714284--3/27/2008--SORL_Auto_Parts

related topics

{customer, product, revenue}

{operation, international, foreign}

{stock, price, share}

{cost, regulation, environmental}

{product, market, service}

{property, intellectual, protect}

{interest, director, officer}

{regulation, change, law}

{acquisition, growth, future}

{stock, price, operating}

{condition, economic, financial}

{personnel, key, retain}

{debt, indebtedness, cash}

{operation, natural, condition}

{competitive, industry, competition}

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 which may adversely affect our growth, profit margins and net income. Our contracts with our customers are generally short-term and do not require the purchase of a minimum amount, which may result in periods of time during which we have limited orders for our products. 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 and the loss of any such executive could adversely affect our ability to conduct our business. We may not be able to effectively respond to rapid growth in demand for our products and of our manufacturing operations which could adversely affect our customer relations and our growth prospects. We extend relatively long payment terms for accounts receivable which can adversely affect our cash flow. We may not be able to finance the development of new products which could negatively impact our competitiveness. We receive a significant portion of our revenues from a small number of customers which may make it difficult to negotiate attractive prices for our products and exposes us to risks of substantial losses if we lose certain of these customers. Our business depends on our ability to protect and enforce our intellectual property effectively which may be difficult particularly in China. It may be difficult to find or integrate acquisitions which could have an adverse effect on our expansion plans. With the automobile parts markets being highly competitive and many of our competitors having greater resources than we do, we may not be able to compete successfully. A disruption at our sole manufacturing site would significantly interrupt our production capabilities, which could have drastic consequences to us, including threatening our financial viability. The cyclical nature of commercial vehicle production and sales could result in a reduction in automotive sales, which could adversely affect our financial liquidity. Increasing costs for manufactured components and raw materials may adversely affect our profitability. Longer product life of parts may reduce aftermarket demand for some of our products. We may be subject to product liability and warranty and recall claims, which may increase the costs of doing business and adversely affect our financial condition and liquidity. We are subject to environmental and safety regulations, which may increase our compliance costs. Non-performance by our suppliers may adversely affect our operations by delaying delivery or causing delivery failures, which may negatively affect demand, sales and profitability. Our commercial viability depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. If a third party claims that we infringe its patents, any of the following may occur: Our international expansion plans subject us to risks inherent in doing business internationally. If we cannot continue to satisfy the Nasdaq Global Market s listing maintenance requirements and other Nasdaq rules, our common stock could be delisted, which could negatively affect the price of our ordinary shares and your ability to sell them. We do not intend to pay dividends on shares of our common stock in the foreseeable future. Risks Related to Doing Business in China Changes in China s political and economic policies and conditions could cause a substantial decline in the demand for our products and services. Changes in foreign exchange regulation in China may affect our ability to pay dividends in foreign currencies. Fluctuation in the value of RMB could adversely affect the value of, and dividends payable on, our shares in foreign currency terms. The uncertain legal environment in China could limit the legal protections available to you. Our primary source of funds for dividend and other distributions from our operating subsidiary in China is subject to various legal and contractual restrictions and uncertainties as well as the practice of such subsidiary in declaring dividends, and our ability to pay dividends or make other distributions to our shareholders is negatively affected by those restrictions, uncertainties and dividend practices. PRC economic reform policies or nationalization could result in a total investment loss in our common stock. Because our principal operating company is organized 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. 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 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 meet requirements of these regulations.

Full 10-K form ▸

714284--3/27/2008--SORL_Auto_Parts_Inc