714284--3/27/2006--SORL_Auto_Parts

related topics

{customer, product, revenue}

{stock, price, share}

{product, market, service}

{operation, international, foreign}

{regulation, change, law}

{interest, director, officer}

{cost, regulation, environmental}

{stock, price, operating}

{personnel, key, retain}

{operation, natural, condition}

{property, intellectual, protect}

{product, candidate, development}

Risks Related to Our Business Our ability to effectively implement our business strategy depends upon, among other factors, the successful recruitment and retention of additional highly skilled and experienced management and other key personnel and we cannot assure that we will be able to hire or retain such employees. Certain of our officers and directors have existing responsibilities to other businesses in addition to our company and as a result, conflicts of interest between us and the other activities of those persons may occur from time to time. We are and will continue to be under downward pricing pressures on our products from our customers and competitors. Our contracts with our customers are generally short-term and do not require the purchase of a minimum amount. We consistently face short lead times for delivery of products to customers. Failure to meet delivery deadlines in our production agreements could result in the loss of customers and damage to our reputation and goodwill. Because of the short lead times in our production agreements, we may not be able to accurately or effectively plan our production or supply needs. Our operations depend highly on Messrs. Xiao Ping Zhang, our Chief Executive Officer and Xiao Feng Zhang, our Chief Operating Officer and a small number of other executives. We may not be able to effectively respond to rapid growth in demand for our products and of our manufacturing operations. We extend relatively long payment terms for accounts receivable. We may not be able to finance the development of new products. We receive a significant portion of our revenues from a small number of customers. Our business depends on our ability to protect our intellectual property effectively. Risks Related to Doing Business in China The PRC legal system has inherent uncertainties that could limit the legal protections available to us. PRC accounting laws mandate accounting practices which may not be consistent with U.S. generally accepted accounting principles and therefore our financials and their interpretation involve uncertainties. PRC economic reform policies or nationalization could result in a total investment loss in our common stock. Because our principal operating company is incorporated under the laws of China, and substantially all of our assets are located in China. You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on U.S. or other foreign law against our management and us. Because we receive a substantial portion of our revenue in Renminbi, which currently is not a freely convertible currency, and the government controls the currency conversion and the fluctuation of the Renminbi, we are subject to changes in China s political and economic decisions. Any occurrence of serious infectious diseases, such as recurrence of severe acute respiratory syndrome (SARS) causing widespread public health problems, could adversely affect our business and results of operations. Because it is likely that China will adopt additional environmental regulations and additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our products or restricting disposal of any waste will increase our operating costs. Risks Related to Our Common Stock The market price for our common stock may be volatile which could result in a complete loss of your investment. We may issue additional shares of our capital stock to raise additional cash for working capital. If we issue additional shares of our capital stock, our stockholders will experience dilution in their respective percentage ownership in us. A large portion of our common stock is controlled by a small number of stockholders and as a result, these stockholders are able to influence the outcome of stockholder votes on various matters. The occurrence of sales of a large number of shares of our common stock, or the perception that these sales could occur, may affect our stock price and could impair our ability to obtain capital through an offering of equity securities. We are responsible for the indemnification of our officers and directors which could result in substantial expenditures, which we may be unable to recoup. Compliance with the Sarbanes-Oxley act could cost hundreds of thousands of dollars, require additional personnel and require hundreds of man hours of effort, and there can be no assurance that we will have the personnel, financial resources or expertise to comply with these regulations.

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714284--3/27/2006--SORL_Auto_Parts_Inc