$	4,455,335	Pledged by Hangzhou Ruili Binkang Real Estate Development Co. Ltd., a related party, with its properties; Guaranteed by Hangzhou Ruili Property Development Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

$	2,451,920	Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Ruili Group, a related party, with its properties.

$	2,450,434	Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Ruili Group, a related party, with its properties.

$	7,425,559	Pledged by the Company; Guaranteed by Hangzhou Ruili Property Development Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

NOTE LK - LONG TERM LOANS

							March 31,			December 31,
	September 30, 2018			December 31, 2017			2019			2018
Aggregate outstanding principal balance	$	42,280,413		$	63,471,308		$	30,936,398		$	36,165,550
Less: unamortized debt issuance costs		(814,770	)		(1,822,053	)
Less: current portion		(22,147,109	)		(24,266,031	)
Less: unamortized debt issuance costs, non-current portion								(423,500	)		(595,117	)
Less: current portion, net of unamortized debt issuance costs								(25,086,705	)		(21,141,029	)
Non-current portion	$	19,318,534		$	37,383,224		$	5,426,193		$	14,429,404

In November 2017, the Company entered into two identical but independent loan agreements with Far Eastern Horizon Co., Ltd. (“Far Eastern”), each for a term of 36 months and with an effective interest rate of 8.38% per annum, payable monthly in arrears. The total long term obligations under the two agreements amounted to RMB 200,000,000 (approximately $30,608,185), pledged by the Company’s equipment in the original cost of RMB 205,690,574 (approximately $31,479,075). The Company paid debt issuance costs in cash of ~~$742,324. For the nine months ended September 30, 2018, the~~RMB 5,000,000 (approximately $742,324). The repayments of principal totaled ~~$7,522,125.~~$2,467,526 and $2,593,828 for the three months ended March 31, 2019 and 2018, respectively.

In November 2017, the Company entered into four independent loan agreements with COSCO Shipping Leasing Co., Ltd. (“COSCO”) for a term of 36 months each. Two of the agreements were signed on November 30, 2017 with an effective interest rate of 8.50% per annum, payable monthly in arrears. The other two agreements were entered into on November 15, 2017, with an effective interest rate of 4.31% per annum, payable monthly in arrears. The total long term obligations under the four agreements amounted to RMB 235,000,000 (approximately $35,964,617), pledged by the Company’s equipment in the original cost of RMB 238,333,639 (approximately $36,474,800). The Company paid debt issuance costs in cash ~~in the amount~~ of ~~$1,025,248. For the nine months ended September 30, 2018, the~~RMB7,320,000 (approximately $1,025,248). The repayments of principal totaled ~~$11,435,650.~~

$3,401,673 and $3,932,820 for the three months ended March 31, 2019 and 2018, respectively.

The interest expenses for long term loans, including the amortization of debt issuance costs, were ~~$787,831~~$537,082 and $1,059,383 for the three months ended ~~September 30, 2018. The interest expenses for long term loans, including the amortization of debt issuance costs, were $2,785,901 for the nine months ended September 30, 2018.~~March 31, 2019 and 2018, respectively.

NOTE ~~M –~~L - 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 QP for information regarding revenue disaggregation by product type.

Revenues from contracts with customers are recognized at a point in time when the merchandises are delivered to the customer in accordance with the shipping terms stated in the contracts, which is the point when the legal title, physical possession and the risks and rewards of ownership are transferred to the customers.

Deferred revenue is recorded when consideration is received from a customer prior to transferring goods to the customer under the terms of a sales contract. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company recorded a deferred revenue liability of ~~$63,615,939~~$53,150,261 and ~~$43,087,473,~~$51,529,795, respectively, which was presented as “Deposits received from customers” on the accompanying consolidated balance sheets. During the ~~nine~~three months ended ~~September 30, 2018 and 2017,~~March 31, 2019, the Company recognized ~~$18,252,438 and $7,994,579, respectively,~~$12,667,148 of deferred revenue included in the opening ~~balances~~balance of deposits received from customers. The ~~amounts were~~amount was included in sales on the accompanying consolidated ~~statements~~statement of income ~~(loss)~~ and comprehensive ~~income (loss).~~income.

NOTE NM - INCOME TAXES

In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected the Company, including, among others, a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and a recognition of the U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company upon enactment of the 2017 Tax Act. The Company is required to recognize the effect of the 2017 Tax Act in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the 2017 Tax Act, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.

During the ~~three months~~year ended ~~September 30,~~December 31, 2018, the Company recognized a one-time transition tax of $11,022,985 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company also recognized related interest and penalty of $587,821 in the year ended December 31, 2018. The Company recognized additional interest and penalty of $77,415 in the three months ended March 31, 2019. The Company elected to pay the one-time transition tax over eight years commencing in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that would adjust the provisional amounts recorded. As of ~~September 30, 2018, $1,763,678~~March 31, 2019, $2,528,913 was included in ~~taxes~~income tax payable as a current liability which the Company believes will be paid within one year and the remaining balance was included in ~~long-term taxes payable. As~~income tax payable, non-current.

The 2017 Tax Act also created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low-taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The Company elected to account for GILTI tax in the ~~filing date, no transition~~period the tax ~~payment has been made.~~is incurred, and therefore included it in estimating the annual effective tax rate.

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,~~2018, the Joint Venture was awarded the Chinese ~~government's "High-Tech Enterprise"~~government’s “High-Tech Enterprise” designation for a ~~third~~fourth time, which is valid for three years and it continues to be taxed at the 15% tax rate in ~~2015, 2016~~2018, 2019 and 2017. As the “High-Tech Enterprise” designation expired in 2018, the Joint Venture is undergoing the re-assessment by the government and the Company estimates it is highly probable that the designation will be awarded and therefore the 15% tax rate is used for the nine months ended September 30, 2018.2020.

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the ~~US and the~~ PRC for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:

Nine Months Ended September 30
2018 2017
US statutory income tax rate 21.00 % 35.00 %
Valuation allowance recognized with respect to the loss in the US company -21.00 % -35.00 %
Impact of Tax Cuts and Jobs Act 41.71 % -
China statutory income tax rate 25.00 % 25.00 %
Effects of income tax exemptions and reliefs -10.00 % -10.00 %
Effects of additional deduction allowed for R&D expenses -3.77 % -1.90 %
Effects of expenses not deductible for tax purposes 2.30 % 0.63 %
Other items 0.92 % 1.66 %
Effective tax rate 56.15 % 15.39 %

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
US statutory income tax rate		21.00	%		21.00	%
Valuation allowance recognized with respect to the loss in the US company		-21.00	%		-21.00	%
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		-1.79	%		-2.51	%
Effects of expenses not deductible for tax purposes		1.91	%		0.52	%
Other items		0.65	%		1.86	%
Effective tax rate		15.78	%		14.87	%

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. ~~There currently is no tax benefit recorded for the United States. In the nine months ended September 30, 2018, there were late filing penalties of $100,000 that are recorded in the tax expenses.~~ The provisions for income taxes for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, are summarized as follows:

	Nine Months Ended September 30
	2018		2017		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Current	$	14,454,243	$	4,199,727	$	1,288,596	$	704,603
Deferred		520,739		25,677		580,171		900,838
Total	$	14,974,982	$	4,225,404	$	1,868,767	$	1,605,441

NOTE ~~O –~~N - OPERATING LEASES ~~WITH RELATED PARTY~~

The Company entered into various operating lease agreements for certain of its staff dormitories including a lease agreement with its related party.

In December 2006, Ruian entered into a lease agreement with Ruili Group Co., Ltd., a related party, for the lease of two apartment ~~buildings. These two apartment~~ buildings ~~are~~ for Ruian’s management personnel and ~~staff, respectively.~~staff. The initial lease term was from January 2013 to December 2016. This lease was amended in 2013, with a new lease term from January 1, 2013 to December 31, 2022. The annual lease expense is RMB 2,100,000 (approximately ~~$333,688)~~$305,980).

Balance sheet information related to operating leases is as follows:

	March 31, 2019
Operating lease right of use assets	$	1,222,064

Operating lease liabilities, current	$	492,494
Operating lease liabilities, non-current		797,107
Total operating lease liabilities	$	1,289,601

For the three months ended March 31, 2019, the Company had operating lease costs of $144,117 and the reduction in operating lease right of use assets was $125,799. Cash paid for amounts included in the measurement of operating lease liabilities was $344,794 during the three months ended March 31, 2019.

The weighted-average remaining lease ~~expenses were $1,304,292~~term and ~~$684,252 for~~ the ~~nine months ended September 30, 2018 and 2017, respectively.~~weighted-average discount rate of our leases are as follows:

	March 31, 2019
Weighted-average remaining lease term		3 years

Weighted-average discount rate		5.24	%

The following table summarizes the maturity of our operating lease liabilities as of March 31, 2019:

2019 (remaining)	$	470,285
2020		311,873
2021		311,873
2022		311,873
2023 and thereafter		-
Total lease payment		1,405,904
Less imputed interest		(116,303	)
Total lease liabilities	$	1,289,601

NOTE PO - WARRANTY CLAIMS

Warranty claims were ~~$2,507,487~~$1,008,084 and ~~$2,261,311~~$833,684 for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. Warranty claims are included in selling and distribution expenses on the accompanying consolidated statements of income ~~(loss)~~ and comprehensive ~~income (loss).~~income. Accrued warranty expenses are included in the balances of accrued expenses on the accompanying consolidated balance ~~sheet.~~sheets. The movement of accrued warranty expenses for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was as follows:

Beginning balance at January 1, 2018 $ 6,576,895
Aggregate increase for new warranties issued during current period 2,507,487
Aggregate reduction for payments made and effect of exchange rate fluctuation (1,719,421 )
Ending balance at September 30, 2018 $ 7,364,961

Beginning balance at January 1, 2019	$	7,063,122
Aggregate increase for new warranties issued during current period		1,008,084
Aggregate reduction for payments made and effect of exchange rate fluctuation		(822,156	)
Ending balance at March 31, 2019	$	7,249,050

NOTE ~~Q –~~P - SEGMENT INFORMATION

The Company produces brake systems and other related components for different types of commercial vehicles (“Commercial Vehicle Brake Systems”). On August 31, 2010, the Company through Ruian, executed an Asset Purchase Agreement to acquire a segment of the passenger vehicle auto parts business (“Passenger Vehicle Brake Systems”) of Ruili Group. As a result of this acquisition, the Company's product offerings were expanded to both commercial and passenger vehicles' brake systems and other key safety-related auto parts.

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

~~All~~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, 2019			Three Months Ended March 31, 2018

NET SALES TO EXTERNAL CUSTOMERS
Commercial vehicles brake systems	$	108,381,809		$	91,615,325
Passenger vehicles brake systems		27,838,115			16,111,357

Net sales	$	136,219,924		$	107,726,682
INTERSEGMENT SALES
Commercial vehicles brake systems	$	—		$	—
Passenger vehicles brake systems		—			—

Intersegment sales	$	—		$	—
GROSS PROFIT
Commercial vehicles brake systems	$	31,419,163		$	25,769,805
Passenger vehicles brake systems		5,101,407			4,429,681
Gross profit	$	36,520,570		$	30,199,486
Selling and distribution expenses		12,884,567			10,037,861
General and administrative expenses		7,374,893			4,773,778
Research and development expenses		4,951,536			3,590,402

Other operating income, net		2,462,602			2,197,324

Income from operations		13,772,176			13,994,769

Interest income		1,736,775			1,488,264
Government grants		1,792,412			133,933
Other income		54,680			27,066
Interest expenses		(3,972,498	)		(3,353,711	)
Exchange differences		(1,061,005	)		(601,286	)
Other expenses		(477,919	)		(890,814	)
Income before income tax expense	$	11,844,621		$	10,798,221
CAPITAL EXPENDITURE
Commercial vehicles brake systems	$	10,543,989		$	16,738,232
Passenger vehicles brake systems		2,708,888			2,944,543

Total	$	13,252,877		$	19,682,775
DEPRECIATION AND AMORTIZATION
Commercial vehicles brake systems	$	2,691,220		$	2,421,346
Passenger vehicles brake systems		691,409			425,957

Total	$	3,382,629		$	2,847,303

Nine Months Ended September 30,
2018 2017

NET SALES TO EXTERNAL CUSTOMERS

Commercial vehicles brake systems $ 276,593,442 $ 223,937,534
Passenger vehicles brake systems 68,222,523 43,652,419

Net sales $ 344,815,965 $ 267,589,953

INTERSEGMENT SALES

Commercial vehicles brake systems $ — $ —
Passenger vehicles brake systems — —

Intersegment sales $ — $ —

GROSS PROFIT

Commercial vehicles brake systems $ 61,974,537 $ 61,485,066
Passenger vehicles brake systems 28,990,094 11,401,597
Gross profit $ 90,964,631 $ 72,886,663

Selling and distribution expenses 37,154,745 22,877,889

General and administrative expenses 17,519,873 13,517,222

Research and development expenses 13,400,656 7,477,902

Other operating income, net 7,535,820 1,185,958

Income from operations 30,425,177 30,199,608

Interest income 2,847,299 38,175
Government grants 2,982,775 1,119,337
Other income 432,213 47,976
Interest expenses (10,214,681 ) (1,827,835 )

Exchange differences 1,396,460 (1,193,897 )
Other expenses (1,200,920 ) (343,024 )

Income before income tax expense $ 26,668,323 $ 28,040,340

CAPITAL EXPENDITURE

Commercial vehicles brake systems $ 32,788,350 $ 30,791,780
Passenger vehicles brake systems 7,721,848 6,090,790

Total $ 40,510,198 $ 36,882,570

DEPRECIATION AND AMORTIZATION

Commercial vehicles brake systems $ 7,187,308 $ 5,538,902
Passenger vehicles brake systems 1,739,387 1,084,180

Total $ 8,926,695 $ 6,623,082

	March 31, 2019		December 31, 2018

TOTAL ASSETS
Commercial vehicles brake systems	$	626,405,556	$	492,348,129
Passenger vehicles brake systems		160,931,744		89,967,813

Total	$	787,337,300	$	582,315,942

September 30, 2018 December 31, 2017

TOTAL ASSETS
Commercial vehicles brake systems $ 573,980,044 $ 492,348,129
Passenger vehicles brake systems 126,166,387 89,967,813

Total $ 700,146,431 $ 582,315,942

September 30, 2018 December 31, 2017

LONG LIVED ASSETS
Commercial vehicles brake systems $ 118,210,297 $ 106,779,681
Passenger vehicles brake systems 25,983,771 19,512,076

Total $ 144,194,068 $ 126,291,757

	March 31, 2019		December 31, 2018

LONG LIVED ASSETS
Commercial vehicles brake systems	$	151,639,513	$	106,779,681
Passenger vehicles brake systems		38,958,165		19,512,076

Total	$	190,597,678	$	126,291,757

NOTE ~~R –~~Q - 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~~rights certificate nor the property ownership certificate of the building for the Dongshan Facility. The Company reserved the relevant tax amount of RMB 4,560,000 (approximately $745,220). This amount was determined based on a 3% tax rate on the consideration paid for the Dongshan Facility in the transaction, which the Company considered as the most probable amount of tax liability. The Dongshan Facility was transferred back to Ruili Group on May 5, 2016.

(2)

The Company purchased the Development Zone Facility from Ruili Group on May 5, 2016. As of the filing date, the Company has not yet obtained the land use rights certificate or the property ownership certificate for the building of the Development Zone Facility. The Company reserved the relevant tax amount of RMB 15,030,000 (approximately $2,300,205). This amount was determined based on a 3% tax rate on the consideration paid for the Development Zone Facility, which the Company considered as the most probable amount of tax liability.

(3)

The information of lease commitments is provided in Note O.N.

(4)

The information of guarantees and assets pledged is provided in Note E.D.

NOTE ~~S –~~R - SUBSEQUENT EVENTS

During the subsequent period, the Company obtained short term loans in an aggregate amount of ~~$119,273,000~~approximately $14.3 million from ~~Bank of China,~~ Industrial Bank Co., Ltd.~~, China CITIC Bank, China Minsheng Bank, Agricultural Bank of China,~~ and China Zheshang Bank. Interest rate for those loans range from ~~4.39%~~4.57% to ~~5.44%~~5.22% per annum. The maturity ~~dates~~date of the loans existing as of the filing date ~~ranged from October 22, 2018 to November 6, 2019.~~is April 17, 2020. The Company continuously pledged bank acceptance notes to obtain loans from China Zheshang Bank.

In the same period, the Company repaid loan principals and interest expenses in the total amount of approximately ~~$70,297,000~~$7.3 million to ~~Bank of China, Agricultural Bank of China, China Minsheng Bank, and~~ China Zheshang Bank.

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 inon 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,~~2018, 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~~Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the Year ended December 31, ~~2017.~~2018.

See Note NM 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, 2019 as compared to the three months ended March 31, 2018.

Sales

~~The following tables present certain financial information about our segments’ sales for the periods presented:~~

Three Months Ended
Three Months Ended
September 30, 2018 September 30, 2017
(U.S. dollars in millions)

Commercial Vehicle Brake Systems $ 89.0 82.0 % $ 85.3 84.2 %
Passenger Vehicle Brake Systems $ 19.6 18.0 % $ 16.0 15.8 %
　　　
Total $ 108.6 100.0 % $ 101.3 100.0 %

Nine Months Ended
Nine Months Ended
September 30, 2018 September 30, 2017
(U.S. dollars in millions)

Commercial Vehicle Brake Systems $ 276.6 80.2 % $ 223.9 83.7 %
Passenger Vehicle Brake Systems $ 68.2 19.8 % $ 43.7 16.3 %
　　
Total $ 344.8 100.0 % $ 267.6 100.0 %

	Three Months Ended				Three Months Ended
	March 31, 2019				March 31, 2018
	(U.S. dollars in millions)
Commercial vehicle brake systems	$	108.4	80	%	$	91.6	85	%

Passenger vehicle brake systems	$	27.8	20	%	$	16.1	15	%

Total	$	136.2	100	%	$	107.7	100	%

The sales were ~~$108.6~~$136.2 million and ~~$101.3~~$107.7 million for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, an increase of ~~$7.3~~$28.5 million or ~~7.2%. The sales were $344.8 million and $267.6 million for the nine months ended September 30, 2018 and 2017, respectively, an increase of $77.2 million or 28.9%~~26.5%. The increase was mainly due to the increased sales of commercial vehicle brake ~~systems.~~ systems to China OEM and aftermarket market.

The sales from ~~Commercial Vehicle Brake Systems~~commercial vehicle brake systems increased by ~~$3.7~~$16.8 million or ~~4.4%~~18.3%, to ~~$89.0~~$108.4 million for the ~~third~~first fiscal quarter of ~~2018,~~2019, compared to ~~$85.3~~$91.6 million for the same period of 2017. The sales from Commercial Vehicle Brake Systems increased by $52.7 million or 23.5%, to $276.6 million for the nine months ended September 30, 2018, compared to $223.9 million for the nine months ended September 30, 2017.2018. 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~~passenger vehicle brake systems increased by ~~$3.6~~$11.7 million or ~~22.5%~~72.7%, to ~~$19.6~~$27.8 million for the ~~third~~first fiscal quarter of ~~2018,~~2019, compared to ~~$16.0~~$16.1 million for the same period of 2017. The sales from Passenger Vehicle Brake Systems increased by $24.5 million or 56.3%, to $68.2 million for the nine months ended September 30, 2018, compared to $43.7 million for the same period of 2017.2018. The increase was mainly due to the increase of passenger vehicle ~~market.~~market in the first fiscal quarter of 2018.

A breakdown of ~~the~~net sales revenue for these markets for the ~~third~~first fiscal quarter of the ~~2018~~2019 and ~~2017,~~2018, respectively, is set forth below:

														Three Months		Percent			Three Months		Percent
														Ended		of			Ended		of
	Three Months Ended September 30, 2018		Percent of Total Sales			Three Months Ended September 30, 2017		Percent of Total Sales			Percentage Change			March 31, 2019		Total Sales			March 31, 2018		Total Sales			Percentage Change
		(U.S. dollars in millions)												(U.S. dollars in millions)
China OEM market	$	50.3		46.3	%	$	50.5		49.8	%		-0.4	%	$	74.9		55.0	%	$	51.8		48.1	%		44.6	%
China Aftermarket	$	36.4		33.6	%	$	31.5		31.1	%		15.7	%
China aftermarket														$	43.3		31.8	%	$	38.0		35.3	%		13.9	%
International market	$	21.8		20.1	%	$	19.3		19.1	%		13.1	%	$	18.0		13.2	%	$	17.9		16.6	%		0.6	%
Total	$	108.6		100.0	%	$	101.3		100.0	%		7.2	%	$	136.2		100.0	%	$	107.7		100.0	%		26.5	%

~~A breakdown of net sales~~ ~~revenues for China OEM markets, China aftermarket and international market for the nine months ended September 30, 2018 and 2017, respectively, is set forth below:~~

Nine
Months
Ended
September
30, 2018

Percent
of
Total
Sales

Nine
Months
Ended
September
30, 2017

Percent
of
Total
Sales

Percentage
Change

(U.S. dollars in millions)

China OEM market $ 164.7 47.8 % $ 141.8 53.0 % 16.2 %
China Aftermarket $ 117.3 34.0 % $ 72.3 27.0 % 62.3 %
International market $ 　62.7 　18.2 % $ 53.5 　20.0 % 17.2 %
Total $ 344.8 　100.0 % $ 267.6 100.0 % 28.8 %

Considering the increase of the production and sales of the ~~commercial vehicle market,~~trucks for the first fiscal quarter of 2019 in the automobile industry, our sales to the Chinese OEM ~~market decreased~~Market increased by ~~$0.2~~23.1 million or ~~0.4%~~44.6%, to ~~$50.3~~$74.9 million for the ~~third~~first fiscal quarter of ~~2018,~~2019, compared to ~~$50.5~~$51.8 million for the same period of ~~2017. Our sales to the Chinese OEM market increased by $22.9 million or 16.2%, to $164.7 million for the nine months ended September 30, 2018, compared to $141.8 million for the same period of 2017.~~2018.

Our sales to the China aftermarket increased by ~~$4.9~~$5.3 million or ~~15.7%~~13.9%, to ~~$36.4~~$43.3 million for the ~~third~~first fiscal quarter of ~~2018,~~2019, compared to ~~$31.5~~$38.0 million for the same period of ~~2017. Our sales to the China aftermarket increased by $45.0 million or 62.3%, to $117.3 million for the nine months ended September 30, 2018, compared to $72.3 million for the same period of 2017.~~2018. The increased new vehicle sales in China and the expiration of OEM warranties helped to drive our aftermarket business. ~~Accelerated urbanization and~~Sales of our new model products, applicable to both the Chinese ~~government’s~~OEM Market and Chinese Aftermarket, also increased ~~support for public transportation favor our expansion in~~during the ~~bus aftermarket.~~three months ended March 31, 2019. 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 ~~$2.5~~$0.1 million or ~~13.1%~~0.6%, to ~~$21.8~~$18.0 million for the ~~third~~first fiscal quarter of ~~2018,~~2019, as compared to ~~$19.3~~$17.9 million for the same period of ~~2017. Our export sales increased by $9.2 million or 17.2%, to $62.7 million for the nine months ended September 30, 2018, as compared to $53.5 million for the same period of 2017.~~2018. 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 ~~September 30, 2018~~March 31, 2019 were ~~$82.2~~$99.7 million, an increase of ~~$8.2~~$22.1 million or ~~11.1%~~28.6%, from ~~$74.0 million for the three month period ended September 30, 2018. Cost of sales for the nine months ended September 30, 2018 were $253.9 million, an increase of $59.1 million or 30.4% from $194.7~~$77.5 million for the same period ~~of 2017.~~

~~Our gross profit decreased by 3.5% from $27.3 million for the period of 2017 to $26.3 million for the three month period ended September 30, 2018.~~last year. Our gross profit increased by ~~24.8%~~20.9% from ~~$72.9~~$30.2 million for the ~~period~~first fiscal quarter of ~~2017~~2018 to ~~$91.0~~$36.5 million for the ~~three month period ended September 30, 2018.~~first fiscal quarter of 2019.

Gross margin ~~decreased~~changed to ~~24.3% from 26.9%~~26.8% for the three ~~month period~~months ended ~~September 30, 2018 compared with 2017. Gross margin decreased to 26.4%~~March 31, 2019 from ~~27.2%~~28.0% for the ~~nine~~three months ended ~~September 30, 2018, as compared with the same period of 2017.~~March 31, 2018. The decrease was mainly due to ~~the price increase of the raw materials and~~ our further price promotion to strengthen our competitiveness and increase our market share ~~for~~in the ~~nine months ended September 30, 2018.~~first fiscal quarter of 2019. We intend to focus in ~~2018~~2019 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~~commercial vehicle brake systems for the three months ~~period~~ ended ~~September 30, 2018 were $69.8~~March 31, 2019 was $77.0 million, an increase of ~~$7.9~~$11.2 million or ~~12.8%~~17.0% from ~~$61.9~~$65.8 million for the same period of 2017. Cost of sales from Commercial Vehicle Brake Systems for the nine months ended September 30, 2018 were $214.6 million, an increase of $52.2 million or 32.1% from $162.5 million for the same period of 2017.last year. The gross profit from ~~Commercial Vehicle Brake Systems decreased~~commercial vehicle brake systems increased by ~~17.9%~~21.7% from ~~$23.4 million for three month period ended September 30, 2017 to $19.2~~$25.8 million for the ~~three month period ended September 30, 2018. The gross profit from Commercial Vehicle Brake Systems increased by 0.8% from $61.5~~first fiscal quarter of 2018 to $31.4 million for the ~~nine months ended September 30, 2017 to $62.0 million for the nine months ended September 30, 2018.~~first fiscal quarter of 2019. Gross margin from ~~Commercial Vehicle Brake Systems decreased~~commercial vehicle brake systems increased to ~~21.6%~~29.0% from ~~27.4%~~28.1% for the three months ~~period~~ ended September 30, 2017 compared to the three months period ended September 30, 2018. Gross margin from Commercial Vehicle Brake Systems decreased to 22.4% from 27.5% for the nine months ended September 30, 2018March 31, 2019 compared with 2018. We intend to focus in 2019 on increasing production efficiency, improving the ~~same period~~technologies of ~~2017.~~

products, and improving our product portfolio, to help us to maintain or increase our gross profit margins.

Cost of sales from ~~Passenger Vehicle Brake Systems~~passenger vehicle brake systems for the three months ~~period~~ ended ~~September 30, 2018 were $12.5~~March 31, 2019 was $22.7 million, an increase of ~~$0.4~~$11.0 million or ~~3.3%~~94.0% from $12.1 million for the three month period ended September 30, 2017. Cost of sales from Passenger Vehicle Brake Systems for the nine months ended September 30, 2018 were $39.2 million, an increase of $7.0 million or 21.6% from $32.3$11.7 million for the same period ~~of 2017.~~last year. The gross profit from ~~Passenger Vehicle Brake Systems~~passenger vehicle brake systems increased by ~~82.1%~~15.9% from ~~$3.9~~$4.4 million for the ~~three month period ended September 30, 2017~~first fiscal quarter of 2018 to ~~$7.1~~$5.1 million for the three month period ended September 30, 2018. The gross profit from Passenger Vehicle Brake Systems increased by 154.3% from $11.4 million for the nine months ended September 30, 2017 to $29.0 million for the same periodfirst fiscal quarter of ~~2018.~~2019. Gross margin from ~~Passenger Vehicle Brake Systems increased~~passenger vehicle brake systems changed to ~~36.3%~~18.3% from 27.5% for the three months ended ~~September 30, 2018, as~~March 31, 2019 compared with 2018. The decrease was mainly due to ~~24.4% for~~our further price promotion to strengthen our competitiveness and increase our market share in the three months period ended September 30, 2017. Gross margin from Passenger Vehicle Brake Systems increased to 42.5% for the nine months ended September 30, 2018, as compared to 26.1% for the same period in 2017.first fiscal quarter of 2019.

Selling and Distribution Expenses

Selling and distribution expenses were ~~$13.2~~$12.9 million for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to ~~$8.3~~$10.0 million for the same period of ~~2017,~~2018, an increase of ~~$4.9~~$2.8 million or ~~58.9%~~28.4%. ~~Selling and distribution expenses were $37.2 million for the nine months ended September 30, 2018, as compared to $22.9 million for the same period of 2017, an increase of $14.3 million or 62.4%.~~

The increase was mainly due to increased freight expense, packaging expense and ~~packaging expenses.~~

labor costs. As athe percentage of sales revenue, selling expenses percentage increased to ~~12.1%~~9.5% for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to ~~8.2%~~9.3% for the same period ~~in 2017. As a percentage~~ of ~~sales revenue, selling expenses increased to 10.8% for the nine months ended September 30, 2018, as compared to 8.5% for the same period in 2017.~~2018.

General and Administrative Expenses

General and administrative expenses were ~~$5.1~~$7.3 million for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to ~~$4.8~~$4.7 million for the same period of ~~2017,~~2018, an increase of ~~$0.3~~$2.6 million or 6.1%. General and administrative expenses were $17.5 million for the nine months ended September 30, 2018, as compared to $13.5 million for the same period of 2017, an increase of $4.0 million or 29.6%54.5%. The increase was mainly due to the increase in ~~employee salaries~~allowance for ~~the nine months ended September 30, 2018.~~

doubtful accounts and labor costs during this quarter. As a percentage of sales revenue, general and administrative expenses ~~was 4.7%~~increased to 5.4% for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to ~~4.7%~~4.4% for the same period ~~in 2017. As a percentage~~ of ~~sales revenue, general and administrative expenses was 5.1% for the nine months ended September 30, 2018, as compared to 5.1% for the same period in 2017.~~2018.

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 ~~third-party~~first-party development costs. For the three months ended ~~September 30, 2018,~~March 31, 2019, research and development expenses were ~~$4.5~~$5.0 million, as compared to ~~$2.9~~$3.6 million for the same period of ~~2017,~~2018, an increase of ~~$1.5~~$1.4 million. ~~For the nine months ended September 30, 2018, research and development expenses were $13.4 million, as compared to $7.5 million for the same period of 2017, an increase of $5.9 million.~~

Other Operating Income

Other operating income was ~~$3.0~~$2.5 million for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to ~~$0.5~~$2.2 million for the three months ended ~~September 30, 2017,~~March 31, 2018, an increase of ~~$2.5 million. Other operating income was $7.5 million for the nine months ended September 30, 2018, as compared to $1.2 million for the nine months ended September 30, 2017, an increase of $6.3~~$0.3 million. The increase was mainly due to an increase in sales of raw material ~~scrap.~~scraps for the three months ended March 31, 2019.

Depreciation and Amortization

Depreciation and amortization expense ~~was $3.1~~increased to $3.4 million for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared ~~with~~to that of ~~$2.4~~$2.8 million for the same period of ~~2017. Depreciation and amortization expenses increased to $8.9 million for the nine months ended September 30,~~ 2018, ~~compared with that of $6.6 million for the same period of 2017,~~ an increase of ~~$2.3~~$0.6 million. The increase was mainly due to some new addition in PPE and the purchase of land ~~after September 30, 2018.~~for the three months ended March 31, 2019.

Interest ~~income~~Income

~~The interest~~Interest income for the three months ended ~~September 30, 2018,~~March 31, 2019 increased by $0.2 million to ~~$0.5~~$1.7 million from ~~$0.02~~$1.5 million for the same period of ~~2017. The interest income for the nine months ended September 30,~~ 2018, ~~increased to $2.8 million from $0.04 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 ~~September 30, 2018,~~March 31, 2019 increased by $0.6 million to ~~$3.3~~$4.0 million from ~~$0.8~~$3.4 million for the same period of ~~2017. The interest expenses for the nine months ended September 30,~~ 2018, ~~increased to $10.2 million from $1.8 million for the same period of 2017,~~ mainly due to ~~increased interest rate and~~ 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.

During the ~~three months~~year ended ~~September 30,~~December 31, 2018, the Company recognized a one-time transition tax of $11,022,985 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company also recognized related interest and penalty in the amount of $587,820 in the year ended December 31, 2018. The Company recognized additional interest and penalty of $77,415 in the three months ended March 31, 2019. The Company elected to pay the one-time transition tax over eight years commencing in ~~April~~ 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued ~~by the U.S. Department of the Treasury, and specific actions the Company may take~~or changes in the ~~future.~~interpretations taken that would adjust the provisional amounts recorded. As of ~~September 30, 2018, $1,763,678~~March 31, 2019, $2,528,913 was included in ~~taxes~~income tax payable as a current liability which the Company believes will be paid within one year and the remaining balance was included in ~~long-term taxes payable. As of the filing date, no transition~~income tax ~~payment has been made.~~

payable, non-current.

The 2017 Tax Act also created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low-taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The Company elected to account for GILTI tax in the period the tax is incurred, and therefore included it in estimating the annual effective tax rate.

Income tax ~~expense was $12.1~~expenses of $1.9 million and $1.6 million were recorded for the ~~three months~~fiscal quarter ended ~~September 30,~~March 31, 2019 and 2018, as compared to $1.6 million for the three months ended September 30, 2017. Income tax expense was $15.0 million for the nine months ended September 30, 2018, as compared to $4.2 million for the nine months ended September 30, 2017.respectively.

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 ~~noncontrolling interest in subsidiaries amounted to $0.6 million and $1.0 million for the third fiscal quarter ended September 30, 2018 and 2017, respectively. Net income attributable to~~ non-controlling interest in subsidiaries amounted to ~~$2.3~~$1.0 million and ~~$2.4~~$0.9 million for the ~~nine months~~first fiscal quarter ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

Net Income Attributable to Stockholders

The net income attributable to stockholders for the fiscal quarter ended ~~September 30, 2018, decreased~~March 31, 2019 increased by ~~$14.2~~$0.7 million, to ~~$5.6~~$9.0 million ~~net loss~~ from ~~$8.6~~$8.3 million ~~net income~~ for the fiscal quarter ended ~~September 30, 2017~~March 31, 2018 due to the factors discussed above. The net income attributable to stockholders for the nine months ended September 30, 2018, decreased by $12.0 million, to $9.4 million from $21.4 million for the nine months ended September 30, 2017 due to the factors discussed above.increased sales and change in gross profit. Earnings per share (“EPS”), both basic and diluted, for the fiscal quarter ended ~~September 30,~~March 31, 2019 and 2018, were $0.46 and ~~2017, were $(0.29) and $0.44, respectively. EPS, both basic and diluted, for the nine months ended September 30, 2018 and 2017, were $0.49 and $1.11, respectively.~~

~~FINANCIAL CONDITION~~$0.43.

Liquidity and Capital Resources

CASH FLOWS

As of ~~September 30, 2018,~~March 31, 2019, the Company had cash and cash equivalents of ~~$40.2~~$8.0 million, as compared to cash and cash equivalents, of ~~$4.6~~$73.6 million as of December 31, ~~2017.~~2018. The Company had working capital of ~~$85.0~~$44.6 million ~~on September 30, 2018,~~at March 31, 2019, as compared to working capital of ~~$111.4~~$47.3 million onat December 31, ~~2017,~~2018, reflecting current ratios of ~~1.2:~~1.1:1 and ~~1.3:~~1.1:1, respectively.

OPERATING - Net cash ~~provided by~~used in operating activities was ~~$81.2~~$25.8 million for ~~nine~~the three months ended ~~September 30, 2018, an increase of $66.2 million, as~~March 31, 2019 compared with ~~$15.0~~$36.3 million of net cash provided inby operating activities in the same period ~~in 2017. Such change was~~of 2018, a decrease of $62.1 million, primarily due to the increased cash ~~inflow~~outflow resulted by changes in bank acceptance notes receivable and accounts payable and bank acceptance notes to vendors.

INVESTING - During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, the Company expended net cash of $28.6 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, 2018, the Company expended net cash of ~~$33.0~~$81.6 million in investing activities mainly for mainly for acquisition of property, equipment, land use right, and intangible assets. For the nine months ended September 30, 2017, the Company expended net cash of $48.8 million in investing activities.

FINANCING - During the ~~nine month period~~three months ended ~~September 30, 2018,~~March 31, 2019, the ~~net~~ cash used in financing activities was ~~$8.1~~$14.8 million. ~~For the nine months ended September 30, 2017, the net~~The cash provided by financing activities was ~~$28.1 million. Such~~$108.5 million for the three months ended March 31, 2018. The decrease was ~~primarily~~ due to the ~~repayments to related parties and repayments of long~~decreased short term ~~loans.~~bank loans obtained from local commercial banks.

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 ~~September 30, 2018,~~March 31, 2019, 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.

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, 2019, 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 ~~19,007,341~~19,590,000 (approximately US$~~2,872.675)~~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 ~~September 30, 2018,~~March 31, 2019, we had no material changes outside the ordinary course of business in our contractual ~~obligations~~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 ~~September 30, 2018~~March 31, 2019 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 ~~September 30, 2018,~~March 31, 2019, 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 ~~September 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART IIII. OTHER INFORMATION

ITEM 1. LEGAL ~~PROCEEDINGS~~PROCEEDINGS.

None.

ITEM 1A. RISK ~~FACTORS~~FACTORS.

Not applicable.

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

None.

ITEM 3. DEFAULTS UPON SENIOR ~~SECURITIES~~SECURITIES.

None.

ITEM 4. MINE SAFETY ~~DISCLOSURES~~DISCLOSURES.

Not applicable.

ITEM 5. OTHER ~~INFORMATION~~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.

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 : ~~November 14, 2018~~May 15, 2019	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)

DELAWARE		30-0091294
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

		Page

PART I.	FINANCIAL INFORMATION (Unaudited)	1

Item 1.	Financial Statements:	1

	Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 (Unaudited) and December 31, ~~2017~~2018	21

	Consolidated Statements of Income ~~(Loss)~~ and Comprehensive Income ~~(Loss)~~ for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (Unaudited)	32

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (Unaudited)	43

	Consolidated Statements of Changes in Equity for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 (Unaudited)	54

	Notes to Consolidated Financial Statements (Unaudited)	65

Item 2.	Management’s Discussion and Analysis or Financial Condition and Results of Operations	2120

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3025

Item 4.	Controls and Procedures	3025

PART II.	OTHER INFORMATION	3026

Item 1.	Legal ~~Proceedings.~~Proceedings	3026

Item 1A.	Risk ~~Factors.~~Factors	3126

Item 2.	Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds	3126

Item 3.	Defaults Upon Senior ~~Securities.~~Securities	3126

Item 4.	Mine Safety ~~Disclosures.~~Disclosures	3126

Item 5.	Other ~~Information.~~Information	3126

Item 6.	Exhibits	3126

SIGNATURES		3227

	March 31, 2019			December 31, 2018
Assets	(Unaudited)
Current Assets
Cash and cash equivalents	US$	8,024,006		US$	73,588,229
Accounts receivable, net, including $341,110 and $261,889 from related parties as of March 31, 2019 and December 31, 2018, respectively		178,871,527			150,047,797
Bank acceptance notes from customers		73,404,114			62,052,225
Inventories, net		187,384,139			204,285,427
Prepayments, current, including $5,129,110 and $3,670,573 to related party at March 31, 2019 and December 31, 2018, respectively		17,350,867			7,776,591
Restricted cash, current		16,804,852			19,307,003
Advances to related parties		98,136,035			79,739,417
Deposits on loan agreements, current		5,197,891			-
Other current assets, net		11,566,191			15,697,448
Total Current Assets		596,739,622			612,494,137

Property, plant and equipment, net		107,063,204			96,053,386
Land use rights, net		21,355,991			21,124,455
Intangible assets, net		132,294			220,232
Deposits on loan agreements, non-current		5,197,891			10,199,324
Prepayments, non-current		33,069,906			31,575,238
Other assets, non-current		574,397			563,542
Restricted cash, non-current		18,415,386			18,067,374
Operating lease right of use assets		1,222,064			-
Deferred tax assets		3,566,545			4,073,838
Total Non-current Assets		190,597,678			181,877,389
Total Assets	US$	787,337,300		US$	794,371,526

Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to vendors, including $30,167,916 and $23,805,200 due to related parties as of March 31, 2019 and December 31, 2018, respectively	US$	226,765,213		US$	236,433,718
Deposits received from customers		53,150,261			51,529,795
Short term bank loans		212,363,818			217,940,471
Current portion of long term loans, net of unamortized debt issuance costs		25,086,705			21,141,029
Income tax payable, current		3,229,510			3,421,486
Accrued expenses		19,499,647			24,045,902
Due to related party		6,820,963			5,959,752
Deferred income		1,259,842			1,453,282
Operating lease liabilities, current		492,494			-
Other current liabilities		3,452,129			3,288,344
Total Current Liabilities		552,120,582			565,213,779

Long term loans, less current portion and net of unamortized debt issuance costs		5,426,193			14,429,404
Operating lease liabilities, non-current		797,107			-
Income tax payable, non-current		9,259,307			9,259,307
Total Non-current Liabilities		15,482,607			23,688,711
Total Liabilities		567,603,189			588,902,490

Equity
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of March 31, 2019 and December 31, 2018		-			-
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of March 31, 2019 and December 31, 2018		38,609			38,609
Additional paid-in capital		(28,582,654	)		(28,582,654	)
Reserves		20,911,801			20,007,007
Accumulated other comprehensive income		10,516,102			6,655,803
Retained earnings		186,601,111			178,535,378
Total SORL Auto Parts, Inc. Stockholders’ Equity		189,484,969			176,654,143
Noncontrolling Interest In Subsidiaries		30,249,142			28,814,893
Total Equity		219,734,111			205,469,036
Total Liabilities and Equity	US$	787,337,300		US$	794,371,526

	September 30, 2018			December 31, 2017
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents	US$	17,609,594		US$	4,221,940
Accounts receivable, net, including $1,506,254 and $1,297,734 from related party at September 30, 2018 and December 31, 2017, respectively		163,749,395			134,384,961
Bank acceptance notes from customers		101,136,391			116,040,688
Inventories		159,123,470			114,300,564
Prepayments, current, including $3,094,333 and $999,527 to related parties at September 30, 2018 and December 31, 2017, respectively		31,442,128			8,826,004
Restricted cash, current		19,062,778			376,236
Advances to related parties		49,372,965			72,318,224
Other current assets, net		14,455,642			5,555,568
Total Current Assets		555,952,363			456,024,185

Property, plant and equipment, net		86,949,053			79,828,006
Land use rights, net		21,245,899			14,912,134
Intangible assets, net		309,947			3,341
Deposits on loan agreements		10,175,602			10,712,865
Prepayments, non-current		18,474,842			16,594,987
Restricted cash, non-current		3,488,778			-
Deferred tax assets		3,549,947			4,240,424
Total Non-current Assets		144,194,068			126,291,757
Total Assets	US$	700,146,431		US$	582,315,942

Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to vendors, including $22,782,059 and $15,896,804 due to related parties at September 30, 2018 and December 31, 2017, respectively	US$	211,456,843		US$	118,051,633
Deposits received from customers		63,615,939			43,087,473
Short term bank loans		143,991,909			125,380,899
Current portion of long term loans		22,147,109			24,266,031
Income tax payable, current		3,250,996			3,249,727
Accrued expenses		18,604,139			25,154,658
Due to related party		4,481,484			1,572,963
Deferred income		605,691			1,020,273
Other current liabilities		2,705,103			2,857,130
Total Current Liabilities		470,859,213			344,640,787

Long term loans, less current portion and net of unamortized debt issuance costs		19,318,534			37,383,224
Income tax payable - noncurrent		9,259,307			-
Total Non-current Liabilities		28,577,841			37,383,224
Total Liabilities		499,437,054			382,024,011

Equity
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of September 30, 2018 and December 31, 2017		-			-
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of September 30, 2018 and December 31, 2017		38,609			38,609
Additional paid-in capital		(28,582,654	)		(28,582,654	)
Reserves		19,615,826			17,562,357
Accumulated other comprehensive income		5,754,883			15,903,188
Retained earnings		175,602,568			168,244,329
Total SORL Auto Parts, Inc. Stockholders' Equity		172,429,232			173,165,829
Noncontrolling Interest In Subsidiaries		28,280,145			27,126,102
Total Equity		200,709,377			200,291,931
Total Liabilities and Equity	US$	700,146,431		US$	582,315,942

	Three Months Ended March 31,
	2019			2018
Cash Flows From Operating Activities
Net income	US$	9,975,854		US$	9,192,780
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Allowance for doubtful accounts		(79,426	)		278,397
Depreciation and amortization		3,382,629			2,847,303
Deferred income tax		580,171			900,839
Gain on disposal of property and equipment		(29,768	)		-
Amortization of debt issuance costs		181,333			372,025
Changes in assets and liabilities:
Accounts receivable		(25,606,528	)		(32,888,322	)
Bank acceptance notes from customers		(10,059,686	)		12,354,888
Inventories, net		20,637,304			996,280
Prepayments		(9,630,754	)		(14,987,105	)
Other currents assets, net		3,162,436			(1,890,438	)
Operating lease right of use assets		125,799			-
Accounts payable and bank acceptance notes to vendors		(13,728,060	)		63,073,488
Deposits received from customers		621,908			5,123,039
Income tax payable		(207,909	)		(1,635,670	)
Deferred income		(219,320	)		(129,981	)
Operating lease liabilities		(326,476	)		-
Other current liabilities and accrued expenses		(4,598,818	)		(7,302,268	)
Net Cash Flows Provided By (Used In) Operating Activities		(25,819,311	)		36,305,255

Cash Flows From Investing Activities
Acquisition of property, equipment, plant and land use rights		(13,252,877	)		(19,682,775	)
Advances to related parties		(15,305,460	)		(67,694,035	)
Repayment of advances to related parties		-			5,821,183
Net Cash Flows Used In Investing Activities		(28,558,337	)		(81,555,627	)

Cash Flows From Financing Activities
Proceeds from short term bank loans		113,629,530			222,636,613
Repayment of short term bank loans		(123,310,819	)		(115,398,302	)
Proceeds from related parties		739,289			264,565,400
Repayments to related parties		-			(256,883,171	)
Repayment of long term loans		(5,869,199	)		(6,401,331	)
Net Cash Flows Provided By (Used In) Financing Activities		(14,811,199	)		108,519,209

Effects on changes in foreign exchange rate		1,470,485			1,418,555
Net change in cash, cash equivalents and restricted cash		(67,718,362	)		64,687,392
Cash, cash equivalents, and restricted cash - beginning of the period		110,962,606			4,598,176
Cash, cash equivalents, and restricted cash - end of the period	US$	43,244,244		US$	69,285,568

Supplemental Cash Flow Disclosures:
Interest paid	US$	2,903,589		US$	2,278,298
Income taxes paid	US$	1,471,174		US$	2,340,272

Non-cash Investing and Financing Transactions
Loans from related party in the form of bank acceptance notes	US$	-		US$	32,791,380
Repayments to related party in the form of bank acceptance notes	US$	-		US$	5,846,083

Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents	US$	8,024,006		US$	22,682,734
Restricted cash, current		16,804,852			46,602,834
Restricted cash, non-current		18,415,386			-
Total cash, cash equivalents, and restricted cash at end of the period	US$	43,244,244		US$	69,285,568

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

													Accumulated		Total SORL Auto
					Additional								Other		Parts, Inc.
	Number of		Common		Paid-in					Retained			Comprehensive		Stockholders’		Noncontrolling		Total
	Share		Stock		Capital			Reserves		Earnings			Income		Equity		Interest		Equity
Balance as of December 31, 2018		19,304,921	$	38,609	$	(28,582,654	)	$	20,007,007	$	178,535,378		$	6,655,803	$	176,654,143	$	28,814,893	$	205,469,036

Net income		-		-		-			-		8,970,527			-		8,970,527		1,005,327		9,975,854

Foreign currency translation adjustment		-		-		-			-		-			3,860,299		3,860,299		428,922		4,289,221

Transfer to reserve		-		-		-			904,794		(904,794	)		-		-		-		-

Balance as of March 31, 2019		19,304,921	$	38,609	$	(28,582,654	)	$	20,911,801	$	186,601,111		$	10,516,102	$	189,484,969	$	30,249,142	$	219,734,111

													Accumulated		Total SORL Auto
					Additional								Other		Parts, Inc.
	Number of		Common		Paid-in					Retained			Comprehensive		Stockholders’		Noncontrolling		Total
	Share		Stock		Capital			Reserves		Earnings			Income		Equity		Interest		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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Sales	US$	108,584,331		US$	101,329,628		US$	344,815,965		US$	267,589,953
Include: sales to related parties		9,333,959			7,401,464			22,997,540			13,479,162
Cost of sales		82,249,456			74,027,933			253,851,334			194,703,290
Gross profit		26,334,875			27,301,695			90,964,631			72,886,663

Expenses:
Selling and distribution expenses		13,160,875			8,283,704			37,154,745			22,877,889
General and administrative expenses		5,051,684			4,761,787			17,519,873			13,517,222
Research and development expenses		4,478,298			2,941,243			13,400,656			7,477,902
Total operating expenses		22,690,857			15,986,734			68,075,274			43,873,013

Other operating income, net		2,959,269			473,610			7,535,820			1,185,958

Income from operations		6,603,287			11,788,571			30,425,177			30,199,608

Interest income		547,455			16,150			2,847,299			38,175
Government grants		2,239,250			1,006,033			2,982,775			1,119,337
Other income		229,520			47,262			432,213			47,976
Interest expenses		(3,331,554	)		(804,499	)		(10,214,681	)		(1,827,835	)
Exchange differences		906,538			(684,047	)		1,396,460			(1,193,897	)
Other expenses		(55,835	)		(202,735	)		(1,200,920	)		(343,024	)

Income before income taxes provision		7,138,661			11,166,735			26,668,323			28,040,340

Provision for income taxes		12,130,789			1,627,721			14,974,982			4,225,404

Net income (loss)	US$	(4,992,128	)	US$	9,539,014		US$	11,693,341		US$	23,814,936

Net income attributable to noncontrolling interest in subsidiaries		613,086			953,901			2,281,633			2,381,493

Net income (loss) attributable to common stockholders	US$	(5,605,214	)	US$	8,585,113		US$	9,411,708		US$	21,433,443

Comprehensive income (loss):

Net income (loss)	US$	(4,992,128	)	US$	9,539,014		US$	11,693,341		US$	23,814,936
Foreign currency translation adjustments		(8,307,355	)		3,856,038			(11,275,895	)		7,990,990

Comprehensive income (loss)		(13,299,483	)		13,395,052			417,446			31,805,926
Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries		(217,650	)		1,339,505			1,154,043			3,180,592
Comprehensive income (loss) attributable to common stockholders	US$	(13,081,833	)	US$	12,055,547		US$	(736,597	)	US$	28,625,334

Weighted average common share - basic		19,304,921			19,304,921			19,304,921			19,304,921

Weighted average common share - diluted		19,304,921			19,304,921			19,304,921			19,304,921

EPS - basic	US$	(0.29	)	US$	0.44		US$	0.49		US$	1.11

EPS - diluted	US$	(0.29	)	US$	0.44		US$	0.49		US$	1.11

	Number of Share		Common Stock		Additional Paid-in Capital			Reserves		Retained Earnings			Accumulated Other Comprehensive Income			Total SORL Auto Parts, Inc. Stockholders' Equity			Noncontrolling 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		-		-		-			-		9,411,708			-			9,411,708			2,281,633			11,693,341

Foreign currency translation adjustment		-		-		-			-		-			(10,148,305	)		(10,148,305	)		(1,127,590	)		(11,275,895	)

Transfer to reserves		-		-		-			2,053,469		(2,053,469	)		-			-			-			-

Balance as of September 30, 2018		19,304,921	$	38,609	$	(28,582,654	)	$	19,615,826	$	175,602,568		$	5,754,883		$	172,429,232		$	28,280,145		$	200,709,377

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"~~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"~~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

Changchun Kormee Auto Electric Co., Ltd. (“Changchun Kormee”)		Wholley controlled by Guangzhou Kormee

Shanghai Dachao Electric Technology Co., Ltd. ("(“Shanghai ~~Dachao"~~Dachao”)		Ruili Group holds 49% of the equity interests in Shanghai Dachao

Ruili MeiLian Air Management System (LangFang) Co., Ltd. ("(“Ruili ~~Meilian"~~Meilian”)		Controlled by Ruili Group

Wenzhou Lichuang Automobile Parts Co., Ltd. ("(“Wenzhou ~~Lichuang"~~Lichuang”)		Controlled by Ruili Group

Ningbo Ruili Equipment Co., Ltd. ("(“Ningbo ~~Ruili"~~Ruili”)		Controlled by Ruili Group

Shanghai Ruili Real Estate Development Co., Ltd. ("(“Shanghai ~~Ruili"~~Ruili”)		Wholly owned by Ruili Group

Kunshan Yuetu Real Estate Development Co., Ltd. ("(“Kunshan ~~Yuetu"~~Yuetu”)		Collectively owned by Ruili Group and Shu Ping Chi

Shanghai Tabouk Auto Components Co., Ltd. ("(“Shanghai ~~Tabouk"~~Tabouk”)		Collectively owned by Xiao Feng Zhang and Xiao Ping Zhang

Hangzhou Ruili Property Development Co., Ltd.		Collectively owned by Ruili Group and Xiao Ping Zhang

Hangzhou Hangcheng Friction Material Co., Ltd. (“Hangzhou Hangcheng”)		Controlled by Ruili Group

Hangzhou Ruili Binkang Real Estate Development Co. Ltd.		Controlled by Hangzhou Ruili Property Development Co., Ltd.

Hangzhou Ruili Real Estate Group Co. Ltd.		Controlled by Ruili Group

	As of September 30, 2018		As of December 31, 2017
	2018		2017
ADVANCES TO RELATED PARTIES

Ruili Group Co., Ltd.		49,372,965		5,711,605
Shanghai Ruili Real Estate Development Co., Ltd.		-		65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd.	$	-	$	1,537,122

Total advances to related parties	$	49,372,965	$	72,318,224

		2018		2017
ACCOUNTS RECEIVABLE

Shanghai Tabouk Auto Components Co., Ltd	$	1,506,254	$	1,297,734
Total accounts receivable	$	1,506,254	$	1,297,734

PREPAYMENTS, CURRENT

Ningbo Ruili Equipment Co., Ltd.	$	3,094,333	$	999,527
Total prepayments, current	$	3,094,333	$	999,527

ACCOUNTS PAYABLE TO RELATED PARTIES

Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.		10,651,384		3,414,719
Shanghai Dachao Electric Technology Co., Ltd.		111,574		83,178
Ruili MeiLian Air Management System(LangFang)Co.,Ltd		2,682,174		1,993,787
Wenzhou Lichuang Automobile Parts Co., Ltd.		9,336,927		10,405,120
Total accounts payable to related parties	$	22,782,059	$	15,896,804

DUE TO RELATED PARTY

Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.	$	4,481,484	$	1,572,963
Total due to related party	$	4,481,484	$	1,572,963

$	5,557,517	Guaranteed by Ruili Group, a related party
$	7,195,691	Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
$	26,165,833	Pledged by HangZhou RuiLi Property Development Co.,Ltd, a related party, with its property. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	22,650,493	Pledged by Ruili Group, a related party, with its land use rights and properties
$	16,571,694	Pledged by the Company with its bank acceptance notes
$	58,146,296	Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
$	5,087,801	Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Guaranteed by Ruili Group, a related party

Beginning balance at January 1, 2018	$	6,576,895
Aggregate increase for new warranties issued during current period		2,507,487
Aggregate reduction for payments made and effect of exchange rate fluctuation		(1,719,421	)
Ending balance at September 30, 2018	$	7,364,961

	Nine Months Ended				Nine Months Ended
	September 30, 2018				September 30, 2017
		(U.S. dollars in millions)

Commercial Vehicle Brake Systems	$	276.6	80.2	%	$	223.9	83.7	%
Passenger Vehicle Brake Systems	$	68.2	19.8	%	$	43.7	16.3	%

Total	$	344.8	100.0	%	$	267.6	100.0	%

	Nine Months Ended September 30, 2018		Percent of Total Sales			Nine Months Ended September 30, 2017		Percent of Total Sales			Percentage Change
		(U.S. dollars in millions)
China OEM market	$	164.7		47.8	%	$	141.8		53.0	%		16.2	%
China Aftermarket	$	117.3		34.0	%	$	72.3		27.0	%		62.3	%
International market	$	62.7		18.2	%	$	53.5		20.0	%		17.2	%
Total	$	344.8		100.0	%	$	267.6		100.0	%		28.8	%