SORL Auto Parts Announces Third Quarter Record High Sales in 2018

ZHEJIANG,China,Nov. 15,2018 -- SORL Auto Parts,Inc. (NASDAQ: SORL)("SORL" or the "Company"),a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts inChina,announced today its unaudited financial results for the third quarter and nine-month periods endedSeptember 30,2018.

Third Quarter 2018 Financial Highlights

Net sales increased by 7.2% to a third quarter record high of $108.6 millioncompared to$101.3 millionin the third quarter of 2017;

Gross margin for the third quarter of 2018 was 24.3%;

Income from operations was $6.6 million;

Net loss attributable to stockholders was $5.6 million and basic and diluted loss per share were $0.29 in the third quarter of 2018;

Excluding the impact of US tax reform,net income attributable to stockholders for the third quarter of 2018 would have been $5.4 million,or $0.28 per basic and diluted share,compared with net income attributable to stockholders of $8.6 million,or $0.44 per basic and diluted share,in the third quarter of 2017;

Cash and cash equivalents atSeptember 30,2018were$17.6 million with working capital of $88.6 million.

Mr. Xiaoping Zhang,SORL's Chairman and Chief Executive Officer,stated,"Our advanced products maintained our market share in a softer economic growth environment among OEMs in China. However,the growing pool of vehicles beyond their warranty periods and our marketing efforts have continued to create opportunities for increased sales and further market penetration. As the largest aftermarket brake components provider in China,we believe that our increased sales and marketing campaigns enable us to significantly gain market share in the aftermarket segment and increasingly widen the distance over our major competitors while many of our small competitors are encountering a credit crunch and facing possibly discontinuing operations. International sales have also risen due to greater acceptance of our advanced braking products and our expanded geographic marketing. We hope that the trade talk between the U.S. and China will come to an amicable resolution,as America is an important growth market for us. Our high-quality braking products are already being used in many vehicles in America and customer feedback has been positive."

Third Quarter 2018 Financial Performance

Net sales for the third quarter of 2018 were $108.6 million,the highest sales for any third quarter in the Company's history,compared with $101.3 millionin the third quarter of 2017. Revenues from the Company's domestic OEM customers of $50.3 million were approximately even with net sales in the third quarter of 2017. Sales fromChina'sdomestic aftermarket increased 15.7% year-over-year to $36.4 million from $31.5 millionin the third quarter of 2017. The expiration of OEM warranties from prior years' new vehicle sales in China drove the Company's aftermarket business. Revenues from international markets rose 13.1% to $21.8 million from $19.3 million in the third quarter of 2017,mainly due to the Company's growing global customer base.

SORL's commercial vehicle brake sales increased 4.4% year-over-year to $89.0 million and represented 82.0% of total sales in the third quarter of 2018. The sales of passenger vehicle brake systems increased by 22.5% year-over-year,to $19.6 million,which accounted for 18.0% of the total sales for the third quarter of 2018.

Gross profit for the third quarter of 2018 was $26.3 millioncompared with$27.3 millionfor the third quarter of 2017.Gross margin for the third quarter of 2018 was 24.3%,compared with a gross margin of 26.9% in the same quarter of 2017. The decrease in gross margin was primarily due to higher raw material costs and price promotions designed to increase market share during the third quarter of 2018.

Operating expenses increased by 41.9% to$22.7 millionin the third quarter of 2018,from$16.0 millionin the third quarter of 2017. As a percentage of revenue,operating expenses were 20.9% in the third quarter of 2018,compared with 15.8% in the third quarter of 2017.The increase in operating expenses was due to higher selling and distribution,general and administrative,and research and development expenses.

Selling and distribution expenses rose to $13.2 million from $8.3 million in the same quarter of 2017. As a percentage of revenue,selling and distribution expenses were 12.1% compared with 8.2% of quarterly revenues in the same quarter of 2017. The increase in selling and distribution expenses was primarily the result of higher freight and packaging expenses as unit volume rose during the third quarter of 2018.

General and administrative ("G&A") expenses for the third quarter of 2018 were $5.1 million,or 4.7% of revenue,compared with$4.8 million,or 4.7% in the third quarter of 2017.

Research and development ("R&D") expenses were$4.5 millionin the third quarter of 2018 compared with$2.9 millionin the third quarter of 2017. As a percentage of revenue,R&D was 4.1% in the third quarter of 2018,compared with 2.9% of revenue in the third quarter of 2017. The Company continues to develop new,higher-margin,electronically controlled products,and upgrade the performance and quality of the Company's traditional brake products,to capture greater market share.

Interest expenses were $3.3 millionin the third quarter of 2018 compared to$0.8 million in the third quarter of 2017. Increased interest expenses were mainlydue to a higher average interest rate and a higher average amount of loans outstanding during the third quarter of 2018.

Income before provision for income taxes was $7.1 millionfor the third quarter of 2018 as compared with$11.2 millionfor the third quarter of 2017. The decrease in income before taxes was primarily due to lower gross profit and higher operating expenses. Pretax income margin was 6.5% in the third quarter of 2018,compared with 11.1% in the third quarter of 2017.

The provision for income taxes was$12.1 million in the third quarter of 2018 compared with $1.6 million,in the third quarter of 2017. The significantly higher taxes in the third quarter of 2018 compared with the third quarter in 2017,were mainly due to one-time accrued taxes of $11.0 million associated with the U.S. tax reform related to the planned dividend distribution from China (PRC) subsidiaries in order to fulfill the payment of one-time accrued taxes.

Net loss attributable to stockholders for the third quarter of 2018 was$5.6 million,or$0.29 per basic and diluted share,compared withnet income attributable to stockholders $8.6 million,or$0.44per basic and diluted share,in the third quarter of 2017.

Excluding the impact of the one-time accrued taxes related to U.S. tax reform,compared with net income attributable to stockholders of $8.6 million or $0.44 per basic and diluted share in the third quarter of 2017.

Nine-Month 2018 Financial Performance

Net sales for the first nine months of 2018 increased 28.8% year-over-year to$344.8 millionfrom$267.6 millionfor the first nine months of 2017. Revenues from the Company's China OEM customers increased by 16.2% to$164.7 million from $141.8 millionin the same period in 2017. Revenues fromChina'sdomestic aftermarket increased 62.3% to $117.3 million from $72.3 millionin the first nine months of 2017. Revenues from international markets increased 17.2% to $62.7 millionfrom$53.5 millionin the first nine months of 2017.

SORL's commercial vehicle brake sales increased 23.5% year-over-year to $276.6 million and represented 80.2% of total sales in the first nine months of 2018. The sales of passenger vehicle brake systems increased by 56.3% year-over-year,to $68.2 million,which accounted for 19.8% of the total sales for the first nine months of 2018.

Gross profit for the first nine months of 2018 increased 24.8% to$91.0 millionfrom$72.9 millionin the same period in 2017. Gross margin for the first nine months of 2018 decreased to 26.4% from 27.2% for the first nine months of 2017. The Company's gross margin declined due to higher raw material costs and increased sales promotions to increase its market share in both OEM and aftermarket segments.

Operating income for the first nine months of 2018 was $30.4 millionwith an operating margin of 8.8%.

Net income attributable to stockholders for the first nine months of 2018 was$9.4 million,or$0.49 per basic and diluted share,compared with$21.4 million,or$1.11per basic and diluted share,in the same period in 2017.

Excluding the impact of U.S. tax reform,net income attributable to stockholders for the first nine months of 2018 would have been $20.4 million,or $1.06 per basic and diluted share,compared with net income attributable to stockholders of $21.4 million or $1.11 per basic and diluted share in the same period in 2017.

Balance Sheet

As ofSeptember 30,2018,the Company's cash and cash equivalents increased to $17.6 million from $4.2 million at December 31,2017. Total stockholders' equity was$172.4 millionatSeptember 30,2018. The Company had working capital of$85.0 millionatSeptember 30,2018 with the current ratio of 1.2:1.

Cash-flow provided by operating activities for the first nine months of 2018 was$81.2 million.

Business Outlook

Management has reiterated its fiscal year 2018 guidance for net sales of approximately$450 millionand revised net income attributable to common stockholders to approximately$16 million. Excluding the impact of U.S. tax reform,the net income attributable to common stockholders would have been expected to reach approximately $27 million. These targets are based on the Company's current views on the operating and market conditions,which are subject to change.

Conference Call

Management will host a conference call on Wednesday,November 14,at 7:00 P.M. EST/ 8:00 A.M. Beijing Time on November 15,2018 to discuss its 2018 third quarter results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778 and +1-201-689-8565 for international callers,and Mainland China toll free +86 400-120-2840. A live web cast of the conference call will also be available at http://www.sorl.cn.

A replay of the call will be available shortly after the conference call through 7:00 A.M. EST on December 14,or 8:00 A.M. Beijing Time on December 15,2018. The replay dial-in numbers are: U.S. toll free number +1-877-481-4010 or the international number +1-919-882-2331; using Conference ID "40905" to access the replay.

About SORL Auto Parts,Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry,SORL Auto Parts,Inc. is the market leader for commercial vehicles brake systems,such as trucks and buses in China. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China,with a product range that includes 65 categories with over 2000 specifications in brake systems and others. The Company has four authorized international sales centers in UAE,India,the United States and Europe. SORL is working to establish a broader global sales network. For more information,please visit http://www.sorl.cn.

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts,but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking terminology such as "expects," "anticipates," "believes," "targets," "goals," "projects," "intends," "plans," "seeks," "estimates," "may," "will," "should" or similar expressions. For example,when the Company describes the evaluation of the preliminary non-binding proposal letter,it is using forward-looking statements. These forward-looking statements may also include statements about the Company's proposed discussions related to its business or growth strategy,which are subject to change. Such information is based upon expectations of the Company's management that were reasonable when made,but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company's control and upon assumptions with respect to future business decisions,which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. These risks and uncertainties may include,but are not limited to general political,economic and business conditions which may impact the demand for commercial vehicles or passenger vehicles in China and the other significant markets where the Company's products are sold,uncertainty regarding such political,economic and business conditions,trends in consumer debt levels and bad debt write-offs,general uncertainty related to possible recessions,natural disasters,the political stability of China and the impact of any of those events on demand for commercial or passenger vehicles,changes in consumer confidence,new product development and introduction,competitive products and pricing,seasonality,availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier's inability to fulfill the Company's orders,cost of labor and raw materials,the loss of or curtailed sales to significant customers,the Company's dependence on key employees and officers,the ability to secure and protect trademarks,patents and other intellectual property rights,potential effects of competition in the Company's business,the dependency of the Company upon the normal operation of its sole manufacturing facility,potential effect of the economic and currency instability in China and countries to which the Company sold its products,the ability of the Company to successfully manage its expenses on a continuing basis,the continued availability to the Company of financing and credit on favorable terms,business disruptions,disease,general risks associated with doing business in China or other countries including,without limitation,foreign trade policies,import duties,tariffs,quotas,political and economic stability,and the other factors discussed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. For additional information regarding known material factors that could cause the Company's results to differ from its projected results,please see its filings with the SEC,including its Annual Report on Form 10-K,Quarterly Reports on Form 10-Q,and Current Reports on Form 8-K. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Contact Information

Phyllis Huang

+86-151-6770-5972

+86-577-6581-7721

phyllis@sorl.com.cn

Kevin Theiss

Investor Relations

Awaken Advisors

212-521-4050

kevin.theiss@awakenlab.com

-tables follow –

SORL Auto Parts,Inc. and Subsidiaries

Consolidated Balance Sheets

September 30,2018 and December 31,2017

September 30,2018

December 31,2017

(Unaudited)

Assets

Current Assets

Cash and cash equivalents

US$

17,609,594

US$

4,221,940

Accounts receivable,net,including $1,506,254 and $1,297,734 from related party at September 30,2017,respectively

163,749,395

134,384,961

Bank acceptance notes from customers

101,136,391

116,040,688

Inventories

159,123,470

114,300,564

Prepayments,current,including $3,094,333 and $999,527 to related parties at September 30,respectively

31,442,128

8,826,004

Restricted cash,current

19,062,778

376,236

Advances to related parties

49,372,965

72,318,224

Other current assets,net

14,455,642

5,555,568

Total Current Assets

555,952,363

456,024,185

Property,plant and equipment,net

86,949,053

79,828,006

Land use rights,net

21,245,899

14,912,134

Intangible assets,net

309,947

3,341

Deposits on loan agreements

10,175,602

10,712,865

Prepayments,non-current

18,474,842

16,594,987

Restricted cash,non-current

3,488,778

-

Deferred tax assets

3,549,947

4,240,424

Total Non-current Assets

144,194,068

126,291,757

Total Assets

US$

700,146,431

US$

582,315,942

Liabilities and Equity

Current Liabilities

Accounts payable and bank acceptance notes to vendors,including $22,782,059 and $15,896,804 due to related parties at September 30,respectively

US$

211,456,843

US$

118,051,633

Deposits received from customers

63,615,939

43,087,473

Short term bank loans

143,991,909

125,380,899

Current portion of long term loans

22,147,109

24,266,031

Income tax payable,current

3,250,996

3,249,727

Accrued expenses

18,604,139

25,154,658

Due to related party

4,481,484

1,572,963

Deferred income

605,691

1,020,273

Other current liabilities

2,705,103

2,857,130

Total Current Liabilities

470,859,213

344,640,787

Long term loans,less current portion and net of unamortized debt issuance costs

19,534

37,383,224

Income tax payable – noncurrent

9,259,307

-

Total Non-current Liabilities

28,577,841

37,224

Total Liabilities

499,437,054

382,011

Equity

Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of September 30,2017

-

-

Common stock - $0.002 par value; 50,000 authorized,19,304,921 issued and outstanding as of September 30,2017

38,609

38,609

Additional paid-in capital

(28,582,654)

(28,654)

Reserves

19,826

17,562,357

Accumulated other comprehensive income

5,754,883

15,903,188

Retained earnings

175,602,568

168,244,329

Total SORL Auto Parts,Inc. Stockholders' Equity

172,429,232

173,165,829

Noncontrolling Interest In Subsidiaries

28,280,145

27,126,102

Total Equity

200,709,377

200,931

Total Liabilities and Equity

US$

700,942

SORL Auto Parts,Inc. and Subsidiaries

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

For the Three and Nine Months Ended September 30,2018 and 2017 (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Sales

US$

108,584,331

US$

101,329,628

US$

344,815,965

US$

267,589,953

Include: sales to related parties

9,333,959

7,401,464

22,997,540

13,479,162

Cost of sales

82,456

74,027,933

253,851,334

194,703,290

Gross profit

26,334,875

27,301,695

90,964,631

72,886,663

Expenses:

Selling and distribution expenses

13,160,875

8,283,704

37,745

22,877,889

General and administrative expenses

5,684

4,761,787

17,519,873

13,517,222

Research and development expenses

4,478,298

2,941,243

13,400,656

7,477,902

Total operating expenses

22,690,857

15,986,734

68,075,274

43,873,013

Other operating income,net

2,959,269

473,610

7,535,820

1,185,958

Income from operations

6,603,287

11,788,571

30,425,177

30,199,608

Interest income

547,455

16,150

2,847,299

38,175

Government grants

2,239,250

1,006,033

2,982,775

1,119,337

Other income

229,520

47,262

432,213

47,976

Interest expenses

(3,331,554)

(804,499)

(10,214,681)

(1,827,835)

Exchange differences

906,538

(684,047)

1,396,460

(1,193,897)

Other expenses

(55,835)

(202,735)

(1,200,920)

(343,024)

Income before income taxes provision

7,138,661

11,166,735

26,668,323

28,340

Provision for income taxes

12,130,789

1,627,721

14,974,982

4,225,404

Net income (loss)

US$

(4,992,128)

US$

9,539,014

US$

11,693,341

US$

23,814,936

Net income attributable to noncontrolling interest in subsidiaries

613,086

953,901

2,281,633

2,381,493

Net income (loss) attributable to common stockholders

US$

(5,605,214)

US$

8,585,113

US$

9,411,708

US$

21,433,443

Comprehensive income (loss):

Net income (loss)

US$

(4,936

Foreign currency translation adjustments

(8,307,355)

3,856,038

(11,275,895)

7,990,990

Comprehensive income (loss)

(13,299,483)

13,395,052

417,446

31,805,926

Comprehensive income (loss) attributable to noncontrolling interest in subsidiaries

(217,650)

1,339,505

1,043

3,180,592

Comprehensive income (loss) attributable to common stockholders

US$

(13,081,833)

US$

12,055,547

US$

(736,597)

US$

28,625,334

Weighted average common share - basic

19,921

19,921

Weighted average common share - diluted

19,921

EPS - basic

US$

(0.29)

US$

0.44

US$

0.49

US$

1.11

EPS - diluted

US$

(0.29)

US$

0.44

US$

0.49

US$

1.11

SORL Auto Parts,Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the NineMonths Ended September 30,2018 and 2017 (Unaudited)

Nine Months Ended September 30,

2018

2017

Cash Flows From Operating Activities

Net income

US$

11,936

Adjustments to reconcile net income to net cash provided by operating activities:

Allowance for doubtful accounts

179,744

759,854

Depreciation and amortization

8,926,695

6,623,082

Amortization of debt issuance costs

966,547

42,583

Gain on disposal of fixed assets

(73,809)

-

Deferred income tax

520,741

-

Changes in assets and liabilities:

Account receivable

(38,780,246)

(19,276,498)

Bank acceptance notes from customers

68,016,837

2,056,320

Other currents assets

(9,983,968)

(2,317,124)

Inventories

(52,611,953)

(13,792,530)

Prepayments

(19,823,567)

(1,312,081)

Accounts payable and bank acceptance notes to vendors

86,724,938

1,347,005

Income tax payable

7,432,808

909,912

Deposits received from customers

24,058,536

16,516,529

Deferred income

(382,627)

-

Other current liabilities and accrued expenses

(5,671,820)

(371,575)

Net Cash Flows Provided By Operating Activities

81,192,197

15,413

Cash Flows From Investing Activities

Acquisition of property,equipment,and land use rights

(40,142,267)

(36,882,570)

Deposit for acquisition of land use rights

(2,537)

Acquisition of intangible assets

(367,931)

Advances to related parties

(214,800,362)

(8,919,241)

Repayments of advances to related parties

222,337,244

-

Net Cash Flows Used In Investing Activities

(32,973,316)

(48,784,348)

Cash Flows From Financing Activities

Proceeds from short term bank loans

353,441,949

84,149,040

Repayments of short term bank loans

(325,651,416)

(36,680)

Proceeds from related parties

311,692,664

93,191,843

Repayments to related parties

(328,624,110)

(113,071,629)

Repayments of long term loans

(18,957,775)

-

Net Cash Flows Provided By (Used In) Financing Activities

(8,098,688)

28,574

Effects on changes in foreign exchange rate

(4,557,219)

484,733

Net change in cash,cash equivalents,and restricted cash

35,974

(5,179,628)

Cash,and restricted cash - beginning of the period

4,598,176

13,533,776

Cash,and restricted cash - end of the period

US$

40,161,150

US$

8,354,148

Supplemental Cash Flow Disclosures:

Interest paid

US$

7,849,753

US$

1,255,540

Income taxes paid

US$

5,157,755

US$

3,272,909

Non-cash Investing and Financing Transactions

Repayments to related party in the form of bank acceptance notes

US$

5,846,083

US$

-

Loans from related parties in the form of bank acceptance notes

US$

33,721,267

US$

23,515,527

Repayments from related party in the form of bank acceptance notes

US$

26,771,056

US$

-

Reconciliation of cash,and restricted cash to the consolidated balance sheets

Cash and cash equivalents

US$

17,594

US$

7,653,174

Restricted cash,778

700,974

Restricted cash,778

-

Total cash,and restricted cash

US$

40,150

US$

8,148

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