UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

~~For the quarterly period ended September 30, 2017~~

¨
For the quarterly period ended June 30, 2021

Or

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

~~For the transition period from ________ to _________~~

Commission file number:000-33123

China Automotive Systems, Inc.

(Exact name of registrant as specified in its charter)

~~Delaware~~		~~33-0885775~~
Delaware		33-0885775
(State or other jurisdiction of incorporation or		(I.R.S. ~~employer identification number)~~Employer Identification No.)
organization)

No. 1 Henglong Road, Yu Qiao Development Zone, Shashi District

Jing Zhou City, Hubei Province, the People’s Republic of China

(Address of principal executive offices)

	~~(86)~~ (86) 716- 412- ~~7912~~	7901
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	~~Issuer’s telephone number~~ Trading symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	CAAS	The Nasdaq Capital Market

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

Yes x☒ No ¨

☐

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

Yes x☒ No �� ¨

☐

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


Large accelerated filer	¨ ☐	Accelerated filer	¨ ☐
Non-accelerated filer ~~(Do not check if a smaller~~ ~~reporting company)~~	¨ ☒	Smaller reporting company	☒
		Emerging growth company	x ¨☐

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 ☒

~~Yes~~ ¨ No x

As of ~~November 9, 2017,~~August 12, 2021, the Company had ~~31,644,004~~30,851,776 shares of common stock issued and outstanding.

Table of Contents

CHINA AUTOMOTIVE SYSTEMS, INC.

INDEX

		~~Page~~
		Page

	Part I — Financial Information	4

Item 1.	Unaudited Financial Statements.	4
	Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	4
	Condensed Unaudited Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020	6
	Condensed Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	7
	Notes to Condensed Unaudited Consolidated Financial Statements	9 8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	32 24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	51 37
Item 4.	Controls and Procedures.	51 37

	Part II — Other Information	38

Item 1.	Legal Proceedings.	51 38
Item 1A.	Risk Factors.	52 38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	52 40
Item 3.	Defaults Upon Senior Securities.	52 40
Item 4.	Mine Safety Disclosures.	52 40
Item 5.	Other Information.	52 40
Item 6.	Exhibits.	52 41

Signatures		53 42

Table of Contents

Cautionary Statement

~~Cautionary Statement~~

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, as filed with the Securities and Exchange Commission.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS.

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)


	Three Months Ended June 30,
	2021		2020
Net product sales ($15,750 and $16,105 sold to related parties for the three months ended June 30, 2021 and 2020)	$	120,604	$	83,184
Cost of products sold ($7,197 and $6,152 purchased from related parties for the three months ended June 30, 2021 and 2020)		104,775		75,353
Gross profit		15,829		7,831
Gain on other sales		725		838
Less: Operating expenses
Selling expenses		4,446		2,977
General and administrative expenses		6,063		4,759
Research and development expenses		5,926		6,125
Total operating expenses		16,435		13,861
Income from operations		119		(5,192)
Other income, net		1,506		1,257
Interest expense		(294)		(446)
Financial income/(expense), net		182		(59)
Income/(loss) before income tax expenses and equity in earnings of affiliated companies		1,513		(4,440)
Less: Income taxes expense/(benefit)		198		(31)
Add: Equity in earnings of affiliated companies		1,613		169
Net income/(loss)		2,928		(4,240)
Less: Net loss attributable to non-controlling interests		(279)		(142)
Accretion to redemption value of redeemable non-controlling interests		(7)		0
Net income/(loss) attributable to parent company’s common shareholders	$	3,200	$	(4,098)
Comprehensive income:
Net income/(loss)	$	2,928	$	(4,240)
Other comprehensive income:
Foreign currency translation income, net of tax		5,586		358
Comprehensive income/(loss)		8,514		(3,882)
Comprehensive income/(loss) attributable to non-controlling interests		73		(86)
Accretion to redemption value of redeemable non-controlling interests		(7)		0
Comprehensive income/(loss) attributable to parent company	$	8,434	$	(3,796)

Net income/(loss) attributable to parent company’s common shareholders per share -
Basic	$	0.10	$	(0.13)
Diluted	$	0.10	$	(0.13)

Weighted average number of common shares outstanding -
Basic		30,851,776		31,174,045
Diluted		30,855,406		31,174,045

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

Table of Contents

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

Three Months Ended September 30,
2017 2016
Net product sales ($7,563 and $9,950 sold to related parties for the three months ended September 30, 2017 and 2016) $ 118,365 $ 94,626
Cost of products sold ($6,549 and $5,869 purchased from related parties for the three months ended September 30, 2017 and 2016) 95,878 74,641
Gross profit 22,487 19,985
Gain on other sales 553 22
Less: Operating expenses
Selling expenses 4,537 3,840
General and administrative expenses 4,390 3,741
Research and development expenses 9,194 6,723
Total operating expenses 18,121 14,304
Income from operations 4,919 5,703
Other income 100 420
Interest expense (318 ) (201 )
Financial income, net 1,027 800
Income before income tax expenses and equity in earnings of affiliated companies 5,728 6,722
Less: Income taxes 991 1,167
Equity in earnings of affiliated companies 491 304
Net income 5,228 5,859
Net income attributable to non-controlling interests 169 177
Net income attributable to parent company’s common shareholders $ 5,059 $ 5,682
Comprehensive income:
Net income $ 5,228 $ 5,859
Other comprehensive income:
Foreign currency translation gain/(loss), net of tax 6,705 (2,139 )
Comprehensive income 11,933 3,720
Comprehensive income attributable to non-controlling interests 386 119
Comprehensive income attributable to parent company $ 11,547 $ 3,601

Net income attributable to parent company’s common shareholders per share

Basic – $ 0.16 $ 0.18

Diluted- $ 0.16 $ 0.18
Weighted average number of common shares outstanding
Basic 31,644,004 31,911,360
Diluted 31,644,271 31,911,722


	Six Months Ended June 30,
	2021		2020
Net product sales ($32,325 and $23,599 sold to related parties for the six months ended June 30, 2021 and 2020)	$	250,945	$	156,739
Cost of products sold ($15,411 and $9,286 purchased from related parties for the six months ended June 30, 2021 and 2020)		215,368		137,756
Gross profit		35,577		18,983
Gain on other sales		2,041		1,438
Less: Operating expenses
Selling expenses		10,055		5,095
General and administrative expenses		10,678		8,188
Research and development expenses		12,606		11,318
Total operating expenses		33,339		24,601
Income/(loss) from operations		4,279		(4,180)
Other income, net		3,229		1,374
Interest expense		(637)		(811)
Financial expense, net		(57)		(590)
Income/(loss) before income tax expenses and equity in earnings of affiliated companies		6,814		(4,207)
Less: Income taxes expense		839		483
Add: Equity in earnings/(loss) of affiliated companies		184		(178)
Net income/(loss)		6,159		(4,868)
Less: Net loss attributable to non-controlling interests		(261)		(742)
Accretion to redemption value of redeemable non-controlling interests		(14)		0
Net income/(loss) attributable to parent company’s common shareholders	$	6,406	$	(4,126)
Comprehensive income:
Net income/(loss)	$	6,159	$	(4,868)
Other comprehensive income:
Foreign currency translation income/(loss), net of tax		3,315		(4,603)
Comprehensive income/(loss)		9,474		(9,471)
Comprehensive loss attributable to non-controlling interests		(52)		(1,139)
Accretion to redemption value of redeemable non-controlling interests		(14)		0
Comprehensive income/(loss) attributable to parent company	$	9,512	$	(8,332)

Net income/(loss) attributable to parent company’s common shareholders per share -
Basic	$	0.21	$	(0.13)
Diluted	$	0.21	$	(0.13)

Weighted average number of common shares outstanding -
Basic		30,851,776		31,174,045
Diluted		30,856,571		31,174,045

Share-based compensation included in operating expense above is as follows:
General and administrative expenses		88		0

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

Table of Contents

China ~~automotive~~Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated ~~Statements of Operations and Comprehensive Income~~Balance Sheets

(In thousands of USD ~~except share and per share amounts)~~unless otherwise indicated)

Nine Months Ended September 30,
2017 2016
Net product sales ($25,684 and $28,589 sold to related parties for the nine months ended September 30, 2017 and 2016) $ 355,333 $ 312,497
Cost of products sold ($20,195 and $18,912 purchased from related parties for the nine months ended September 30, 2017 and 2016) 287,156 253,352
Gross profit 68,177 59,145
Gain on other sales 5,896 2,008
Less: Operating expenses
Selling expenses 13,160 12,273
General and administrative expenses 14,027 11,998
Research and development expenses 23,666 18,849
Total operating expenses 50,853 43,120
Income from operations 23,220 18,033
Other (expense)/income, net (2 ) 995
Interest expense (1,193 ) (524 )
Financial income, net 1,909 1,270
Income before income tax expenses and equity in earnings of affiliated companies 23,934 19,774
Less: Income taxes 4,367 3,416
Equity in earnings of affiliated companies 480 561
Net income 20,047 16,919
Net income attributable to non-controlling interests 353 164
Net income attributable to parent company’s common shareholders $ 19,694 $ 16,755
Comprehensive income:
Net income $ 20,047 $ 16,919
Other comprehensive income:
Foreign currency translation gain/(loss), net of tax 14,148 (8,435 )
Comprehensive income 34,195 8,484
Comprehensive gain/(loss) attributable to non-controlling interests 819 (143 )
Comprehensive income attributable to parent company $ 33,376 $ 8,627

Net income attributable to parent company’s common shareholders per share

Basic – $ 0.62 $ 0.52

Diluted- $ 0.62 $ 0.52
Weighted average number of common shares outstanding
Basic 31,644,004 32,038,933
Diluted 31,647,833 32,040,514


	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	83,113	$	97,248
Pledged cash		34,204		30,813
Accounts and notes receivable, net - unrelated parties		204,782		216,519
Accounts and notes receivable - related parties		23,679		17,621
Inventories		95,971		88,325
Other current assets		34,008		25,132
Total current assets		475,757		475,658
Non-current assets:
Property, plant and equipment, net		135,899		141,004
Land use rights, net		10,737		10,774
Long-term investments		45,629		49,766
Other non-current assets		27,523		30,358
Total assets	$	695,545	$	707,560

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term loans	$	36,415	$	44,238
Accounts and notes payable-unrelated parties		208,440		212,522
Accounts and notes payable-related parties		12,000		12,730
Accrued expenses and other payables		51,721		55,607
Other current liabilities		29,339		29,387
Total current liabilities		337,915		354,484
Long-term liabilities:
Other long-term payable		—		1,126
Long-term tax payable		21,074		23,884
Other non-current liabilities		8,153		8,151
Total liabilities	$	367,142	$	387,645

Commitments and Contingencies (See Note 23)

Mezzanine equity:
Redeemable non-controlling interests		537		523

Stockholders’ equity:
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued - 32,338,302 and 32,338,302 shares as of June 30, 2021 and December 31, 2020, respectively	$	3	$	3
Additional paid-in capital		63,731		64,273
Retained earnings-
Appropriated		11,303		11,303
Unappropriated		221,897		215,491
Accumulated other comprehensive income		20,519		17,413
Treasury stock - 1,486,526 and 1,486,526 shares as of June 30, 2021 and December 31, 2020, respectively		(5,261)		(5,261)
Total parent company stockholders' equity		312,192		303,222
Non-controlling interests		15,674		16,170
Total stockholders' equity		327,866		319,392
Total liabilities, mezzanine equity and stockholders' equity	$	695,545	$	707,560

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

Table of Contents

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated ~~Balance Sheets~~Statements of Cash Flows

(In thousands of USD unless otherwise indicated)

September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 55,382 $ 31,092
Pledged cash 31,075 30,799
Short-term investments 23,829 30,475
Accounts and notes receivable, net - unrelated parties 269,943 285,731
Accounts and notes receivable, net - related parties 17,607 20,984
Advance payments and others - unrelated parties 12,235 10,203
Advance payments and others - related parties 31,397 624
Inventories 73,030 68,050
Current deferred tax assets 7,476 7,946
Total current assets 521,974 485,904
Non-current assets:
Long-term time deposits 6,027 865
Property, plant and equipment, net 115,302 101,478
Intangible assets, net 512 617
Other receivables, net - unrelated parties 2,234 2,252
Advance payment for property, plant and equipment - unrelated parties 14,222 14,506
Advance payment for property, plant and equipment - related parties 4,813 5,005
Long-term investments 25,341 16,431
Non-current deferred tax assets 4,295 4,641
Total assets $ 694,720 $ 631,699

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank and government loans $ 73,594 $ 40,820
Accounts and notes payable - unrelated parties 224,758 216,993
Accounts and notes payable - related parties 5,749 6,803
Customer deposits 869 700
Accrued payroll and related costs 7,460 6,971
Accrued expenses and other payables 32,883 35,882
Accrued pension costs 4,750 4,130
Taxes payable 3,800 11,674
Amounts due to shareholders/directors 335 312
Advances payable (current portion) 399 382
Current deferred tax liabilities 190 193
Total current liabilities 354,787 324,860
Long-term liabilities:
Long-term bank loan - 608
Advances payable 354 339
Total liabilities $ 355,141 $ 325,807

Commitments and Contingencies (See Note 29)

Stockholders’ equity:
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued – 32,338,302 and 32,338,302 shares as of September 30, 2017 and December 31, 2016, respectively $ 3 $ 3
Additional paid-in capital 64,406 64,764
Retained earnings-
Appropriated 10,673 10,549
Unappropriated 248,533 228,963
Accumulated other comprehensive income/(loss) 12,722 (892 )
Treasury stock – 694,298 and 694,298 shares as of September 30, 2017 and December 31, 2016, respectively (2,907 ) (2,907 )
Total parent company stockholders' equity 333,430 300,480
Non-controlling interests 6,149 5,412
Total stockholders' equity 339,579 305,892
Total liabilities and stockholders' equity $ 694,720 $ 631,699


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income/(loss)	$	6,159	$	(4,868)
Adjustments to reconcile net income from operations to net cash (used in)/provided by operating activities:
Share-based compensation		88		0
Depreciation and amortization		13,117		10,562
Provision/(reversal) of credit losses		311		(239)
Deferred income taxes		469		21
Equity in gain/(loss) of affiliated companies		(184)		178
Government subsidy reclassified from government loans		0		287
Loss on fixed assets disposals		9		42
(Increase)/decrease in:
Accounts and notes receivable		6,887		41,917
Inventories		(7,036)		(1,281)
Other current assets		(1,250)		(1,355)
Increase/(decrease) in:
Accounts and notes payable		(6,291)		(11,924)
Accrued expenses and other payables		(4,030)		2,683
Long-term taxes payable		(2,809)		(2,809)
Other current liabilities		105		(1,835)
Net cash provided by operating activities		5,545		31,379
Cash flows from investing activities:
Increase in demand loans included in other non-current assets		(137)		(3)
Repayment of loan from a related party		154		0
Cash received from property, plant and equipment sales		206		586
Payments to acquire property, plant and equipment (including $330 and $760 paid to related parties for the six months ended June 30, 2021 and 2020, respectively)		(3,927)		(4,525)
Payments to acquire intangible assets		(303)		(390)
Investment under the equity method		0		(5,360)
Purchase of short-term investments		(31,253)		(27,128)
Proceeds from maturities of short-term investments		23,806		5,781
Cash received from long-term investment		4,785		448
Net cash used in by investing activities		(6,669)		(30,591)
Cash flows from financing activities:
Proceeds from bank loans		34,990		36,135
Repayments of bank loans		(43,081)		(33,890)
Repayments of the borrowing for sale and leaseback transaction		(2,217)		(2,041)
Cash received from capital contributions by non-controlling interest holder		0		212
Deemed distribution to shareholders		0		(88)
Acquisition of non-controlling interest		(538)		(81)
Net cash (used in)/provided by financing activities		(10,846)		247
Effects of exchange rate on cash, cash equivalents and pledged cash		1,226		(1,558)
Net decrease in cash, cash equivalents and pledged cash		(10,744)		(523)
Cash, cash equivalents and pledged cash at beginning of the period		128,061		106,403
Cash, cash equivalents and pledged cash at end of the period	$	117,317	$	105,880

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

Table of Contents

China Automotive Systems, Inc. and Subsidiaries

~~Condensed Unaudited Consolidated Statements of Cash Flows~~

~~(In thousands of USD unless otherwise indicated)~~

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net income $ 20,047 $ 16,919
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Share-based compensation 100 -
Depreciation and amortization 10,933 10,732
Increase in/(reversal of) provision for doubtful accounts 1,034 (126 )
Inventory write downs 4,436 2,353
Deferred income taxes 1,354 (142 )
Equity in earnings of affiliated companies (480 ) (561 )
Gain on disposal of Fujian Qiaolong - (698 )
Gain on fixed assets disposals (2,204 ) (6 )
Changes in operating assets and liabilities
(Increase) decrease in:
Pledged cash 1,226 9,711
Accounts and notes receivable 32,807 (18,471 )
Advance payments and others (1,527 ) (2,798 )
Inventories (6,441 ) (18,244 )
Increase (decrease) in:
Accounts and notes payable (3,023 ) 14,990
Customer deposits 158 (613 )
Accrued payroll and related costs 182 544
Accrued expenses and other payables (6,216 ) 1,309
Accrued pension costs 443 (160 )
Taxes payable (9,806 ) (1,582 )
Advance payable - (75 )
Net cash provided by operating activities 43,023 13,082
Cash flows from investing activities:
Decrease in other receivables 159 2,382
Proceeds from disposition of a subsidiary, net of cash disposed of $1,063 - 1,953
Cash received from property, plant and equipment sales 2,351 511
Payments to acquire property, plant and equipment(including $7,656 and $5,662 paid to related parties for the nine months ended September 30, 2017 and 2016, respectively) (19,187 ) (27,161 )
Payments to acquire intangible assets - (60 )
Purchase of short-term investments (25,017 ) (28,181 )
Purchase of long-term time deposit (5,836 ) -
Proceeds from maturities of short-term investments 33,749 13,236
Investment under equity method (7,629 ) (8,682 )
Loan to a related party (29,044 ) -
Net cash used in investing activities (50,454 ) (46,002 )
Cash flows from financing activities:
Proceeds from bank and government loans 69,635 12,151
Repayments of bank and government loans (39,271 ) (7,145 )
Dividends paid to the non-controlling interest holders - (464 )
Repurchases of common stock - (991 )
Net cash provided by financing activities 30,364 3,551
Effects of exchange rate on cash and cash equivalents 1,357 (1,245 )
Net increase/decrease in cash and cash equivalents 24,290 (30,614 )
Cash and cash equivalents at beginning of period 31,092 69,676
Cash and cash equivalents at end of period $ 55,382 $ 39,062

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

~~China Automotive Systems, Inc. and Subsidiaries~~

~~Condensed Unaudited Consolidated Statements of Cash Flows (continued)~~

~~(In thousands of USD unless otherwise indicated)~~

~~SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:~~

Nine Months Ended September 30,
2017 2016
Cash paid for interest $ 573 $ 219
Cash paid for income taxes 4,343 1,396

~~SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:~~

Nine Months Ended September 30,
2017 2016
Property, plant and equipment recorded during the period which previously were advance payments $ 12,331 $ 12,771
Accounts payable for acquiring property, plant and equipment 890 844
Dividends payable to non-controlling interests 621 -

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

~~China automotive Systems, Inc. and Subsidiaries~~

Notes to Condensed Unaudited Consolidated Financial Statements

Three Months and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020

1. Organization and business

China Automotive Systems, Inc., “China Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name Visions-In-Glass, Inc. China Automotive, including, when the context so requires, its subsidiaries ~~and the joint ventures~~ described below, is referred to herein as the “Company.” The Company is primarily engaged in the manufacture and sale of automotive systems and components, as described below.

Great Genesis Holdings Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance in Hong Kong as a limited liability company, “Genesis,” is a wholly-owned subsidiary of the Company.

Henglong USA Corporation, “HLUSA,” incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts in North America, and provides after-sales service and research and development support accordingly.

The Company owns the following aggregate net interests in the following ~~Sino-foreign joint ventures, wholly-owned~~ subsidiaries ~~and joint ventures~~ organized in the ~~People's~~People’s Republic of China, the “PRC,” and Brazil as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

Percentage Interest
Name of Entity September 30,
2017 December 31,
2016
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong”¹ 100.00 % 100.00 %
JingzhouHenglong Automotive Parts Co., Ltd., “Henglong”² 100.00 % 100.00 %
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang”³ 70.00 % 70.00 %
Universal Sensor Application Inc., “USAI”⁴ 83.34 % 83.34 %
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong”⁵ 85.00 % 85.00 %
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu”⁶ 77.33 % 77.33 %
Hubei Henglong Automotive System Group Co., Ltd, “Hubei Henglong”⁷ 100.00 % 100.00 %
JingzhouHenglong Automotive Technology (Testing) Center, “Testing Center”⁸ 100.00 % 100.00 %
Beijing HainachunHenglong Automotive Steering System Co., Ltd., “Beijing Henglong”⁹ 50.00 % 50.00 %
Chongqing HenglongHongyan Automotive System Co., Ltd., “Chongqing Henglong”¹⁰ 70.00 % 70.00 %
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong”¹¹ 95.84 % 80.00 %
Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”¹² 0.00 % 0.00 %
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”¹³ 85.00 % 85.00 %
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”¹⁴ 100.00 % 100.00 %


	Percentage Interest
	June 30,		December 31,
Name of Entity	2021		2020
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong” ¹	100.00	%	100.00	%
Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong” ²	100.00	%	100.00	%
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang” ³	70.00	%	70.00	%
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” ⁴	85.00	%	85.00	%
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu” ⁵	100.00	%	77.33	%
Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” ⁶	100.00	%	100.00	%
Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” ⁷	100.00	%	100.00	%
Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” ⁸	70.00	%	70.00	%
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” ⁹	95.84	%	95.84	%
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” ¹⁰	85.00	%	85.00	%
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong” ¹¹	100.00	%	100.00	%
Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”¹²	60.00	%	60.00	%
Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”¹³	66.60	%	66.60	%
Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”¹⁴	51.00	%	51.00	%
Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”¹⁵	62.00	%	62.00	%
Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”¹⁶	100.00	%	100.00	%

Jiulong was established in 1993 and mainly engages in the production of integral power steering gears for heavy-duty vehicles.

Henglong was established in 1997 and mainly engages in the production of rack and pinion power steering gears for cars and light duty vehicles.

Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles.

~~USAI was established in 2005 and mainly engages in the production and sales of sensor modules.~~

Jielong was established in 2006 and mainly engages in the production and sales of automotive steering columns.

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Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems. In April 2021, the Company obtained an additional 22.67% equity interest in Wuhu for total consideration of RMB 6.9 million, equivalent to approximately $1.1 million, from the other shareholder. The Company retained its controlling interest in Wuhu and the acquisition of the non-controlling interest was accounted for as an equity transaction.

On March 7, 2007, Genesis established Hubei Henglong, formerly known as ~~JingzhouHengsheng~~Jingzhou Hengsheng Automotive System Co., Ltd., its wholly-owned subsidiary, to engage in the production and sales of automotive steering systems. On July 8, 2012, Hubei Henglong changed its name to Hubei Henglong Automotive System Group Co., Ltd.

In December 2009, Henglong, a subsidiary of Genesis, formed ~~the~~ Testing Center, which mainly engages in the research and development of new products.

Beijing Henglong was established in 2010 and mainly engages in the design, development and manufacture of both hydraulic and electric power steering systems and parts. According to the joint venture agreement, the Company does not have voting control of Beijing Henglong. Therefore, the Company’s consolidated financial statements do not include Beijing Henglong, and such investment is accounted for using the equity accounting method.

~~10.~~

On February 21, 2012, Hubei Henglong and SAIC-IVECO Hongyan Company, “SAIC-IVECO,” established a Sino-foreign joint venture company, Chongqing Henglong, to design, develop and manufacture both hydraulic and electric power steering systems and parts.

~~11.~~

On August 21, 2012, Brazil Henglong was established as a Sino-foreign joint venture company by Hubei Henglong and two Brazilian citizens, Ozias Gaia Da Silva and Ademir Dal’ Evedove. Brazil Henglong engages mainly in the import and sales of automotive parts in Brazil. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for ~~nil~~NaN consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction.

10.

~~12.~~

In the second quarter of 2014, the Company acquired a 51.0% ownership interest in Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”, a special purpose vehicle manufacturer and dealer with automobile repacking qualifications, based in Fujian, China. Fujian Qiaolong mainly manufactures and distributes drainage and rescue vehicles with mass flow, drainage vehicles with vertical downhole operation, crawler-type mobile pump stations, high-altitude water supply and discharge drainage vehicles, long-range control crawler-type mobile pump stations and other vehicles. On April 17, 2016, Hubei Henglong entered into a share purchase agreement, the “Share Purchase Agreement”, with LongyanHuanyu Emergency Equipment Technology Co., Ltd., “LongyanHuanyu”. Pursuant to the Share Purchase Agreement, Hubei Henglong transferred its 51% equity interests in Fujian Qiaolong to LongyanHuanyu for total consideration of RMB 20.0 million, equivalent to $3.0 million, in the second quarter of 2016. The Company recognized a gain on disposal of Fujian Qiaolong of $0.7 million, which is included in other income in the consolidated statement of operations and comprehensive income for the year ended December 31, 2016.

~~13.~~

In May 2014, together with Hubei Wanlong, Jielong formed a subsidiary, Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”, which mainly engages in research and development, manufacture and sales of automobile electronic systems and parts. Wuhan Chuguanjie is located in Wuhan, China.

11.

~~14.~~

In January 2015, Hubei Henglong formed Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”, which mainly engages in the design and sales of automotive electronics.

12.	In November 2017, Hubei Henglong formed Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”, which mainly engages in the research and development of intelligent automotive technology.

13.

In August 2018, Hubei Henglong and KYB (China) Investment Co., Ltd. (“KYB”) established Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”, which mainly engages in design, manufacture, sales and after-sales service of automobile electronic systems. Hubei Henglong owns 66.6% of the shares of this entity and has consolidated it since its establishment.

14.

In March 2019, Hubei Henglong and Hyoseong Electric Co., Ltd. established Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”, which mainly engages in the design, manufacture and sales of automotive motors and electromechanical integrated systems. Hubei Henglong owns 51.0% of the shares of Wuhan Hyoseong and has consolidated it since its establishment.

15.	In December 2019, Hubei Henglong formed Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”, which mainly engages in the development, manufacturing and sale of high polymer materials. Hubei Henglong owns 62.0% of the shares of Wuhu Hongrun and has consolidated it since its establishment.

16.

In April 2020, Hubei Henglong acquired 100.0% of the equity interests of Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”, for total consideration of RMB 1.2 million, equivalent to approximately $0.2 million from an entity controlled by Hanlin Chen. Before the acquisition, 52.1% of the shares of Changchun Hualong were ultimately owned by Hanlin Chen and 47.9% of the shares were owned by third parties. Changchun Hualong mainly engages in design and R&D of automotive parts.

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2. Basis of presentation and significant accounting policies

~~Basis of presentation and significant accounting policies~~

(a)

Basis of Presentation

Basis of Presentation – The accompanying condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation. The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in ~~Article 10 of~~ Regulation S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of the Company’s management, contain all necessary adjustments, which include normal recurring adjustments, for a fair statement of the results of operations, financial position and cash flows for the interim periods presented.

The condensed consolidated balance sheet as of December 31, ~~2016~~2020 is derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company’s management believes that the disclosures contained in these financial statements are adequate to make the information presented herein not misleading. For further information, please refer to the financial statements and the notes thereto included in the Company’s 2016 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The results of operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, ~~2017.~~2021.

Estimation - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign Currencies - China Automotive, the parent company, and HLUSA maintain their books and records in United States Dollars, “USD,” their functional currency. The Company’s subsidiaries based in the PRC and Genesis maintain their books and records in Renminbi, “RMB,” their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in Brazilian ~~reais,~~real, “BRL,” its functional currency. In accordance with ~~ASC~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, ~~“FASB Accounting Standards Codification”,~~ foreign currency transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the rate of exchange prevailing at the balance sheet date for monetary items. Nonmonetary items are remeasured at historical rates. Income and expenses are remeasured at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included in the determination of net income for the period.

(b)

~~(b)~~

Recent Accounting Pronouncements

~~In January 2017,~~No accounting standards newly issued during the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this Update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 is designed to provide guidance on how to recognize gain and losses on sales, including partial sales, of nonfinancial assets to noncustomers. ASU 2017-05 is effective beginning January 1, 2018. Early adoption is permitted but the standard is required to be adopted concurrently with ASU 2014-09. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

In May 2017, the FASB issued guidance within ASU 2017-09: Scope of Modification Accounting. The amendments in ASU 2017-09 to Topic 718, Compensation - Stock Compensation, provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following conditions are met: the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments should be applied prospectively to an award modified on or after the adoption date. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 31, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this guidance is not expected to havesix months ended June 30, 2021, had a material impact on the ~~Company's consolidated~~Company’s financial ~~statements.~~statements or disclosures.

(c)

~~(c)~~

Significant Accounting Policies

There have been no updates to the significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, ~~2016.~~2020.

~~Short-term investments~~

~~Short-term investments comprise time deposits with terms~~

Table of three months or more which are due within one year and wealth management financial products with maturities within one year. The carrying values of time deposits approximate fair value because of their short maturities. The interest earned is recognized in the consolidated statements of income over the contractual term of the deposits. The wealth management financial products are measured at fair value and classified as Level 2 within the fair value measurement hierarchy. The fair values weremeasured by using directly or indirectly observable inputs in the marketplace. Changes in the fair value are reflected in other income in the consolidated statements of operations and comprehensive income.Contents

~~The Company’s short-term investments as of September 30, 2017 and December 31, 2016 are summarized as follows~~

~~(figures are in thousands of USD):~~

September 30, 2017 December 31, 2016
Time deposits $ 5,100 $ 30,217
Wealth management financial products measured at fair value 18,729 258
Total $ 23,829 $ 30,475

As of September 30, 2017, the Company had pledged short-term investments of RMB 13.9 million, equivalent to approximately $2.1 million, to secure standby letters of credit under Bank of China and China CITIC Bank (Note 13). The use of the pledged short-term investments is restricted.

3. Accounts and notes receivable, net

The Company’s accounts and notes receivable, net as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 are summarized as follows (figures are in thousands of USD):

	September 30, 2017			December 31, 2016

							June 30, 2021		December 31, 2020
Accounts receivable - unrelated parties	$	150,696		$	154,403		$	138,866	$	141,018
Notes receivable - unrelated parties^{(1) (2)}		120,438			132,409
Total accounts and notes receivable- unrelated parties		271,134			286,812
Notes receivable - unrelated parties								75,753		85,354
Total accounts and notes receivable - unrelated parties								214,619		226,372
Less: allowance for doubtful accounts - unrelated parties		(1,191	)		(1,081	)		(9,837)		(9,853)
Accounts and notes receivable, net - unrelated parties		269,943			285,731			204,782		216,519
Accounts and notes receivable - related parties								24,120		17,622
Less: allowance for doubtful accounts - related parties								(441)		(1)
Accounts and notes receivable, net - related parties		17,607			20,984			23,679		17,621
Accounts and notes receivable, net	$	287,550		$	306,715		$	228,461	$	234,140

~~(1)~~

Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks.

~~(2)~~

As of September 30, 2017, the Company collateralized its notes receivable in an amount of RMB 268.3 million, equivalent to approximately $40.4 million, as security for the credit facilities with banks in China and the Chinese government, including RMB 158.9 million, equivalent to approximately $23.9 million, in favor of Industrial and Commercial Bank of China, Jingzhou Branch, “ICBC Jingzhou”, for the purpose of obtaining the Henglong Standby Letter of Credit (as defined in Note 13), which is used as security for the non-revolving credit facility in the amount of $23.9 million provided by Industrial and Commercial Bank of China (Macau) Limited, “ICBC Macau”, RMB 30.0 million, equivalent to approximately $4.5 million, as security in favor of the Chinese government for the low interest government loan (See Note 13), and RMB 79.4 million, equivalent to approximately $12.0 million, in favor of China CITIC Bank, Wuhan Branch, “CITIC Wuhan”, for the purpose of obtaining the Henglong Standby Letter of Credit(as defined in Note 13), which was used to obtain the facility of Taishin Bank in the amount of $10.0 million(See Note 13).

As of June 30, 2021 and December 31, ~~2016,~~2020, the Company ~~collateralized~~pledged its notes receivable in ~~an amount~~amounts of ~~RMB 249.9~~NaN and $8.2 million, ~~equivalent to approximately $36.0 million,~~respectively, as security for the credit facilities with banks in China and the Chinese government, including RMB 224.6 million, equivalent to approximately $32.4 million, in favor of Industrial and Commercial Bank of China, Jingzhou Branch, “ICBC Jingzhou”, for the purpose of obtaining the Henglong Standby Letter of Credit (as defined in Note 13), which is used as security for the non-revolving credit facility in the amount of $30.0 million provided by Industrial and Commercial Bank of China (Macau) Limited, “ICBC Macau”, and RMB 25.2 million, equivalent to approximately $3.6 million, as securitycollateral in favor of the ~~Chinese~~local government for the ~~low-interest~~ government ~~loan~~loans; and pledged its notes receivable in amounts of $4.4 million and $5.5 million, respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholders upon maturity (See Note ~~13)~~8).

Provision for doubtful accounts and notes receivable, as provided in the unaudited consolidated statements of operations, amounted to $0.6 million and $0.4 million for the three and six months ended June 30, 2021, respectively.

~~Advance payments and others~~

Provision for doubtful accounts and notes receivable reversed, as provided in the unaudited consolidated statements of operations, amounted to $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively.

During the three months ended June 30, 2021, the Company’s 5 largest customers accounted for 41.8% of its consolidated net product sales, with two customers individually accounting for more than 10% of consolidated net sales, i.e., 18.3% and 10.0% respectively. During the six months ended June 30, 2021, the Company’s 5 largest customers accounted for 42.3% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 17.4%. As of June 30, 2021, approximately 8.5% of accounts receivable were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.

During the three months ended June 30, 2020, the Company’s 5 largest customers accounted for 38.4% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 10.1%. During the six months ended June 30, 2020, the Company’s 5 largest customers accounted for 44.4% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 21.1%. As of June 30, 2020, approximately 6.7% of accounts receivable were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.

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4. Inventories

The Company’s ~~advance payments and others~~inventories as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 consisted of the following (figures are in thousands of USD):


	June 30, 2021		December 31, 2020
Raw materials	$	27,014	$	24,367
Work in process		8,754		10,098
Finished goods		60,203		53,860
Total	$	95,971	$	88,325

September 30, 2017 December 31, 2016
Advance payments and others - unrelated parties $ 13,307 $ 10,203
Less: allowance for doubtful accounts – unrelated parties⁽²⁾ (1,072 ) -
Advance payments and others, net – unrelated parties 12,235 10,203
Advance payments and others - related parties⁽¹⁾ 31,397 624
Total advance payments and others $ 43,632 $ 10,827

The Company recorded $1.1 million and $0.6 million of inventory write-down to cost of product sold for the three months ended June 30, 2021 and 2020, respectively, and $2.3 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively.

~~(1)~~

On March 16, 2017, in order to generate higher returns for the Company’s idle cash, one of the Company's subsidiaries, Hubei Henglong, lent RMB 200.0 million (equivalent to $30.1 million as of September 30, 2017) to Henglong Real Estate, one of the Company's related parties, through an independent financial institution by way of an entrusted loan. The term of the loan is one year and the annual interest rate is 6.35%.

~~(2)~~

~~Provision for the doubtful accounts amounted to $1.1 million and nil for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Inventories~~

5. Long-term investments

The Company’s ~~inventories as of September~~long-term investments at June 30, ~~2017~~2021 and December 31, ~~2016 consisted of the following (figures are in thousands of USD):~~

September 30, 2017 December 31, 2016
Raw materials $ 16,637 $ 15,007
Work in process 17,379 10,852
Finished goods 39,014 42,191
Total $ 73,030 $ 68,050

~~Provision for inventories amounted to $4.4 million and $2.4 million for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Other receivables, net~~

~~The Company’s other receivables as of September 30, 2017 and December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

September 30, 2017 December 31,2016
Other receivables - unrelated parties⁽¹⁾ $ 1,009 $ 738
Other receivables - employee housing loans⁽²⁾ 1,291 1,577
Less: allowance for doubtful accounts - unrelated parties (66 ) (63 )
Other receivables, net - unrelated parties $ 2,234 $ 2,252

September 30, 2017 December 31, 2016
Other receivables - related parties⁽¹⁾ $ 576 $ 559
Less: allowance for doubtful accounts - related parties (576 ) (559 )
Other receivables, net - related parties $ - $ -


	June 30, 2021		December 31, 2020
Chongqing Venture Fund ⁽¹⁾	$	19,695	$	20,230
Hubei Venture Fund ⁽³⁾		11,969		14,473
Suzhou Venture Fund		7,987		7,740
Beijing Henglong ⁽²⁾		4,017		5,241
Henglong Tianyu		998		1,070
Chongqing Jinghua		550		599
Jiangsu Intelligent		413		413
Total	$	45,629	$	49,766

(1)

~~Other receivables consist of amounts advanced~~In January, May and June 2021, Chongqing Venture Fund made distributions that were proportional to ~~both related and unrelated parties, primarily as unsecured demand loans. These receivables originate as part~~each owner’s allocated share of the ~~Company's normal operating activities and are periodically settled~~fund, pursuant to which Hubei Henglong received $0.8 million in ~~cash.~~the aggregate.

(2)

~~On May 28, 2014, the board of directors~~In January 2021, Beijing Henglong made distributions that were proportional to each owner’s allocated share of the ~~Company approved a loan program under~~fund, pursuant to which ~~the Company will lend an aggregate of up~~Hubei Henglong received $1.5 million.

(3)

In April 2021, Hubei Venture Fund made distributions that were proportional to ~~RMB 50.0 million, equivalent to approximately $7.5 million, to the employees~~each owner’s allocated share of the ~~Company~~fund, pursuant to ~~assist them in purchasing houses. Employees are required to pay interest at an annual rate of 3.8%. These loans are unsecured and the term of the loans is generally five years.~~which Hubei Henglong received $2.4 million.

~~Long-term time deposits~~

Long-term time deposits are time deposits with maturities of longer than one year. Time deposits with original maturities of longer than one year but due within the next 12 months are included in short-term investments. As of September 30, 2017 and December 31, 2016, short-term investments include $1.0 million and $4.8 million, respectively, of time deposits with original maturities of longer than one year but due within the next 12 months.

As of September 30, 2017 and December 31, 2016, the Company had pledged long-term time deposits of nil and RMB 6.0 million (equivalent to approximately $0.9 million), respectively, to secure loans under the credit facility issued by ICBC Brazil. The ~~use~~condensed financial information of the ~~pledged long-term time deposits is restricted (See Note 13).~~

~~Long-term investments~~

~~On January 24, 2010, the Company invested $3.1 million to establish a joint venture company, Beijing Henglong, with Hainachuan. The Company owns 50% of the~~Company’s significant equity in Beijing Henglong and can exercise significant influence over Beijing Henglong’s operating and financial policies. The Company accounted for Beijing Henglong’s operational results using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $4.2 million and $3.8 million, respectively, of net equity in Beijing Henglong.

On September 22, 2014, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Suzhou Venture Fund”, which mainly focuses on investments in emerging automobiles and parts industries. Hubei Henglong has committed to make investments of RMB 50.0 million, equivalent to approximately $7.5 million, in the Suzhou Venture Fund in three installments. As of September 30, 2017, Hubei Henglong has completed a capital contribution of RMB 50.0 million, equivalent to approximately $7.5 million, representing 12.5% of the Suzhou Venture Fund’s shares. As a limited partner, Hubei Henglong has more than virtually no influence over the Suzhou Venture Fund’s operating and financial policies. The investment is accounted for using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $8.1 million and $5.3 million, respectively, of net equity in the Suzhou Venture Fund.

In May 2016, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has committed to make investments of RMB 120.0 million, equivalent to approximately $18.1 million, in the Chongqing Venture Fund in three installments. As of September 30, 2017, Hubei Henglong has completed a capital contribution of RMB 84.0 million, equivalent to approximately $12.7 million, representing 35.0% of the Chongqing Venture Fund’s shares. As a limited partner, Hubei Henglong has more than virtually no influence over the Chongqing Venture Fund’s operating and financial policies. The investment is accounted for using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $12.5 million and $6.8 million, respectively, of net equity in the Chongqing Venture Fund.

In October 2016, Hubei Henglong invested RMB 3.0 million, equivalent to approximately $0.5 million, to establish a joint venture company, Chongqing Jinghua Automotive Intelligent Manufacturing Technology Research Co., Ltd., “Chongqing Jinghua”, with five other parties. The Company owns 30% of the equity in Chongqing Jinghua, and can exercise significant influence over Chongqing Jinghua’s operating and financial policies. The Company accounts for Chongqing Jinghua’s operational results with the equity method. As of September 30, 2017 and December 31, 2016, the Company had $0.5 million and $0.4 million, respectively, of net equity in Chongqing Jinghua.

~~The Company’s consolidated financial statements reflect the net income of non-consolidated affiliates of $0.5 million and $0.6 million~~investees for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~

~~10.~~

~~Property, plant and equipment, net~~

~~The Company’s property, plant and equipment as of September 30, 2017 and December 31, 2016~~2021 are summarized as follows (figures are in thousands of USD):

September 30, 2017 December 31, 2016
Land use rights and buildings $ 55,067 $ 47,448
Machinery and equipment 150,928 134,361
Electronic equipment 5,636 4,979
Motor vehicles 4,954 4,395
Construction in progress 28,832 24,890
Total amount of property, plant and equipment 245,417 216,073
Less: Accumulated depreciation⁽¹⁾ (130,115 ) (114,595 )
Total amount of property, plant and equipment, net⁽²⁾⁽³⁾ $ 115,302 $ 101,478


	Three				Six
	Months Ended				Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenue	$	8,320	$	—	$	2,126	$	—
Gross profit		8,320		—		2,126		—
Income from continuing operations		7,705		(231)		1,512		(183)
Net income	$	7,705	$	(231)	$	1,512	$	(183)

Table of Contents

6. Property, plant and equipment, net

The Company’s property, plant and equipment, net as of June 30, 2021 and December 31, 2020 are summarized as follows (figures are in thousands of USD):


	June 30, 2021		December 31, 2020
Costs:
Buildings	$	62,470	$	61,035
Machinery and equipment		240,136		233,273
Electronic equipment		6,612		6,491
Motor vehicles		5,113		5,064
Construction in progress		21,304		20,813
Total amount of property, plant and equipment		335,635		326,676
Less: Accumulated depreciation ⁽¹⁾		(199,736)		(185,672)
Total amount of property, plant and equipment, net ⁽²⁾⁽³⁾	$	135,899	$	141,004

(1)

Depreciation charges were $6.4 million and $5.3 million for the three months ended June 30, 2021 and 2020, respectively, and $12.7 million and $10.6 million for the six months ended June 30, 2021 and 2020, respectively.

(2)	As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company pledged property, plant and equipment with a net book value of approximately ~~$25.9~~$62.5 million and ~~$28.5~~$66.1 million, respectively, as security for its comprehensive credit facilities with banks in China.

~~(2)~~

Depreciation charges were $3.0 million and $3.3 million for the three months ended September 30, 2017 and 2016, respectively, and $10.7 million and $10.4 million for the nine months ended September 30, 2017 and 2016, respectively.

(3)

Interest costs capitalized for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, were $0.2 million and ~~$0.1~~$0.3 million, ~~respectively;~~respectively, and ~~$0.5~~$0.4 million and ~~$0.2~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

7. Loans

Loans consist of the following as of June 30, 2021 and December 31, 2020 (figures are in thousands of USD):


	June 30, 2021		December 31, 2020
Short-term bank loans ⁽¹⁾	$	36,415	$	36,575
Current portion of long-term government loan ⁽²⁾		0		7,663
Subtotal		36,415		44,238
Long-term government loans ⁽²⁾		0		7,663
Less: Current portion of long-term government loans ⁽²⁾		0		(7,663)
Subtotal		0		0
Total bank and government loans	$	36,415	$	44,238

(1)

15The Company entered into credit facility agreements with various banks, which were secured by property, plant and equipment and land use rights of the Company. The total credit facility amount was $173.0 million and $172.7 million, respectively, as of June 30, 2021 and December 31, 2020. As of June 30, 2021, and December 31, 2020, the Company has drawn down loans with an aggregate amount of $36.4 million and $36.6 million, respectively. The weighted average interest rate was 3.4% and 3.7%, respectively.

(2)

On August 7 and September 3, 2019, the Company borrowed from the local government loans of RMB 20.0 million and RMB 30.0 million, equivalent to approximately $3.0 million and $4.6 million, respectively. These loans were due for repayment on June 30, 2021 and have an interest rate of 3.80% per annum. As of June 30, 2021 and December 31, 2020, Henglong pledged NaN and RMB 53.5 million, equivalent to approximately NaN and $8.2 million, respectively, of notes receivable as collateral for the local government loans (See Note 3). The Company repaid these government loans on April 15, 2021.

The Company must use the loans for the purpose as prescribed in the loan contracts. If the Company fails to do so, it will be charged penalty interest and/or trigger early repayment. The Company complied with such financial covenants as of June 30, 2021.

~~11.~~

~~Intangible assets~~

Table of Contents

8. Accounts and notes payable

The Company’s ~~intangible assets~~accounts and notes payable as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 are summarized as follows (figures are in thousands of USD):

September 30, 2017 December 31, 2016
Costs:
Patent technology $ 2,076 $ 1,986
Management software license 1,218 1,165
Total intangible assets 3,294 3,151
Less: Amortization⁽¹⁾ (2,782 ) (2,534 )
Total intangible assets, net $ 512 $ 617


	June 30, 2021		December 31, 2020
Accounts payable - unrelated parties	$	129,094	$	132,349
Notes payable - unrelated parties ⁽¹⁾		79,346		80,173
Accounts and notes payable - unrelated parties		208,440		212,522
Accounts and notes payable - related parties		12,000		12,730
Total	$	220,440	$	225,252

(1)	~~Amortization expenses were $0.1 million and $0.1 million for~~Notes payable represent payables in the ~~three months ended September 30, 2017 and 2016, respectively, and $0.2 million and $0.3 million for~~form of notes issued by the ~~nine months ended September 30, 2017 and 2016, respectively.~~

~~12.~~

~~Deferred income tax assets~~

~~In accordance with the provisions of~~~~ASC Topic 740, “Income Taxes”,~~ the Company assesses, on a quarterly basis, its ability to realize its deferred tax assets. Based on the more likely than not standard in the guidance and the weight of available evidence, the Company believes a valuation allowance against its deferred tax assets is necessary. In determining the need for a valuation allowance, the Company considered the following significant factors: an assessment of recent years’ profitability and losses by tax authorities; the Company’s expectation of profits based on margins and volumes expected to be realized, which are based on current pricing and volume trends; the long period in all significant operating jurisdictions before the expiry of net operating losses, noting further that a portion of the deferred tax asset is composed of deductible temporary differences that are subject to an expiry period until realized under tax law. The Company will continue to evaluate the provision of valuation allowance in future periods.

~~The components of estimated deferred income tax assets as of September 30, 2017 and December 31, 2016 are as follows (figures are in thousands of USD):~~

September 30, 2017 December 31, 2016

Losses carry forward (U.S.)⁽¹⁾ $ 6,389 $ 6,216
Losses carry forward (Non-U.S.)⁽¹⁾ 2,307 2,887
Product warranties and other reserves 4,290 4,766
Property, plant and equipment 4,422 4,204
Share-based compensation 220 247
Bonus accrual 230 231
Other accruals 1,439 1,551
Deductible temporary difference related to revenue recognition 153 191
Others 1,365 1,206
Total deferred tax assets, net 20,815 21,499
Less: Valuation allowance (9,044 ) (8,912 )
Total deferred tax assets, net of valuation allowance⁽²⁾ $ 11,771 $ 12,587

~~(1)~~

The net operating losses carry forward for the U.S. entities for income tax purposes are available to reduce future years' taxable income. These carry forward losses will expire, if not utilized, at various times over the next 20 years. Net operating losses carry forward for China entities can be carried forward for 5 years to offset taxable income.bank. As of ~~September~~June 30, 2017, the valuation allowance was $9.0 million, including $6.6 million allowance for the Company’s deferred tax assets in the United States and $2.4 million allowance for the Company’s non-U.S. deferred tax assets. Based on the Company’s current operations in the United States, management believes that the deferred tax assets in the United States are not likely to be realized in the future. For the deferred tax assets in other countries, pursuant to certain tax laws and regulations, management believes such amount will not be used to offset future taxable income.

~~(2)~~

~~Approximately $4.3 million and $4.6 million of net deferred income tax assets as of September 30, 2017~~2021 and December 31, ~~2016, respectively, are included in non-current deferred tax assets in~~2020, the ~~accompanying condensed unaudited consolidated balance sheets. The remaining $7.5~~Company has pledged cash of $34.2 million and ~~$7.9~~$30.8 million, respectively. As of ~~net deferred income tax assets as of September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company has pledged notes receivable of $4.4 million and $5.5 million, respectively, ~~are included in current deferred tax assets.~~

~~13.~~

~~Bank and government loans~~

~~Loans consist of the following as of September 30, 2017 and December 31, 2016 (figures are in thousands of USD):~~

September 30, 2017 December 31, 2016
Short-term bank loan⁽¹⁾ $ 9,794 $ 2,162
Short-term bank loan^{(2) (3) (4) (5)} 30,484 35,054
Short-term bank loans⁽⁶⁾ 28,796 -
Short-term government loan⁽⁷⁾ 4,520 3,604
Bank and government loans $ 73,594 $ 40,820

~~(1)~~

~~These loans are~~as collateral for banks to endorse the payment of the Company’s notes payable to the noteholders upon maturity. The Company entered into credit facility agreements with various banks, which were secured by property, plant and equipment and land use rights of the ~~Company and are repayable within one year (See Note 10).~~Company. As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the ~~weighted average interest rate was 4.7%~~Company has used $45.3 million and ~~5.2% per annum, respectively. Interest is to be paid monthly or quarterly on the twentieth day of the applicable month or quarter and the principal repayment is at maturity.~~$43.9 million, respectively, for issuing bank notes.

~~(2)~~

On May 18, 2012, the Company entered into a credit facility agreement, the “Credit Agreement,” with ICBC Macau to obtain a non-revolving credit facility in the amount of $30.0 million, the “Credit Facility”. The Credit Facility would have expired on November 3, 2012 unless the Company drew down the line of credit in full prior to such expiration date, and the maturity date for the loan drawdown was the earlier of (i) 18 months from the drawdown or (ii) one month before the expiry of the standby letter of credit obtained by Henglong from ICBC Jingzhou as security for the Credit Facility, the “Henglong Standby Letter of Credit”. The interest rate of the Credit Facility is calculated based on a three-month LIBOR plus 2.25% per annum, subject to the availability of funds and fluctuation at ICBC Macau’s discretion. The interest is calculated daily based on a 360-day year and it is fixed one day before the first day of each interest period. The interest period is defined as three months from the date of drawdown. As security for the Credit Facility, the Company was required to provide ICBC Macau with the Henglong Standby Letter of Credit for a total amount of not less than $31.6 million if the Credit Facility is fully drawn.

~~On May 22, 2012, the Company drew down the full amount of $30.0 million under the Credit Facility~~9. Accrued expenses and provided the Henglong Standby Letter of Credit for an amount of $31.6 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 207.1 million, equivalent to approximately $32.6 million. The Company also paid an arrangement fee of $0.1 million to ICBC Macau and $0.1 million to ICBC Jingzhou. The original maturity date of the Credit Facility was May 22, 2013 and was extended to May 12, 2017. The interest rate of the Credit Facility under the extended term is three-month LIBOR plus 0.7% per annum. Except for the above, all other ~~terms and conditions as stipulated in the Credit Agreement remained unchanged. As of December 31, 2016, the interest rate of the Credit Facility was 1.7% per annum.~~

On April 20, 2017, the Company entered into a credit facility agreement, the “Credit Agreement,” with ICBC Macau to obtain a non-revolving credit facility in the amount of $20.0 million, the “Credit Facility”. The Credit Facility will expire on May 12, 2018 unless the Company draws down the line of credit in full prior to such expiration date, and the maturity date for the loan drawdown is the earlier of (i) 12 months from the date of drawdown or (ii) one month before the expiry of the standby letter of credit obtained by Henglong from ICBC Jingzhou as security for the Credit Facility, the “Henglong Standby Letter of Credit”. The interest rate of the Credit Facility is calculated based on a three-month LIBOR plus 1.30% per annum, subject to the availability of funds and fluctuation at ICBC Macau’s discretion. Interest is calculated daily based on a 360-day year and it is fixed one day before the first day of each interest period. The interest period is defined as three months from the date of drawdown. As security for the Credit Facility, the Company was required to provide ICBC Macau with the Henglong Standby Letter of Credit for a total amount of not less than $23.9 million if the Credit Facility is fully drawn.

On May 5, 2017, the Company drew down the full amount of $20.0 million under the Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $23.4 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 158.9 million, equivalent to approximately $23.9 million. The Company also paid an arrangement fee of $0.04 million to ICBC Jingzhou. The maturity date of the Credit Facility is May 12, 2018.

~~(3)~~

On April 25, 2017, Great Genesis entered into a credit facility agreement, the “Taishin Bank Credit Facility”, with Taishin Bank to obtain a non-revolving credit facility in the amount of $10.0 million. The Taishin Bank Credit Facility will expire on April 25, 2018 and has an annual interest rate of 2.7%. Interest is paid quarterly and the principal repayment is payable at maturity. As security for the Taishin Bank Credit Facility, the Company’s subsidiary Henglong was required to provide Taishin Bank with the Standby Letter of Credit for a total amount of not less than $10.0 million if the Taishin Bank Credit Facility is fully drawn.

On April 28, 2017, Great Genesis drew down the full amount of $9.9 million under the Taishin Bank Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $10.0 million in favor of Taishin Bank. Henglong’s Standby Letter of Credit issued by China CITIC Bank Wuchang branch is collateralized by Henglong’s short-term investments of RMB 4.0 million, equivalent to approximately $0.6 million, and notes receivable of RMB 79.4 million, equivalent to approximately $12.0 million.

~~(4)~~

On July 16, 2014, Great Genesis entered into a credit facility agreement with HSBC HK to obtain a non-revolving credit facility in the amount of $5.0 million, the “HSBC Credit Facility”. The HSBC Credit Facility expired on July 1, 2015 and had an annual interest rate of 1.7%. Interest was paid on the twentieth day of each month and the principal repayment was at maturity. As security for the HSBC Credit Facility, the Company’s subsidiary Hubei Henglong was required to provide HSBC HK with a Standby Letter of Credit for a total amount of not less than $5.4 million if the HSBC Credit Facility was fully drawn.

On July 22, 2014, Great Genesis drew down a loan amounting to $5.0 million provided by HSBC HK and Hubei Henglong provided a Standby Letter of Credit for an amount of $5.4 million in favor of HSBC HK. Hubei Henglong’s Standby Letter of Credit was issued by HSBC Bank (China) Company Limited Wuhan branch and is collateralized by long-term time deposits of Hubei Henglong of RMB 33.0 million, equivalent to approximately $4.8 million.

On July 7, 2016, HSBC HK agreed to extend the maturity date of the HSBC Credit Facility to July 1, 2017. Hubei Henglong provided a Standby Letter of Credit in an amount of $5.1 million in favor of HSBC HK. The Standby Letter of Credit was issued by HSBC Bank (China) Company Limited Wuhan branch and was collateralized by short-term time deposits of Hubei Henglong of RMB 36.0 million, equivalent to approximately $5.2 million. The interest rate of the HSBC Credit Facility under the extended term was revised as three-month LIBOR plus 0.8% per annum, i.e. 1.95% per annum. Except for the above, all other terms and conditions as stipulated in the Credit Agreement remained unchanged. The Company repaid this bank loan on July 14, 2017.

~~(5)~~

On April 1, 2016, Brazil Henglong entered into a credit facility agreement with HSBC Brazil to obtain a credit facility in the amount of $0.1 million, the “HSBC Brazil Credit Facility”. The HSBC Brazil Credit Facility expired on October 27, 2017. As security for the HSBC Credit Facility, the Company’s subsidiary Hubei Henglong was required to provide HSBC Brazil with the Standby Letter of Credit for a total amount of $0.1 million if the HSBC Brazil Credit Facility is fully drawn.

On May 6, 2016, Brazil Henglong drew down a loan amounting to $0.1 million provided by HSBC Brazil. The loan matured on October 9, 2017 and has an annual interest rate of 8.2%.Hubei Henglong provided a Standby Letter of Credit for an amount of $0.1 million in favor of HSBC Brazil. Hubei Henglong’s Standby Letter of Credit was issued by China CITIC Bank Wuhan branch and is collateralized by short-term investments of Hubei Henglong of RMB 0.5 million, equivalent to approximately $0.1 million. The Company repaid this bank loan on October 9, 2017.

On August 26, 2016, Brazil Henglong entered into a credit facility agreement with Bank of China (Brazil) to obtain a credit facility in the amount of $0.6 million, the “Bank of China Credit Facility”. The Bank of China Credit Facility will expire on January 15, 2018. As security for the Bank of China Credit Facility, the Company’s subsidiary Hubei Henglong is required to provide Bank of China (Brazil) with a Standby Letter of Credit for a total amount of $0.9 million if the Bank of China Credit Facility is fully drawn.

On August 26, 2016, Brazil Henglong drew down a loan amounting to $0.6 million provided by Bank of China (Brazil). The loan will mature on January 15, 2018 and has an annual interest rate of 4.0%. Interest is paid semiannually and the principal repayment is at maturity. Hubei Henglong provided a Standby Letter of Credit for an amount of $0.9 million in favor of Bank of China (Brazil). Hubei Henglong’s Standby Letter of Credit was issued by Bank of China Jingzhou branch and is collateralized by long-term time deposits of Hubei Henglong of RMB 6.0 million, equivalent to approximately $0.9 million.

~~(6)~~

On September 26, 2016, Henglong entered into a credit facility agreement with China CITIC Bank to obtain credit facilities in the amount of RMB 170.0 million (equivalent to $25.6 million as of September 30, 2017), the “Henglong CITIC Credit Facility”. The Henglong CITIC Credit Facility expired on September 26, 2017. As security for the Henglong CITIC Credit Facility, Henglong’s property, plant and equipment were pledged and Hubei Henglong provided a guarantee. On March 3, 2017, Henglong drew down loans amounting to RMB 32.5 million, RMB 32.5 million and 30.6 million (equivalent to $4.9 million, $4.9 million and $4.6 million as of September 30, 2017), respectively. The loans will mature on February 5, 6 and 7, 2018, respectively. The annual interest rate of the loans is 4.99%. The principal and interest will be paid at maturity.

On September 26, 2016, Hubei Henglong entered into a credit facility agreement with China CITIC Bank to obtain credit facilities in the amount of RMB 100.0 million (equivalent to $15.1 million as of September 30, 2017), the “Hubei Henglong CITIC Credit Facility”. The Hubei Henglong CITIC Credit Facility expired on September 26, 2017. Henglong provided a guarantee for the Hubei Henglong CITIC Credit Facility. On March 3, 2017, Hubei Henglong drew down loans amounting to RMB 28.7 million, RMB 28.7 million and 38.2 million (equivalent to $4.3 million, $4.3 million and $5.8 million), respectively. The loans will mature on February 2, 8 and 9, 2018, respectively. The annual interest rate of the loans is 5.0%. The principal and interest will be paid at maturity.

~~(7)~~

On August 17, 2017, the Company received an interest-free Chinese government loan of RMB 20.0 million, equivalent to approximately $3.0 million, which will mature on August 16, 2018. Henglong pledged RMB 20.0 million, equivalent to approximately $3.0 million, of notes receivable as security for the Chinese government loan (See Note 4).

On April 21, 2017, the Company received an interest-free Chinese government loan of RMB 10.0 million, equivalent to approximately $1.5 million, which will mature on December 8, 2017. Jiulong pledged RMB 10.0 million, equivalent to approximately $1.5 million, of notes receivable as security for the Chinese government loan (See Note 4).

~~14.~~

~~Accounts and notes payable~~

payables

The Company’s ~~accounts~~accrued expenses and ~~notes payable~~other payables as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 are summarized as follows (figures are in thousands of USD):

September 30, 2017 December 31, 2016
Accounts payable - unrelated parties $ 142,594 $ 138,053
Notes payable - unrelated parties⁽¹⁾ 82,164 78,940
Accounts and notes payable- unrelated parties 224,758 216,993
Accounts payable - related parties 5,749 6,803
Balance at end of period $ 230,507 $ 223,796


	June 30, 2021		December 31, 2020
Warranty reserves⁽¹⁾	$	36,537	$	36,215
Accrued expenses		8,752		8,627
Current portion of other long-term payable (See Note 10)		3,242		4,131
Payables for overseas transportation and custom clearance		1,358		3,278
Dividends payable to holders of non-controlling interests		464		460
Accrued interest		144		646
Other payables		1,224		2,250
Balance at end of year	$	51,721	$	55,607

(1)

Notes payable represent accounts payable in the form of notes issued by the Company. The notes are endorsed by banks to ensure that noteholders will be paid after maturity. The Company has pledged cash deposits, short-term investments, notes receivable and certain property, plant and equipment to secure notes payable granted by banks.

~~15.~~

~~Accrued expenses and other payables~~

~~The Company’s accrued expenses and other payables as of September 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):~~

September 30, 2017 December 31, 2016
Accrued expenses $ 7,975 $ 8,605
Accrued interest 953 88
Dividends payable to holders of non-controlling interests⁽³⁾ 621 -
Other payables 2,483 964
Warranty reserves^{(1) (2)} 20,851 26,225
Total $ 32,883 $ 35,882

~~(1)~~

The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of product warranties are based on, among other things, historical experience, product changes, material expenses, services and transportation expenses arising from the manufactured products. Estimates will be adjusted on the basis of actual claims and circumstances.

~~(2)~~

In January 2017, the Company initiated two recalls related to the Company’s products. The Company has accrued anticipated costs for handling the recalls amounting to $5.0 million in warranty reserves for the year ended December 31, 2016.

~~(3)~~

In accordance with the resolution of the Board of Directors of Shenyang, in the second quarter of 2017, Shenyang declared a dividend amounting to $2.0 million to its shareholders, of which $0.6 million was payable to the holders of the non-controlling interests. As of September 30, 2017, the dividends have not been paid.

For the three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, the warranties activities were as follows (figures are in thousands of USD):

	Three Months Ended September 30,
	2017			2016

							Three Months Ended June 30,				Six Months Ended June 30,
							2021		2020		2021		2020
Balance at beginning of the period	$	23,898		$	21,238		$	35,985	$	32,642	$	36,215	$	32,907
Additions during the period		4,426			1,693			4,017		4,927		7,698		8,355
Settlement within period, by cash or actual materials		(6,814	)		(2,378	)
Foreign currency translation (gain)/loss		(659	)		160
Settlement within the period								(4,085)		(3,564)		(7,730)		(6,739)
Foreign currency translation loss/(gain)								620		26		354		(492)
Balance at end of the period	$	20,851		$	20,713		$	36,537	$	34,031	$	36,537	$	34,031

Table of Contents

10. Other long-term payable

On January 31, 2018, the Company entered into an equipment sales agreement with a third party (the “buyer-lessor") and simultaneously entered into a four-year contract to lease back the equipment from the buyer-lessor. The carrying value of the equipment was RMB 91.3 million (equivalent to $14.1 million as of June 30, 2021) and the sales price was RMB 100.0 million (equivalent to $15.5 million as of June 30, 2021). Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor lease payments over four years with a quarterly lease payment of approximately $1.1 million and is entitled to obtain the ownership of this equipment at a nominal price upon the expiration of the lease. The Company is of the view that the transaction does not qualify as a sale. Therefore, the transaction was accounted for as a financing transaction by the Company. As of June 30, 2021, $3.2 million was recognized as other payable (See Note 9) and NaN was recognized as the other long-term payable.

11. Redeemable non-controlling interests

In September 2020, one of the Company’s subsidiaries issued shares to Hubei Venture Fund amounting to $0.7 million. The shares will be transferred to the Company and the other shareholder of the subsidiary on a pro rata basis at the holder’s option if the subsidiary fails to complete a qualified IPO in a pre-agreed period of time after their issuance with a transfer price of par plus 6% per year. $0.5 million of the shares are subject to purchase by the Company and are therefore accounted for as redeemable non-controlling interests in mezzanine equity and are accreted to the redemption value over the period starting from the issuance date.

For the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016, and for the year ended December 31, 2016, the warranties activities were as follows (figures are in thousands of USD):~~

Nine Months Ended September 30, Year Ended
December 31,
2017 2016 2016
Balance at beginning of the period $ 26,225 $ 23,059 $ 23,059
Additions during the period 11,182 5,433 16,522
Settlement within period, by cash or actual materials (15,423 ) (8,434 ) (11,781 )
Foreign currency translation loss (1,133 ) 655 (1,575 )
Balance at end of the period $ 20,851 $ 20,713 $ 26,225

~~16.~~

~~Taxes payable~~

~~The Company’s taxes payable as of September 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):~~

September 30, 2017 December 31, 2016
Value-added tax payable $ 2,374 $ 7,662
Income tax payable 1,019 3,390
Other tax payable 407 622
Total $ 3,800 $ 11,674

~~17.~~

~~Advances payable~~

~~As of September 30, 2017 and December 31, 2016, advances payable by~~2021, the Company ~~were $0.8~~recognized accretion of $0.007 million and ~~$0.7~~$0.014 million ~~respectively.~~

~~The amounts are special subsidies made by the Chinese government~~respectively, to the ~~Company to offset the costs and charges related to the improvement of production capacities and improvement~~redemption value of the ~~quality of products. For~~shares over the ~~government subsidies~~period starting from the issuance date with ~~no further conditions~~a corresponding reduction to be met, the amounts are recorded as other income when received; for the amounts with certain operating conditions, the government subsidies are recorded as advances payable when received and will be recorded as a deduction of related expenses and cost when the conditions are met.retained earnings, respectively.

~~The balances are unsecured, interest-free and will be repayable to the Chinese government if the usage of such advance does not continue to qualify for the subsidy.~~

~~18.~~

12. Additional paid-in capital

The Company’s positions in respect of the amounts of additional paid-in capital for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and the year ended December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

	Nine Months Ended September 30,					Year Ended December 31,
	2017			2016		2016

								Three Months Ended June 30,				Six Months Ended June 30,
								2021		2020		2021		2020
Balance at beginning of the period	$	64,764		$	64,627	$	64,627	$	64,361	$	64,437	$	64,273	$	64,466
Acquisition of the non-controlling interest in Brazil Henglong⁽¹⁾		(458	)		-		-
Share-based compensation⁽²⁾		100			-		137		0		0		88		0
Acquisition of the non-controlling interest in Wuhu									(630)		—		(630)		—
Acquisition of the non-controlling interest in Universal Sensor Application Inc., "USAI"									—		—		—		(29)
Acquisition of the non-controlling interest in Changchun Hualong									0		(76)		0		(76)
Deemed distribution to shareholders									—		(88)		—		(88)
Balance at end of the period	$	64,406		$	64,627	$	64,764	$	63,731	$	64,273	$	63,731	$	64,273

~~(1)~~

In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction.

~~(2)~~

On December 2, 2016 and August 16, 2017, the Company granted 22,500 and 22,500 stock options, respectively, to the Company’s independent directors, with the exercise price equal to the closing price of the Company’s common stock traded on NASDAQ one day before the date of grant and on the date of grant. The fair value of the stock options was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instruments. The dividend yield assumption is based on historical patterns and future expectations for the Company’s dividends.

13. Stock Options

The Company’s stock option plan was approved at the Annual Meeting of Stockholders held on June 28, 2005, and extended to June 27, 2025 at the Annual Meeting of Stockholders held on September 16, 2014. The maximum common shares available for issuance under this plan is 2,200,000. The stock incentive plan provides for the issuance, to the Company’s officers, directors, management and employees who served over three years or have given outstanding performance, of options to purchase shares of the Company’s common stock. The Company has issued 658,850 stock options under this plan, and there remain 1,541,150 stock options issuable in the future as of June 30, 2021.

Under the aforementioned plan, the stock options granted will have an exercise price equal to the closing price of the Company’s common stock traded on NASDAQ one day before the date of grant, and will expire two to five years after the grant date. The stock options granted during the three months ended June 30, 2021 were exercisable immediately on the grant date. Stock options will be settled in shares of the Company’s common stock upon exercise and are recorded in the Company’s consolidated balance sheets under the caption “Additional paid-in capital.” As of June 30, 2021, the Company has sufficient unissued registered common stock for settlement of the stock incentive plan mentioned above.

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The fair value of stock options was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instruments. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.

~~Assumptions~~For the stock options granted during the six months ended June 30, 2021, assumptions used to estimate the fair value of ~~the~~ stock options on the grant ~~dates are~~date is as follows:


Issuance Date	Expected volatility		Risk-free rate		Expected term (years)	Dividend yield
February 3, 2021	76.91	%	0.46	%	5	0.00	%

Issuance Date Expected volatility Risk-free rate Expected term (years) Dividend yield

December 2, 2016 134.8 % 1.84 % 5 0.00 %
August 16, 2017 139.2 % 1.79 % 5 0.00 %

The stock options granted during ~~2017 and 2016~~the six months ended June 30, 2021 were exercisable ~~immediately. Their~~immediately and their fair ~~values~~value on the grant ~~dates~~date using the Black-Scholes option pricing model ~~were$0.1 million and~~was $0.1 ~~million, respectively.~~million. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~the year ended December 31, 2016,~~2020, the Company recognized stock-based compensation expenses of $0.1 million and NaN, respectively.

The activities of stock options are summarized as follows, including granted, exercised and forfeited.


				Weighted-
		Weighted-		Average
		Average		Contractual
	Shares	Exercise Price		Term (years)
Outstanding - January 1, 2020	30,000	$	4.99	5
Expired	(7,500)		5.58	5
Outstanding - December 31, 2020	22,500	$	4.79	5
Granted	22,500		6.26	5
Outstanding - June 30, 2021	45,000	$	5.52	5

The following is a summary of the range of exercise prices for stock options that are outstanding and exercisable at June 30, 2021:


	Outstanding Stock	Weighted Average	Weighted Average		Number of Stock
Range of Exercise Prices	Options	Remaining Life	Exercise Price		Options Exercisable
$2.37 - $6.95	45,000	2.14	$	5.52	45,000

As of June 30, 2021 and December 31, 2020, the total intrinsic value of the Company’s stock options that were exercisable was $0.2 million and $0.1 million, respectively.

For the three and six months ended June 30, 2021 and 2020, 0 Company’s stock options were exercised.

~~19.~~

During the six months ended June 30, 2021, the weighted average fair value of the Company’s stock options granted was $3.92. NaN stock option was granted during the three months ended June 30, 2021 and 2020. NaN stock option was granted during the six months ended June 30, 2020.

14. Retained earnings

Appropriated

Pursuant to the relevant PRC laws, the profits distribution of the Company’s ~~Sino-foreign~~ subsidiaries, which are based on their PRC statutory financial statements, ~~other than the financial statement that was prepared in accordance with generally accepted accounting principles in the United States of America,~~ are available for distribution in the form of cash dividends after these subsidiaries have paid all relevant PRC tax liabilities, provided for losses in previous years, and made appropriations to statutory surplus at 10%.

of their respective after-tax profits each year. When the statutory surplus reserve reaches 50% of the registered capital of a company, 0 additional reserve is ~~no longer~~ required. ~~However,~~For the three months ended June 30, 2021 and 2020, 0 statutory reserve ~~cannot be distributed to joint venture partners. Based on~~was appropriated by the ~~business licenses~~subsidiaries in China.

Table of the PRC subsidiaries, the registered capital of Henglong, Jiulong, Shenyang, USAI, Jielong, Wuhu, Hubei Henglong and Chongqing are $10.0 million, $4.2 million (equivalent to RMB 35.0 million), $8.1 million (equivalent to RMB 67.5 million), $2.6 million, $6.0 million, $3.8 million (equivalent to RMB 30.0 million), $39.0 million and $9.5 million (equivalent to RMB 60.0 million), respectively.Contents

The Company’s activities in respect of the amounts of appropriated retained earnings for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and the year ended December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

	Nine Months Ended September 30,				Year Ended December 31,
	2017		2016		2016

							Three Months Ended June 30,				Six Months Ended June 30,
							2021		2020		2021		2020
Balance at beginning of the period	$	10,549	$	10,379	$	10,379	$	11,303	$	11,265	$	11,303	$	11,265
Appropriation of retained earnings		124		142		170
Balance at end of the period	$	10,673	$	10,521	$	10,549	$	11,303	$	11,265	$	11,303	$	11,265

Unappropriated

The Company’s activities in respect of the amounts of the unappropriated retained earnings for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and the year ended December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

	Nine Months Ended September 30,						Year Ended December 31,
	2017			2016			2016

										Three Months Ended June 30,				Six Months Ended June 30,
										2021		2020		2021		2020
Balance at beginning of the period	$	228,963		$	206,622		$	206,622		$	218,697	$	220,481	$	215,491	$	221,298
Net income attributable to parent company		19,694			16,755			22,511
Appropriation of retained earnings		(124	)		(142	)		(170	)
Cumulative effect of accounting change - credit loss											—		—		—		(789)
Net income/(loss) attributable to parent company											3,207		(4,098)		6,420		(4,126)
Accretion of redeemable non-controlling interests											(7)		—		(14)		—
Balance at end of the period	$	248,533		$	223,235		$	228,963		$	221,897	$	216,383	$	221,897	$	216,383

~~20.~~

15. Accumulated other comprehensive income

The Company’s activities in respect of the amounts of ~~the~~ accumulated other comprehensive income for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and the year ended December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

	Nine Months Ended September 30,						Year Ended December 31,
	2017			2016			2016

										Three Months Ended June 30,				Six Months Ended June 30,
										2021		2020		2021		2020
Balance at beginning of the period	$	(892	)	$	18,412		$	18,412		$	15,285	$	(7,970)	$	17,413	$	(3,462)
Other comprehensive income related to the non-controlling interests acquired by the Company		(67	)		-			-
Foreign currency translation adjustment attributable to parent company		13,681			(8,128	)		(19,304	)		5,234		302		3,106		(4,206)
Balance at end of the period	$	12,722		$	10,284		$	(892	)	$	20,519	$	(7,668)	$	20,519	$	(7,668)

~~21.~~

16. Treasury stock

Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method. On ~~December 18, 2015,~~August 13, 2020, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices ~~or in privately negotiated transactions~~not to exceed $3.50 per share through ~~December 17, 2016. The repurchase program terminated on December 17, 2016. During~~August 12, 2021. As of June 30, 2021, the ~~year ended December 31, 2016,~~Company had cumulatively repurchased 322,269 of the shares that were authorized to be repurchased under the ~~repurchase~~ program ~~the Company repurchased 477,015 shares of the Company’s common stock for cash consideration of $1.9 million~~that was approved on ~~the open market.~~August 13, 2020. The repurchased shares are presented as “treasury stock” on the balance sheet.

~~22.~~

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17. Non-controlling interests

The Company’s activities in respect of the amounts of the non-controlling interests’ equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and the year ended December 31, 2016~~2020, are summarized as follows (figures are in thousands of USD):

Nine Months Ended September 30, Year Ended
December 31,
2017 2016 2016
Balance at beginning of the period $ 5,412 $ 8,252 $ 8,252
Income attributable to non-controlling interests 353 164 466
Dividends declared to the non-controlling interest holders of joint-venture companies (See Note 15) (608 ) (464 ) (464 )
Acquisition of the non-controlling interest in Brazil Henglong 458 - -
Other comprehensive income related to the non-controlling
interests acquired by the Company 67 - -
Non-controlling interests change due to the disposal of Fujian Qiaolong - (2,150 ) (2,150 )
Foreign currency translation adjustment attributable to non-controlling interests 467 (307 ) (692 )
Balance at end of the period $ 6,149 $ 5,495 $ 5,412


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Balance at beginning of the period	$	16,045	$	18,694	$	16,170	$	20,250
Net loss attributable to non-controlling interests		(279)		(142)		(261)		(742)
Acquisition of the non-controlling interest in Wuhu		(444)		0		(444)		—
Acquisition of the non-controlling interest in USAI		0		0		—		29
Acquisition of the non-controlling interest in Changchun Hualong		0		(5)		—		(5)
Cumulative effect of accounting change - credit loss		0		0		—		(102)
Dividends declared to non-controlling interest holders of non-wholly owned subsidiaries		0		0		—		(430)
Foreign currency translation adjustment attributable to non-controlling interests		352		56		209		(397)
Balance at end of the period	$	15,674	$	18,603	$	15,674	$	18,603

~~23.~~

~~Gain on other sales~~

~~Gain~~

18. Net product sales

Revenue Disaggregation

Management has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard. Please refer to Note 25.

Contract Assets and Liabilities

Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of the Company’s revenue recognition process. The majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of the Company’s products and their respective manufacturing processes.

Contract liabilities are mainly customer deposits. As of June 30, 2021 and December 31, 2020, the Company has customer deposits of $3.8 million and $1.5 million, respectively, which were included in other current liabilities on ~~other sales mainly consisted of net amount retained from sales of materials, property, plant and equipment, and scraps. For~~ the ~~nine~~consolidated balance sheets. During the six months ended ~~September~~June 30, ~~2017, gain on other~~2021, $3.9 million was received and $1.6 million (including $1.5 million from the beginning balance of customer deposits) was recognized as net product sales ~~amounted to $5.9 million as compared to $2.0 million for~~revenue. During the ~~nine~~six months ended ~~September~~June 30, ~~2016, representing~~2020, $1.1 million was received and $0.8 million (including $0.8 million from the beginning balance of customer deposits) was recognized as net product sales revenue. Customer deposits represent non-refundable cash deposits for customers to secure rights to an ~~increase~~amount of ~~$3.9 million. During the second quarter of 2017,~~products produced by the Company ~~disposed~~under supply agreements. When the products are shipped to customers, the Company will recognize revenue and bill the customers to reduce the amount of ~~a building located in Jingzhou and recognized a gain of $2.2 million.~~ the customer deposit liability.

~~24.~~

~~Financial income,~~

19. Financial expense, net

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, the Company recorded financial ~~income,~~expense, net which is summarized as follows (figures are in thousands of USD):

Nine Months Ended September 30,
2017 2016

Interest income $ 2,474 $ 1,777
Foreign exchange loss, net (173 ) (30 )
Gain of cash discount, net - 3
Bank fees (392 ) (480 )
Total financial income, net $ 1,909 $ 1,270


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest income	$	206	$	397	$	521	$	748
Foreign exchange gain/(loss), net		191		(413)		(278)		(1,124)
Bank charges		(215)		(43)		(300)		(214)
Total financial expense, net	$	182	$	(59)	$	(57)	$	(590)

~~25.~~

~~Income tax rate~~

~~The Company’s subsidiaries registered in the PRC are subject to national and local income taxes within the PRC at the applicable tax rate~~

Table of 25% on the taxable income as reported in their PRC statutory financial statements in accordance with the relevant income tax laws applicable to foreign invested enterprise, unless preferential tax treatment is granted by local tax authorities. If the enterprise meets certain preferential terms according to the China income tax law, such as assessment as a “High & New Technology Enterprise” by the government, the enterprise will be subject to enterprise income tax at a rate of 15%.Contents

Pursuant to the New China Income Tax Law and the Implementing Rules, “New CIT”, which became effective as of January 1, 2008, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise to its foreign investors will be subject to a 10% withholding tax if the foreign investors are considered non-resident enterprises without any establishment or place within China or if the dividends payable have no connection with the establishment or place of the foreign investors within China, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

Genesis, the Company’s wholly-owned subsidiary and the direct holder of the equity interests in the Company’s subsidiaries in China, is incorporated in Hong Kong. According to the Mainland China and Hong Kong Taxation Arrangement, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5%, if the foreign investor directly owns at least 25% of the shares of the foreign-invested enterprise. Under the New CIT, if Genesis is regarded as a non-resident enterprise, it is required to pay an additional 5% withholding tax for any dividends payable to it from the PRC subsidiaries.

According to PRC tax regulation, the Company should withhold income taxes for the profits distributed from the PRC subsidiaries to Genesis, the subsidiaries’ holding company incorporated in Hong Kong. For the profits that the PRC subsidiaries intended to distribute to Genesis, the Company accrues the withholding income tax as deferred tax liabilities. As of September 30, 2017, the Company has recognized deferred tax liabilities of $0.2 million for the remaining undistributed profits to Genesis of $4.5 million. The Company intended to re-invest the remaining undistributed profits generated from the PRC subsidiaries in those subsidiaries permanently. As of September 30, 2017 and December 31, 2016, the Company still had undistributed earnings of approximately $266.4 million and $239.8 million, respectively, from investment in the PRC subsidiaries that are considered permanently reinvested. Had the undistributed earnings been distributed to Genesis and not permanently reinvested, the tax provision as of September 30, 2017 and December 31, 2016 of approximately $13.3 million and $12.0 million, respectively, would have been recorded. Such undistributed profits will be reinvested in Genesis and not further distributed to the parent company incorporated in the United States going forward.

In 2014, Jiulong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax at a rate of 15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.

In 2014, Henglong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax at a rate of 15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.

In 2009, Shenyang was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2009, 2010 and 2011. In 2012, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continued to be taxed at the 15% tax rate in 2012, 2013 and 2014. In 2015, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017.

In 2012, Wuhu was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013 and 2014. In 2015, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015 and 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.

In 2013, Jielong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013, 2014 and 2015. In 2016, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate from 2016 to 2018.

In 2011, Hubei Henglong was awarded the title of “High & New Technology Enterprise”. Based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013. The Company has passed the re-assessment in 2014 and continues to qualify as a “High & New Technology Enterprise”. Accordingly, it continues to be taxed at the 15% tax rate in 2014, 2015 and 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.

~~According to the New CIT, USAI, Wuhan Chuguanjie, Shanghai Henglong and Testing Center are subject to income tax at a rate of 25% in 2016 and 2017.~~

Chongqing Henglong was established in 2012. According to the New CIT, Chongqing Henglong is subject to income tax at a uniform rate of 25%. No provision for Chongqing Henglong is made as it had no assessable income for the nine months ended September 30, 2017 and 2016.

Based on Brazilian income tax laws, Brazil Henglong is subject to income tax at a uniform rate of 15%, and a resident legal person is subject to additional tax at a rate of 10% for the part of taxable income over $0.12 million, equivalent to approximately BRL 0.24 million. The Company had no assessable income in Brazil for the nine months ended September 30, 2017 and 2016.

The profits tax rate of Hong Kong is 16.5%. No provision for Hong Kong tax is made as Genesis is an investment holding company, and had no assessable income in Hong Kong for the nine months ended September 30, 2017 and 2016.

The enterprise income tax rate of the United States is 35%. No provision for U.S. tax is made for CAAS and HLUSA as a whole, as the Company had no assessable income in the United States for the nine months ended September 30, 2017 and 2016.

The Company’s effective tax rate was 17.3% and 18.2% for the three months and nine months ended September 30, 2017, respectively, compared with 17.4% and 17.3% for the three months and nine months ended September 30, 2016, respectively.

~~26.~~

~~Income~~20. Income/(loss) per share

Basic income per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted income per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. The dilutive effect of outstanding stock options is determined based on the treasury stock method.

The ~~calculation~~calculations of basic and diluted income per share attributable to the parent company for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, was~~2020, were as follows (figures are in thousands of USD, except share and per share amounts):

	Three Months Ended September 30,
	2017		2016

					Three Months Ended June 30,
					2021		2020
Numerator:
Net income attributable to the parent company’s common shareholders – Basic and Diluted	$	5,059	$	5,682
Net income/(loss) attributable to the parent company’s common shareholders - Basic and Diluted					$	3,200	$	(4,098)
Denominator:
Weighted average shares outstanding		31,644,004		31,911,360		30,851,776		31,174,045
Dilutive effects of stock options		267		362		3,630		0
Denominator for dilutive income per share – Diluted		31,644,271		31,911,722

Net income per share attributable to parent company’s common shareholders – Basic	$	0.16	$	0.18
Net income per share attributable to parent company’s common shareholders – Diluted	$	0.16	$	0.18
Denominator for dilutive income per share - Diluted						30,855,406		31,174,045

Net income/(loss) per share attributable to parent company’s common shareholders - Basic					$	0.10	$	(0.13)
Net income/(loss) per share attributable to parent company’s common shareholders - Diluted					$	0.10	$	(0.13)

The ~~calculation~~calculations of basic and diluted income per share attributable to the parent company for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, was~~2020, were as follows (figures are in thousands of USD, except share and per share amounts):

	Nine Months Ended September 30,
	2017		2016

					Six Months Ended June 30,
					2021		2020
Numerator:
Net income attributable to the parent company’s common shareholders – Basic and Diluted	$	19,694	$	16,755
Net income/(loss) attributable to the parent company’s common shareholders - Basic and Diluted					$	6,406	$	(4,126)
Denominator:
Weighted average shares outstanding		31,644,004		32,038,933		30,851,776		31,174,045
Dilutive effects of stock options		3,829		1,581		4,795		—
Denominator for dilutive income per share – Diluted		31,647,833		32,040,514

Net income per share attributable to parent company’s common shareholders – Basic	$	0.62	$	0.52
Net income per share attributable to parent company’s common shareholders – Diluted	$	0.62	$	0.52
Denominator for dilutive income per share - Diluted						30,856,571		31,174,045

Net income/(loss) per share attributable to parent company’s common shareholders - Basic					$	0.21	$	(0.13)
Net income/(loss) per share attributable to parent company’s common shareholders - Diluted					$	0.21	$	(0.13)

As of ~~September~~June 30, ~~2017 and 2016,~~2021, the exercise prices for ~~90,000 shares and 82,500 shares, respectively, of~~37,500 outstanding stock options were above the weighted average market price of the Company’s common stock during the ~~nine~~three months ended ~~September~~June 30, ~~2017 and 2016, respectively, and~~2021. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.

As of June 30, 2021, the exercise prices for 30,000 outstanding stock options were above the weighted average market price of the Company’s common stock during the six months ended June 30, 2021. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.

For the three and six months ended June 30, 2020, assumed conversion of the stock options has not been reflected in the dilutive calculation pursuant to ASC 260, “Earnings Per Share,” due to the anti-dilutive effect as a result of the Company’s net loss. The effects of all outstanding share options with common share equivalents of NaN and 37 shares respectively, have been excluded from the calculation of the diluted loss per share for the three and six months ended June 30, 2020, due to their anti-dilutive effect.

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~~27.~~

21. Significant concentrations

A significant portion of the Company’s business is conducted in China where the currency is the RMB. Regulations in China permit foreign owned entities to freely convert the RMB into foreign currency for transactions that fall under the "current ~~account,"~~account", which includes trade related receipts and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB to purchase foreign ~~exchange~~currency for settlement of such "current account" transactions without pre-approval. ~~However, pursuant to applicable regulations, foreign-invested enterprises~~

China Automotive, the parent company, may depend on dividend payments from Genesis and HLUSA, which are generated from their subsidiaries in China, ~~may pay~~“China-based Subsidiaries,” after they receive payments from the China-based Subsidiaries. Regulations in the PRC currently permit payment of dividends of a PRC company only out of ~~their~~ accumulated profits ~~if any,~~as determined in accordance with ~~the~~accounting standards and regulations in China. Under PRC ~~law. In calculating accumulated profits, foreign investment enterprises in China~~law China-based Subsidiaries are required to ~~allocate~~set aside at least 10% of their ~~annual net income~~after-tax profit based on PRC accounting standards each year ~~if any,~~ to ~~fund certain reserve funds, including mandated employee benefits funds, unless these~~their general reserves ~~have reached~~until the cumulative amount reaches 50% of their paid-in capital. These reserves are not distributable as cash dividends, or as loans or advances. These foreign-invested enterprises may also allocate a portion of their after-tax profits, at the ~~registered capital~~discretion of their boards of directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed and, accordingly, would not be available for distribution to Genesis and HLUSA.

The PRC government also imposes controls on the ~~enterprises.~~

convertibility of RMB into foreign currencies and, in certain cases, the remittance of currencies out of China. The China-based Subsidiaries may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies. If China Automotive is unable to receive dividend payments from its subsidiaries, including the China-based subsidiaries, China Automotive may be unable to effectively finance its operations or pay dividends on its shares.

Transactions other than those that fall under the "current account" and that involve conversion of RMB into foreign currency are classified as "capital account" transactions; examples of "capital account" transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity. "Capital account" transactions require prior approval from China's State Administration of Foreign Exchange, or SAFE, or its provincial branch to convert a remittance into a foreign currency, such as ~~USD,~~U.S. Dollars, and transmit the foreign currency outside of China.

This system could be changed at any time and any such change may affect the ability of the Company or its subsidiaries in China to repatriate capital or profits, if any, outside China. Furthermore, SAFE has a significant degree of administrative discretion in implementing the laws and has used this discretion to limit convertibility of current account payments out of China. Whether as a result of a deterioration in the Chinese balance of payments, a shift in the Chinese macroeconomic prospects or any number of other reasons, China could impose additional restrictions on capital remittances abroad. As a result of these and other restrictions under the laws and regulations of the People's Republic of China, or the PRC, the Company’s ~~PRC~~China subsidiaries are restricted in their ability to transfer a portion of their net assets to the parent. The Company has no assurance that the relevant Chinese governmental authorities in the future will not limit further or eliminate the ability of the Company’s ~~PRC~~China subsidiaries to purchase foreign currencies and transfer such funds to the Company to meet its liquidity or other business needs. Any inability to access funds in China, if and when needed for use by the Company outside of China, could have a material and adverse effect on the Company’s liquidity and its business.

~~The Company grants credit to its customers including Xiamen Joylon, Xiamen Automotive Parts, Shanghai Fenglong and JingzhouYude, which are related parties~~20

Table of ~~the Company. The Company’s customers are mostly located in the PRC.~~Contents

During the nine months ended September 30, 2017, the Company’s ten largest customers accounted for 56.1% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales i.e., 14.75%. As of September 30, 2017, approximately 6.6% of accounts receivable were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.

During the nine months ended September 30, 2016, the Company’s ten largest customers accounted for 62.7% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales, i.e., 12.9%. As of September 30, 2016, approximately 3.8% of accounts receivable were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.

~~28.~~

22. Related party transactions and balances

Related party transactions are as follows (figures are in thousands of USD):

Related sales

	Three Months Ended September 30,
	2017		2016

					Three Months Ended June 30,
					2021		2020
Merchandise sold to related parties	$	7,563	$	9,950	$	15,750	$	16,105
Materials and others sold to related parties						522		446
Rental income obtained from related parties		20		23		135		164
Materials and others sold to related parties		376		551
Total	$	7,959	$	10,524	$	16,407	$	16,715

	Nine Months Ended September 30,
	2017		2016

					Six Months Ended June 30,
					2021		2020
Merchandise sold to related parties	$	25,684	$	28,589	$	32,325	$	23,599
Materials and others sold to related parties						948		716
Rental income obtained from related parties		66		91		241		241
Materials and others sold to related parties		1,186		1,231
Total	$	26,936	$	29,911	$	33,514	$	24,556

Related purchases

	Three Months Ended September 30,
	2017		2016

					Three Months Ended June 30,
					2021		2020
Materials purchased from related parties	$	6,549	$	5,869	$	7,197	$	6,152
Technology purchased from related parties		-		135
Equipment purchased from related parties		4,857		4,370		289		518
Others purchased from related parties		156		149
Total	$	11,562	$	10,523	$	7,486	$	6,670

	Nine Months Ended September 30,
	2017		2016

					Six Months Ended June 30,
					2021		2020
Materials purchased from related parties	$	20,195	$	18,912	$	15,411	$	9,286
Technology purchased from related parties		-		362
Equipment purchased from related parties		9,281		7,900		1,380		587
Others purchased from related parties		371		524		11		4
Total	$	29,847	$	27,698	$	16,802	$	9,877

~~Loan transaction to a related party~~

Nine Months Ended September 30,
2017 2016
Related party loan $ 29,182 $ -

Related receivables

September 30, 2017 December 31, 2016
Accounts and notes receivable from related parties $ 17,607 $ 20,984


	June 30, 2021		December 31, 2020
Accounts and notes receivable from related parties	$	24,120	$	17,622

Related ~~advances and loan balance~~advance payments

	September 30, 2017		December 31, 2016

					June 30, 2021		December 31, 2020
Advance payments for property, plant and equipment to related parties	$	4,813	$	5,005	$	2,234	$	3,284
Advance payments and others to related parties		31,397		624		801		522
Total	$	36,210	$	5,629	$	3,035	$	3,806

Related payables

September 30, 2017 December 31, 2016
Accounts and notes payable $ 5,749 $ 6,803


	June 30, 2021		December 31, 2020
Accounts and notes payable	$	12,000	$	12,730

These transactions were consummated under similar terms as those with the Company's third party customers and suppliers.

Table of Contents

As of ~~November 9, 2017,~~August 12, 2021, Hanlin Chen, the ~~Company’s Chairman,~~chairman of the board of directors of the Company, owns ~~56.4%~~57.9% of the common stock of the Company and has the effective power to control the vote on substantially all significant matters without the approval of other stockholders.

~~29.~~

23. Commitments and contingencies

Legal proceedings

On January 7, 2019, three purported stockholders of the Company filed a stockholder derivative complaint on behalf of the Company against the Company’s directors Hanlin Chen, Qizhou Wu and Guangxun Xu and former directors Arthur Wong and Robert Tung in the Delaware Court of Chancery, alleging that they had (a) breached their fiduciary duties by approving and paying excessive compensation to the non-employee directors of the Company, Arthur Wong, Guangxun Xu and Robert Tung, and (b) failed to make full and accurate disclosure of all material information with respect to director qualification and director compensation paid in 2017 in the Company’s annual proxy statement on Schedule 14A filed on October 10, 2018. The directors have engaged their own counsel to answer this complaint. On April 9, 2019, the Company moved to dismiss the complaint. The motion to dismiss was denied on July 17, 2019. In November 2020, the Company reached a settlement to resolve the lawsuit for the sum of $55,998. The Company did not admit any liability in reaching the settlement. On February 5, 2021, the Court of Chancery conducted a hearing to confirm the settlement of the stockholder derivative action. The Court entered a Final Order and Judgment approving the settlement. The Court further ordered that the plaintiffs’ application for an award of attorneys’ fees and reimbursement of litigation expenses be reduced from $100,000 to $30,000. The Court’s Final Order and Judgment is publicly available on the Court of Chancery docket. As of June 30, 2021, the Company has received above settlement of $55,998 from the directors and paid the above attorneys’ fees and reimbursement of litigation expenses.

~~The~~Other than as described above, the Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal ~~proceedings. In addition,~~proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

Other commitments and contingencies

In addition to the bank loans, notes payables and the related interest, the following table summarizes the Company’s major commitments and contingencies as of ~~September~~June 30, ~~2017~~2021 (figures are in thousands of USD):


	Payment obligations by period
	2021		2022		2023		Thereafter		Total
Obligations for investment contracts ⁽¹⁾	$	2,724	$	0	$	—	$	0	$	2,724
Obligations for purchasing and service agreements		20,001		1,565		—		0		21,566
Total	$	22,725	$	1,565	$	—	$	0	$	24,290

Payment obligations by period
2017 ⁽¹⁾ 2018 2019 2020 Thereafter Total
Obligations for investment contracts⁽¹⁾ - $ 5,424 $ - $ - $ - $ 5,424
Obligations for purchasing and service agreements 16,496 5,650 2,530 - - 24,676
Total $ 16,496 $ 11,074 $ 2,530 $ - $ - $ 30,100

(1)

In ~~May 2016,~~April 2019, Hubei Henglong entered into an agreement with other parties ~~to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has~~and committed to ~~make investments of~~contribute RMB ~~120.0~~5.0 million, equivalent to approximately ~~$18.1~~$0.7 million, ~~in the Chongqing Venture Fund in three installments.~~to Jiangsu Intelligent Networking Automotive Innovation Center Co. Ltd., “Jiangsu Intelligent”, representing 19.2% of Jiangsu Intelligent’s shares. As of ~~September~~June 30, ~~2017,~~2021, Hubei Henglong has completed a capital contribution of RMB ~~84.0~~3.0 million, equivalent to approximately ~~$12.7 million, representing 35.0% of the Chongqing Venture Fund’s shares.~~$0.5 million. According to the agreement, the remaining capital commitment of RMB ~~36.0~~2.0 million, equivalent to approximately ~~$5.4~~$0.3 million, will be paid ~~upon capital calls received from the Chongqing Venture Fund.~~in 2021.

~~30.~~

~~Off-balance sheet arrangements~~

In November 2019, Hubei Henglong entered into an agreement with other parties and committed to purchase 70% of the shares of Hefei Senye Light Plastic Technology Co., Ltd. for total consideration of RMB 33.6 million, equivalent to approximately $5.2 million. As of June 30, 2021, Hubei Henglong has paid the amount of RMB 18.0 million, equivalent to approximately $2.8 million, which was reported in other non-current assets as the transfer of shares had not been consummated. According to the agreement, of the remaining consideration of RMB 15.6 million, equivalent to approximately $2.4 million, will be paid in 2021.

24. Off-balance sheet arrangements

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements.

~~31.~~

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25. Segment reporting

The accounting policies of the product sectors (each entity manufactures and sells different products and represents a different product sector) are the same as those described in the summary of significant accounting policies disclosed in the Company’s 2020 Annual Report on Form 10-K except that the disaggregated financial results for the product sectors have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for the purposes of assisting them in making internal operating decisions. Generally, the Company evaluates performance based on stand-alone product sector operating income and accounts for ~~inter segment~~inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices.

Each product sector is considered a reporting segment.

As of ~~September~~June 30, ~~2017,~~2021 and 2020, the Company had 1115 product sectors, ~~five~~6 of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB and Hubei Henglong), and ~~one~~1 holding company (Genesis). The other ~~six~~9 sectors were engaged in the ~~production~~development, manufacturing and sale of ~~sensor modular (USAI)~~high polymer materials (Wuhu Hongrun), R&D services (Changchun Hualong), automobile steering columns (Jielong), provision of ~~after sales~~after-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), ~~and~~ manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie)~~. Since the revenues, net income~~, research and ~~net assets~~development of these six sectors collectively are less than 10% of consolidated revenues, net income and net assets, respectively, in the condensed unaudited consolidated financial statements, the Company incorporated these six sectors into “Other Sectors.”

As of September 30, 2016, the Company had eleven product sectors, five of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu and Hubei Henglong), and one holding company (Genesis). The other six sectors were engaged in the production and sale of sensor modular (USAI), automobile steering columns (Jielong), provision of after sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong),intelligent automotive technology (Jingzhou Qingyan) and manufacture and sales of ~~automobile electronic~~automotive motors and electromechanical integrated systems ~~and parts~~ (Wuhan ~~Chuguanjie)~~Hyoseong). Since the revenues, net income and net assets of these seven sectors collectively are less than 10% of consolidated revenues, net income and net assets, respectively, in the condensed unaudited consolidated financial statements, the Company incorporated these six sectors into “Other Sectors.”

The Company’s product sector information for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, is as follows (figures are in thousands of USD):

	Net Product Sales						Net Income (Loss)
	Three Months Ended						Three Months Ended
	September 30						September 30
	2017			2016			2017			2016

													Net Product Sales				Net Income/(Loss)
													Three Months Ended				Three Months Ended
													June 30,				June 30,
													2021		2020		2021		2020
Henglong	$	55,790		$	57,530		$	689		$	3,771		$	49,135	$	35,743	$	144	$	191
Jiulong		26,067			17,787			478			1,083			25,402		26,310		(476)		574
Shenyang		10,103			8,239			486			457			4,237		3,445		84		505
Wuhu		6,503			5,088			118			21			5,561		2,718		104		84
Hubei Henglong		24,812			13,912			2,680			735			31,857		11,419		664		(1,913)
Other Sectors		14,961			11,588			777			(269	)
Henglong KYB														16,660		12,563		(722)		(532)
Other Entities														21,554		12,829		3,936		(585)
Total Segments		138,236			114,144			5,228			5,798			154,406		105,027		3,734		(1,676)
Corporate		-			-			317			808			0		0		(832)		(1,027)
Eliminations		(19,871	)		(19,518	)		(317	)		(747	)		(33,802)		(21,843)		26		(1,537)
Total	$	118,365		$	94,626		$	5,228		$	5,859		$	120,604	$	83,184	$	2,928	$	(4,240)

Net Product Sales Net Income (Loss)
Nine Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
Henglong $ 191,093 $ 195,940 $ 6,300 $ 13,389
Jiulong 75,525 54,976 3,739 2,219
Shenyang 28,777 24,898 1,271 995
Wuhu 18,254 15,897 215 96
Hubei Henglong 66,855 42,815 5,518 2,286
Other Sectors 40,821 29,558 1,341 162
Total Segments 421,325 364,084 18,384 19,147
Corporate - - 3,367 (1,317 )
Eliminations (65,992 ) (51,587 ) (1,704 ) (911 )
Total $ 355,333 $ 312,497 $ 20,047 $ 16,919


	Net Product Sales				Net (Loss)/Income
	Six Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Henglong	$	98,214	$	59,650	$	943	$	(491)
Jiulong		59,121		39,069		524		(876)
Shenyang		8,329		6,238		437		335
Wuhu		9,720		5,521		111		323
Hubei Henglong		67,315		39,551		1,330		2,152
Henglong KYB		34,866		18,689		(557)		(1,439)
Other Entities		42,791		22,311		4,444		(2,520)
Total Segments		320,356		191,029		7,232		(2,516)
Corporate		0		0		(1,049)		(1,088)
Eliminations		(69,411)		(34,290)		(24)		(1,264)
Total	$	250,945	$	156,739	$	6,159	$	(4,868)

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~~ITEM 2.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Company’s condensed unaudited consolidated financial statements and the related notes thereto and the other financial information contained elsewhere in this Report.

General Overview

China Automotive Systems, Inc. is a leading power steering systems supplier for the China automobile industry. The Company has business ~~relations~~relationships with more than sixty vehicle manufacturers, including China’s top ranking domestic automobile manufacturers such as JAC ~~Motors,~~motors, Changan Automobile Group, BAIC Group, ~~SAIC~~Dongfeng Group, ~~and Dongfeng Auto Group, the five largest automobile manufacturers in China; Shenyang~~ Brilliance Jinbei, ~~Co., Ltd., the largest light vehicle manufacturer in China;~~ Chery, ~~Automobile Co., Ltd., the largest state owned car manufacturer in China;~~ BYD ~~Auto Co., Ltd.~~ and Zhejiang Geely, ~~Automobile Co., Ltd., the largest privately owned car manufacturers in China. The PRC-based joint ventures of~~as well as Sino-foreign or foreign automobile manufacturer such as General Motors, ~~(GM), Volkswagen,~~ Citroen, ~~and~~Fiat Chrysler North America ~~are all key customers.~~and Ford. Starting in 2008, the Company has supplied power steering ~~pumps and power steering gear~~gears to the Sino-foreign joint ventures established by GM, Citroen and Volkswagen in China. The Company has supplied power steering ~~gears~~gear to Fiat Chrysler North America since ~~2009.~~

2009 and to Ford Motor Company since 2016.

Most of the Company’s production and research and development institutes are located in China. ~~The~~As of June 30, 2021, the Company has approximately ~~3,000~~4,526 employees dedicated to design, development, manufacture and sales of its products. By leveraging its extensive experience, innovative technology and geographic strengths, the Company aims to grow leading positions in automotive power steering systems and to further improve overall margins, long-term operating profitability and cash flows. To achieve these goals and to respond to industry factors and trends, the Company is continuing work to improve its operations and business structure and achieve profitable growth.

In addition, as a result of COVID-19, the Company’s businesses, results of operations, financial position and cash flows had been materially and adversely affected in the first quarter of 2020. The Company resumed operation in March of 2020. However, because of the significant uncertainties surrounding COVID-19, which are still evolving, the extent of the business disruption, including the duration and the related financial impact on subsequent periods cannot be reasonably estimated at this time. See “Item 1A. Risk Factors—Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus disease (COVID-19)” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Corporate Structure

The Company, through its subsidiaries, engages in the manufacture and sales of automotive systems and components. Great Genesis Holdings Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance of Hong Kong as a limited liability company, “Genesis,” is a wholly-owned subsidiary of the Company and the holding company of the Company’s joint ventures in the PRC. Henglong USA Corporation, “HLUSA,” incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts in North America, and provides after-sales service and research and development support. CAAS Brazil’s Imports And Trade In Automotive Parts Ltd., “Brazil Henglong,” was established by Hubei Henglong Automotive System Group Co., Ltd., formerly known as ~~JingzhouHengsheng~~Jingzhou Hengsheng Automotive System Co., Ltd., “Hubei Henglong,” as a Sino-foreign joint venture company with two Brazilian citizens in Brazil in August 2012. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction. Fujian Qiaolong was acquired by the Company in the second quarter of 2014, as a joint venture company that mainly manufactures and distributes drainage and rescue vehicles with mass flow, drainage vehicles with vertical downhole operation, crawler-type mobile pump stations, high-altitude water supply and discharge drainage vehicles, long-range control crawler-type mobile pump stations and other vehicles, which was disposed of by the Company in the second quarter of 2016. USAI was established in 2005, and the Company and Hubei Wanlong owned 83.34% and 16.66%, respectively. In May 2020, USAI merged with and into Wuhan Chuguanjie, a wholly-owned subsidiary of Wuhan Jielong, and it deregistered from the local business administration on April 28, 2020. Following the merger, 85.0% of Wuhan Chuguanjie was owned by the Company and 15.0% was owned by Hubei Wanlong. In April 2020, Hubei Henglong acquired 100.00% of the shares of Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”, for total consideration of RMB 1.20 million, equivalent to approximately $0.2 million. Changchun Hualong mainly engages in design and R&D of automotive parts. Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun” was formed in December 2019, which mainly engages in the development, manufacturing and sale of high polymer materials. In April 2021, the Company obtained an additional 22.67% equity interest in Wuhu, for total consideration of RMB 6.9 million, equivalent to approximately $1.1 million, from the other shareholder. Following the acquisition, the Company owned 100% of the equity interests of Wuhu Henglong.

Table of Contents

Critical Accounting Estimates

The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions. The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s condensed consolidated financial statements.

The Company considers an accounting estimate to be critical if:

·●

It requires the Company to make assumptions about matters that were uncertain at the time it was making the estimate, and

·●

Changes in the estimate or different estimates that the Company could have selected would have had a material impact on the Company’s financial condition or results of operations.

The table below presents information about the nature and rationale for the Company’s critical accounting estimates:

Balance Sheet
Caption

~~Balance Sheet~~ ~~Caption~~	~~Critical~~ ~~Estimate~~ ~~Item~~	Critical Estimate Item		Nature of Estimates Required		Assumptions/Approaches Used		Key Factors
Accrued liabilities and other long-term liabilities			Warranty obligations		Estimating warranty requires the Company to forecast the resolution of existing claims and expected future claims on products sold. OEMs (Original Equipment Manufacturers) are increasingly seeking to hold suppliers responsible for product warranties, which may impact the Company’s exposure to these costs.		The Company bases its estimate on historical trends of units sold and payment amounts, combined with its current understanding of the status of existing claims and discussions with its customers.		·	●OEM sourcing · ●OEM policy decisions regarding warranty claims

Property, plant and equipment, intangible assets and other long-term assets	Valuation of long- lived assets and investments				The Company is required from time to time to review the recoverability of certain of its assets based on projections of anticipated future cash flows, including future profitability assessments of various product lines.		The Company estimates cash flows using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments.		·	●Future production estimates · ●Customer preferences and decisions

Accounts receivable	Allowance for doubtful accounts				The Company is required from time to time to review the credit of customers and make timely provision of allowance for doubtful accounts.		The Company estimates the collect-ability of the receivables based on the future cash flows using historical experiences.		Customer credit

Inventory	Write-down of inventory				The Company is required from time to time to review the cash ability of inventory based on projections of anticipated future cash flows, including write-down of inventory for prices that are higher than market price and undesirable inventories.		The Company estimates cash flows using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments.			·Future production estimates ·Customer preferences and decisions


Deferred income taxes	Recoverability of deferred tax assets		The Company is required to estimate whether recoverability of its deferred tax assets is more likely than not based on forecasts of taxable earnings in the related tax jurisdiction.	The Company uses historical and projected future operating results, based upon approved business plans, including a review of the eligible carry forward period, tax planning opportunities and other relevant considerations.	·Tax law changes ·Variances in future projected profitability, including by taxing entity

~~Tax payable and deferred tax assets/liabilities~~	~~Uncertain tax positions~~	The Company is required to determine and assess all material positions, including all significant uncertain positions in all tax years that are still subject to assessment or challenge under relevant tax statutes.	The Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.	~~·An allocation or a shift of income between jurisdictions~~ ~~·The characterization of income or a decision to exclude reporting taxable income in a tax return~~ ~~·A decision to classify a transaction, entity, or other position in a tax return as tax exempt~~

In addition, there are other items within the Company’s financial statements that require estimation, but are not as critical as those discussed above, including provision of accounts and notes receivable. Although not significant in recent years, changes in estimates used in these and other items could have a significant effect on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

Please see Note 2 to the consolidated financial statements under Item 1 of Part I of this ~~Report.~~report.

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Results of Operations

~~Results of Operations—~~Three Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020

Selected highlights from our results of operations are as follows (in thousands of U.S. dollars):

Net Product Sales Cost of Products Sold
(in thousands of USD,
except percentages) (in thousands of USD,
except percentages)
2017 2016 Change 2017 2016 Change
Henglong $ 55,790 $ 57,529 (1,739 ) -3.02 % $ 47,639 $ 47,616 $ 23 0.05 %
Jiulong 26,067 17,787 8,280 46.55 22,804 14,934 7,870 52.70
Shenyang 10,103 8,239 1,864 22.62 8,757 7,070 1,687 23.85
Wuhu 6,503 5,089 1,414 27.79 5,926 4,696 1,230 26.20
Hubei Henglong 24,812 13,913 10,899 78.34 17,656 10,270 7,386 71.92
Other Sectors 14,961 11,589 3,372 29.10 12,653 9,606 3,047 31.72
Total Segments 138,236 114,146 24,090 21.10 115,435 94,192 21,243 22.55
Elimination (19,871 ) (19,520 ) (351 ) 1.80 (19,557 ) (19,551 ) (6 ) 0.03
Total $ 118,365 $ 94,626 $ 23,739 25.09 % $ 95,878 $ 74,641 $ 21,237 28.45 %


	Three Months Ended June 30,
	2021		2020		Change		Change %
Net product sales	$	120,604	$	83,184	$	37,420	45.0
Cost of products sold		104,775		75,353		29,422	39.0
Gain on other sales		725		838		(113)	-13.5
Selling expenses		4,446		2,977		1,469	49.3
General and administrative expenses		6,063		4,759		1,304	27.4
Research and development expenses		5,926		6,125		(199)	-3.2
Other income, net		1,506		1,257		249	19.8
Interest expense		(294)		(446)		152	-34.1
Income taxes		198		(31)		229	-738.7
Net income/(loss)		2,928		(4,240)		7,168	-169.1
Net loss attributable to non-controlling interests		(279)		(142)		(137)	96.5
Net income/(loss) attributable to parent company’s common shareholders		3,200		(4,098)		7,298	-178.1	%

Net Product Sales and Cost of Products Sold


	Net Product Sales								Cost of Products Sold
	(in thousands of USD,								(in thousands of USD,
	except percentages)								except percentages)
	2021		2020		Change				2021		2020		Change
Henglong	$	49,135	$	35,743	$	13,392	37.5	%	$	45,874	$	33,060	$	12,814	38.8	%
Jiulong		25,402		26,310		(908)	-3.5			23,631		23,823		(192)	-0.8
Shenyang		4,237		3,445		792	23.0			3,435		2,755		680	24.7
Wuhu		5,561		2,718		2,843	104.6			4,862		2,392		2,470	103.3
Hubei Henglong		31,857		11,419		20,438	179.0			25,800		12,068		13,732	113.8
Henglong KYB		16,660		12,563		4,097	32.6			15,896		12,060		3,836	31.8
Other Entities		21,554		12,829		8,725	68.0			19,024		9,498		9,526	100.3
Total Segments		154,406		105,027		49,379	47.0			138,522		95,656		42,866	44.8
Elimination		(33,802)		(21,843)		(11,959)	54.7			(33,747)		(20,303)		(13,444)	66.2
Total	$	120,604	$	83,184	$	37,420	45.0	%	$	104,775	$	75,353	$	29,422	39.0	%

Net Product Sales

Net product sales were ~~$118.4~~$120.6 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$94.6~~$83.2 million for the same period in ~~2016,~~2020, representing an increase of ~~$23.8~~$37.4 million, or ~~25.2%.~~45.0%, mainly due to the market recovery from COVID-19.

~~The Company’s net product sales were affected by the change in the product mix.~~ Net sales of traditional steering products and parts were ~~$92.7~~$97.4 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$69.0~~$67.7 million for the same period in ~~2016,~~2020, representing an increase of ~~$23.7~~$29.7 million, or ~~34.3%~~43.9%. Net sales of ~~EPS~~electric power steering (“EPS”) were ~~$25.7~~$23.2 million for the three months ended ~~September~~June 30, ~~2017, consistent with $25.6~~2021 and $15.5 million for the same period in ~~2016.~~2020, representing an increase of $7.7 million, or 49.7%. As a percentage of net sales, sales of EPS were ~~21.7%~~19.2% for the three months ended ~~September~~June 30, ~~2017,~~2021, compared ~~to 27.0%~~with 18.6% for the same period in ~~2016.~~ 2020.

The increase in net product sales was ~~mainly due to increased sales and the changes in the product mix in the three months ended September 30, 2017.~~

The foreign exchange rate of the RMB against the U.S. dollar in the third quarter of 2017 was generally consistent with the same period in 2016, so there was no significant impact on the Company’s revenue and costs as a result of foreign currency translation differences.

~~In summary,~~ due to the ~~recovery~~effects of ~~Chinese automobile industry,~~three major factors: i) the sales of steering gears started to grow, which led to an increase in sales volume and contributed to a sales increase of $11.6 million. Some of the Company’s subsidiaries are gradually shifting their strategy from focusing on sales volume to focusing on high gross margin products and developing new markets such as exports, and the change in product mix led to an increase in average selling price of steering gears and contributed to a sales increase of $12.3 million. The effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.2 million.

~~Further analysis by segment (before elimination) is as follows:~~

Net product sales for Henglong were $55.8 million for the three months ended September 30, 2017, compared with $57.5 million for the three months ended September 30, 2016, representing a decrease of $1.7 million, or 3.0%. A decrease in sales volume led to a sales decrease of $13.3 million and an increase in average selling price led to a sales increase of $11.6 million.

Net product sales for Jiulong were $26.1 million for the three months ended September 30, 2017, compared with $17.8 million for the three months ended September 30, 2016, representing an increase of $8.3 million, or 46.6%. Jiulong is gradually shifting its strategy from focusing on sales volume to focusing on high gross margin products and developing new markets such as exports. An increase in sales volume led to a sales increase of ~~$6.2~~$30.5 million ~~and an~~due to the increase in ~~average selling price led to~~demand as a ~~sales increase~~result of ~~$2.1 million.~~

~~Net product sales for Shenyang were $10.1 million for~~ the ~~three months ended September 30, 2017, compared to $8.2 million for~~recovery of manufacturing and operations of the ~~same period in 2016, representing an increase~~Company’s customers from the economic effects of $1.9 million, or 23.2%. Shenyang’s products are mainly sold to Shenyang Brilliance Jinbei Co., Ltd., “Brilliance Jinbei”, one of China’s largest commercial car manufacturers. The sales of Shenyang are mainly impacted byCOVID-19; ii) the ~~demand of Brilliance Jinbei. An increase in sales volumes led to a sales increase of $0.4 million and an increase in average selling price led to a sales increase of $1.5 million.~~

Net product sales for Wuhu were $6.5 million for the three months ended September 30, 2017, compared to $5.1 million for the same period in 2016, representing an increase of $1.4 million, or 27.5%. An increase in sales volumes led to a sales increase of $2.0 million and a decrease in average ~~selling~~ price of steering gears led to a sales decrease of ~~$0.6 million.~~

~~Net product sales for Hubei Henglong were $24.8 million for~~$0.5 million; and iii) the ~~three months ended September 30, 2017,~~appreciation of the RMB against the U.S. dollar in this quarter compared to ~~$13.9 million for~~ the same ~~period~~quarter last year resulted in 2016, representing an increase of $10.9 million, or 78.4%. Hubei Henglong’s products are mainly sold to Chrysler and Ford. The significant increase in the sales of Hubei Henglong was mainly due to the new products developed for Chrysler and Ford that began mass production at the end of 2016. An increase in sales volumes led to a sales increase of ~~$15.2 million and a decrease in average selling price led to a sales decrease~~$7.4 million.

Table of ~~$4.3 million.~~Contents

Net product sales for Other Sectors were $15.0 million for the three months ended September 30, 2017, compared to $11.6 million for the same period in 2016, representing an increase of $3.4 million, or 29.3%, primarily due to an increase in average selling price of Jielong, which manufactures automobile steering columns for both HPS and EPS.

~~Cost of Products Sold~~

For the three months ended September 30, 2017, the cost of products sold was $95.9 million, compared to $74.6 million for the same period of 2016, representing an increase of $21.3 million, or 28.6%. The increase in the cost of products sold was mainly due to the effect of an increase in sales volumes which led to a cost of products sold increase of $10.0 million and an increase in unit cost which led to a cost of products sold increase of $11.3 million. Further analysis by segment (before elimination) is as follows:

Cost of products sold for Henglong was $47.6 million for the three months ended September 30, 2017, consistent with $47.6 million for the same period of 2016. A decrease in sales volume led to a cost of products sold decrease of $10.8 million and an increase in unit cost led to a cost of products sold increase of $10.8 million.

•

~~Cost of products sold~~

Henglong mainly engages in providing passenger vehicle steering systems. Net product sales for ~~Jiulong was $22.8~~Henglong were $49.1 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared ~~to $14.9~~with $35.7 million for the ~~same period of 2016,~~three months ended June 30, 2020, representing an increase of ~~$7.9~~$13.4 million, or ~~53.0%~~37.5%. An increase in sales volume led to a ~~cost of products sold~~sales increase of ~~$5.8~~$14.5 million, a decrease in selling price led to a sales decrease of $4.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $3.1 million.

Jiulong mainly engages in providing commercial vehicle steering systems. Net product sales for Jiulong were $25.4 million for the three months ended June 30, 2021, compared with $26.3 million for the three months ended June 30, 2020, representing a decrease of $0.9 million, or 3.4%. A decrease in sales volume led to a sales decrease of $7.5 million, an increase in ~~unit cost~~selling price led to a ~~cost of products sold~~sales increase of ~~$2.1~~$4.4 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $2.2 million.

Shenyang mainly engages in providing vehicle steering systems to Shenyang Brilliance Jinbei Automobile Co., Ltd. (“Jinbei”), one of the major automotive manufacturers in China. Net product sales for Shenyang were $4.2 million for the three months ended June 30, 2021, compared to $3.4 million for the same period in 2020, representing an increase of $0.8 million, or 23.5%. An increase in sales volume led to a sales increase of $0.2 million, an increase in selling price led to a sales increase of $0.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $0.3 million.

Wuhu mainly engages in providing vehicle steering systems to Chery Automobile Co., Ltd. (“Chery”), one of the major automotive manufacturers in China. Net product sales for Wuhu were $5.6 million for the three months ended June 30, 2021, compared to $2.7 million for the same period in 2020, representing an increase of $2.9 million, or 107.4%. An increase in sales volumes led to a sales increase of $2.9 million, a decrease in selling prices led to a sales decrease of $0.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $0.3 million.

Hubei Henglong mainly engages in providing vehicle steering systems to Chrysler and Ford. Net product sales for Hubei Henglong were $31.9 million for the three months ended June 30, 2021, compared with $11.4 million for the three months ended June 30, 2020, representing an increase of $20.5 million, or 179.8%. An increase in sales volume led to a sales increase of $10.6 million, an increase in selling price led to a sales increase of $8.7 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $1.2 million.

Henglong KYB mainly engages in providing passenger EPS products. Net product sales for Henglong KYB were $16.7 million for the three months ended June 30, 2021, compared with $12.6 million for the three months ended June 30, 2020, representing an increase of $4.1 million, or 32.5%. An increase in sales volume led to a sales increase of $3.4 million, a decrease in selling price led to a sales decrease of $0.5 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $1.2 million.

·	Net product sales for other entities were $21.5 million for the three months ended June 30, 2021, compared to $12.8 million for the same period in 2020, representing an increase of $8.7 million, or 68.0%, mainly caused by increases in sales of Jielong and Brazil.

Cost of ~~products sold for Shenyang was $8.8 million for~~Products Sold

For the three months ended ~~September~~June 30, ~~2017,~~2021, the cost of products sold was $104.8 million, compared to ~~$7.1~~$75.4 million for the same period of ~~2016,~~2020, representing an increase of ~~$1.7~~$29.4 million, or ~~23.9%~~39.0%. The increase in cost of ~~products sold~~sales was mainly due to anthe effect of the following major factors: i) the increase in sales volumes ~~which~~ led to a cost of ~~products sold~~sales increase of ~~$0.4 million, and an increase~~$24.0 million; ii) the decrease in unit ~~cost, which~~price led to a cost of ~~products sold~~sales decrease of $3.7 million; iii) the appreciation of the RMB against the U.S. dollar resulted in a cost of sales increase of ~~$1.3~~$9.1 million. Further analysis is as follows:

Cost of products sold for Henglong was $45.9 million for the three months ended June 30, 2021, compared to $33.1 million for the same period of 2020, representing an increase of $12.8 million, or 38.7%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $14.3 million, a decrease in unit cost resulting in a cost of sales decrease of $4.5million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $3.0 million.

~~Cost~~

Table of Contents

Cost of products sold for Jiulong was $23.6 million for the three months ended June 30, 2021, compared to $23.8 million for the same period of 2020, representing a decrease of $0.2 million, or 0.8%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $9.3 million, an increase in unit cost resulting in a cost of sales increase of $6.9 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $2.2 million.

Cost of products sold for Shenyang was $3.4 million for the three months ended June 30, 2021, compared to $2.8 million for the same period of 2020, representing an increase of $0.6 million, or 21.4%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $0.2 million, an increase in unit cost resulting in a cost of sale increase of $0.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $0.2 million.

Cost of products sold for Wuhu was $4.9 million for the three months ended June 30, 2021, compared to $2.4 million for the same period of 2020, representing an increase of $2.5 million, or 104.2%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $2.6 million, a decrease in unit cost resulting in a cost of sales decrease of $0.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $0.2 million.

Cost of products sold for Hubei Henglong was $25.8 million for the three months ended June 30, 2021, compared to $12.1 million for the same period of 2020, representing an increase of $13.7 million, or 113.2%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $4.5 million, an increase in unit cost resulting in a cost of sales increase of $8.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $1.1 million.

Cost of products sold for Henglong KYB was $15.9 million for the three months ended June 30, 2021, compared to $12.1 million for the same period of 2020, representing an increase of $3.8 million, or 31.4%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $3.4 million, a decrease in unit cost resulting in a cost of sales decrease of $0.7 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $1.1 million.

·	Cost of products sold for other entities was $19.0 million for the three months ended June 30, 2021, compared to $9.5 million for the same period in 2020, representing an increase of $9.5 million, or 100.0%.

Gross margin was ~~$5.9 million~~13.1% for the three months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$4.7 million~~9.4% for the same period of ~~2016,~~2020, representing an increase of ~~$1.2 million, or 25.5%~~3.7%. ~~The increase~~There was a significant decline in ~~cost of~~export sales to United States, which were the Company’s highest gross margin products, ~~sold was mainly~~ due to ~~an increase in sales volumes,~~COVID-19, which ~~led to a cost of products sold increase of $1.9 million, and a decrease in unit cost, which led to a cost of products sold decrease of $0.7 million.~~

Cost of products sold for Hubei Henglong was $17.7 million for the three months ended September 30, 2017, compared to $10.3 million for the same period of 2016, representing an increase of $7.4 million, or 71.8%. The increase in cost of products sold was mainly due to an increase in sales volumes, which led to a cost of products sold increase of $11.3 million, and a decrease in unit cost, which led to a cost of products sold decrease of $3.9 million.

Cost of products sold for Other Sectors was $12.7 million for the three months ended September 30, 2017, compared to $9.6 million for the same period of 2016, representing an increase of $3.1 million, or 32.3%, primarily due to the increase in unit cost of Jielong.

~~Gross margin was 19.0% for the three months ended September 30, 2017, compared to 21.1% for the same period of 2016, representing a decrease of 2.1%, mainly due to the changes~~resulted in the ~~product mix for~~temporary shutdown of operations of our major customers in the ~~three months ended September 30, 2017.~~

~~Gain on Other Sales~~

~~Gain on other sales mainly consisted~~second quarter of ~~net amount retained from sales of materials, property, plant and equipment, land use rights, and scraps. For~~2020. As our customers in the ~~three months ended September 30, 2017, gain on other sales amounted to $0.6 million, as compared to$0.1 million for~~United States began re-opening operations, the ~~three months ended September 30, 2016, representing an increase of $0.5 million. The increase was mainly due to increased~~Company’s export sales volume ~~of materials.~~

~~Selling Expenses~~

and gross margin increased.

Selling expenses were $4.5 million for the three months ended September 30, 2017, as compared to $3.8 million for the same period of 2016, representing an increase of $0.7 million, or 18.4%, which was mainly due to increased logistics fees related to the increase in revenue.Expenses

~~General and Administrative Expenses~~

~~General and administrative~~Selling expenses were $4.4 million for the three months ended ~~September~~June 30, ~~2017,~~2021, as compared to ~~$3.7~~$3.0 million for the same period of ~~2016,~~2020, representing an increase of ~~$0.7~~$1.4 million, which was primarily due to higher payroll expenses and higher air freight charges.

General and Administrative Expenses

General and administrative expenses were $6.1 million for the three months ended June 30, 2021, as compared to $4.8 million for the same period of 2020, representing an increase of $1.3 million, or ~~18.9%~~27.1%, which was mainly due to the increased bad debt provision for accounts receivable and higher payroll expenses.

Research and Development Expenses

Research and development expenses were ~~$9.2~~$5.9 million for the three months ended ~~September~~June 30, ~~2017, as compared to $6.7~~2021, which is substantially consistent with $6.1 million for the three months ended ~~September~~June 30, ~~2016, representing an increase~~2020.

Table of ~~$2.5 million, or 37.3%, which~~Contents

Other Income

Other income, net was mainly due to increased expenditures on R&D activities for EPS products. The Company’s research and development expenses were mainly used for the development and trial production of EPS and other new products. The Company’s research and development expenditures have continued to be significant in the past several years.

The global automotive parts industry is highly competitive; winning and maintaining new business requires suppliers to rapidly produce innovative products on a cost-competitive basis. In the past several years, the Company has continued to purchase advanced manufacturing equipment for newly developed products, hiring senior technicians and actively seeking external technical support.

~~Income from Operations~~

~~Income from operations was $4.9~~$1.5 million for the three months ended ~~September~~June 30, ~~2017, compared to $5.7~~2021, which is substantially consistent with $1.3 million for the three months ended ~~September~~June 30, 2016, representing a decrease of $0.8 million, or 14.0%,including an increase of $2.5 million in gross profit, an increase of $0.5 million in gain on other sales and an increase of $3.8 million in operating expenses.2020.

~~Other Income, Net~~

Other income, net was $0.1 million for the three months ended September 30, 2017, compared to other income, net of $0.4 million for the three months ended September 30, 2016, representing a decrease of $0.3 million, or 75.0%, primarily as a result of the gain on disposal of a subsidiary amounting to $0.7 million in 2016, whereas there was no such gain in the current quarter.

Interest Expense

Interest expense was $0.3 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~interest~~$0.4 million for the three months ended June 30, 2020.

Income Taxes

Income tax expense ofwas $0.2 million for the three months ended ~~September~~June 30, ~~2016, representing an increase~~2021, compared to income tax benefit of $0.1 ~~million, or 50.0%, primarily due to the new bank loans borrowed in 2017.~~

~~Financial Income, Net~~

~~Financial income, net, was $1.0~~ million for the three months ended ~~September~~June 30, ~~2017, compared to financial income of $0.8 million for the three months ended September 30, 2016, representing an increase of $0.2 million, or 25%,~~2020, which was ~~mainly~~primarily due to the ~~interest income of $0.5 million generated from the loan to Henglong Real Estate, one of the Company’s related parties (See Note 5).~~

~~Income Before Income Tax Expenses and Equity in Earnings of Affiliated Companies~~

Income before income tax expenses and equity in earnings of affiliated companies was $5.7 million for the three months ended September 30, 2017, compared to $6.7 million for the three months ended September 30, 2016, representing a decrease of $1.0 million, or 14.9%, which was mainly due to a decrease in operating income of $0.8 million, a decrease in other income of $0.3 million, an increase ~~in interest expense of $0.1 million and an increase in financial income of $0.2 million.~~

~~Income Taxes~~

Income tax expense was $1.0 million for the three months ended September 30, 2017, compared to $1.2 million of income tax expense for the three months ended September 30, 2016, representing a decrease of $0.2 million, or 16.7%. The income before income tax decreased to $5.7 million for the three months ended September 30, 2017 from $6.7 million for the same period in 2016 and the effective tax rate decreased to 17.3% from 17.4% for the same period in 2016.

~~Net Income~~

Net income was $5.2 million for the three months ended September 30, 2017, compared to net income of $5.9 million for the three months ended September 30, 2016, representing a decrease of $0.7 million, or 11.9%, which was mainly due to a decrease in income before income tax ~~expenses and equity in earnings of affiliated companies of $1.0 million, a decrease in income tax of $0.2 million and an increase in equity in earnings of affiliated companies of $0.2 million.~~ expenses.

Net ~~Income~~loss Attributable to Non-controlling Interests

Net ~~income~~loss attributable to non-controlling interests amounted to $0.2 million for the three months ended ~~September~~June 30, ~~2017, substantially consistent with $0.2~~2021, compared to $0.1 million for the three months ended ~~September~~June 30, ~~2016.~~2020.

The Company owns equity interests in nine non-wholly owned subsidiaries established in the PRC and Brazil, through which it conducts its operations. Except for Beijing Henglong and Chongqing Jinghua, which are accounted for under the equity method, all of the operating results of these non-wholly owned subsidiaries were consolidated in the Company’s financial statements as of September 30, 2017 and 2016.

Net ~~Income~~Income/(loss) Attributable to Parent Company’s Common Shareholders

Net income attributable to parent company’s common shareholders was ~~$5.1~~$3.1 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared to net loss attributable to parent company’s common shareholders of $4.1 million for the three months ended June 30, 2020, representing an increase in net income attributable to parent company’s common shareholders of ~~$5.7 million for the three months ended September 30, 2016, representing a decrease of $0.6 million, which was mainly due to a decrease in net income of $0.7~~$7.2 million.

Results of ~~Operations—Nine~~Operations - Six Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020

Selected highlights from our results of operations are as follows (in thousands of U.S. dollars):

Net Product Sales Cost of Products Sold
(in thousands of USD,
except percentages) (in thousands of USD,
except percentages)
2017 2016 Change 2017 2016 Change
Henglong $ 191,093 $ 195,940 (4,847 ) -2.47 % $ 164,765 $ 165,421 $ (656 ) -0.40 %
Jiulong 75,525 54,976 20,549 37.38 65,358 47,583 17,775 37.36
Shenyang 28,777 24,898 3,879 15.58 25,123 21,710 3,413 15.72
Wuhu 18,254 15,897 2,357 14.83 16,891 14,459 2,432 16.82
Hubei Henglong 66,855 42,815 24,040 56.15 46,220 31,418 14,802 47.11
Other Sectors 40,821 29,558 11,263 38.11 34,492 24,216 10,276 42.43
Total Segments 421,325 364,084 57,241 15.72 352,849 304,807 48,042 15.76
Elimination (65,992 ) (51,587 ) (14,405 ) 27.92 (65,693 ) (51,455 ) (14,238 ) 27.67
Total $ 355,333 $ 312,497 $ 42,836 13.71 % $ 287,156 $ 253,352 $ 33,804 13.34 %


	Six Months Ended June 30,
	2021		2020		Change		Change%
Net product sales	$	250,945	$	156,739	$	94,206	60.1	%
Cost of products sold		215,368		137,756		77,612	56.3
Gain on other sales		2,041		1,438		603	41.9
Selling expenses		10,055		5,095		4,960	97.4
General and administrative expenses		10,678		8,188		2,490	30.4
Research and development expenses		12,606		11,318		1,288	11.4
Other income, net		3,229		1,374		1,855	135.0
Interest expense		(637)		(811)		174	-21.5
Income taxes		839		483		356	73.7
Net income/(loss)		6,159		(4,868)		11,027	-226.5
Net loss attributable to non-controlling interests		(261)		(742)		481	-64.8
Net income/(loss) attributable to parent company’s common shareholders		6,406		(4,126)		10,532	-255.3	%

Table of Contents

Net Product Sales and Cost of Products Sold

												��
	Net Product Sales								Cost of Products Sold
	(in thousands of USD,								(in thousands of USD,
	except percentages)								except percentages)
	2021		2020		Change				2021		2020		Change
Henglong	$	98,214	$	59,650	$	38,564	64.7	%	$	90,993	$	56,129	$	34,864	62.1	%
Jiulong		59,121		39,069		20,052	51.3			54,299		37,170		17,129	46.1
Shenyang		8,329		6,238		2,091	33.5			6,748		5,176		1,572	30.4
Wuhu		9,720		5,521		4,199	76.1			8,734		4,767		3,967	83.2
Hubei Henglong		67,315		39,551		27,764	70.2			55,285		31,375		23,910	76.2
Henglong KYB		34,866		18,689		16,177	86.6			32,791		18,143		14,648	80.7
Other Entities		42,791		22,311		20,480	91.8			35,762		17,886		17,876	99.9
Total Segments		320,356		191,029		129,327	67.7			284,612		170,646		113,966	66.8
Elimination		(69,411)		(34,290)		(35,121)	102.4			(69,244)		(32,890)		(36,354)	110.5
Total	$	250,945	$	156,739	$	94,206	60.1	%	$	215,368	$	137,756	$	77,612	56.3	%

Net Product Sales

Net product sales were ~~$355.3~~$250.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$312.5~~$156.7 million for the same period ~~in 2016,~~of 2020, representing an increase of ~~$42.8~~$94.2 million, or ~~13.7%.~~60.1%, mainly due to the market recovery from COVID-19.

~~The Company’s net product sales were affected by the change in the product mix.~~ Net sales of traditional steering products and parts were ~~$270.2~~$203.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$226.8~~$133.1 million for the same period in ~~2016,~~2020, representing an increase of ~~$43.4~~$69.9 million, or ~~19.1%~~52.5%. Net sales of ~~EPS~~electric power steering (“EPS”) were ~~$85.1~~$47.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, compared to $85.7~~2021 and $23.6 million for the same period in ~~2016,~~2020, representing ~~a decrease~~an increase of ~~$0.6~~$24.3 million, or ~~0.7%~~103.0%. As a percentage of net sales, sales of EPS were ~~24.0%~~19.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~27.4%~~15.1% for the same period in ~~2016.~~ 2020.

The increase in net product sales was ~~mainly~~ due to ~~increased~~the effects of three major factors: i) the increase in sales volume led to a sales increase of $91.3 million due to the increase in demand as a result of the recovery of manufacturing and operations of the ~~changes~~Company’s customers from the economic effects of COVID-19; ii) the decrease in average selling price of steering gears led to a sales decrease of $8.4 million; and iii) the ~~product mix for the nine months ended September 30, 2017.~~

~~The~~ depreciation of ~~China’s currency,~~ the RMB against the U.S. dollar in ~~the first nine months of 2017 as~~this period compared to the ~~first nine months of 2016 had a negative impact on net sales as more than 80% of the Company’s business is conducted~~same period last year resulted in ~~China.~~

~~In summary, due to the recovery of Chinese automobile industry, the sales of steering gears started to grow, which led to an increase in sales volume and contributed to~~ a sales increase of ~~$52.2~~$11.3 million. Some of the Company’s subsidiaries are gradually shifting their strategy from focusing on sales volume to focusing on high gross margin products and developing new markets such as exports, and the change in product mix led to an increase in average selling price of steering gears and contributed to a sales increase of $4.5 million. The effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $13.9 million.

Further analysis by segment (before elimination) is as follows:

Net product sales for Henglong were $191.1 million for the nine months ended September 30, 2017, compared with $195.9 million for the nine months ended September 30, 2016, representing a decrease of $4.8 million, or 2.5%. A decrease in sales volume led to a sales decrease of $1.7 million, an increase in average selling price led to a sales increase of $4.0 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $7.1 million.

Net product sales for Jiulong were $75.5 million for the nine months ended September 30, 2017, compared with $55.0 million for the nine months ended September 30, 2016, representing an increase of $20.5 million, or 37.3%. Jiulong is gradually shifting its strategy from focusing on sales volume to focusing on high gross margin products and developing new markets such as exports. An increase in sales volume led to a sales increase of $17.6 million, an increase in average selling price led to a sales increase of $5.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $2.3 million.

●

Net product sales for Shenyang were $28.8 million for the nine months ended September 30, 2017, compared to $24.9 million for the same period in 2016, representing an increase of $3.9 million, or 15.7%. Shenyang’s products are mainly sold to Shenyang Brilliance Jinbei Co., Ltd., “Brilliance Jinbei”, one of China’s largest commercial car manufacturers. The sales of Shenyang are mainly impacted by the demand of Brilliance Jinbei. An increase in sales volumes led to a sales increase of $4.4 million, an increase in average selling price led to a sales increase of $0.4 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.9 million.

•

Henglong mainly engages in providing passenger vehicle steering systems. Net product sales for ~~Wuhu~~Henglong were ~~$18.3~~$98.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared with $59.7 million for the six months ended June 30, 2020, representing an increase of $38.5 million, or 64.5%. An increase in sales volume led to a sales increase of $38.9 million, a decrease in selling price led to a sales decrease of $4.5 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $4.1 million.

●

Jiulong mainly engages in providing commercial vehicle steering systems. Net product sales for Jiulong were $59.1 million for the six months ended June 30, 2021, compared with $39.1 million for the six months ended June 30, 2020, representing an increase of $20.0 million, or 51.2%.The increase was primarily due to the increased demand in the China commercial vehicle market after the COVID-19 pandemic along with China’s economic stimulus policies. An increase in sales volume led to a sales increase of $12.8 million, an increase in selling price led to a sales increase of $4.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $3.0 million.

●

Shenyang mainly engages in providing vehicle steering systems to Shenyang Brilliance Jinbei Automobile Co., Ltd., “Jinbei”, one of the major automotive manufacturers in China. Net product sales for Shenyang were $8.3 million for the six months ended June 30, 2021, compared to ~~$15.9~~$6.2 million for the same period in ~~2016,~~2020, representing an increase of ~~$2.4~~$2.1 million, or ~~15.1%~~33.9%. An increase in sales volumes led to a sales increase of ~~$4.2~~$1.7 million, a decrease in ~~average~~ selling price led to a sales decrease of $0.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $0.5 million.

Table of Contents

●

Wuhu mainly engages in providing vehicle steering systems to Chery Automobile Co., Ltd., “Chery”, one of the major automotive manufacturers in China. Net product sales for Wuhu were $9.7 million for the six months ended June 30, 2021, compared to $5.5 million for the same period in 2020, representing an increase of $4.2 million, or 76.4%. An increase in sales volume led to a sales increase of $5.3 million, a decrease in selling price led to a sales decrease of $1.6 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $0.5 million.

●

Hubei Henglong mainly engages in providing vehicle steering systems to Chrysler and Ford. Net product sales for Hubei Henglong were $67.3 million for the six months ended June 30, 2021, compared to $39.6 million for the same period in 2020, representing an increase of $27.7 million, or 69.9%. An increase in sales volume led to a sales increase of $18.7 million, an increase in selling price led to a sales increase of $6.9 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $2.1 million.

●

Henglong KYB mainly engages in providing passenger EPS products. Net product sales for Henglong KYB were $34.9 million for the six months ended June 30, 2021, compared with $18.7 million for the six months ended June 30, 2020, representing an increase of $16.2 million, or 86.6%. An increase in sales volume led to a sales increase of $15.5 million, a decrease in selling price led to a sales decrease of $1.0 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales increase of $1.7 million.

●	Net product sales for other entities were $42.8 million for the six months ended June 30, 2021, compared to $22.3 million for the same period in 2020, representing an increase of $20.5 million, or 91.9%.

Cost of Products Sold

For the six months ended June 30, 2021, the cost of products sold was $215.4 million, compared to $137.8 million for the same period of 2020, representing an increase of $77.6 million, or 56.3%. The increase in cost of sales was mainly due to the effect of the following major factors: i) the increase in sales volumes led to a cost of sales increase of $74.6 million; ii) the decrease in unit cost led to a cost of sales decrease of $10.0 million; and iii) the depreciation of the RMB against the U.S. dollar resulted in a cost of sales increase of $13.0 million. Further analysis is as follows:

●

Cost of products sold for Henglong was $91.0 million for the six months ended June 30, 2021, compared to $56.1 million for the same period of 2020, representing an increase of $34.9 million, or 62.2%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $35.7 million, a decrease in unit cost resulting in a cost of sales decrease of $4.8 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $4.0 million.

●

Cost of products sold for Jiulong was $54.3 million for the six months ended June 30, 2021, compared to $37.2 million for the same period of 2020, representing an increase of $17.1 million, or 46.0%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $11.1 million, an increase in unit cost resulting in a cost of sales increase of $3.0 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $3.0 million.

●

Cost of products sold for Shenyang was $6.7 million for the six months ended June 30, 2021, compared to $5.2 million for the same period of 2020, representing an increase of $1.5 million, or 28.8%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $1.3 million, a decrease in unit cost resulting in a cost of sales decrease of $0.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales increase of $0.4 million.

●

Cost of products sold for Wuhu was $8.7 million for the six months ended June 30, 2021, compared to $4.8 million for the same period of 2020, representing an increase of $3.9 million, or 81.3%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $4.9 million, a decrease in unit cost resulting in a cost of sales decrease of $1.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar ~~led to~~resulting in a cost of sales ~~decrease~~increase of ~~$0.5~~$0.3 million.

Table of Contents

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	•	~~Net product sales~~Cost of products sold for Hubei Henglong ~~were $66.9~~was $55.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$42.8~~$31.4 million for the same period ~~in 2016,~~of 2020, representing an increase of ~~$24.1~~$23.9 million, or ~~56.3%~~76.1%. ~~Hubei Henglong’s products are mainly sold to Chrysler and Ford.~~ The ~~significant~~ increase in ~~the~~cost of sales ~~of Hubei Henglong~~ was mainly due to ~~the new products developed for Chrysler and Ford that began mass production at the end of 2016. An~~an increase in sales volumes ~~led to~~resulting in a cost of sales increase of ~~$32.8~~$21.7 million, an increase in unit cost resulting in a ~~decrease in average selling price led to a~~cost of sales ~~decrease~~increase of ~~$6.7~~$0.4 million, and the effect of foreign currency translation of the RMB against the U.S. dollar ~~led~~resulting in a cost of sales increase of $1.8 million.

●

Cost of products sold for Henglong KYB was $32.8 million for the six months ended June 30, 2021, compared to $18.1 million for the same period of 2020, representing an increase of $14.7 million, or 81.2%. The increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $14.6 million, a decrease in unit cost resulting in a cost of sales decrease of ~~$2.0~~$1.4 million, and the depreciation of the RMB against the U.S. dollar resulting in a cost of sales increase of $1.5 million.

●	Cost of products sold for other entities was $35.8 million for the six months ended June 30, 2021, compared to $17.9 million for the same period in 2020, representing an increase of $17.9 million, or 100.0%.

~~Net product sales for Other Sectors were $40.8 million~~Gross margin was 14.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$29.6 million~~12.1% for the same period ~~in 2016,~~of 2020, representing an increase of ~~$11.2 million, or 37.8%, primarily~~2.1%. There was a significant decline in export sales to United States, which were the Company’s highest gross margin products, due to ~~an increase~~COVID-19, which resulted in the temporary shutdown of operations of our major customers in the second quarter of 2020. As our customers in the United States began re-opening operations, the Company’s export sales ~~of Jielong, which manufactures automobile steering columns for both HPS~~volume and ~~EPS.~~

gross margin increased.

Selling Expenses

~~Cost of Products Sold~~

~~For~~Selling expenses were $10.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, the cost of products sold was $287.2 million,~~2021, as compared to ~~$253.4~~$5.1 million for the same period of ~~2016,~~2020, representing an increase of ~~$33.8~~$5.0 million, or ~~13.3%. The increase in the cost of products sold~~98.0%, which was ~~mainly~~primarily due to ~~the net effect of a net increase in~~increased sales ~~volumes which led to a cost of products sold increase of $41.1 million, an increase in unit cost which led to a cost of products sold increase of $4.3 million,~~volume and ~~the effect of foreign currency translation of the RMB against the U.S. dollar which led to a cost of products sold decrease of $11.6 million. Further analysis is as follows:~~ higher air freight charges.

General and Administrative Expenses

~~Cost of products sold for Henglong was $164.8~~

General and administrative expenses were $10.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, as compared to ~~$165.4~~$8.2 million for the same period of 2016, representing a decrease of $0.6 million, or 0.4%. A decrease in sales volumes led to a cost of products sold decrease of $1.0 million, an increase in unit cost led to a cost of products sold increase of $6.4 million and the effect of foreign currency translation of the RMB against the U.S. dollar led to a cost of products sold decrease of $6.0 million.

~~Cost of products sold for Jiulong was $65.4 million for the nine months ended September 30, 2017, compared to $47.6 million for the same period of 2016,~~2020, representing an increase of ~~$17.8~~$2.5 million, or 37.4%. An increase in sales volume led to a cost of products sold increase of $15.6 million, an increase in unit cost led to a cost of products sold increase of $4.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a cost of products sold decrease of $2.1 million.

Cost of products sold for Shenyang was $25.1 million for the nine months ended September 30, 2017, compared to $21.7 million for the same period of 2016, representing an increase of $3.4 million, or 15.7%. The increase in cost of products sold was mainly due to an increase in sales volumes, which led to a cost of products sold increase of $4.2 million and the effect of foreign currency translation of the RMB against the U.S. dollar, which led to a cost of products sold decrease of $0.8 million.

Cost of products sold for Wuhu was $16.9 million for the nine months ended September 30, 2017, compared to $14.5 million for the same period of 2016, representing an increase of $2.4 million, or 16.6%. The increase in cost of products sold was mainly due to an increase in sales volumes, which led to a cost of products sold increase of $4.0 million, a decrease in unit cost, which led to a cost of products sold decrease of $1.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar, which led to a cost of products sold decrease of $0.5 million.

Cost of products sold for Hubei Henglong was $46.2 million for the nine months ended September 30, 2017, compared to $31.4 million for the same period of 2016, representing an increase of $14.8 million, or 47.1%. The increase in cost of products sold was mainly due to an increase in sales volumes, which led to a cost of products sold increase of $23.7 million, a decrease in unit cost, which led to a cost of products sold decrease of $7.8 million, and the effect of foreign currency translation of the RMB against the U.S. dollar, which led to a cost of products sold decrease of $1.1 million.

Cost of products sold for Other Sectors was $34.5 million for the nine months ended September 30, 2017, compared to $24.2 million for the same period of 2016, representing an increase of $10.3 million, or 42.6%, primarily due to the increase in sales volumes of Jielong.

Gross margin was 19.2% for the nine months ended September 30, 2017, compared to 18.9% for the same period of 2016, representing an increase of 0.3%, mainly due to increased sales and the changes in the product mix in the nine months ended September 30, 2017.

~~Gain on Other Sales~~

Gain on other sales mainly consisted of net amount retained from sales of materials, property, plant and equipment, land use rights, and scraps. For the nine months ended September 30, 2017, gain on other sales amounted to $5.9 million, as compared to $2.0 million for the nine months ended September 30, 2016, representing an increase of $3.9 million. The increase was mainly due to the gain on disposal of a building of $2.2 million and increased sales volume of materials.

~~Selling Expenses~~

Selling expenses were $13.2 million for the nine months ended September 30, 2017, as compared to $12.3 million for the same period of 2016, representing an increase of $0.9 million, or 7.3%, which was mainly due to increased logistics fees related to the increase in revenue.

~~General and Administrative Expenses~~

General and administrative expenses were $14.0 million for the nine months ended September 30, 2017, as compared to $12.0 million for the same period of 2016, representing an increase of $2.0 million, or 16.7%30.5%, which was mainly due to the ~~allowance~~increased payroll expenses and the bad debt provision provided for ~~doubtful~~ accounts ~~of $1.0 million and higher payroll expenses.~~

receivable.

Research and Development Expenses

Research and development expenses were ~~$23.7~~$12.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, as compared to ~~$18.8~~$11.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, representing an increase of ~~$4.9~~$1.3 million, or ~~26.1%~~11.5%, which was mainly due to increased expenditures on R&D activities for EPS products. The Company’s research and development expenses were mainly used for the development and trial production of EPS and other new products. The Company’s research and development expenditures have continued to be significant in the past several years.

Other Income ~~from Operations~~

~~Income from operations~~Other income, net was ~~$23.2~~$3.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, which was comprised of government subsidies, as compared to ~~$18.0~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, which was comprised of government subsidies and donation to the local government, representing an increase of ~~$5.2~~$1.8 million, ~~or 28.9%, including an increase of $9.0 million in gross profit, an increase of $3.9 million in gain on other sales and an increase of $7.7 million in operating expenses.~~

~~Other Expense/Income, Net~~

Other expense, net was $0.1 million for the nine months ended September 30, 2017, compared to other income, net of $1.0 million for the nine months ended September 30, 2016, representing an increase in other expense of $1.1 million, primarily as a result of the gain on disposal of a subsidiary amounting to $0.7 million in 2016 whereas there was no such gain in the current period.

~~Interest Expense~~

Interest expense was $1.2 million for the nine months ended September 30, 2017, compared to interest expense of $0.5 million for the nine months ended September 30, 2016, representing an increase of $0.7 million, primarily due to the new bank loans borrowed in 2017 and higher interest rates.

~~Financial Income, Net~~

Financial income, net, was $1.9 million for the nine months ended September 30, 2017, compared to financial income, net of $1.3 million for the nine months ended September 30, 2016, representing an increase of $0.6 million, or 46.2%, which was mainly due to donation of $1.1 million to the ~~interest income~~local government in the same period of ~~$0.9 million generated from the loan to Henglong Real Estate, one of the Company’s related parties (See Note 5).~~

2020.

~~Income Before Income Tax Expenses and Equity in Earnings of Affiliated Companies~~Interest Expense

~~Income before income tax expenses and equity in earnings of affiliated companies~~Interest expense was ~~$23.9~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$19.8~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, 2016, representing an increase of $4.1 million, or 20.7%, which was mainly due to an increase in operating income of $5.2 million, an increase in other expense of $1.1 million, an increase in interest expense of $0.7 million and an increase in financial income of $0.6 million.2020.

Income Taxes

Income tax expense was ~~$4.4~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to ~~$3.4 million of income tax expense for the nine months ended September 30, 2016, representing an increase of $1.0 million, or 29.4%. The income before income tax increased to $23.9~~$0.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 from $19.8 million for the same period in 2016 and the effective tax rate increased to 18.2% from 17.3%.~~

~~Net Income~~

Net income was $20.0 million for the nine months ended September 30, 2017, compared to net income of $16.9 million for the nine months ended September 30, 2016, representing an increase of $3.1 million, or 18.3%,2020, which was ~~mainly~~primarily due to anthe increase in income before income tax ~~expenses and equity in earnings~~expenses.

Table of ~~affiliated companies of $4.1 million, an increase in income tax of $1.0 million and a decrease in equity in earnings of affiliated companies of $0.1 million.~~ Contents

Net ~~Income~~loss Attributable to Non-controlling Interests

Net ~~income~~loss attributable to non-controlling interests amounted to ~~$0.4 million for the nine months ended September 30, 2017, compared to~~ $0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~The Company owns equity~~2021, compared to net loss attributable to non-controlling interests ~~in nine non-wholly owned subsidiaries established in~~of $0.7 million for the PRC and Brazil, through which it conducts its operations. Except for Beijing Henglong and Chongqing Jinghua, which are accounted for under the equity method, all the operating results of these non-wholly owned subsidiaries were consolidated in the Company’s financial statements as of Septembersix months ended June 30, ~~2017 and 2016.~~

2020.

Net ~~Income~~Income/(loss) Attributable to Parent Company’s Common Shareholders

Net income attributable to parent company’s common shareholders was ~~$19.7~~$6.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared to net loss attributable to parent company’s common shareholders of $4.1 million for the six months ended June 30, 2020, representing an increase in net income attributable to parent company’s common shareholders of $16.8 million for the nine months ended September 30, 2016, representing an increase of $2.9 million, or 17.3%, which was mainly due to an increase in net income of $3.1 million and an increase in net income attributable to non-controlling interests of $0.2$10.5 million.

~~Privatization Proposal~~

On August 2, 2017, the Company issued a press release announcing the appointment by the special committee (the “Special Committee”) of the Company’s board of directors (the “Board”) of HoulihanLokey Capital, Inc. as its financial advisor and Kirkland & Ellis as its U.S. legal counsel in connection with its review and evaluation of the previously announced preliminary non-binding proposal letter that the Board received on May 14, 2017 from Mr.Hanlin Chen, the Chairman of the Board of the Company, relating to a possible “going private” transaction, as well as in connection with its review and evaluation of any other sale, merger, business combination or other corporate transaction, with Mr. Chen or any other party, and any other strategic alternatives.

As previously announced, Mr. Chen has submitted a preliminary non-binding proposal to the Board to acquire all of the outstanding shares of common stock of the Company not already beneficially owned by Mr. Chen for $5.45 per share of common stock in cash. Mr. Chen and his affiliates currently beneficially own approximately 56.4% of the issued and outstanding shares of common stock of the Company on a fully diluted and as-converted basis. The proposal is expressly conditioned on approval by a special committee of the Board comprised of independent directors and is subject to a non-waivable condition requiring approval by a majority vote of the Company’s unaffiliated stockholders. The Special Committee, consisting of Mr. Arthur Wong, Mr. Robert Tung and Mr. Guangxun Xu, is empowered to, and will be responsible for, among other things, investigating, evaluating, negotiating and making a recommendation to the Board with respect to the proposal. The Special Committee is also empowered to retain its own independent advisors to assist in the evaluation of the proposal and any alternative proposals.

The Board cautions the Company's shareholders, and others considering trading in its securities, that it has only received a proposal. No decision has been made with respect to the Company's response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that a transaction with Mr. Chen or any other transaction will be approved or consummated. The Company is not obligated to make, and does not at this time anticipate making, any further public statements about this matter or the activities of the special committee unless and until either the Company enters into a definitive agreement for a transaction or the special committee determines that no such transaction will be effected.

Liquidity and Capital Resources

Capital Resources and Use of Cash

The Company has historically financed its liquidity requirements from a variety of sources, including short-term borrowings under bank credit agreements, bankers’ acceptances, issuances of capital stock and notes and internally generated cash. As of ~~September~~June 30, ~~2017,~~2021, the Company had cash and cash equivalents and ~~time deposits included in~~ short-term investments of ~~$79.2~~$100.9 million, compared to ~~$61.6~~$107.4 million as of December 31, ~~2016,~~2020, representing ~~an increase~~a decrease of ~~$17.6~~$6.5 million, or ~~28.7%~~6.0%. ~~Short-term investments included pledged short-term investments of $2.1 million and $5.7 million as of September 30, 2017 and December 31, 2016, respectively.~~

The Company had working capital (total current assets less total current liabilities) of ~~$167.2~~$137.8 million as of ~~September~~June 30, ~~2017,~~2021, compared to ~~$161.0~~$121.2 million as of December 31, ~~2016,~~2020, representing an increase of ~~$6.2~~$16.6 million, or ~~3.9%~~13.7%.

~~The~~Except for the expected distribution of dividends from the Company’s PRC subsidiaries to the Company in order to fund the payment of the one-time transition tax due to the U.S. Tax Reform, the Company intends to indefinitely reinvest the funds in subsidiaries established in the PRC.

~~The Company believes~~We cannot predict the impact COVID-19 may have on our cash flow for the rest of 2021. However, based on our liquidity assessment, we believe that ~~in view of its current~~our cash ~~position, the cash expected to be generated~~flow from ~~the~~ operations and ~~funds available~~proceeds from ~~bank borrowings as detailed in subsequent paragraphs~~our financing activities will be sufficient to meet ~~its~~our anticipated cash needs, including our cash needs for working capital and capital ~~expenditure requirements, including~~expenditures, for the ~~repayment of bank loans,~~foreseeable future and for at least twelve months ~~commencing from~~subsequent to the ~~date~~filing of this report.

Capital Source

The Company’s capital source is multifaceted, such as bank loans and ~~banker’s~~banks’ acceptance facilities. In financing activities and operating activities, the Company’s banks require the Company to sign line of credit agreements and repay ~~all existing borrowings under~~ such facilities within one ~~year.~~to two years. On the condition that the Company can provide adequate mortgage security and has not violated the terms of the line of credit agreement, such ~~one year~~ facilities can be extended for another ~~year.~~

one to two years.

The Company had short-term loans of ~~$73.6~~$36.4 million (See Note ~~13)~~7) and bankers’ acceptances of ~~$79.9~~$82.9 million (See Note ~~14)~~8) as of ~~September~~June 30, ~~2017.~~

2021.

The Company currently expects to be able to obtain similar bank loans, i.e., RMB loans, and bankers’ acceptance facilities in the future if it can provide adequate mortgage security following the termination of the above-mentioned agreements, see the table under “Bank Arrangements” below for more information. If the Company is not able to do so, it will have to refinance such debt as it becomes due or repay that debt to the extent it has cash available from operations or from the proceeds of additional issuances of capital stock. ~~Owing~~Due to a depreciation of assets, the value of the mortgages securing the above-mentioned bank loans and banker's acceptances ~~will~~is expected to be reduced by approximately ~~$12.3~~$16.6 million over the next 12 months. If the Company wishes to ~~obtain~~maintain the same amount of bank loans and banker's acceptances in the future, it ~~will have~~may be required by the banks to provide additional mortgages of ~~$12.3~~$16.6 million as of the maturity date of such line of credit agreements, see the table under “Bank Arrangements” below for more information. The Company can still obtain a reduced line of credit with a reduction of ~~$8.9~~$8.5 million, which is ~~72.0%~~51.4%, the mortgage ~~rate,~~ratio, of ~~$12.3~~$16.6 million, if it cannot provide additional mortgages. The Company expects that the reduction in bank loans will not have a material adverse effect on its liquidity.

Bank Due
Date Amount
Available
⁽⁴⁾ Amount
Used Assessed
Mortgage
Value⁽⁵⁾
1.  Comprehensive credit facilities Hubei Bank⁽⁶⁾ Sep-2017 $ 27,121 $ 6,192 $ 56,193
　　　　
2.  Comprehensive credit facilities China Construction Bank Dec-2017 4,520 653 10,604
　　　　
3.  Comprehensive credit facilities Shanghai Pudong Development Bank⁽¹⁾⁽⁶⁾ Oct-2017 19,587 9,608 15,559

4.  Comprehensive credit facilities China CITIC Bank ⁽¹⁾ Sep-2017 60,269 52,990 9,256

China CITIC Bank ⁽¹⁾ Jul-2019 3,255 2,260 5,730

5.  Comprehensive credit facilities Hua Xia Bank⁽¹⁾ Jul-2017 30,135 1,784 -

6.  Comprehensive credit facilities China Everbright Bank Dec-2017 4,520 2,728 7,715

7.  Comprehensive credit facilities ICBC Macau May-2018 23,844 20,000 23,945

8.  Comprehensive credit facilities HSBC (Brazil) Company Limited Oct-2017 70 4 75

9.  Comprehensive credit facilities Bank of China (Brazil) Feb-2018 610 622 904

10.  Comprehensive credit facilities Bank of China⁽¹⁾ Apr-2018 22,601 8,109 -

11.  Comprehensive credit facilities China Merchants Bank⁽¹⁾ Apr-2018 15,067 2,117 -

12.  Comprehensive credit facilities Taishin International Bank Apr-2018 10,000 9,858 12,570

Total $ 221,599 $ 116,925 ⁽²⁾ $ 142,551 ⁽³⁾

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Bank Arrangements

As of ~~September~~June 30, ~~2017,~~2021, the principal outstanding under the Company’s credit facilities and lines of credit was as follows (figures are in thousands of USD):


							Assessed
		Due	Amount		Amount		Mortgage
	Bank	Date	Available⁽²⁾		Used⁽³⁾		Value⁽⁴⁾
1. Comprehensive credit facilities	China Everbright Bank ⁽¹⁾	May 2022		3,096		3,053		9,823

2. Comprehensive credit facilities	Shanghai Pudong Development Bank ⁽¹⁾	Oct 2021		20,124		5,368		22,771

3. Comprehensive credit facilities	China CITIC Bank ⁽¹⁾	Aug 2022		65,788		39,574		20,159
	China CITIC Bank ⁽¹⁾	Aug 2021		10,836		3,963		—
	China CITIC Bank	Jun 2022		3,344		1,548		6,827

4. Comprehensive credit facilities	Hubei Bank	Mar 2022		26,315		18,008		72,164

5. Comprehensive credit facilities	Bank of Chongqing	Sep 2021		774		232		2,418

6. Comprehensive credit facilities	Bank of China ⁽¹⁾	Nov 2021		17,956		—		—

7. Comprehensive credit facilities	China Merchants Bank ⁽¹⁾	Oct 2021		23,219		8,892		—

8. Comprehensive credit facilities	Agricultural Bank of China	Mar 2022		1,548		1,084		4,301

Total			$	173,000	$	81,722	$	138,463

(1)The comprehensive credit facilities with Shanghai Pudong Development Bank are guaranteed by Henglong in addition to the above pledged assets. The comprehensive credit facilities with China CITIC Bank are guaranteed by Henglong and Hubei Henglong in addition to the above pledged assets. The comprehensive credit facilities with Bank of China are guaranteed by Hubei Henglong. The comprehensive credit facilities with China Merchants Bank are guaranteed by Hubei Henglong. The comprehensive credit facilities with China Everbright Bank are guaranteed by Hubei Henglong.

~~(1)~~	Each of Hubei Henglong’s comprehensive credit facilities with Shanghai Pudong Development Bank is required to be guaranteed by Jielong and Hubei Henglong in addition to the above pledged assets. Each of Hubei Henglong, Henglong, Jiulong, Jielong, Chuguanjie and USAI’s comprehensive credit facilities with China CITIC Bank is required to be guaranteed by Henglong and Hubei Henglong, in addition to the above pledged assets and Henglong’s comprehensive credit facilities with Hua Xia Bank are required to be guaranteed by Hubei Henglong. Each of Hubei Henglong, Henglong, Jiulong, Jielong’s comprehensive credit facilities with Bank of China is required to be guaranteed by Hubei Henglong and Henglong, and Henglong’s comprehensive credit facilities with China Merchants Bank are required to be guaranteed by Hubei Henglong.

~~(2)~~	Amount used represents the credit facilities used by the Company for the purpose of bank loans or notes payable during the facility contract period. The loans or notes payable under the credit facilities will remain outstanding regardless of the expiration of the relevant credit facilities until the separate loans or notes payable expire. The amount used includes bank loans of $69.1 million and notes payable of $46.5 million as of September 30, 2017. The remainder of $4.5 million of government loan and $35.7 million of notes payable was secured by bank notes or time deposits without utilization of credit lines.

~~(3)~~	In order to obtain lines of credit, the Company needs to pledge certain assets to banks. As of September 30, 2017, the pledged assets included $35.9 million accounts and notes receivable, $1.6 million of time deposits and other pledged assets with assessed value of $105.1 million.

~~(4)~~	The amount available is used for the drawdown of bank loans and issuance of bank notes. For the drawdown of bank loans, this amount represents the amount that the Company can borrow immediately; for issuance of bank notes, the Company needs to pledge additional collateral in order to utilize these bank facilities.

~~(5)~~	~~The pledged cash deposits were not included in the assessed mortgage value.~~

~~(6)~~	As at the date of this report, the comprehensive credit facilities with Hubei Bank and Shanghai Pudong Development Bank have expired. The Company is negotiating the renewals of the credit facilities with the banks and expects to obtain the renewals in late November 2017. As the Company has obtained sufficient comprehensive lines of credit from other banks, the Company does not anticipate any significant adverse impact on its financial position if the Company fails to renew these credit facilities.

(2)“Amount available” is used for the drawdown of bank loans and issuance of bank notes at the Company’s discretion. If the Company elects to utilize the facility by issuance of bank notes, additional collateral is requested to be pledged to the bank.

(3)“Amount used” represents the credit facilities used by the Company for the purpose of bank loans or notes payable during the facility contract period. The loans or notes payable under the credit facilities will remain outstanding regardless of the expiration of the relevant credit facilities until the separate loans or notes payable expire. The amount used includes bank loans of $36.4 million and notes payable of $45.3 million as of June 30, 2021.

(4)In order to obtain lines of credit, the Company needs to pledge certain assets to banks. As of June 30, 2021, the pledged assets included property, plant and equipment and land use rights with an aggregate assessed value of $138.5 million.

The Company may request the banks to issue notes payable or bank loans within its credit line using a 365-day revolving line.

The Company’s bank loan terms range from ~~eleven~~6 months to ~~eighteen~~12 months. Pursuant to the comprehensive credit line arrangement, the Company pledged and guaranteed:

1. ~~Equipment with an assessed value of approximately $56.2 million as security for its revolving comprehensive credit facility with Hubei Bank.~~

~~2. Land use rights, buildings and equipment with an assessed value of approximately $10.6 million as security for its revolving comprehensive credit facility with China Construction Bank.~~

3. Land use rights and buildings with an assessed value of approximately ~~$15.6~~$9.8 million as security for its comprehensive credit facility with China Everbright Bank.

2. Buildings with an assessed value of approximately $22.8 million as security for its revolving comprehensive credit facility with Shanghai Pudong Development Bank.

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3. Land use rights and buildings with an assessed value of approximately $20.2 million as security for its comprehensive credit facility with China CITIC Bank Wuhan Branch.

4. Land use rights and buildings with an assessed value of approximately ~~$9.3 million as security for its comprehensive credit facility with China CITIC Bank Wuhan branch.~~

~~5. Land use rights and buildings with an assessed value of approximately $5.7~~$6.8 million as security for its comprehensive credit facility with China CITIC Bank Shenyang ~~branch.~~Branch.

~~6. Land use rights and buildings~~5. Equipment with an assessed value of approximately ~~$7.7~~$72.2 million as security for its revolving comprehensive credit facility with Hubei Bank.

6. Buildings with an assessed value of approximately $2.4 million as security for its comprehensive credit facility with ~~China Everbright Bank.~~

Bank of Chongqing.

7. ~~On April 20, 2017, the Company entered into a Credit Agreement~~Buildings with ~~ICBC Macau to obtain the Credit Facility. The interest rate~~an assessed value of the Credit Facility is calculated based on a three-month LIBOR plus 1.30% per annum, subject to the availability of funds and fluctuation at ICBC Macau’s discretion. Interest is calculated daily based on a 360-day year and it is fixed one day before the first day of each interest period. The interest period is definedapproximately $4.3 million as ~~three months from the date of drawdown.~~

As security for ~~the Credit Facility, the Company was required to provide ICBC Macau with the Henglong Standby Letter of Credit for a total amount of not less than $23.9 million if the Credit Facility is fully drawn.~~

On May 5, 2017, the Company drew down the full amount of $20.0 million under the Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $23.9 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 158.5 million, equivalent to approximately $23.9 million. The Company also paid an arrangement fee of $0.04 million to ICBC Jingzhou. The maturity date of the Credit Facility is May 12, 2018.

~~8. On April 1, 2016, Brazil Henglong entered into a~~its comprehensive credit facility ~~agreement~~ with HSBC Brazil to obtain a credit facility in the amount of $0.1 million, the “HSBC Brazil Credit Facility”. The HSBC Brazil Credit Facility expired on October 27, 2017. As security for the HSBC Credit Facility, the Company’s subsidiary Hubei Henglong was required to provide HSBC Brazil with the Standby Letter of Credit for a total amount of $0.1 million if the HSBC Brazil Credit Facility was fully drawn.

On May 6, 2016, Brazil Henglong drew down a loan amounting to $0.1 million provided by HSBC Brazil. The loan matured on October 9, 2017 and had an annual interest rate of 8.2%.Hubei Henglong provided a Standby Letter of Credit for an amount of $0.1 million in favor of HSBC Brazil. Hubei Henglong’s Standby Letter of Credit was issued by China CITIC Bank Wuhan branch and was collateralized by short-term investments of Hubei Henglong of RMB 0.5 million, equivalent to approximately $0.1 million. The Company repaid this bank loan in October 9, 2017.

~~9. On August 26, 2016, Brazil Henglong entered into a credit facility agreement with~~Agricultural Bank of China (Brazil) to obtain a credit facility in the amount of $0.6 million, the “Bank of China Credit Facility”. The Bank of China Credit Facility will expire on January 15, 2018. As security for the Bank of China Credit Facility, the Company’s subsidiary Hubei Henglong is required to provide Bank of China (Brazil) with a Standby Letter of Credit for a total amount of $0.9 million if the Bank of China Credit Facility is fully drawn.

10. On April 25, 2017, Great Genesis entered into a credit facility agreement with Taishin Bank to obtain a non-revolving credit facility in the amount of $10.0 million, the “Taishin Bank Credit Facility”. The Taishin Bank Credit Facility will expire on April 25, 2018 and has an annual interest rate of 2.7%. Interest is paid quarterly and the principal repayment is payable at maturity. As security for the Taishin Bank Credit Facility, the Company’s subsidiary Henglong is required to provide Taishin Bank with the Standby Letter of Credit for a total amount of not less than $10.0 million if the Taishin Bank Credit Facility is fully drawn.

~~Cash Requirements~~

The following table summarizes the Company’s expected cash outflows resulting from financial contracts and commitments (in thousands of USD). The Company has not included information on its recurring purchases of materials for use in its manufacturing operations. These amounts are generally consistent from year to year, closely reflecting the Company’s levels of production, and are not long-term in nature (being less than three months in length).

Payment Due Dates
Total Less than 1 year 1-3 years 3-5 years More than 5 Years
Short-term loan including interest payable $ 74,951 $ 74,951 $ - $ - $ -
Notes payable⁽¹⁾ 82,165 82,165 - - -
Obligation for investment contract⁽²⁾ 5,424 - 5,424 - -
Other contractual purchase commitments, including service agreements 24,676 16,496 8,180 - -
Total $ 187,216 $ 173,612 $ 13,604 $ - $ -

~~(1)~~	~~Notes payable do not bear interest.~~

~~(2)~~	In May 2016, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has committed to make investments of RMB 120.0 million, equivalent to approximately $18.1 million, into the Chongqing Venture Fund in three installments. As of September 30, 2017, Hubei Henglong has completed a capital contribution of RMB 84.0 million, equivalent to approximately $12.7 million, representing 35.0% of the Chongqing Venture Fund’s shares. According to the agreement, the remaining capital commitment of RMB 36.0 million, equivalent to approximately $5.4 million, will be paid upon capital calls received from the Chongqing Venture Fund.

China.

Short-term ~~Bank and Government~~ Loans

The following table summarizes the contract information of short-term borrowings between the banks and the Company as of ~~September~~June 30, ~~2017~~2021 (figures are in thousands of USD).


			Borrowing			Annual		Date of
Bank		Borrowing	Term			Interest		Interest
Government	Purpose	Date	(Months)	Principal		Rate		Payment	Due Date

China CITIC Bank	Working Capital	Sep 11, 2020	12		1,548	5.22	%	Pay monthly	Sep 11, 2021

Bank of ChongQing	Working Capital	Dec 29, 2020	9		232	4.05	%	Pay monthly	Sep 19, 2021

Agricultural Bank of China	Working Capital	Mar 18, 2021	12		1,084	4.05	%	Pay monthly	Mar 17, 2022

China CITIC Bank	Working Capital	Mar 22, 2021	12		4,183	3.45	%	Pay in arrear	Mar 22, 2022

China CITIC Bank	Working Capital	Mar 22, 2021	12		6,949	3.45	%	Pay in arrear	Mar 18, 2022

China CITIC Bank	Working Capital	April 29, 2021	12		1,548	4.35	%	Pay monthly	April 29, 2022

China CITIC Bank	Working Capital	May 21, 2021	12		1,548	4.35	%	Pay monthly	May 21, 2022

China CITIC Bank	Working Capital	May 28, 2021	12		1,548	4.35	%	Pay monthly	May 28, 2022

China CITIC Bank	Working Capital	Jun 04, 2021	6		915	2.80	%	Pay in arrear	Dec 02, 2021

China CITIC Bank	Working Capital	Jun 21, 2021	11		6,362	2.60	%	Pay in arrear	May 17, 2022

China CITIC Bank	Working Capital	Jun 21, 2021	6		3,820	2.60	%	Pay in arrear	Dec 17, 2021

China CITIC Bank	Working Capital	Jun 21, 2021	12		5,154	2.60	%	Pay in arrear	Jun 21, 2022

China CITIC Bank	Working Capital	Jun 21, 2021	6		1,524	2.60	%	Pay in arrear	Jan 17, 2022
				$	36,415

Bank
Government Purpose Borrowing
Date Borrowing
Term
(Months) Annual
Interest
Rate Date of
Interest
Payment Due Date Amount
Payable on
Due Date
Bank of China (Brazil) Working Capital Aug. 26, 2016 18 4.01 % Pay semi annually Jan. 15, 2018 622

HSBC (Brazil) Company Limited Working Capital May 6, 2016 17 8.21 % Pay quarterly Oct. 9, 2017 4

China CITIC Bank Working Capital Nov. 4, 2016 12 5.22 % Pay monthly Nov. 4, 2017 2,260

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 5, 2018 4,896

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 6, 2018 4,895

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 7, 2018 4,607

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 8, 2018 4,318

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 2, 2018 4,322

China CITIC Bank Working Capital Mar. 3, 2017 11 4.99 % Pay in arrear Feb. 9, 2018 5,758

Financial Bureau of Jingzhou Development Zone Working Capital Apr. 21, 2017 8 0.00 % N/A Dec. 8, 2017 1,507

ICBC Macau Working Capital May 5, 2017 12 2.63 % Pay quarterly May 4, 2018 20,000

Taishin International Bank Working Capital Apr. 28, 2017 12 2.65 % Pay quarterly Apr. 23, 2018 9,858

Financial Bureau of Jingzhou Development Zone Working Capital Aug. 17, 2017 12 1.50 % Pay in arrear Aug. 16, 2018 3,013

Bank of China (JingzhouShashi) Working Capital Sep. 28, 2017 12 4.57 % Pay monthly Sep. 27, 2018 7,534
Total $ 73,594

The Company must use the loans for the purpose described ~~in the table. For the two bank loans with ICBC Macau~~ and HSBC Bank (China) Company Limited, if the Company fails to do so, it will be charged a penalty interest at 60% to 100% of the specified loan rate listed in the table above. Except for the loan granted by ICBC Macau as disclosed in the section “Capital Source” above, the Company has to pay interest at the interest rate described in the table on the 20th of each month, quarter or semiannual period, as applicable. If the Company fails to do so, it will be charged compound interest at the specified rate in the above table. The Company has to repay the principal outstanding on the specified date in the table. If it fails to do so, it will be charged aadditional 30% to 100% penalty ~~interest at 50% of the specified loan rate.~~interest.

~~Management believes that the~~The Company has complied with such financial covenants as of ~~September~~June 30, ~~2017, and will continue to comply with them.~~2021.

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Notes Payable

The following table summarizes the contract information of issuing notes payable between the banks and the Company as of ~~September~~June 30, ~~2017~~2021 (figures are in thousands of USD):

Purpose Term (Month) Due Date Amount
Payable on
Due Date
Working Capital (1) 6 Oct. 2017 $ 18,501
Working Capital 6 Nov. 2017 12,057
Working Capital 12 Nov. 2017 2,260
Working Capital 6 Dec. 2017 11,553
Working Capital 6 Jan. 2018 10,982
Working Capital 6 Feb. 2018 11,338
Working Capital 6 Mar. 2018 15,474
Total (See Note 15) $ 82,165


			Amount
			Payable on
Purpose	Term (Months)	Due Date	Due Date
Working Capital⁽¹⁾	6	Jul. 2021		11,769
Working Capital⁽¹⁾	6	Aug. 2021		12,469
Working Capital	6	Sep. 2021		17,890
Working Capital	6	Oct. 2021		11,855
Working Capital	6	Nov. 2021		12,865
Working Capital	6	Dec. 2021		16,024
Total (See Note 8)			$	82,872

(1)

~~(1)~~

The notes payable were repaid in full on their respective due dates.

The Company must use notes payable for the purpose described in the table. If it fails to do so, the banks will no longer issue the notes payable, and it may have an adverse effect on the Company’s liquidity and capital resources. The Company has to deposit a sufficient cash ~~in the designated account of the bank~~ on the due date of notes payable for payment to the suppliers. If the bank has advanced payment for the Company, it will be charged aan additional 50% penalty ~~interest at 50% of the loan rate that is published by the People’s Bank of China for the same period.~~interest. The Company complied with such financial covenants as of ~~September~~June 30, ~~2017, and believes it will continue to comply with them.~~2021.

Cash Flows

~~(a)~~

~~Operating Activities~~

(a)Operating Activities

Net cash provided byin operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 was ~~$43.0~~$5.5 million, compared with net cash provided byin operating activities of ~~$13.1~~$31.4 million for the same period of ~~2016,~~2020, representing a decrease in net cash inflows by $25.9 million, which was mainly due to (1) the increase in net income excluding non-cash items by $11.9 million, (2) the decrease in cash inflows from movements of accounts and notes receivable by $39.5 million, (3) the decrease in the cash outflows from movements of accounts and notes payable by $6.0 million, and (4) a combination of other factors contributing an increase of ~~$29.9~~cash outflows by $4.3 million.

(b)Investing Activities

Net cash used in investing activities for the six months ended June 30, 2021 was $6.7 million, as compared to net cash used by investing activities of $30.6 million for the same period of 2020, representing a decrease in net cash outflows by $23.9 million, which was mainly due to the net effect of (1) ~~the increase~~a decrease in ~~net income excluding non-cash items~~payments to acquire property, plant and equipment by ~~$6.7~~$3.2 million, ~~and~~ (2) ~~the~~an increase in cash received from proceeds from maturities of short-term investment and long-term time deposits by $19.5 million and (3) a combination of other factors contributing an increase of cash inflows ~~from movements of operating assets and liabilities~~ by ~~$23.2 million. The~~$1.2 million, primarily including an increase in ~~cash inflows was primarily due to the offsetting effect~~purchase of ~~(1) the~~de~~crease in cash inflows due to the movement of pledged deposits~~short-term investment by ~~$8.5~~$4.1 million, ~~(2) the increase in cash outflows due to the movement of accounts and notes payable~~offset by ~~$18.0 million, (3) the increase in cash inflows due to the movement of accounts and notes receivable by $51.3 million, (4) the~~a decrease in ~~cash outflows due to~~investment under the ~~movement of inventories~~equity method by $11.8 million, (5) the increase in cash outflows due to the movement of accrued expenses and other payables by $7.5 million and (6) the increase in cash outflows due to the movement of tax payable by $8.2$5.3 million.

~~(b)~~

~~Investing Activities~~

(c)Financing Activities

~~The Company~~Net cash used by financing activities for the six months ended June 30, 2021 was $10.8 million, compared to net cash provided in financing activities of ~~$50.5 million in investment activities during the nine months ended September 30, 2017, compared to $46.0~~$0.2 million for the same period of ~~2016,~~2020, representing an increase ofin net cash outflows by $4.5 million, which was mainly due to (1) a decrease in purchases of property, plant and equipment of $8.0 million, (2) a decrease in cash used in purchases of short-term investments of $3.2 million, (3) an increase in other receivables of $2.2 million, (4) an increase in cash used in purchase of long-term time deposit by $5.8 million, (5) an increase in proceeds from maturities of short-term investments by $20.5 million and (6) an increase in cash outflows due to a loan to a related party by $29.0 million.

~~(c)~~

~~Financing Activities~~

Net cash provided by financing activities for the nine months ended September 30, 2017 was $30.4 million, compared to net cash provided by financing activities of $3.6 million for the same period of 2016, representing an increase of $26.8$11.0 million, which was mainly due to the net effect of (1) ~~increased~~a decrease in proceeds ~~of $57.9 million~~ from bank ~~and government loans~~loan by $1.8 million, and (2) ~~increased repayments~~a increase in repayment of ~~$32.1 million to banks and the government.~~bank loans by $9.2 million.

Off-Balance Sheet Arrangements

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~~ITEM 3.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There were no material changes to the disclosure made in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 regarding this matter.

~~ITEM 4.~~

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Wu Qizhou and Li Jie, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2021, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Wu and Li concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~

2021.

The Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of its disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

B.B.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended ~~September~~June 30, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. — OTHER INFORMATION

~~ITEM 1.~~

ITEM 1. LEGAL PROCEEDINGS.

Other than as described above, the Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal ~~proceedings. In addition,~~proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

~~ITEM 1A.~~

ITEM 1A. RISK FACTORS.

~~There~~The recent government interference into business activities of U.S. listed Chinese companies may negatively impact our operations.

Recently, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021, which further emphasized their goal to strengthen the cross-board regulatory collaboration, to improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management, and provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures. However, these opinions were newly issued, and there were no further explanations or detailed rules or regulations with respect to such opinions, and there are still uncertainties regarding the interpretation and implementation of these opinions. China intends to improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China has also opened a cyber security probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. If the Chinese government’s interference expands, our operations may be negatively impacted in a significant way, although, presently, there is no discernible immediate impact.

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If the Company becomes directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matters. Any unfavorable results from the investigations could harm our business operations and our reputation.

Recently, U.S. public companies that have substantially all of their operations in China have been subjects of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities, lack of effective internal control over financial accountings, inadequate corporate governance and ineffective implementation thereof and, in many cases, allegations of fraud. As a result of enhanced scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S. listed Chinese companies have sharply decreased in value and, in some cases, have become virtually worthless or illiquid. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effects the sector-wide investigations will have on the Company. If the Company becomes a subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, the Company will have to expend significant resources to investigate such allegations and defend the Company. If such allegations were not proven to be baseless, the Company would be severely hampered and the price of the stock of the Company could decline substantially. If such allegations were proven to be groundless, the investigation might have significantly distracted the attention of the Company’s management.

The Company could be delisted if it is unable to timely meet the PCAOB inspection requirements established by the Holding Foreign Companies Accountable Act.

On December 18, 2020, the Holding Foreign Companies Accountable Act, or HFCAA, was enacted. In essence, the act requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. Our independent registered public accounting firm is located in and organized under the laws of the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, and therefore our auditors are not currently inspected by the PCAOB.

On March 24, 2021, the SEC adopted interim final amendments, which will become effective 30 days after publication in the Federal Register, relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Before any registrant will be required to comply with the interim final amendments, the SEC must implement a process for identifying such registrants. As of the date of this annual report, the SEC is seeking public comment on this identification process. Consistent with the HFCAA, the amendments will require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in that jurisdiction, and will also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrant.

On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two.

The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President's Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended that the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.

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It is unclear when the SEC will complete its rulemaking, when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, we could be delisted from the Nasdaq Capital Market and our stock will not be permitted for trading “over-the-counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.

Except for as set forth, there have been no material changes from the risk factors previously disclosed in Item 1A of the Company’s ~~2016~~2020 Annual Report on Form 10-K.

~~ITEM 2.~~

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

None.

~~ITEM 3.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

~~ITEM 4.~~

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

~~ITEM 5.~~

ITEM 5. OTHER INFORMATION.

None.

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~~ITEM 6.~~

ITEM 6. EXHIBITS.

INDEX TO EXHIBITS

~~Exhibit~~ ~~Number~~		~~Description~~
Exhibit Number		Description
~~3.1(i)~~
3.1(i)		Certificate of Incorporation (incorporated by reference from the filing on Form10SB12G File No. 000-33123).

3.1(ii)		Bylaws (incorporated by reference from the Form10SB12G File No. 000-33123).

10.1		Joint-venture Agreement, dated ~~March 31,~~June 30, 2006, as amended on May 2, 2006, between Great Genesis Holdings Limited and Wuhu Chery Technology Co., Ltd. (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q Quarterly Report on May 10, 2006).

10.2		Stock Exchange Agreement dated August 11, 2014 by and among Jingzhou City Jiulong Machinery Electricity Manufacturing Co., Ltd., China Automotive Systems, Inc. and Hubei Henglong Automotive System Group Co., Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q Quarterly Report on August 13, 2014).

~~31.1~~ 10.3		Rule 13a-14(a) Certification*

~~31.2~~		Rule 13a-14(a) Certification*

~~32.1~~		Section 1350 Certification*

~~32.2~~		Section 1350 Certification*

101*		~~The following materials from~~English translation of Joint Venture Contract, dated as of April 27, 2018, by and between Hubei Henglong Automotive System Group Co., Ltd. and KYB (China) Investment Co., Ltd. (incorporated by reference to Exhibit 10.1 to the ~~China Automotive Systems, Inc. Quarterly~~Company’s Current Report on Form ~~10-Q for the quarter ended September 30, 2017, were~~8-K filed on ~~November 9, 2017 formatted in Extensible Business Reporting Language (XBRL):~~April 27, 2018).

31.1	~~(i)~~	~~Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income,~~ Rule 13a-14(a) Certification*

31.2	~~(ii)~~	~~Condensed Unaudited Consolidated Balance Sheets,~~ Rule 13a-14(a) Certification*

32.1	~~(iii)~~	~~Condensed Unaudited Consolidated Statements of Cash Flows, and~~ Section 1350 Certification*

32.2	~~(iv)~~	~~related notes~~ Section 1350 Certification*

101.INS*	*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104*		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

			CHINA AUTOMOTIVE SYSTEMS, INC.
			(Registrant)

Date: ~~November 9, 2017~~August 12, 2021	By:	~~By:~~	/ s/Qizhou Wu
			Qizhou Wu
			President and Chief Executive Officer

Date: ~~November 9, 2017~~August 12, 2021	By:	~~By:~~	/s/Jie Li
			Jie Li
			Chief Financial Officer

	Percentage Interest
Name of Entity	September 30, 2017			December 31, 2016
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong”¹		100.00	%		100.00	%
JingzhouHenglong Automotive Parts Co., Ltd., “Henglong”²		100.00	%		100.00	%
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang”³		70.00	%		70.00	%
Universal Sensor Application Inc., “USAI”⁴		83.34	%		83.34	%
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong”⁵		85.00	%		85.00	%
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu”⁶		77.33	%		77.33	%
Hubei Henglong Automotive System Group Co., Ltd, “Hubei Henglong”⁷		100.00	%		100.00	%
JingzhouHenglong Automotive Technology (Testing) Center, “Testing Center”⁸		100.00	%		100.00	%
Beijing HainachunHenglong Automotive Steering System Co., Ltd., “Beijing Henglong”⁹		50.00	%		50.00	%
Chongqing HenglongHongyan Automotive System Co., Ltd., “Chongqing Henglong”¹⁰		70.00	%		70.00	%
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong”¹¹		95.84	%		80.00	%
Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”¹²		0.00	%		0.00	%
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”¹³		85.00	%		85.00	%
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”¹⁴		100.00	%		100.00	%

	September 30, 2017		December 31, 2016
Time deposits	$	5,100	$	30,217
Wealth management financial products measured at fair value		18,729		258
Total	$	23,829	$	30,475

	September 30, 2017			December 31, 2016
Advance payments and others - unrelated parties	$	13,307		$	10,203
Less: allowance for doubtful accounts – unrelated parties⁽²⁾		(1,072	)		-
Advance payments and others, net – unrelated parties		12,235			10,203
Advance payments and others - related parties⁽¹⁾		31,397			624
Total advance payments and others	$	43,632		$	10,827

	September 30, 2017			December 31,2016
Other receivables - unrelated parties⁽¹⁾	$	1,009		$	738
Other receivables - employee housing loans⁽²⁾		1,291			1,577
Less: allowance for doubtful accounts - unrelated parties		(66	)		(63	)
Other receivables, net - unrelated parties	$	2,234		$	2,252

	September 30, 2017			December 31, 2016
Other receivables - related parties⁽¹⁾	$	576		$	559
Less: allowance for doubtful accounts - related parties		(576	)		(559	)
Other receivables, net - related parties	$	-		$	-

	September 30, 2017			December 31, 2016
Land use rights and buildings	$	55,067		$	47,448
Machinery and equipment		150,928			134,361
Electronic equipment		5,636			4,979
Motor vehicles		4,954			4,395
Construction in progress		28,832			24,890
Total amount of property, plant and equipment		245,417			216,073
Less: Accumulated depreciation⁽¹⁾		(130,115	)		(114,595	)
Total amount of property, plant and equipment, net⁽²⁾⁽³⁾	$	115,302		$	101,478

	September 30, 2017			December 31, 2016

Losses carry forward (U.S.)⁽¹⁾	$	6,389		$	6,216
Losses carry forward (Non-U.S.)⁽¹⁾		2,307			2,887
Product warranties and other reserves		4,290			4,766
Property, plant and equipment		4,422			4,204
Share-based compensation		220			247
Bonus accrual		230			231
Other accruals		1,439			1,551
Deductible temporary difference related to revenue recognition		153			191
Others		1,365			1,206
Total deferred tax assets, net		20,815			21,499
Less: Valuation allowance		(9,044	)		(8,912	)
Total deferred tax assets, net of valuation allowance⁽²⁾	$	11,771		$	12,587

	September 30, 2017		December 31, 2016
Short-term bank loan⁽¹⁾	$	9,794	$	2,162
Short-term bank loan^{(2) (3) (4) (5)}		30,484		35,054
Short-term bank loans⁽⁶⁾		28,796		-
Short-term government loan⁽⁷⁾		4,520		3,604
Bank and government loans	$	73,594	$	40,820

	September 30, 2017		December 31, 2016
Value-added tax payable	$	2,374	$	7,662
Income tax payable		1,019		3,390
Other tax payable		407		622
Total	$	3,800	$	11,674

Issuance Date	Expected volatility			Risk-free rate			Expected term (years)		Dividend yield

December 2, 2016		134.8	%		1.84	%		5		0.00	%
August 16, 2017		139.2	%		1.79	%		5		0.00	%

	Payment obligations by period
	2017 ⁽¹⁾		2018		2019		2020		Thereafter		Total
Obligations for investment contracts⁽¹⁾		-	$	5,424	$	-	$	-	$	-	$	5,424
Obligations for purchasing and service agreements		16,496		5,650		2,530		-		-		24,676
Total	$	16,496	$	11,074	$	2,530	$	-	$	-	$	30,100

	Net Product Sales						Net Income (Loss)
	Nine Months Ended						Nine Months Ended
	September 30						September 30
	2017			2016			2017			2016
Henglong	$	191,093		$	195,940		$	6,300		$	13,389
Jiulong		75,525			54,976			3,739			2,219
Shenyang		28,777			24,898			1,271			995
Wuhu		18,254			15,897			215			96
Hubei Henglong		66,855			42,815			5,518			2,286
Other Sectors		40,821			29,558			1,341			162
Total Segments		421,325			364,084			18,384			19,147
Corporate		-			-			3,367			(1,317	)
Eliminations		(65,992	)		(51,587	)		(1,704	)		(911	)
Total	$	355,333		$	312,497		$	20,047		$	16,919