UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the transition period from _________ to _________

Commission file number 000-11991

SORL AUTO PARTS, INC.

(Exact name of registrant as specified in its charter)

No. 2666 Kaifaqu Avenue

Ruian Economic Development District

Rui’anRuian City, Zhejiang Province

People’s Republic of China

(Address of principal executive offices)

86-577-6581-7720

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesxNo¨

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).

YesxNo¨

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

Emerging Growth Company¨

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

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

Yes¨Nox

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of AugustNovember 14, , 2017 there were 19,304,921shares19,304,921 shares of Common Stock outstandingoutstanding.

SORL AUTO PARTS, INC.

FORM 10-Q

For the Quarter Ended JuneSeptember 30, 2017

INDEX

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

JuneSeptember 30, 2017 and December 31, 2016

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

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For Thethe Three and SixNine Months Ended JuneSeptember 30, 2017 and 2016 (Unaudited)

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

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Sixthe Nine Months Ended JuneSeptember 30, 2017 and 2016 (Unaudited)

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

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For The Sixthe Nine Months Ended JuneSeptember 30, 2017 (Unaudited)

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

SORL Auto Parts, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JuneSeptember 30, 2017

(Unaudited)

NOTE A - DESCRIPTION OF BUSINESS

SORL Auto Parts, Inc. (together with its subsidiaries, “we,” “us,” “our” or the “Company” or “SORL”), a Delaware corporation incorporated on March 24, 1982, is principally engaged in the manufacture and distribution of vehicle brake systems and other key safety-related components, through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd. (the “Joint Venture” or “Ruian”). The Company distributes products both in China and internationally under SORL trademarks. The Company’s product range includes 65 categories and over 2,000 different specifications.

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

On November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese individual investor. The joint venture was named SORL International Holding, Ltd. (“SIH”) based in Hong Kong. SORL held a 60% interest in the joint venture, MGR held a 30% interest, and the Taiwanese individual investor held a 10% interest. SIH was primarily devoted to expanding SORL's international sales network in Asia-Pacific and creating a larger footprint in Europe and Africa with a target to create a truly global distribution network. In December 2015, due to the poor financial performance of SIH, Fairfold sold all of its interest in SIH to the Taiwanese investor. After this transaction, SIH ceased to be a distributor of SORL in the international market.

NOTE B - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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, 2016 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, 2016. 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, 2016, 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.

a. ACCOUNTING METHOD

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

b. USE OF ESTIMATES

The preparation of financial statements in conformity with U.S generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

c. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

d. RESTRICTED CASH

Restricted cash mainly represents bank deposits used to pledge the bank acceptance notes. The Company entered into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases. In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge note receivables to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company. The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally threesix to sixtwelve months.

e. RELATED PARTY TRANSACTIONS

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

f. BANK ACCEPTANCE NOTES RECEIVABLE

Bank acceptance notes receivable, generally due within six months and with specific payment terms and definitive due dates, are comprised of the notes issued by some customers to pay certain outstanding receivable balances to the Company, and the notes issued by the customers of Ruili Grouprelated parties and transferred to the Company as loans from related party.parties. Bank acceptance notes do not bear interest. As of JuneSeptember 30, 2017 and December 31, 2016, bank acceptance notes receivable in the amount of $45,552,031$54,781,712 and $32,916,198, respectively, were pledged to banks to issue either short term bank loans or bank acceptance notes to vendors. The banks charge discount fees if the Company chooses to discount the bank acceptance notes for cash before the maturity of the notes and such discount fees are included in interest expenses.

g. REVENUE RECOGNITION

Revenue from the sale of goods is recognized when the risks and rewards of ownership of the goods have transferred to the buyer. The transfer is decided by several factors, including factors such as when persuasive evidence of an arrangement exits, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured. Revenue consists of the invoice value for the sale of goods net of value-added tax, rebates and discounts and returns. The Company nets sales return in gross revenue, i.e., the revenue shown in the income statement is the net sales.

h. COST OF SALES

Cost of sales consists primarily of materials costs, applicable local government levies, freight charges, purchasing and receiving costs, inspection costs, employee compensation, depreciation and related costs, which are directly attributable to production. Write-down of inventories to lower of cost or market is also recorded in cost of sales, if any.

i. FOREIGN CURRENCY TRANSLATION

The Company maintains its books and accounting records in RMB, the currency of the PRC. The Company’s functional currency is also RMB. The Company has adopted FASB ASC 830-30 in translating financial statement amounts from RMB to the Company’s reporting currency, United States dollars (“US$”). All assets and liabilities are translated at the current rate. The stockholders’ equity accounts are translated at the appropriate historical rate.rates. Revenue and expenses are translated at the weighted average rates in effect on the transaction dates.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

NOTE C – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)”. This pronouncement amends the SEC’s reporting requirements for public filers in regard to new accounting pronouncements or existing pronouncements that have not yet been adopted. Companies are to provide qualitative disclosures if they have not yet implemented an accounting standards update. Companies should disclose if they are unable to estimate the impact of a specific pronouncement, and provide disclosures including a description of the effect on accounting policies that the registrant expects to apply. These provisions apply to all pronouncements that have not yet been implemented by registrants. There are additional provisions that relate to corrections to several other prior FASB pronouncements. The Company has incorporated language into other recently issued accounting pronouncement notes, where relevant for the corrections in FASB ASU 2017-03. The Company is implementing the updated SEC requirements on not yet adopted accounting pronouncements with these consolidated financial statements.

NOTE D – RECLASSIFICATIONS

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

NOTE DE - RELATED PARTY TRANSACTIONS

The Company continues to purchase primarily packaging materials from the Ruili Group. The Ruili Group is the minority stockholder of Joint Venture and is collectively controlled by Mr. Xiao Ping Zhang, his wife, Ms. Shu Ping Chi, and his brother, Mr. Xiao Feng Zhang. In addition, the Company purchases automotive components from four other related parties, Guangzhou Kormee Automotive Electronic Control Technology Co., Ltd. (“Guangzhou Kormee”), Ruian Kormee Automobile Braking Co., Ltd. (“Ruian Kormee”), Ruili MeiLian Air Management System (LangFang) Co., Ltd. (“Ruili MeiLian”) and Shanghai Dachao Electric Technology Co., Ltd. (“Shanghai Dachao”). Guangzhou Kormee and Ruili MeiLian are controlled by the Ruili Group and Ruian Kormee is the wholly-owned subsidiary of Guangzhou Kormee. Ruili Group owns 49% equity interest in Shanghai Dachao. The Company sells certain automotive products to the Ruili Group. The Company also sells scrap materials and parts to Guangzhou Kormee, Ruian Kormee and Ruili MeiLian.

The following related party transactions occurred forduring the three and sixnine months ended JuneSeptember 30, 2017 and 2016:

During the three and six months ended June 30, 2017 and 2016, for the sales mentioned above, the sales to Guangzhou Kormee, Ruian Kormee and Ruili MeiLian were sales of scrap materials and parts, and the related operating results were included in other operating income, net in the consolidated statements of income and comprehensive income. The sales to Ruili Group were included in sales in the consolidated statements of income and comprehensive income.

DUE TO RELATED PARTY

DueThe balance of advances to related party consistedrepresents the advances from the Company to Ruili Group. The advances to Ruili Group are non-interest bearing, unsecured and due on demand. During the nine months ended September 30, the Company advanced cash in the amount of the following:$8,919,241. The effect of changes in foreign exchange rate is $92,459.

The balance of due to related party represents the loans the Company obtained from Ruili Group in the form of cash and bank acceptance notesrelated parties for working capital purposes. The loans owed to theborrowings from related partyparties are interest free, unsecured and repayable on demand. During the sixnine months endedJune September 30, 2017, the Company obtained the loans from related parties in the amount of $62,786,671$93,191,843 in cash, including $5,829,744 from Ruian Kormee and $14,375,855$87,362,099 from Ruili Group. The Company also borrowed the amount of $23,515,527 in the form of bank acceptance notes from Ruili Group. Cash repayments to the related parties totaled $113,071,629, including $1,742,308 to Ruian Kormee and repaid $54,076,148 in cash.$111,329,321 to Ruili Group, during the nine months ended September 30, 2017. The effect of changes in foreign exchange rate is $212,993.$494,067.

The Company entered into a lease agreement with Ruili Group, see Note KM for more details.

The Company provided a guarantee for the credit line granted to Ruili Group by Bank of Ningbo in the amount of RMB 150,000,000 (approximately $21,623,180) for the period from May 30, 2016 to May 14, 2017. As of JuneSeptember 30, 2017, the guarantee was released as the credit line was fully paid off by Ruili Group.

The Company provided a guarantee for the credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 50,000,000 (approximately $7,699,889) for a period from July 29, 2015 until two years after the due date of each loan withdrawn by Ruili Group under the credit line. The credit line was replaced by the one issued by the same bank in the amount of RMB 40,000,000 (approximately $5,766,181) for a period of 12 months starting on October 24, 2016, the guarantee of which was continued to be provided by the Company as of JuneSeptember 30, 2017.2017 and will expire on April 18, 2018.

The Company provided a guarantee for the credit line granted to Ruili Group by China Guangfa Bank in the amount of RMB 200,000,000 (approximately $28,830,907) for the period from May 22, 2016 to May 22, 2017. As of JuneSeptember 30, 2017, the guarantee was released as the credit line was fully paid off by Ruili Group.

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 NovemberJanuary 16, 2018.

The Company provided a guarantee for the credit line granted to Ruili Group by Bank of Ningbo in a maximum amount of RMB 180,000,000 (approximately $26,328,000) for the period from June 30, 2017 to June 30, 2020.

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

NOTE EF - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following:

No customer individually accounted for more than 10% of our revenues or accounts receivable for the sixnine months ended JuneSeptember 30, 2017 and 2016. The changes in the allowance for doubtful accounts at Juneon September 30, 2017 and December 31, 2016 are summarized as follows:

NOTE F –G - INVENTORIES

At JuneOn September 30, 2017 and December 31, 2016, inventories were consisted of the following:

NOTE GH - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment were consisted of the following at Juneon September 30, 2017 and December 31, 2016:

Depreciation expense charged to operationsincurred was $4,041,628$6,353,494 and $3,265,445$5,110,014 for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively.

In May 2016, the Company, through its principal operating subsidiary, entered into a Purchase Agreement (the “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, Rui'an Economic Development Zone, Rui'anRui'An City, Zhejiang Province, the People's Republic of China (the “Dongshan Facility”), purchased in 2007 from Ruili Group, plus RMB 501.0501.00 million (approximately $76.5$76.50 million) in cash for the land use rights and factory facilities located at No. 2666 Kaifaqu Avenue, Rui’an Economic Development Zone, Rui’an City, Zhejiang Province, the People’s Republic of China (the “Development Zone Faciliy”Facility”). As of the filing date, the Company has not obtained the property ownership certificate or land use right certificate of the Development Zone Facility. The Company reserved the relevant tax amount of RMB 4,560,0004.56 million (approximately $745,220)$0.75 million) for the Dongshan Facility and RMB 15.015.00 million (approximately $2.3$2.30 million) for the Development Zone Facility. These amounts were determined based on a 3% tax rate on the consideration paid for the Dongshan Facility and the Development Zone Facility in the transactions, which the Company considered as the most probable amount of tax liability.

In July 2017, Ruian, a subsidiary of the Company, purchased plants and the associated land use rights from Yunding Holding Group Co., Ltd. in cash at the purchase price of RMB 60.06 million (approximately $8.87 million). The total cost including related deed tax and stamp duty is RMB 58.95 million (approximately $8.88 million) net of value-added input tax in association with the purchase, which has been fully paid in cash as of September 30, 2017. The title of the plants and the associated land use rights was transferred in July 2017. The allocated costs for the land use rights and the plants are RMB 42.35 million (approximately $6.38 million) and RMB 16.60 million (approximately $2.50 million), respectively. The plants and associated land use rights will be used to meet Ruian’s growing operational needs and is located in the east side of the International Auto Parts District, Tangxia Town, Ruian City, Zhejiang Province, China with a land use area of 33,141 square meters and a building floor area of 25,016 square meters.

NOTE I – LAND USE RIGHTS, NET

The balances for land use rights, net as of September 30, 2017 and December 31, 2016 are as the following:

In connection with the execution of the Purchase Agreement in May 2016, the Company exchanged the Dongshan Facility plus RMB 501.00 million (approximately $76.50 million) in cash for Development Zone Facility, including land use rights with historical value of approximately $8.47 million. As of the filing date, the Company has not obtained the land use right certificate of the Development Zone Facility. Also see Note H for more details.

In July 2017, Ruian, a subsidiary of the Company, purchased plants and the associated land use rights from Yunding Holding Group Co., Ltd. in cash at the purchase price of RMB 60.06 million (approximately $8.87 million). The title of the plants and land use rights was transferred in July 2017. The allocated cost for the land use rights is RMB 42.35 million (approximately $6.38 million). Also see Note H for more details.

During the three months ended September 30, 2017, the Company also prepaid the amount of RMB 10.01 million (approximately $1.51 million) as down payment and RMB 20.00 million (approximately $3.01 million) as a refundable deposit to purchase the land use rights for the land located at the intersection of Xianghe Road and North Wansong Road, Binhai New District, Rui’an City, Zhejiang Province, China. As of the filing date, the title to the land use rights has not been transferred. The down payment was included in prepayments, non-current and the refundable deposit was included in other current assets in the unaudited consolidated balance sheets. Also see Note Q for more details.

NOTE HJ - DEFERRED TAX ASSETS

Deferred tax assets were consisted of the following as of JuneSeptember 30, 2017 and December 31, 2016:

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

NOTE IK – SHORT-TERM BANK LOANS

Bank loans represented the following as of JuneSeptember 30, 2017 and December 31, 2016:

The Company obtained those short term loans from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Zheshang Bank, Industrial and Commercial Bank of China, Oversea-Chinese Banking Corporation Limited and China Construction Bank, respectively, to finance general working capital as well as new equipment acquisition.acquisitions. Interest raterates for the loans outstanding during the sixnine months ended JuneSeptember 30, 2017 ranged from 0.55% to 4.60%5.22% per annum. The maturity dates of the loans existing as of JuneSeptember 30, 2017 ranged from July 3,October 2, 2017 to June 14,September 26, 2018. As of JuneSeptember 30, 2017 and December 31, 2016, the Company’s accounts receivables of $4,480,490$6,349,443 and $4,484,755, respectively, were pledged as collateral under loan arrangements. In addition, the Company also pledged bank acceptance notes of $11,350,540 as collateral under loan arrangements, as of June 30, 2017. The interest expenses for short-term bank loans were $542,176$804,499 and $82,431$214,974 for the three months ended JuneSeptember 30, 2017 and 2016, respectively. The interest expenses, for short-term bank loansincluding discount fees, were $1,003,088$1,827,835 and $158,129$515,547 for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively.

As of JuneSeptember 30, 2017, corporate or personal guarantees provided for those bank loans were as follows:

NOTE JL - INCOME TAXES

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

In 2015, the Joint Venture was awarded the Chinese government's "High-Tech Enterprise" designation for a third time, which is valid for three years and it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017.

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the PRC for the sixnine months ended JuneSeptember 30, 2017 and 2016 is as follows:

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. The tax authority may examine the tax returns of the Company three years after the year ended December 31, 2015. In the sixnine months ended JuneSeptember 30, 2017, there were no penalties and interest, which generally are recorded in the general and administrative expenses or in the tax expenses. The provisions for income taxes for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively, are summarized as follows:

ASC 740-10 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and considered that no provision for uncertainty in income taxes was necessary as of JuneSeptember 30, 2017 and December 31, 2016.

NOTE KM – OPERATING LEASELEASES WITH RELATED PARTY

In December 2006, Ruian entered into a lease agreement with Ruili Group Co., Ltd. for the lease of two apartment buildings. These two apartment buildings are for Ruian’s management personnel and staff, respectively. The initial lease term iswas 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 RMB2,100,000RMB 2,100,000 (approximately $333,688).

The lease expenses were $487,794$684,252 and $796,829$1,402,658 for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively.

NOTE LN - WARRANTY CLAIMS

Warranty claims were $1,416,614$2,261,311 and $1,172,033$1,741,415 for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively. Warranty claims are classified as accrued expenses on the balance sheet. The movement of accrued warranty expenses for the sixnine months ended JuneSeptember 30, 2017 was as follows:

NOTE MO – SEGMENT INFORMATION

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

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

For the reporting periods, allAll 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.