UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ________ to _________
Commission file number: 000-33123
China Automotive Systems, Inc.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 33-0885775
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
No. 1, Henglong Road, Yu Qiao Development Zone
Shashi District, Jingzhou City, Hubei Province
People's Republic of China
-----------------------------------------------
(Address of principal executive offices)
Issuer's telephone number: 0716-8324631
Visions-in-Glass, Inc.
9521 21st Street SE
Calgary, Alberta, Canada T2C 4B1
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 2003, the Company had 22,064,686 shares of common
stock issued and outstanding.
Documents incorporated by reference: None.
CHINA AUTOMOTIVE SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2003 (Unaudited)
and December 31, 2002
Condensed Consolidated Statements of Operations (Unaudited) - Three
Months and Nine Months Ended September 30, 2003 and 2002
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) - Three Months and Nine Months Ended September 30, 2003 and
2002
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine
Months Ended September 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements (Unaudited) -
Three Months and Nine Months Ended September 30, 2003 and 2002
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, December 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,736,000 $ --
Pledged deposits 1,716,000 --
Accounts receivable, net of
allowance for doubtful accounts
of $570,000, including
$1,154,000 due from related
parties 28,389,000 --
Deposits, prepaids and other
receivables, including
$945,000 due from related
parties 4,032,000 --
Advance payments, including
$412,000 to related parties 5,279,000 --
Inventories 10,209,000 --
------------- -------------
Total current assets 55,361,000 --
------------- -------------
Property, plant and equipment 21,740,000 --
Less: Accumulated depreciation (4,730,000) --
------------- -------------
17,010,000 --
------------- -------------
Equity investments in joint ventures -- 20,329,000
Intangible assets, net 1,754,000 --
Long-term investments 567,000 --
Other assets 55,000 --
------------- -------------
Total assets $ 74,747,000 $ 20,329,000
============= =============
(continued)
3
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
September 30, December 31,
2003 2002
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 6,000,000 $ --
Accounts payable and accrued
expenses, including $530,000
due to related parties 13,680,000 --
Customer deposits 393,000 --
Other payables 12,603,000 --
Dividends payable -- --
Taxation payable 5,117,000 --
Amounts due to
shareholders/directors -- 14,826,000
------------- -------------
Total current liabilities 37,793,000 14,826,000
------------- -------------
Long-term liabilities 196,000 --
Minority interest 16,853,000 --
Stockholders' equity:
Common stock, $0.0001 par value -
Authorized - 80,000,000 shares
Issued and Outstanding -
22,064,686 shares at September
30, 2003 and 20,914,250 shares
at December 31, 2002 2,000 2,000
Additional paid-in capital 19,366,000 193,000
Accumulated other comprehensive loss (946,000) --
Retained earnings -
Appropriated 7,029,000 5,308,000
Unappropriated 3,813,000 --
------------- -------------
Total stockholders' equity 29,264,000 5,503,000
Less: Amounts due from
shareholders/directors (9,359,000) --
------------- -------------
Net stockholders' equity 19,905,000 5,503,000
------------- -------------
Total liabilities and stockholders'
equity $ 74,747,000 $ 20,329,000
============= =============
See accompanying notes to condensed consolidated financial statements.
4
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30,
--------------------------------
2003 2002
------------- -------------
Net sales, including $651,000
to related parties $ 13,287,000 $ --
Cost of sales 7,463,000 --
------------- -------------
Gross profit 5,824,000 --
------------- -------------
Costs and expenses:
Administrative, selling and general
expenses 1,101,000 --
Depreciation and amortization 628,000 --
------------- -------------
Total costs and expenses 1,729,000 --
------------- -------------
Income from operations 4,095,000 --
------------- -------------
Other income (expense):
Equity income (loss) of joint ventures (44,000) 772,000
Other non-operating income 196,000 --
Financial expenses (102,000) --
------------- -------------
Other income (expense), net 50,000 772,000
------------- -------------
Income before income taxes 4,145,000 772,000
Income tax expense (benefit) (41,000) --
------------- -------------
Income before minority interest 4,186,000 772,000
Minority interest 1,769,000 --
------------- -------------
Net income $ 2,417,000 $ 772,000
============= =============
Net income per common share -
Basic $ 0.11 $ 0.04
Diluted $ 0.11 $ 0.04
Weighted average common
shares outstanding -
Basic 22,023,281 20,914,250
Diluted 22,411,383 20,914,250
See accompanying notes to condensed consolidated financial statements.
5
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------- -------------
Net sales, including $2,666,000
to related parties $ 36,776,000 $ --
Cost of sales 20,297,000 --
------------- -------------
Gross profit 16,479,000 --
------------- -------------
Costs and expenses:
Administrative, selling and general
expenses 5,037,000 --
Depreciation and amortization 1,637,000 --
Stock compensation 1,300,000 --
------------- -------------
Total costs and expenses 7,974,000 --
------------- -------------
Income from operations 8,505,000 --
------------- -------------
Other income (expense):
Equity income (loss) of joint ventures (44,000) 2,647,000
Other non-operating income 444,000 --
Financial expenses (225,000) --
------------- -------------
Other income (expense), net 175,000 2,647,000
------------- -------------
Income before income taxes 8,680,000 2,647,000
Income tax expense 939,000 --
------------- -------------
Income before minority interest 7,741,000 2,647,000
Minority interest 4,506,000 --
------------- -------------
Net income $ 3,235,000 $ 2,647,000
============= =============
Net income per common share -
Basic $ 0.15 $ 0.13
Diluted $ 0.15 $ 0.13
Weighted average common
shares outstanding -
Basic 21,773,149 20,914,250
Diluted 22,075,006 20,914,250
See accompanying notes to condensed consolidated financial statements.
6
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended September 30,
--------------------------------
2003 2002
------------- -------------
Net income $ 2,417,000 $ 772,000
Other comprehensive income (loss):
Foreign currency translation
gain (loss) (8,000) --
------------- -------------
Comprehensive income (loss) $ 2,409,000 $ 772,000
============= =============
See accompanying notes to condensed consolidated financial statements.
7
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------ ------------
Net income $ 3,235,000 $ 2,647,000
Other comprehensive income (loss):
Foreign currency translation
gain (loss) (8,000) --
------------ ------------
Comprehensive income $ 3,227,000 $ 2,647,000
============ ============
See accompanying notes to condensed consolidated financial statements.
8
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------- -------------
Cash flows from operating activities:
Net income $ 3,235,000 $ 2,647,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity income of joint ventures 44,000 (2,647,000)
Minority shareholders' interests 4,506,000 --
Issuance of warrants to consultants 1,300,000 --
Depreciation and amortization 1,637,000 --
Other operating adjustments (104,000)
Changes in operating assets and
liabilities:
(Increase) decrease in:
Pledged deposits (1,251,000) --
Accounts receivable (1,346,000) 216,000
Inventories (874,000) --
Deposits, prepayments and
other receivables (2,549,000) --
Increase (decrease) in:
Accounts payable, accrued
expenses, customer deposits
and other payables 4,500,000 --
Taxation payable (301,000) --
Long-term liabilities (5,000)
------------- -------------
Net cash provided by operating activities 8,792,000 216,000
------------- -------------
(continued)
9
China Automotive Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)(continued)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------- -------------
Cash flows from investing activities:
Cash paid to acquire fixed assets,
intangible assets and other assets (4,178,000) --
Long-term investments 698,000 (7,139,000)
------------- -------------
Net cash used in investing activities (3,480,000) (7,139,000)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowings, net 2,377,000 --
Dividends paid (3,444,000) --
(Increase) decrease in amounts due
from (to) shareholders/directors (3,680,000) 6,923,000
Proceeds from sale of common stock 159,000 --
------------- -------------
Net cash provided by (used in)
financing activities (4,588,000)
6,923,000
------------- -------------
Effect of foreign currency exchange
translation (156,000) --
Net increase (decrease) in cash
and cash equivalents 568,000 --
Cash and cash equivalents -
beginning of period, as a result
of change from equity accounting
to consolidation accounting
effective January 1, 2003 5,168,000 --
------------- -------------
Cash and cash equivalents - end of
period $ 5,736,000 $ --
============= =============
See accompanying notes to condensed consolidated financial statements.
10
China Automotive Systems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months and Nine Months Ended September 30, 2003 and 2002
1. Organization and Basis of Presentation
Organization - Effective March 5, 2003, Visions-In-Glass, Inc., a United States
public company incorporated in the State of Delaware ("Visions"), entered into a
Share Exchange Agreement to acquire 100% of the shareholder interest in Great
Genesis Holding Limited, a company incorporated on January 3, 2003 under The
Companies Ordinance in Hong Kong as a limited liability company ("Great
Genesis"), as a result of which Great Genesis became a wholly-owned subsidiary
of Visions. At the closing, the old directors and officers of Visions resigned,
and new directors and officers were appointed. Visions subsequently changed its
name to China Automotive Systems, Inc.
China Automotive Systems, Inc., including, when the context so requires, its
subsidiaries and the subsidiaries' interests in the sino-foreign joint ventures
described below, is referred to herein as the "Company". The Company, through
its sino-foreign joint ventures described below, is engaged in the manufacture
and sale of automotive components in the People's Republic of China (the "PRC"
or "China").
Ji Long Enterprise Investment Limited was incorporated on October 8, 1992 under
the Companies Ordinance in Hong Kong as a limited liability company ("Ji Long").
Ji Long is an investment holding company. Effective March 4, 2003, all of the
shareholders of Ji Long exchanged their 100% shareholder interest for a 100%
shareholder interest in Great Genesis, as a result of which Ji Long became a
wholly-owned subsidiary of Great Genesis.
In exchange for the acquisition of 100% of the shareholder interest in Great
Genesis, the shareholders of Great Genesis were issued 20,914,250 shares of
common stock of Visions. In addition, the shareholders of Great Genesis paid
$250,000 to the former officer, director and controlling shareholder of Visions
for the cancellation of 17,424,750 shares of common stock (see Note 5), and have
agreed to pay an additional $70,000, subject to certain conditions.
The acquisition of Great Genesis by the Company was accounted for as a
recapitalization of Great Genesis, pursuant to which the accounting basis of
Great Genesis continued unchanged subsequent to the transaction date.
Accordingly, the pre-transaction financial statements of Great Genesis are the
historical financial statements of the Company.
Ji Long owns the following aggregate net interests in five sino-foreign joint
ventures organized in the PRC as of and for the three months and nine months
ended September 30, 2003:
Percentage
Name of Entity Interest
-------------- --------
Jingzhou Henglong Automotive Parts
Co. Limited ("Henglong") 42.0%
Shashi Jiulong Power Steering Co.
Limited ("Jiulong") 81.0%
Shenyang Jinbei Henglong Automotive
Steering System Co. Limited ("Shenyang") 55.0%
Zhejiang Henglong & Vie Pump-Manu Co.
Limited ("Zhejiang") 51.0%
Jingzhou Henglong Fulida Textile Co., Ltd.
("Jingzhou") 51.0%
11
At December 31, 2002, the investors in Shenyang were Ji Long, Henglong,
Shengyang Automotor Industry Investment Corporation and Shenyang Jinbei
Automotor Industry Co., Ltd. On December 12, 2002, according to a decision made
at the meeting of the board of directors, 30% of the stock rights in Shenyang
held by Henglong were to be transferred to Ji Long, and 17% of the stock rights
in Shenyang held by Shenyang Automotor Industry Investment Corporation were to
be transferred to Shenyang Jinbei Automotor Industry Co., Ltd. On January 8,
2003, Ji Long and Henglong signed an agreement for the transfer of stock rights,
which was approved by the applicable PRC authorities on May 22, 2003. As of
December 31, 2002, the Company owned 25% of Shenyang directly and 12.6% of
Shenyang indirectly through its ownership in Henglong, for a combined ownership
of 37.6%. As of September 30, 2003, the Company owned 55.0% of Shenyang
directly. The Company accounted for this increase in ownership in Shenyang
commencing as of the effective date of January 1, 2003. The potential adjustment
to the minority interest, if any, has not been determined nor recorded in these
financial statements.
Jingzhou was formed in February 2003 to produce environmental textile and raw
materials, and is owned 51% by Ji Long and 49% by Cixi City Fulida Synthetic
Fibre Co., Ltd. As the minority interest partner has the right to participate in
management, the Company has accounted for its interest in this sino-foreign
joint venture under the equity method of accounting through September 30, 2003.
Basis of Presentation - For the three months and nine months ended September 30,
2003, the accompanying condensed consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries and sino-foreign
joint ventures. For the three months and nine months ended September 30, 2002,
the accompanying condensed financial statements include the accounts of the
Company, with the Company's investments in sino-foreign joint ventures accounted
for under the equity method of accounting. All significant intercompany accounts
and transactions have been eliminated in consolidation. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
During early 2003, the Directors of the Company and the other joint venturers in
the Company's sino-foreign joint ventures (except for Jingzhou) executed "Act in
Concert" agreements, resulting in the Company having voting control in such
sino-foreign joint ventures. The Company is in the process of making application
to the relevant PRC authorities for their approval to effect this change through
amendments to the respective joint venture agreements. Consequently, effective
January 1, 2003, the Company changed from equity accounting to consolidation
accounting for its investments in sino-foreign joint ventures (except for
Jingzhou) for the three months and nine months ended September 30, 2003. Prior
to January 1, 2003, the Company used the equity method pursuant to Emerging
Issues Task Force Issue No. 96-16, which states that if a minority joint venture
partner has the right to participate in management, the majority joint venture
partner is required to account for its interest in the joint venture under the
equity method of accounting.
During the nine months ended September 30, 2003, a profitable production line
was transferred from Henglong (a 42% owned subsidiary) to Jiulong (an 81% owned
subsidiary). Jiulong sells the output of the production line to Henglong, which
then sells the products to third parties. All intercompany profit is eliminated
on consolidation.
The Company effected a 3.5 to 1 forward split of its outstanding shares of
common stock during March 2003, prior to the transaction with Great Genesis
described above. Unless otherwise indicated, all share and per share amounts
presented herein have been adjusted to reflect the forward stock split.
Foreign Currencies - The Company maintains its books and records in Hong Kong
Dollars ("HK Dollars"), its functional currency, and the joint ventures maintain
their books and records in Renminbi ("RMB"), the currency of the PRC.
Translation of amounts in United States dollars ("US$") has been made at the
single fixed rate of exchange of US$1.00 to 7.8 HK Dollars and the translation
of amounts in HK Dollars has been made at an approximate rate of 1 HK Dollar to
1.06 RMB.
12
Foreign currency transactions, in HK Dollars and RMB, are reflected using the
temporal method. Under this method, all monetary items are translated into the
functional currency at the rate of exchange prevailing at the balance sheet
date. Non-monetary items are translated at historical rates. Income and expenses
are translated at the rate in effect on the transaction dates. Transaction gains
and losses, if any, are included in the determination of net income (loss) for
the period.
In translating the financial statements of the Company from its functional
currency into its reporting currency in United States dollars, balance sheet
accounts are translated using the closing exchange rate in effect at the balance
sheet date and income and expense accounts are translated using an average
exchange rate prevailing during the reporting period. Adjustments resulting from
the translation, if any, are included in cumulative other comprehensive income
in stockholders' equity.
The RMB is not readily convertible into United States dollars or other foreign
currencies. The foreign exchange rate between the United States dollar and the
RMB is approximately 1 RMB to US$0.1205, since inception through September 30,
2003. No representation is made that the RMB amounts could have been, or could
be, converted into United States dollars at that rate or at any other rate.
Comments - The accompanying interim condensed consolidated financial statements
are unaudited, but in the opinion of management of the Company, contain all
adjustments, which include normal recurring adjustments, necessary to present
fairly the financial position at September 30, 2003, the results of operations
for the three months and nine months ended September 30, 2003 and 2002, and cash
flows for the nine months ended September 30, 2003 and 2002. The consolidated
balance sheet as of December 31, 2002 is derived from the Company's audited
financial statements.
Certain information and footnote disclosures normally included in financial
statements that have been prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although management of
the Company believes that the disclosures contained in these financial
statements are adequate to make the information presented therein not
misleading. For further information, refer to the financial statements and the
notes thereto included in the Company's Current Report on Form 8-K/A dated May
19, 2003, as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The results of operations for the three months and nine months ended September
30, 2003 are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending December 31, 2003.
Income Per Share - Basic income per share is calculated by dividing net income
by the weighted average number of common shares outstanding during the period.
Diluted income per share is calculated assuming the issuance of common shares,
if dilutive, resulting from the exercise of warrants. The Company had
potentially dilutive securities consisting of warrants to purchase 550,375
shares of common stock exercisable at $1.20 per share outstanding at September
30, 2003.
Stock-Based Compensation - The Company may periodically issue shares of common
stock for services rendered or for financing costs. Such shares are valued based
on the market price on the transaction date.
13
The Company may periodically issue stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs.
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation", which establishes a fair value
method of accounting for stock-based compensation plans.
The provisions of SFAS No. 123 allow companies to either record an expense in
the financial statements to reflect the estimated fair value of stock options or
warrants to employees, or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", but to disclose on an annual basis the pro forma effect on
net income (loss) and net income (loss) per common share had the fair value of
the stock options and warrants been recorded in the financial statements. SFAS
No. 123 was amended by SFAS No. 148, which now requires companies to disclose in
interim financial statements the pro forma effect on net income (loss) and net
income (loss) per common share of the estimated fair market value of stock
options or warrants issued to employees. The Company has elected to continue to
account for stock-based compensation plans utilizing the intrinsic value method.
Accordingly, compensation cost for stock options and warrants is measured as the
excess, if any, of the fair market price of the Company's common stock at the
date of grant above the amount an employee must pay to acquire the common stock.
In accordance with SFAS No. 123, the cost of stock options and warrants issued
to non-employees is measured at the grant date based on the fair value of the
award. The fair value of the stock-based award is determined using the
Black-Scholes option pricing model. The resulting amount is charged to expense
on the straight-line basis over the period in which the Company expects to
receive benefit, which is generally the vesting period.
Pro Forma Financial Disclosure - Since the Company has not issued any stock
options to employees, no pro forma financial disclosure has been presented.
2. Certain Significant Risks and Uncertainties
The Company is subject to the consideration and risks of operating in the
People's Republic of China (the "PRC"). These include risks associated with the
political and economic environment, foreign currency exchange and the legal
system in the PRC.
The economy of PRC differs significantly from the economies of the "western"
industrialized nations in such respects as structure, level of development,
gross national product, growth rate, capital reinvestment, resource allocation,
self-sufficiency, rate of inflation and balance of payments position, among
others. Only recently has the PRC government encouraged substantial private
economic activities. The Chinese economy has experienced significant growth in
the past several years, but such growth has been uneven among various sectors of
the economy and geographic regions. Actions by the PRC government to control
inflation have significantly restrained economic expansion in the recent past.
Similar actions by the PRC government in the future could have a significant
adverse effect on economic conditions in PRC.
Many laws and regulations dealing with economic matters in general and foreign
investment in particular have been enacted in the PRC. However, the PRC still
does not have a comprehensive system of laws, and enforcement of existing laws
may be uncertain and sporadic.
Any devaluation of the Renminbi (RMB) against the United States dollar would
consequently have adverse effects on the Company's financial performance and
asset values when measured in terms of the United States dollar. Should the RMB
significantly devalue against the United States dollar, such devaluation could
have a material adverse effect on the Company's earnings and the foreign
currency equivalent of such earnings. The Company does not hedge its RMB -
United States dollar exchange rate exposure.
14
On January 1, 1994, the PRC government introduced a single rate of exchange as
quoted daily by the People's Bank of China (the "Unified Exchange Rate"). No
representation is made that the RMB amounts have been, or could be, converted
into US$ at that rate. This quotation of exchange rates does not imply free
convertibility of RMB to other foreign currencies. All foreign exchange
transactions continue to take place either through the Bank of China or other
banks authorized to buy and sell foreign currencies at the exchange rate quoted
by the People's Bank of China. Approval of foreign currency payments by the
People's Bank of China or other institutions requires submitting a payment
application form together with suppliers' invoices, shipping documents and
signed contracts.
3. Inventories
Inventories at September 30, 2003 (unaudited) consisted of the following:
Raw materials $ 1,891,000
Work-in-process 1,237,000
Finished goods 7,081,000
-----------
$10,209,000
===========
4. Amounts Due From and Due to Shareholders/Directors
During the nine months ended September 30, 2003, amounts due to
shareholders/directors, including accrued dividends, aggregating approximately
$17,167,000 were cancelled. This transaction was accounted for as a contribution
to capital.
Amounts due from shareholders/directors aggregating $9,359,000 at September 30,
2003 result primarily from dividend payments by sino-foreign joint ventures to
the Company which are held by certain shareholders/directors in trust on behalf
of the Company. These amounts do not bear interest and have no specific
repayment terms. Such amounts have been shown as a reduction of stockholders'
equity in the accompanying condensed consolidated balance sheet at September 30,
2003. The Company expects to receive these amounts from the
shareholders/directors during the three months ending December 31, 2003.
5. Transactions Involving Stockholders' Equity
During March 2003, in conjunction with the transaction with Great Genesis
described at Note 1, the Company effected a 3.5 to 1 forward split of its
outstanding shares of common stock, thus increasing the 5,293,000 shares of
common stock outstanding at that time to 18,525,500 shares, of which 17,424,750
shares were then returned to the Company and cancelled.
During March 2003, in conjunction with the transaction with Great Genesis
described at Note 1, the Company issued common stock purchase warrants to three
consultants to acquire an aggregate of 550,375 shares of common stock,
exercisable for a period of one year at $1.20 per share. The aggregate fair
value of these warrants, calculated pursuant to the Black-Scholes option pricing
model, was estimated to be $1,300,000, which was charged to operations during
the nine months ended September 30, 2003.
During September 2003, the Company sold 49,686 shares of common stock in a
private transaction to three investors at $3.20 per share for net proceeds of
$159,000.
15
6. Income Taxes
The Company's sino-foreign joint ventures are subject to income taxes based on
income arising in or derived from the People's Republic of China, generally at
an effective tax rate of 15%. Certain of the Company's sino-foreign joint
ventures are also entitled to a two-year tax holiday. During the three months
and nine months ended September 30, 2003, one of the Company's sino-foreign
joint ventures received an income tax refund of $521,000, which has been
reflected as a reduction to income tax expense in the accompanying consolidated
statements of operations.
7. Significant Concentrations and Related Party Transactions
The Company grants credit to its customers, generally on an open account basis.
The Company's customers are all located in the PRC. Two customers accounted for
approximately 36% (25% and 11%) and 27% (16% and 11%) of the Company's net sales
for the three months and nine months ended September 30, 2003, respectively. At
September 30, 2003, approximately 16% of accounts receivable were from trade
transactions with the aforementioned two customers.
During the three months and nine months ended September 30, 2003, sales to
related parties aggregated $651,000 and $2,666,000, respectively.
During the three months and nine months ended September 30, 2003, purchases from
related parties aggregated $50,000 and $1,657,000, respectively.
8. Summary Condensed Statements of Operations
For the three months and nine months ended September 30, 2002, the Company's
condensed financial statements included the Company's investments in
sino-foreign joint ventures accounted for under the equity method of accounting.
Condensed unaudited financial information with respect to these sino-foreign
joint ventures for 2002 is presented below.
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------ ------------------
Net sales $ 9,189,000 $ 24,314,000
Cost of sales 4,838,000 12,596,000
Administrative, selling
and general expenses 2,283,000 3,993,000
Other income 900,000 292,000
Financial expenses 557,000 637,000
Income taxes 467,000 1,211,000
Minority interest 1,172,000 3,522,000
------------------ ------------------
Net income $ 772,000 $ 2,647,000
================== ==================
9. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses the diverse accounting practices for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company adopted SFAS No. 143 effective
January 1, 2003. The adoption of SFAS No. 143 did not have a significant effect
on the Company's financial statement presentation or disclosures.
16
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 145 rescinds the provisions of SFAS No. 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS No. 44 regarding transition to the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishments are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The adoption of SFAS No. 145 did not have a significant effect on
the Company's financial statement presentation or disclosures.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Such costs covered by
SFAS No. 146 include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. SFAS No. 146 replaces the previous
accounting guidance provided by the EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The adoption of SFAS No. 146 did not have a significant effect on the
Company's financial statement presentation or disclosures.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Acquisitions of Financial Institutions, Except Transactions Between or
More Mutual Enterprises". The Company does not expect that SFAS No. 147 will
have any effect on its financial statement presentation or disclosures.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The adoption of SFAS No. 148 did not have a significant effect on the
Company's financial statement presentation or disclosures.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a significant
effect on the Company's financial statement presentation or disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 did not have a
significant effect on the Company's financial statement presentation or
disclosures.
17
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities (and Interpretation of ARB No. 51)" ("FIN 46"). FIN
46 requires that the primary beneficiary in a variable interest entity
consolidate the entity even if the primary beneficiary does not have a majority
voting interest. The consolidation requirements of FIN 46 are required to be
implemented for any variable interest entity created on or after January 31,
2003. In addition, FIN 46 requires disclosure of information regarding
guarantees or exposures to loss relating to any variable interest entity
existing prior to January 31, 2003 in financial statements issued after January
31, 2003. The implementation of the provisions of FIN 46 effective January 31,
2003 did not have a significant effect on the Company's consolidated financial
statement presentation or disclosures.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended September
30, 2003 contains "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, including statements that include the
words "believes", "expects", "anticipates", or similar expressions. These
forward-looking statements include, but are not limited to, statements
concerning the Company's expectations regarding its working capital
requirements, financing requirements, business prospects, and other statements
of expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. The forward-looking statements in this Quarterly Report on Form 10-QSB
for the quarterly period ended September 30, 2003 involve known and unknown
risks, uncertainties and other factors that could cause the actual results,
performance or achievements of the Company to differ materially from those
expressed in or implied by the forward-looking statements contained herein.
General Overview:
Effective March 5, 2003, Visions-In-Glass, Inc., a United States public company
incorporated in the State of Delaware ("Visions"), entered into a Share Exchange
Agreement to acquire 100% of the shareholder interest in Great Genesis Holding
Limited, a company incorporated on January 3, 2003 under The Companies Ordinance
in Hong Kong as a limited liability company ("Great Genesis"), as a result of
which Great Genesis became a wholly-owned subsidiary of Visions. At the closing,
the old directors and officers of Visions resigned, and new directors and
officers were appointed. Visions subsequently changed its name to China
Automotive Systems, Inc.
China Automotive Systems, Inc., including, when the context so requires, its
subsidiaries and the subsidiaries' interests in the sino-foreign joint ventures
described below, is referred to herein as the "Company". The Company, through
its sino-foreign joint ventures described below, is engaged in the manufacture
and sale of automotive components in the People's Republic of China (the "PRC"
or "China").
Ji Long Enterprise Investment Limited was incorporated on October 8, 1992 under
the Companies Ordinance in Hong Kong as a limited liability company ("Ji Long").
Ji Long is an investment holding company. Effective March 4, 2003, all of the
shareholders of Ji Long exchanged their 100% shareholder interest for a 100%
shareholder interest in Great Genesis, as a result of which Ji Long became a
wholly-owned subsidiary of Great Genesis.
In exchange for the acquisition of 100% of the shareholder interest in Great
Genesis, the shareholders of Great Genesis were issued 20,914,250 shares of
common stock of Visions. In addition, the shareholders of Great Genesis paid
$250,000 to the former officer, director and controlling shareholder of Visions
for the cancellation of 17,424,750 shares of common stock, and have agreed to
pay an additional $70,000, subject to certain conditions.
The acquisition of Great Genesis by the Company was accounted for as a
recapitalization of Great Genesis, pursuant to which the accounting basis of
Great Genesis continued unchanged subsequent to the transaction date.
Accordingly, the pre-transaction financial statements of Great Genesis are the
historical financial statements of the Company.
Ji Long owns the following aggregate net interests in five sino-foreign joint
ventures organized in the PRC as of and for the three months and nine months
ended September 30, 2003:
19
Percentage
Name of Entity Interest
-------------- --------
Jingzhou Henglong Automotive Parts
Co. Limited ("Henglong") 42.0%
Shashi Jiulong Power Steering Co.
Limited ("Jiulong") 81.0%
Shenyang Jinbei Henglong Automotive
Steering System Co. Limited ("Shenyang") 55.0%
Zhejiang Henglong & Vie Pump-Manu Co.
Limited ("Zhejiang") 51.0%
Jingzhou Henglong Fulida Textile Co., Ltd.
("Jingzhou") 51.0%
At December 31, 2002, the investors in Shenyang were Ji Long, Henglong,
Shengyang Automotor Industry Investment Corporation and Shenyang Jinbei
Automotor Industry Co., Ltd. On December 12, 2002, according to a decision made
at the meeting of the board of directors, 30% of the stock rights in Shenyang
held by Henglong were to be transferred to Ji Long, and 17% of the stock rights
in Shenyang held by Shenyang Automotor Industry Investment Corporation were to
be transferred to Shenyang Jinbei Automotor Industry Co., Ltd. On January 8,
2003, Ji Long and Henglong signed an agreement for the transfer of stock rights,
which was approved by the applicable PRC authorities on May 22, 2003. As of
December 31, 2002, the Company owned 25% of Shenyang directly and 12.6% of
Shenyang indirectly through its ownership in Henglong, for a combined ownership
of 37.6%. As of September 30, 2003, the Company owned 55.0% of Shenyang
directly. The Company accounted for this increase in ownership in Shenyang
commencing as of the effective date of January 1, 2003. The potential adjustment
to the minority interest, if any, has not been determined nor recorded in these
financial statements.
Jingzhou was formed in February 2003 to produce environmental textile and raw
materials, and is owned 51% by Ji Long and 49% by Cixi City Fulida Synthetic
Fibre Co., Ltd. As the minority interest partner has the right to participate in
management, the Company has accounted for its interest in this sino-foreign
joint venture under the equity method of accounting through September 30, 2003.
For the three months and nine months ended September 30, 2003, the accompanying
condensed consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries and sino-foreign joint ventures. For the
three months and nine months ended September 30, 2002, the accompanying
condensed financial statements include the accounts of the Company, with the
Company's investments in sino-foreign joint ventures recorded under the equity
method of accounting. All significant intercompany accounts and transactions
have been eliminated in consolidation. The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America.
During early 2003, the Directors of the Company and the other joint venturers in
the Company's sino-foreign joint ventures (except for Jingzhou) executed "Act in
Concert" agreements, resulting in the Company having voting control in such
sino-foreign joint ventures. The Company is in the process of making application
to the relevant PRC authorities for their approval to effect this change through
amendments to the respective joint venture agreements. Consequently, effective
January 1, 2003, the Company changed from equity accounting to consolidation
accounting for its investments in sino-foreign joint ventures (except for
Jingzhou) for the three months and nine months ended September 30, 2003. Prior
to January 1, 2003, the Company used the equity method pursuant to Emerging
Issues Task Force Issue No. 96-16, which states that if a minority joint venture
partner has the right to participate in management, the majority joint venture
partner is required to account for its interest in the joint venture under the
equity method of accounting.
20
During the nine months ended September 30, 2003, a profitable production line
was transferred from Henglong (a 42% owned subsidiary) to Jiulong (an 81% owned
subsidiary). Jiulong sells the output of the production line to Henglong, which
then sells the products to third parties. All intercompany profit is eliminated
on consolidation.
Critical Accounting Policies:
The Company prepared 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 date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. 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.
Accounts Receivable:
Revenue from the sale of products is recognized when the significant risks and
rewards of ownership have been transferred to the customer. No revenue is
recognized if there are significant uncertainties regarding collection of the
consideration due, associated costs or the possible return of goods.
In order to determine the value of the Company's accounts receivable, the
Company records a provision for doubtful accounts to cover probable credit
losses. Management reviews and adjusts this allowance periodically based on
historical experience and its evaluation of the collectibility of outstanding
accounts receivable.
Inventories:
Inventories are stated at the lower of cost and net realizable value. Cost is
determined on a moving-average basis and comprises all costs of purchase and
other costs incurred in bringing the inventories to their present location and
condition. The Company evaluates the net realizable value of its inventories on
a regular basis and reduces the computed moving-average cost if it exceeds the
net realizable value.
Income Taxes:
The Company records a tax provision to reflect the expected tax payable on
taxable income for the period, using tax rates enacted or substantially enacted
at the balance sheet date, and any adjustment to tax payable in respect of
previous periods.
Impairment of Long-Lived Assets:
The Company's long-lived assets consist of property and equipment and certain
intangible assets. In assessing the impairment of such assets, the Company
periodically makes assumptions regarding the estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or the related assumptions indicate that the carrying amount may not
be recoverable, the Company records impairment charges for these assets at such
time.
21
Results of Operations:
The Company's sino-foreign joint ventures (except for Jingzhou) are presented on
a consolidated basis for the three months and nine months ended September 30,
2003, as compared to the equity method of accounting for the three months and
nine months ended September 30, 2002. Accordingly, the results of operations for
the three months and nine months ended September 30, 2003 are not comparable to
the three months and nine months ended September 30, 2002.
Three Months Ended September 30, 2003 and 2002:
Net Sales. Net sales were $13,287,000 for the three months ended September 30,
2003.
Gross Profit. Gross profit was $5,824,000 or 43.8% of net sales for the three
months ended September 30, 2003.
Administrative, Selling and General Expenses. Administrative, selling and
general expenses were $1,101,000 for the three months ended September 30, 2003.
Depreciation and Amortization. Depreciation and amortization was $628,000 for
the three months ended September 30, 2003.
Income From Operations. Income from operations was $4,095,000 for the three
months ended September 30, 2003.
Equity Income (Loss) of Joint Ventures. The Company recorded equity loss of
joint ventures of $44,000 for the three months ended September 30, 2003,
reflecting the Company's proportionate share of the loss of Jingzhou based on
the equity method of accounting. The Company recorded equity income of joint
ventures aggregating $772,000 for the three months ended September 30, 2002,
reflecting the Company's aggregate proportionate share of the earnings of its
sino-foreign joint ventures based on the equity method of accounting.
Other Non-Operating Income. Other non-operating income was $196,000 for the
three months ended September 30, 2003.
Financial Expenses. Financial expenses were $102,000 for the three months ended
September 30, 2003.
Income Before Income Taxes. Income before income taxes was $4,145,000 for the
three months ended September 30, 2003, as compared to $772,000 for the three
months ended September 30, 2002.
Income Tax Expense (Benefit). Income tax benefit was $41,000 for the three
months ended September 30, 2003. During the three months ended September 30,
2003, one of the Company's sino-foreign joint ventures received an income tax
refund of $521,000, which has been reflected as a reduction to income tax
expense in the accompanying consolidated statements of operations.
Income Before Minority Interest. Income before minority interest was $4,186,000
for the three months ended September 30, 2003, as compared to $772,000 for the
three months ended September 30, 2002.
Minority Interest. The Company recorded the minority interests' aggregate share
in each sino-foreign joint venture's earnings aggregating $1,769,000 for the
three months ended September 30, 2003.
Net Income. Net income was $2,417,000 for the three months ended September 30,
2003, as compared to $772,000 for the three months ended September 30, 2002.
22
Nine Months Ended September 30, 2003 and 2002:
Net Sales. Net sales were $36,776,000 for the nine months ended September 30,
2003.
Gross Profit. Gross profit was $16,479,000 or 44.8% of net sales for the nine
months ended September 30, 2003.
Administrative, Selling and General Expenses. Administrative, selling and
general expenses were $5,037,000 for the nine months ended September 30, 2003.
Depreciation and Amortization. Depreciation and amortization was $1,637,000 for
the nine months ended September 30, 2003.
Stock Compensation. During March 2003, in conjunction with the transaction with
Great Genesis described above, the Company issued common stock purchase warrants
to three consultants to acquire an aggregate of 550,375 shares of common stock,
exercisable for a period of one year at $1.20 per share. The aggregate fair
value of these warrants, calculated pursuant to the Black-Scholes option pricing
model, was estimated to be $1,300,000, which was charged to operations during
the nine months ended September 30, 2003.
Income From Operations. Income from operations was $8,505,000 for the nine
months ended September 30, 2003. Excluding the non-cash charge of $1,300,000
related to the issuance of warrants in March 2003, income from operations would
have been $9,805,000 for the nine months ended September 30, 2003.
Equity Income (Loss) of Joint Ventures. The Company recorded equity loss of
joint ventures of $44,000 for the nine months ended September 30, 2003,
reflecting the Company's proportionate share of the loss of Jingzhou based on
the equity method of accounting. The Company recorded equity income of joint
ventures aggregating $2,647,000 for the nine months ended September 30, 2002,
reflecting the Company's aggregate proportionate share of the earnings of its
sino-foreign joint ventures based on the equity method of accounting.
Other Non-Operating Income. Other non-operating income was $444,000 for the nine
months ended September 30, 2003.
Financial Expenses. Financial expenses were $225,000 for the nine months ended
September 30, 2003.
Income Before Income Taxes. Income before income taxes was $8,680,000 for the
nine months ended September 30, 2003, as compared to $2,647,000 for the nine
months ended September 30, 2002. Excluding the non-cash charge of $1,300,000
related to the issuance of warrants in March 2003, income from operations would
have been $9,980,000 for the nine months ended September 30, 2003.
Income Tax Expense. Income taxes were $939,000 for the nine months ended
September 30, 2003. During the nine months ended September 30, 2003, one of the
Company's sino-foreign joint ventures received an income tax refund of $521,000,
which has been reflected as a reduction to income tax expense in the
accompanying statements of operations.
Income Before Minority Interest. Income before minority interest was $7,741,000
for the nine months ended September 30, 2003, as compared to $2,647,000 for the
nine months ended September 30, 2002. Excluding the non-cash charge of
$1,300,000 relating to the issuance of warrants in March 2003, income before
minority interest would have been $9,041,000 for the nine months ended September
30, 2003.
Minority Interest. The Company recorded the minority interests' aggregate share
in each sino-foreign joint venture's earnings aggregating $4,506,000 for the
nine months ended September 30, 2003.
Net Income. Net income was $3,235,000 for the nine months ended September 30,
2003, as compared to $2,647,000 for the nine months ended September 30, 2002.
23
Financial Condition - September 30, 2003:
Liquidity and Capital Resources:
Operating. The Company's operations provided cash of $8,792,000 for the nine
months ended September 30, 2003. At September 30, 2003, cash and cash
equivalents were $5,736,000. Working capital was $17,568,000 at September 30,
2003, reflecting a current ratio of 1.46:1.
The Company anticipates that its working capital resources are adequate to fund
anticipated costs and expenses through the remainder of the year ending December
31, 2003.
Investing. During the nine months ended September 30, 2003, the Company expended
$4,178,000 to acquire fixed assets, intangible assets and other assets, and
$698,000 for long-term investments. During the nine months ended September 30,
2002, the Company expended $7,139,000 to fund investments in sino-foreign joint
ventures.
Financing. During the nine months ended September 30, 2003, the Company utilized
$4,588,000 in financing activities, consisting of borrowings of $2,377,000 and
the proceeds from the sale of common stock of $159,000, less dividends paid of
$3,444,000 and an increase in amounts due from shareholders/directors of
$3,680,000. During the nine months ended September 30, 2002, the Company's
directors/shareholders advanced $6,923,000 to fund the operations of the
Company.
During September 2003, the Company sold 49,686 shares of common stock in a
private transaction to three investors at $3.20 per share for net proceeds of
$159,000.
During the nine months ended September 30, 2003, amounts due to
shareholders/directors, including accrued dividends, aggregating approximately
$17,167,000 were cancelled. This transaction was accounted for as a contribution
to capital.
Amounts due from shareholders/directors aggregating $9,359,000 at September 30,
2003 result primarily from dividend payments by sino-foreign joint ventures to
the Company which are held by certain shareholders/directors in trust on behalf
of the Company. These amounts do not bear interest and have no specific
repayment terms. Such amounts have been shown as a reduction of stockholders'
equity in the accompanying condensed consolidated balance sheet at September 30,
2003. The Company expects to receive these amounts from the
shareholders/directors during the three months ending December 31, 2003.
24
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the reports filed under the Exchange Act of 1934 is accumulated and
communicated to management, including its principal executive and financial
officers, as appropriate, to allow timely decisions regarding required
disclosure.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including its principal executive and
financial officers, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based upon and as of the date of that evaluation, the Company's
principal executive and financial officers concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports the Company files and submits under the
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) Changes in Internal Controls
There were no changes in the Company's internal controls or in other factors
that could have significantly affected those controls subsequent to the date of
the Company's most recent evaluation.
25
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURIITES AND USE OF PROCEEDS
During September 2003, the Company sold 49,686 shares of common stock in a
private transaction to three investors at $3.20 per share for net proceeds of
$159,000.
All shares were issued under an exemption from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K
Three Months Ended September 30, 2003: None
26
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA AUTOMOTIVE SYSTEMS, INC.
------------------------------
(Registrant)
DATE: November 13, 2003 By: /s/ HANLIN CHEN
-----------------------
Hanlin Chen
Chief Executive Officer
and President
DATE: November 13, 2003 By: /s/ DAMING HU
-----------------------
Daming Hu
Chief Financial Officer
27
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
------ -----------------------
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
- Hanlin Chen
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
- Daming Hu
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
28