China Automotive Systems(CAAS) - 2019 Q2 - Quarterly Report

FORM 10-Q Filing Information This document is a Quarterly Report on Form 10-Q for China Automotive Systems, Inc., filed for the period ended June 30, 2019 - The document is a Quarterly Report on Form 10-Q for the period ended June 30, 2019[1] - The registrant is China Automotive Systems, Inc., incorporated in Delaware[1] - The company is classified as a Non-accelerated filer, a Smaller reporting company, and an Emerging growth company[3] - Common Stock (CAAS) is registered on The Nasdaq Capital Market[5] - As of August 8, 2019, 31,497,723 shares of common stock were issued and outstanding[5] Cautionary Statement Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projections[6] - Forward-looking statements speak only as of the filing date and will not be updated unless required by law[6] - Readers are referred to Item 1A. 'Risk Factors' in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, for a comprehensive discussion of factors[6] Part I — Financial Information Item 1. Unaudited Financial Statements This section presents the company's condensed unaudited consolidated financial statements and related notes for the periods ended June 30, 2019 and 2018 Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income Three Months Ended June 30 (2019 vs. 2018, in thousands USD): | Metric | 2019 | 2018 | Change (USD) | Change (%) | | :---------------------------------------------- | :--- | :--- | :----------- | :--------- | | Net product sales | 105,748 | 125,782 | (20,034) | -15.9% | | Gross profit | 15,185 | 17,021 | (1,836) | -10.8% | | Income from operations | 2,740 | 584 | 2,156 | 369.2% | | Net income attributable to parent shareholders | 2,510 | 847 | 1,663 | 196.3% | | Basic EPS | 0.08 | 0.03 | 0.05 | 166.7% | | Diluted EPS | 0.08 | 0.03 | 0.05 | 166.7% | Six Months Ended June 30 (2019 vs. 2018, in thousands USD): | Metric | 2019 | 2018 | Change (USD) | Change (%) | | :---------------------------------------------- | :--- | :--- | :----------- | :--------- | | Net product sales | 214,941 | 259,800 | (44,859) | -17.3% | | Gross profit | 29,230 | 38,660 | (9,430) | -24.4% | | Income from operations | 3,777 | 5,178 | (1,401) | -27.1% | | Net income attributable to parent shareholders | 3,977 | 5,159 | (1,182) | -22.9% | | Basic EPS | 0.13 | 0.16 | (0.03) | -18.8% | | Diluted EPS | 0.13 | 0.16 | (0.03) | -18.8% | Condensed Unaudited Consolidated Balance Sheets Balance Sheet Highlights (June 30, 2019 vs. December 31, 2018, in thousands USD): | Metric | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :--------------------------- | :------------ | :---------------- | :----------- | :--------- | | Total current assets | 465,920 | 495,428 | (29,508) | -6.0% | | Total assets | 670,744 | 690,499 | (19,755) | -2.9% | | Total current liabilities | 320,253 | 341,300 | (21,047) | -6.2% | | Total liabilities | 362,215 | 385,672 | (23,457) | -6.1% | | Total stockholders' equity | 308,529 | 304,827 | 3,702 | 1.2% | Condensed Unaudited Consolidated Statements of Cash Flows Cash Flow Highlights (Six Months Ended June 30, 2019 vs. 2018, in thousands USD): | Metric | 2019 | 2018 | Change (USD) | | :---------------------------------------- | :----- | :----- | :----------- | | Net cash (used in)/provided by operating activities | (25,730) | (5,393) | (20,337) | | Net cash (used in)/provided by investing activities | (9,780) | 1,748 | (11,528) | | Net cash provided by/(used in) financing activities | 8,773 | (5,359) | 14,132 | | Net decrease in cash, cash equivalents and pledged cash | (26,909) | (10,608) | (16,301) | | Cash, cash equivalents and pledged cash at end of period | 89,060 | 85,485 | 3,575 | Notes to Condensed Unaudited Consolidated Financial Statements Organization and Business China Automotive Systems, Inc. manufactures and sells automotive systems and components through subsidiaries and joint ventures in the PRC and Brazil - The Company is primarily engaged in the manufacture and sale of automotive systems and components[16] - Henglong KYB (66.6% ownership) was established in August 2018 for automobile electronic systems[27] - Wuhan Hyoseong (51.0% ownership) was established in March 2019 for automotive motors and electromechanical systems[27] Basis of Presentation and Significant Accounting Policies Financial statements adhere to U.S. GAAP, with ASC 842 Leases adopted on January 1, 2019, having no material impact on key financial metrics - Condensed unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[28] - ASU 2016-02, Leases (ASC 842), was adopted on January 1, 2019, using the modified retrospective method[33][36] - No material impact on retained earnings, right-of-use assets, or lease liabilities resulted from ASC 842 adoption as of January 1, 2019[37] - Operating lease right-of-use assets totaled $0.4 million as of June 30, 2019[41] - Current portion of operating lease liabilities was $0.1 million as of June 30, 2019[41] Accounts and Notes Receivable, Net Total accounts and notes receivable, net, slightly decreased to $255.1 million by June 30, 2019, while related party receivables significantly increased Accounts and Notes Receivable, Net (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :---------------------------------------- | :------------ | :---------------- | :----------- | :--------- | | Accounts and notes receivable, net - unrelated parties | 225,681 | 237,519 | (11,838) | -5.0% | | Accounts and notes receivable - related parties | 29,449 | 18,825 | 10,624 | 56.4% | | Total accounts and notes receivable, net | 255,130 | 256,344 | (1,214) | -0.5% | - Provision for doubtful accounts was $0.2 million for the six months ended June 30, 2019 (vs. $0.3 million in 2018)[45] Inventories Total inventories increased to $90.9 million by June 30, 2019, driven by finished goods, while inventory write-downs decreased Inventories (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :------------------ | :------------ | :---------------- | :----------- | :--------- | | Raw materials | 24,174 | 27,190 | (3,016) | -11.1% | | Work in process | 10,289 | 11,932 | (1,643) | -13.8% | | Finished goods | 56,387 | 48,899 | 7,488 | 15.3% | | Total | 90,850 | 88,021 | 2,829 | 3.2% | - Inventory write-downs totaled $2.2 million for the six months ended June 30, 2019 (vs. $3.5 million in 2018)[46] Long-term Investments The company's long-term investments, primarily in joint ventures and venture capital funds, saw an additional investment in Chongqing Venture Fund and the establishment of Henglong Tianyu in June 2019 - Net equity in Beijing Henglong (50% JV) was $4.5 million as of June 30, 2019 (vs. $4.2 million as of Dec 31, 2018)[47] - Net equity in Suzhou Venture Fund (12.5% LP) was $8.9 million as of June 30, 2019 (vs. $9.7 million as of Dec 31, 2018), with a $0.6 million distribution received in April 2019[48] - Net equity in Chongqing Venture Fund (18.5% LP) was $15.3 million as of June 30, 2019 (vs. $13.1 million as of Dec 31, 2018), with an additional $2.3 million investment in May 2019[49] - Henglong Tianyu (40% associate) was established in June 2019 with a $1.2 million investment, resulting in $1.1 million net equity[53] - Net income of non-consolidated affiliates was nil for the six months ended June 30, 2019 (vs. $0.5 million in 2018)[54] Property, Plant and Equipment, Net Net property, plant, and equipment increased to $142.0 million by June 30, 2019, primarily due to construction in progress and machinery, with a significant portion pledged as security Property, Plant and Equipment, Net (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :---------------------------- | :------------ | :---------------- | :----------- | :--------- | | Land use rights and buildings | 64,768 | 60,593 | 4,175 | 6.9% | | Machinery and equipment | 197,341 | 192,538 | 4,803 | 2.5% | | Construction in progress | 20,506 | 12,526 | 7,980 | 63.7% | | Total PP&E, net | 142,008 | 129,853 | 12,155 | 9.4% | - Depreciation charges totaled $9.2 million for the six months ended June 30, 2019 (vs. $8.8 million in 2018)[55] - $59.6 million of property, plant, and equipment was pledged as security for bank credit facilities as of June 30, 2019 (vs. $55.9 million as of Dec 31, 2018)[56] Loans Total bank and government loans increased to $71.3 million by June 30, 2019, driven by short-term bank loans, while the weighted average interest rate for short-term bank loans decreased to 4.9% Loans (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :---------------------------- | :------------ | :---------------- | :----------- | :--------- | | Short-term bank loans | 70,976 | 60,952 | 10,024 | 16.4% | | Long-term government loan | 291 | 291 | 0 | 0.0% | | Total bank and government loans | 71,267 | 61,243 | 10,024 | 16.4% | - Weighted average interest rate for short-term bank loans was 4.9% as of June 30, 2019 (vs. 5.3% as of Dec 31, 2018)[58] - A Chinese government loan of approximately $7.3 million was repaid on June 20, 2019[61] Accounts and Notes Payable Total accounts and notes payable decreased to $184.2 million by June 30, 2019, primarily due to a reduction in notes payable to unrelated parties Accounts and Notes Payable (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :---------------------------------------- | :------------ | :---------------- | :----------- | :--------- | | Accounts and notes payable - unrelated parties | 176,118 | 205,643 | (29,525) | -14.4% | | Accounts payable - related parties | 8,041 | 4,477 | 3,564 | 79.6% | | Total | 184,159 | 210,120 | (25,961) | -12.4% | Accrued Expenses and Other Payables Total accrued expenses and other payables decreased to $44.0 million by June 30, 2019, mainly due to reduced other payables and warranty reserves Accrued Expenses and Other Payables (in thousands USD): | Category | June 30, 2019 | December 31, 2018 | Change (USD) | Change (%) | | :---------------------------------------- | :------------ | :---------------- | :----------- | :--------- | | Accrued expenses | 7,263 | 8,341 | (1,078) | -12.9% | | Accrued interest | 920 | 423 | 497 | 117.5% | | Current portion of other long-term payable | 3,516 | 3,400 | 116 | 3.4% | | Other payables | 1,329 | 3,783 | (2,454) | -64.9% | | Warranty reserves | 30,936 | 31,085 | (149) | -0.5% | | Total | 43,964 | 47,032 | (3,068) | -6.5% | - Warranty additions totaled $7.5 million for the six months ended June 30, 2019 (vs. $9.9 million in 2018)[66] Other Long-term Payable Other long-term payable totaled $6.9 million as of June 30, 2019, related to an equipment sale and leaseback transaction accounted for as financing - Other long-term payable was $6.9 million as of June 30, 2019, related to an equipment sale and leaseback transaction[67] - The sale and leaseback transaction is accounted for as a financing transaction[67] Additional Paid-in Capital Additional paid-in capital remained stable at $64.4 million, with $0.02 million in stock-based compensation expenses recognized for 2018 stock options - Additional paid-in capital was $64.429 million as of June 30, 2019, and December 31, 2018[68] - Stock-based compensation expenses totaled $0.02 million for the year ended December 31, 2018[69] Retained Earnings Appropriated retained earnings remained at $11.1 million, while unappropriated retained earnings increased to $215.4 million by June 30, 2019, driven by parent company net income - Appropriated retained earnings were $11.104 million as of June 30, 2019, and December 31, 2018[72] - Unappropriated retained earnings were $215.416 million as of June 30, 2019 (vs. $211.439 million as of Dec 31, 2018)[74] - Net income attributable to the parent company was $3.977 million for the six months ended June 30, 2019[74] Accumulated Other Comprehensive Income Accumulated other comprehensive income decreased to $1.4 million by June 30, 2019, primarily due to foreign currency translation losses - Accumulated other comprehensive income was $1.379 million as of June 30, 2019 (vs. $1.855 million as of Dec 31, 2018)[75] - Foreign currency translation adjustment attributable to the parent company was $(476) thousand for the six months ended June 30, 2019[75] Treasury Stock The company repurchased 840,579 shares of common stock by June 30, 2019, under a $5.0 million share repurchase program approved in December 2018 - 840,579 shares were repurchased as of June 30, 2019 (vs. 711,698 as of Dec 31, 2018)[76] - The share repurchase program allows for up to $5.0 million, not exceeding $4.00 per share, through December 4, 2019[76] Non-controlling Interests Non-controlling interests' equity increased to $19.5 million by June 30, 2019, due to a capital contribution from Wuhan Hyoseong, partially offset by net loss - Non-controlling interests equity was $19.493 million as of June 30, 2019 (vs. $18.950 million as of Dec 31, 2018)[77] - Net loss attributable to non-controlling interests was $(520) thousand for the six months ended June 30, 2019[77] - A contribution of $1.438 million was made by a non-controlling shareholder of Wuhan Hyoseong for the six months ended June 30, 2019[77] Net Product Sales Revenue recognition considers contract assets and liabilities, with customer deposits, the main contract liability, increasing to $1.3 million by June 30, 2019 - Contract assets are an insignificant component of the Company's revenue recognition process[80] - Contract liabilities primarily consist of customer deposits[81] - Customer deposits totaled $1.3 million as of June 30, 2019 (vs. $0.8 million as of Dec 31, 2018)[82] - $5.7 million was recognized as net product sales revenue from customer deposits during the six months ended June 30, 2019[82] Financial Income, Net Net financial income significantly increased to $0.9 million for the six months ended June 30, 2019, driven by higher interest income and reduced foreign exchange losses Financial Income, Net (Six Months Ended June 30, in thousands USD): | Category | 2019 | 2018 | Change (USD) | Change (%) | | :------------------------ | :--- | :--- | :----------- | :--------- | | Interest income | 1,477 | 944 | 533 | 56.5% | | Foreign exchange gain/(loss), net | (396) | (641) | 245 | -38.2% | | Bank fees | (194) | (171) | (23) | 13.5% | | Total financial income, net | 887 | 132 | 755 | 572.0% | Income Tax The effective tax rate increased to 20.2% for the six months ended June 30, 2019, primarily due to a valuation allowance for Henglong KYB's deferred tax assets - The effective tax rate for the six months ended June 30 was 20.2% in 2019 (vs. 14.9% in 2018)[84] - Changes in valuation allowance amounted to $0.3 million for the six months ended June 30, 2019[84] - The increase in effective tax rate was primarily due to a valuation allowance for deferred tax assets of Henglong KYB[84] Income Per Share Basic and diluted EPS increased to $0.08 for the three months ended June 30, 2019, but decreased to $0.13 for the six-month period Basic and Diluted EPS (in USD): | Period | 2019 | 2018 | Change (USD) | | :-------------------------------------- | :--- | :--- | :----------- | | Three Months Ended June 30 - Basic | 0.08 | 0.03 | 0.05 | | Three Months Ended June 30 - Diluted | 0.08 | 0.03 | 0.05 | | Six Months Ended June 30 - Basic | 0.13 | 0.16 | (0.03) | | Six Months Ended June 30 - Diluted | 0.13 | 0.16 | (0.03) | Significant Concentrations The company's business is highly concentrated in China, with RMB currency conversion subject to PRC regulations, and 45.1% of sales from its top five customers - A significant portion of the Company's business is conducted in China, where RMB currency conversion is subject to PRC regulations[88][89][91] - The Company's five largest customers accounted for 45.1% of consolidated net product sales for the six months ended June 30, 2019 (vs. 40.2% in 2018)[93][94] - One customer individually accounted for more than 10% of consolidated net sales (20.2% in 2019 vs. 17.6% in 2018)[93][94] - Approximately 6.1% of accounts receivable were from the aforementioned major customer as of June 30, 2019[93] Related Party Transactions and Balances Related party transactions include increased merchandise sales and significantly increased receivables, while material purchases from related parties decreased Related Sales (in thousands USD): | Category | Three Months 2019 | Three Months 2018 | Six Months 2019 | Six Months 2018 | | :---------------------------------------- | :---------------- | :---------------- | :-------------- | :-------------- | | Merchandise sold to related parties | 14,310 | 10,856 | 27,146 | 21,702 | | Materials and others sold to related parties | 435 | 498 | 896 | 944 | | Rental income obtained from related parties | 121 | 45 | 201 | 147 | | Total Related Sales | 14,866 | 11,399 | 28,243 | 22,793 | Related Purchases (in thousands USD): | Category | Three Months 2019 | Three Months 2018 | Six Months 2019 | Six Months 2018 | | :---------------------------------------- | :---------------- | :---------------- | :-------------- | :-------------- | | Materials purchased from related parties | 6,130 | 7,428 | 11,634 | 15,677 | | Equipment purchased from related parties | 1,511 | 2,037 | 2,271 | 3,285 | | Others purchased from related parties | 10 | 208 | 21 | 257 | | Total Related Purchases | 7,651 | 9,673 | 13,926 | 19,219 | - Accounts and notes receivable from related parties totaled $29,449 thousand as of June 30, 2019 (vs. $18,825 thousand as of Dec 31, 2018)[98] - Accounts and notes payable to related parties totaled $8,041 thousand as of June 30, 2019 (vs. $4,477 thousand as of Dec 31, 2018)[99] - Hanlin Chen, Chairman, owns 56.4% of the Company's common stock[100] Commitments and Contingencies A stockholder derivative lawsuit is ongoing, but management expects an immaterial impact; major commitments for investment and purchasing agreements total $27.1 million - A stockholder derivative complaint alleging breach of fiduciary duties and excessive compensation was filed on January 7, 2019, with the motion to dismiss denied on July 17, 2019[101][207] - Management expects the lawsuit's impact on consolidated financial statements to be immaterial[101] Major Commitments and Contingencies (as of June 30, 2019, in thousands USD): | Category | 2019 | 2020 | 2021 | Thereafter | Total | | :---------------------------------------- | :--- | :--- | :--- | :--------- | :---- | | Obligations for investment contracts | 5,528 | - | - | - | 5,528 | | Obligations for purchasing and service agreements | 19,477 | 1,943 | 199 | - | 21,619 | | Total | 25,005 | 1,943 | 199 | - | 27,147 | - Remaining capital commitment for the Hubei Venture Fund is approximately $5.6 million[103] Off-balance Sheet Arrangements The company had no significant off-balance sheet arrangements as of June 30, 2019, and December 31, 2018 - No significant off-balance sheet arrangements existed as of June 30, 2019, and December 31, 2018[104][201] Segment Reporting The company operates 14 product sectors, with six focused on power steering, and evaluates performance based on standalone product sector operating income - As of June 30, 2019, the Company had 14 product sectors, with six principal profit makers engaged in power steering[107] - Henglong KYB primarily operates the EPS business following restructuring in the fourth quarter of 2018[107][131][159] Total Segments Net Product Sales (in thousands USD): | Period | 2019 | 2018 | Change (USD) | Change (%) | | :-------------------------------------- | :------ | :------ | :----------- | :--------- | | Three Months Ended June 30 | 134,677 | 155,564 | (20,887) | -13.4% | | Six Months Ended June 30 | 275,081 | 314,180 | (39,099) | -12.4% | Total Segments Net Income (in thousands USD): | Period | 2019 | 2018 | Change (USD) | Change (%) | | :-------------------------------------- | :--- | :--- | :----------- | :--------- | | Three Months Ended June 30 | 6,253 | 4,238 | 2,015 | 47.5% | | Six Months Ended June 30 | 7,257 | 7,249 | 8 | 0.1% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, critical accounting estimates, and liquidity for the periods ended June 30, 2019 General Overview - China Automotive Systems, Inc. is a leading power steering systems supplier for the China automobile industry[112] - The Company maintains business relations with over sixty vehicle manufacturers, including major Chinese and joint venture brands[112] - The Company aims to grow its leading position in automotive power steering systems and improve overall margins, profitability, and cash flows[113] Critical Accounting Estimates - Critical accounting estimates encompass warranty obligations, valuation of long-lived assets and investments, allowance for doubtful accounts, inventory write-downs, and recoverability of deferred tax assets[117][118][119] - These estimates require management assumptions about uncertain matters, where changes could materially impact financial condition or results of operations[117] - Estimates are based on historical trends, claims understanding, internal budgets, sales data, production volume estimates, and customer commitments[118][119] Results of Operations - Three Months Ended June 30 - Net product sales decreased by $20.1 million (15.9%) to $105.7 million for the three months ended June 30, 2019, due to soft demand and RMB depreciation[123][125] - Net sales of traditional steering products decreased by 15.9% to $83.1 million, and EPS sales decreased by 16.3% to $22.6 million[124] - Gross margin increased by 0.9% to 14.4% due to changes in the product mix[141] - Selling expenses decreased by 20.4% to $3.9 million due to decreased logistics fees[143] - Research and development expenses decreased by 18.5% to $6.6 million due to cost control[144] - Net income attributable to parent company's common shareholders increased by 196.3% to $2.5 million[147] Results of Operations - Six Months Ended June 30 - Net product sales decreased by $44.9 million (17.3%) to $214.9 million for the six months ended June 30, 2019, due to soft demand and RMB depreciation[151][153] - Net sales of traditional steering products decreased by 18.2% to $170.0 million, and EPS sales decreased by 13.7% to $44.9 million[152] - Gross margin decreased by 1.3% to 13.6% due to increased raw material costs and changes in product mix[167] - Selling expenses decreased by 35.5% to $6.9 million due to decreased logistics fees[168] - Research and development expenses decreased by 19.5% to $13.2 million due to cost control[169] - Net income attributable to parent company's common shareholders decreased by 23.1% to $4.0 million[172] Liquidity and Capital Resources - Cash, cash equivalents, and short-term investments decreased by 15.0% to $88.3 million as of June 30, 2019 (vs. $103.9 million as of Dec 31, 2018)[173] - Working capital decreased by 5.5% to $145.7 million as of June 30, 2019 (vs. $154.1 million as of Dec 31, 2018)[174] - The Company intends to indefinitely reinvest funds in PRC subsidiaries, except for dividends to fund the U.S. Tax Reform transition tax[174] - Short-term loans totaled $71.0 million and bankers' acceptances $58.9 million as of June 30, 2019[177] - Expected reduction in mortgage value for credit lines is approximately $12.4 million over the next 12 months, potentially reducing the line of credit by $8.7 million[178] Total Credit Facilities (as of June 30, 2019, in thousands USD): | Metric | Amount Available | Amount Used | Assessed Mortgage Value | | :----------------- | :--------------- | :---------- | :---------------------- | | Total | 174,475 | 104,449 | 111,926 | - Net cash used in operating activities increased by $20.3 million to $25.7 million for the six months ended June 30, 2019[196] - Net cash used in investing activities increased by $11.5 million to $9.8 million for the six months ended June 30, 2019 (vs. $1.7 million provided in 2018)[197] - Net cash provided by financing activities increased by $14.2 million to $8.8 million for the six months ended June 30, 2019 (vs. $5.4 million used in 2018)[198] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk disclosures from the company's 2018 Annual Report on Form 10-K - No material changes to market risk disclosure from the Company's Annual Report on Form 10-K for the year ended December 31, 2018[202] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2019[203] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2019[205] Part II — Other Information Item 1. Legal Proceedings A stockholder derivative complaint's motion to dismiss was denied on July 17, 2019, but the company is not a party to other material legal proceedings - A stockholder derivative complaint alleging breach of fiduciary duties and excessive compensation was filed on January 7, 2019[207] - The motion to dismiss the complaint was denied on July 17, 2019[207] - The Company is not a party to any other pending or threatened material legal proceedings[208] Item 1A. Risk Factors No material changes occurred in the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in Item 1A of the Company's 2018 Annual Report on Form 10-K[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - None[209] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report - None[209] Item 4. Mine Safety Disclosures Not applicable to the company - Not applicable[209] Item 5. Other Information No other information to report - None[209] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including organizational documents, joint venture agreements, and XBRL financial statements - Exhibits include Certificate of Incorporation, Bylaws, and various Joint-venture Agreements[209][210][211][212] - XBRL formatted financial statements (Statements of Operations, Balance Sheets, Cash Flows, and related notes) are filed as Exhibit 101[213] Signatures - The report was signed by Qizhou Wu, President and CEO, and Jie Li, CFO, on August 8, 2019[214]