Action Acquisition CORP - FORM 10-Q

Attached files

file	filename
EX-31.1 - Action Acquisition CORP	v223775_ex31-1.htm
EX-31.2 - Action Acquisition CORP	v223775_ex31-2.htm
EX-32.2 - Action Acquisition CORP	v223775_ex32-2.htm
EX-32.1 - Action Acquisition CORP	v223775_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2011

¨	Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

000-52341

(Commission file number)

ORB AUTOMOTIVE CORPORATION

(Exact name of registrant as specified in its charter)

CAYMAN ISLANDS	N/A
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

c/o Shenzhen ORB-Fortune New-Material Co., Ltd

Room O-R, Floor 23, Building A, Fortune Plaza

Shennan Road, Futian District

Shenzhen, Guangdong, People’s Republic of China 518040

(Address of principal executive offices)

+86(755) 8204-6828

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

On May 18, 2011, 18,370,634 shares of the registrant's ordinary stock, par value $0.000384 were outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	(Removed and Reserved)	29
Item 5.	Other Information	29
Item 6.	Exhibits	29

SIGNATURES		30

EXHIBITS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ORB AUTOMOTIVE CORPORATION

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010 (AUDITED)

	2011		2010
ASSETS

CURRENT ASSETS
Cash & cash equivalents	$	578,370	$	887,696
Restricted cash		1,666,103		1,473,914
Accounts receivable, net		1,933,177		3,156,318
Bills receivable		1,518,379		423,903
Other receivables, net		529,743		574,393
Deposits		15,501		15,346
Prepayment		4,173,364		3,792,635
Inventory		2,898,167		2,305,753

Total current assets		13,312,804		12,629,958

NONCURRENT ASSETS
Property and equipment, net		2,325,745		2,345,978
Prepayment for equipment purchases		428,033		-
Construction in progress		38,980		24,800
Deferred tax assets		8,497		8,763
Intangible assets, net		5,203		5,535

Total noncurrent assets		2,806,458		2,385,076

TOTAL ASSETS	$	16,119,262	$	15,015,034

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	430,568	$	625,993
Bills payable		1,666,103		1,473,914
Accrued liabilities and other payables		278,910		137,444
Taxes payable		2,012,368		1,941,263
Short term loans		3,381,429		3,170,912
Loan from related party		76,261		-
Other payable - related party		40,000		-
Other payable to Shenzhen ORB original shareholders		407,678		403,597

Total current liabilities		8,293,317		7,753,123

LONG TERM PAYABLE - SUBSIDY RECEIVED IN ADVANCE		186,840		184,970

TOTAL LIABILITIES		8,480,157		7,938,093

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.000128 par value, 781,250 shares authorized, 0 and 0 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively		-		-
Common stock, $0.000384 par value, 100,000,000 shares authorized, 17,133,991shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively		6,579		6,579
Additional paid in capital		2,672,319		2,672,319
Statutory reserve		360,388		339,560
Accumulated other comprehensive income		339,741		262,121
Retained earnings		4,260,078		3,796,362

Total stockholders' equity		7,639,105		7,076,941

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	16,119,262	$	15,015,034

See accompanying notes to the consolidated financial statements

ORB AUTOMOTIVE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(UNAUDITED)

	2011			2010

Net sales	$	4,074,309		$	923,069

Cost of goods sold		2,818,744			557,788

Gross profit		1,255,565			365,281

Operating expenses
Selling expenses		150,850			53,692
General and administrative expenses		322,470			60,450
Research and development expense		30,404			32,878

Total operating expenses		503,724			147,020

Income from operations		751,841			218,261

Non-operating income (expenses)
Interest income (expense)		(72,593	)		241
Other income (expenses)		(796	)		-

Total non-operating income (expenses), net		(73,389	)		241

Income before income tax		678,452			218,502

Income tax expense		189,827			43,592

Net income	$	488,625		$	174,910

Other comprehensive item
Foreign currency translation		77,620			731

Comprehensive Income	$	566,245		$	175,641

Basic weighted average shares outstanding		17,133,991			3,376,575

Diluted weighted average shares outstanding		17,133,991			3,376,575

Basic earnings per share	$	0.03		$	0.05

Diluted earnings per share	$	0.03		$	0.05

See accompanying notes to the consolidated financial statements

ORB AUTOMOTIVE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(UNAUDITED)

	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	488,625		$	174,910
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		82,435			13,767
Changes in deferred tax		445			-
Decrease (increase) in current asset:
Accounts receivable		1,249,949			381,342
Bills receivable		(1,085,751	)		87,888
Restricted cash		(176,562	)		-
Prepayment		(340,983	)		(742,289	)
Other receivables		50,658			12,313
Inventory		(566,780	)		53,101
Deposits		-			(585	)
Increase (decrease) in current liabilities:
Accounts payable		(201,339	)		(26,220	)
Bills payable		176,562			-
Accrued liabilities and other payables		139,754			2,066
Taxes payable		51,265			43,344

Net cash used in operating activities		(131,722	)		(363	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Prepayment for equipment purchases		(426,290	)		-
Construction in progress		(13,872	)		-
Acquisition of property & equipment		(38,635	)		-

Net cash used in investing activities		(478,797	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term loans		177,725			-
Other payable - related party		39,837			-
Loan from related party		75,951			-

Net cash provided by financing activities		293,513			-

EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS		7,680			83

NET DECREASE IN CASH & CASH EQUIVALENTS		(317,006	)		(363	)

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD		887,696			299,719

CASH & CASH EQUIVALENTS, END OF PERIOD	$	578,370		$	299,439

Supplemental disclosures of cash flow information:
Cash paid for interest expenses	$	26,240		$	-
Cash paid for income tax	$	70,817		$	1,940

See accompanying notes to the consolidated financial statements

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

ORB Automotive Corporation (“ORB” or the “Company”), formerly known as Action Acquisition Corporation ("Action"), was formed in the Cayman Islands on September 27, 2006.

Effective September 10, 2010, the Company and its controlling shareholders entered into a share exchange agreement with Grand Power Capital, Inc., a British Virgin Islands business company (“GPC”), and the GPC shareholders. Pursuant to the agreement, Action issued an aggregate of 10,129,725 ordinary shares and 98,885.37 preference shares to GPC shareholders. With the exception of the shares of GPC held by Apollo Enterprises International, Inc., each share of GPC capital stock was exchanged for approximately 1,327 ordinary shares of the Company. The remaining shares of GPC held by Apollo Enterprises International, Inc. were exchanged for 98,885.37 preference shares of the Company. Each preference share was automatically convertible into 100 ordinary shares of the Company upon receipt of the approval by the Company shareholders of a proposed increase in the number of authorized ordinary shares from 39,062,500 shares to 100,000,000 shares. Upon effectiveness of the share exchange, the Company had 14,651,922 (pre-split) ordinary shares and 98,885.37 preference shares issued and outstanding. Upon consummation of the share consolidation and automatic conversion of the 98,885.37 preference shares issued to Apollo Enterprises International, Inc., there were 14,772,511 (post-split) ordinary shares and no preference shares of the Company's capital stock issued and outstanding, approximately 90% of which are held by the former GPC shareholders. The shareholders of the Company immediately prior to the completion of these transactions hold 10% of the issued and outstanding ordinary shares of the Company. As a result of the transaction, GPC became a wholly owned subsidiary of the Company.

GPC was incorporated in October 2009 and acquired 100% of the issued and outstanding capital stock of Shenzhen ORB-Fortune New Materials Co., Ltd. (“Shenzhen ORB”) in May 2010 for RMB 2,672,900 (US $404,000). The major shareholder of Shenzhen ORB became the major shareholder of GPC after the acquisition. The acquisition was accounted for as a reorganization of entities under common control, with assets and liabilities transferred at their carrying amounts, and the financial statements presented as if the reorganization had occurred retroactively. $241,648 of the $404,000 was recorded as a return of original share capital and the remaining was recorded as a dividend to the original shareholders of Shenzhen ORB.

Shenzhen ORB was incorporated in the Guangdong Province of the People’s Republic of China (“PRC”) in 2005 as a hi-tech enterprise primarily engaged in the development, manufacture and sale of high-performance adhesive seal materials in the PRC. In 2008 the Company deemed it more cost-effective to outsource the manufacture of its products to three original equipment manufacturing (OEM) factories, concentrating its in-house efforts on research and development of new products, as well as the marketing and distribution of its current and future products. These OEM factories utilize equipment, processes and raw materials established by the Company to manufacture products that bear the ORB label. The Company provides glass bonding solutions to a wide range of industries, including automobile, ships and boats, construction, and electronics, but currently focusing on the automobile windshields area. The Company is also in the process of developing other auto parts such as bumper, harness, lamp, and cooling liquid.

Action acquired GPC on September 10, 2010 through a share exchange as described above. Under generally accepted accounting principles in the United States of America (“US GAAP”), the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by GPC for the net monetary assets of Action, accompanied by a recapitalization, and is accounted for as a change in capital structure. GPC’s shareholders will own the majority of the shares and will exercise significant influence over the operating and financial policies of the consolidated entity. Pro forma financial information is not applicable as this is not a business combination under Article 11-01 of Regulation S-X and Action is a public shell company with no operations. The post reorganization comparative historical financial statements of Action will be the historical financial statements of GPC and its wholly owned subsidiary, Shenzhen ORB, accompanied by a recapitalization.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

The preference shares were automatically converted into 9,888,537 ordinary shares following the consolidation. On September 10, 2010, 98,885.37 preference shares were converted into 9,888,537 ordinary shares. On November 3, 2010, the Company (i) changed its name from Action Acquisition Corporation to ORB Automotive Corporation and (ii) effected a 1 for 3 consolidation of the Company’s issued and outstanding ordinary shares and (iii) increased the amount of the Company’s authorized ordinary shares from 39,062,500 shares to 100,000,000 shares. As result of the consolidation and increase in share capital, the par value of the Company’s ordinary shares changed from $0.000128 per share to $0.000384 per share. As a result, immediately following the consolidation and giving effect to the conversion of the preference shares, the Company had 14,772,511 ordinary shares and no preference shares issued and outstanding. The reverse stock split of the ordinary shares was retroactively restated.

On November 3, 2010, ORB completed the acquisition of 100% of the equity interest in Hebei Xinhua Rubber Sealing Group Liuzhou Sealing Co., Ltd., a company registered in the PRC (“Liuzhou Rubber Sealing”), from Liuzhou Rubber Sealing’s shareholders. Pursuant to the terms of the stock purchase agreement among the parties, all of the issued and outstanding shares of Liuzhou Rubber Sealing were exchanged for 2.06 million ordinary shares of the Company, valued at $2.21 million. As March 31, 2011, 2,060,000 shares were issued. Liuzhou Rubber Sealing’s results of operations from November 1, 2010 have been included in the consolidated statement of income; however, the Company is still in the process of legal title transfer with the local authority. As of March 31, 2011, ORB’s equity interest in Liuzhou Rubber Sealing is held in trust for the benefit of ORB until such time as the legal transfer of title is completed in China.

The unaudited consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2010 audited financial statements included in the Company’s Annual Report on Form 10-K. The results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The Company’s functional currency is the Chinese Yuan Renminbi (“RMB”); however the accompanying consolidated financial statements have been translated and presented in United States Dollars (“$” or “USD”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ORB, and its wholly owned subsidiary Liuzhou Rubber Sealing and GPC, together with its wholly owned subsidiary Shenzhen ORB. The "Company" refers collectively to ORB, Liuzhou Rubber Sealing, GPC and Shenzhen ORB. All significant inter-company accounts and transactions were eliminated in consolidation.

Use of Estimates

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

The Company’s policy is to maintain reserves for potential credit losses on account receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on management’s analysis noted above, the bad debts allowance was determined by calculating 0.5% of accounts receivable amount at the balance sheet date. Based on historical collection activity, the Company made allowance for bad debts of $17,453 and $17,279 at March 31, 2011 and December 31, 2010, respectively.

Inventories

Inventories are valued at the lower of cost or net realizable value with cost determined on a weighted average basis. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down their inventories to net realizable value, if lower. The Company recorded $0 inventory write-down during the three months ended March 31, 2011 and 2010.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets without salvage value and estimated lives of as follows:

Computer and office equipment		5 - 10 years
Motor vehicle		5 years
Electric equipment		3 - 5 years
Plant and machinery		5 - 20 years

Research and Development

Research and development costs are related primarily to the Company testing its new materials in the development stage. Research and development costs are expensed as incurred. For the three months ended March 31, 2011 and 2010, research and development expense was $50,132 and $32,878, respectively.

Income Taxes

The Company utilizes the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events that were included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified as selling, general and administrative expense in the statements of income. At March 31, 2011 and December 31, 2010, the Company had not taken any significant uncertain tax position on its tax return for 2009 and prior years or in computing its tax provision for 2010. The Company is subject to review by the respective tax authorities.

Revenue Recognition

The Company's revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (SAB) 104, (codified in ASC Topic 605, “Revenue Recognition”). Sales revenue may be recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, or the possible return of the goods. Generally, sales revenue is recognized when the delivery is completed and goods accepted by the customers. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.

Sales revenue represents the invoiced value of goods, net of value-added taxes (VAT). All Company products are sold in the PRC and subject to the Chinese VAT of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.

Cost of Goods Sold

Cost of goods sold consists primarily of material costs, labor costs, and related overhead which are directly attributable to the production of the products. Write-down of inventory to the lower of cost or net realizable value is also recorded in the cost of goods sold.

Environmental Costs and Liabilities

Liabilities related to environmental compliance and future remedial costs are recorded when the compliance or remedial efforts are probable and the costs can be reasonably estimated. The PRC adopted environmental laws and regulations that affect the operations of the auto industry. The outcome of environmental liabilities under proposed or future environmental legislation cannot be reasonably estimated at the present time, and could be material. Under existing legislation, however, Company’s management believes that there are no probable liabilities that will have a material adverse effect on the financial condition of the Company.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

Both Shenzhen ORB and Liuzhou Rubber Sealing are regulated by local Environmental Protection Agency and have been certified as compliant with all environment standards and requirements for disposal of waste, toxic and hazardous substances. The direct cost associated with environmental handling waste water, exhaust gas, noise and scrap materials were immaterial in the three months ended March 31, 2011 and 2010. The scrap materials are recycled by recycling companies.

Shipping and Handling Costs

Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the three months ended March 31, 2011 and 2010, shipping and handling costs were $32,941 and $19,751, respectively.

Basic and Diluted Earnings per Share (EPS)

Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Since the Company does not have any outstanding common share equivalents, the basic and diluted earnings per share are the same.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.

The operations of the Company are in the PRC. Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.

Statement of Cash Flows

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company's operations is calculated based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Fair Value of Financial Instruments

Some of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debt, have carrying amounts that approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

·	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

·	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”

As of March 31, 2011 and December 31, 2010, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.

Foreign Currency Translation and Comprehensive Income

The Company’s functional currency is the RMB. For financial reporting purposes, RMB were translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income". Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

The Company uses ASC Topic 220 “Comprehensive Income”. Comprehensive income is a more inclusive financial reporting methodology that includes disclosures of certain financial information that historically has not been recognized in the calculation of net income. Comprehensive income for the three months ended March 31, 2011 and 2010 included net income and foreign currency translation adjustments.

Segment Reporting

ASC Topic 280, "Segment Reporting," requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

ASC Topic 280 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment. The Company consists of one reportable business segment. All of the Company's assets are located in the PRC and all of the Company's revenue is generated in the PRC.

Recently Adopted Accounting Pronouncements

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310). This update requires new disclosures and enhances current disclosures about the allowance for credit losses and the credit quality of financing receivables. However, the following receivables are excluded from the scope of this amendment: receivables measured at fair value with changes included in earnings and receivables measured at lower of cost or market and trade receivables with contractual maturities of one year or less that arose from the sale of goods or services. This standard is effective for interim and annual periods ending on or after December 15, 2010. The Company adopted the disclosure requirements effective January 1, 2011.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820 that provides disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted the disclosure requirements effective January 1, 2011.

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company will adopt the disclosure requirements for any business combination in 2011.

Recently Issued Accounting Pronouncements Not Yet Adopted

As of March 31, 2011, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

3. RESTRICTED CASH, BILLS PAYABLE – BANK ACCEPTANCES

Restricted cash at March 31, 2011 and December 31, 2010 represented $1,666,103 and $1,473,914 held in the bank as collateral for the bank to issue the same amount of bank acceptances. The Company endorses the bank acceptances to vendors as payment of their own obligations. Most of the bank acceptances usually have maturities of less than six months.

4. BILLS RECEIVABLE

Bills receivable represented an instrument which contains an unconditional order to pay a certain amount on an agreed date. It is used as an assurance for customers making the payment on time according to the agreed terms when the goods are sold on credit and payment is deferred to a future date. As of March 31, 2011 and December 31, 2010, bills receivable was $1,518,379 and $423,903, respectively. $343,983 and $179,685 of bills receivable as of March 31, 2011 and December 31, 2010 was used as collateral for bank loans (Note 15).

5. OTHER RECEIVABLES

Other receivables consisted of the following at March 31, 2011 and December 31, 2010 as following:

	2011		2010
Advance to employees	$	208,076	$	206,041
Short term advances to non-related parties		-		49,905
Guarantee deposit for loan payable		305,045		301,991
Deposits		16,622		16,456
	$	529,743	$	574,393

Cash advance to employees and short term advances to non-related parties are non-interest bearing and payable upon demand.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

6. PREPAYMENT

Prepayment consisted of the following at March 31, 2011 and December 31, 2010 as following:

	2011		2010
Payment to OEM factory and suppliers	$	4,055,193	$	3,562,555
Consulting fee		-		144,956
Others		118,171		85,124
	$	4,173,364	$	3,792,635

Prepayment was mainly the payment to several original equipment manufacturer (OEM) factories and suppliers for future product deliveries. Others represented certain operating expenses prepaid by the Company. (See note 21).

7. INVENTORY

As of March 31, 2011 and December 31, 2010, inventory consisted of the following:

	2011		2010
Finished goods	$	2,047,843	$	1,538,716
Raw material		452,806		499,482
Work in process		397,518		304,824
Total		2,898,167		2,343,022
Impairment of inventory		-		(37,269	)
	$	2,898,167	$	2,305,753

8. OTHER PAYABLE TO SHENZHEN ORB ORIGINAL SHAREHOLDERS

The amount represents an unsecured and non interest-bearing loan payable to the original shareholders of Shenzhen ORB for the acquisition of Shenzhen ORB by GPC and is due on demand (See Note 1).

9. PROPERTY AND EQUIPMENT, NET

As of March 31, 2011 and December 31, 2010, property and equipment consisted of the following:

	2011			2010
Office equipment	$	159,839		$	155,431
Plant and machinery		2,853,742			2,796,396
Electric equipment		58,540			56,640
Motor vehicle		73,505			65,854
Total		3,145,626			3,074,321
Less: Accumulated depreciation		(819,881	)		(728,343	)
	$	2,325,745		$	2,345,978

Depreciation expense was $82,048 and $13,706 for the three months ended March 31, 2011 and 2010, respectively.

10. CONSTRUCTION IN PROGRESS

The construction in progress represented the projects for office improvement and installation of new machinery. As of March 31, 2011 and December 31, 2010, the balance was $38,980 and $24,800, respectively.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

11. INTANGIBLE ASSETS

The intangible assets represent financial software. The balance as of March 31, 2011 and December 31, 2010 was $5,203 and $5,535. For the three months ended March 31, 2011 and 2010, the amortization expense was $386 and $0, respectively.

12. MAJOR CUSTOMERS AND VENDORS

One major customer accounted for 83% of net sales for the three months ended March 31, 2011. Two major customers accounted for 83% (55% and 28% for each) of net sales for the 2010 period, respectively. Accounts receivable from these customers amounted to $995,512 and $1,733,878 as of March 31, 2011 and December 31, 2010. If these customers were lost, it is unlikely that the Company would be able to replace the lost revenue, at least in the near term.

The Company purchased its products from three major vendors during the three months ended March 31, 2011 with each accounting for 14%, 11% and 10% of purchases, respectively. Accounts payable to these vendors were $0 as of March 31, 2011. The Company had three major vendors during the 2010 period with each vendor accounting for 45%, 31% and 15% of the total purchases.

13. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following at March 31, 2011 and December 31, 2010 respectively:

	2011		2010
Other payables	$	180,598	$	41,193
Accrued salaries		98,312		96,251
Total	$	278,910	$	137,444

14. TAXES PAYABLE

Taxes payable consisted of the following at March 31, 2011 and December 31, 2010:

	2011		2010
Value-added tax payable	$	106,320	$	202,811
Education surtax and other taxes payable		8,664		17,133
Income tax payable		1,897,384		1,721,319
Total	$	2,012,368	$	1,941,263

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

15. SHORT TERM LOANS

The Company was obligated for the following short term loans at March 31, 2011 and December 31, 2010:

	2011		2010
From a commercial bank in the PRC for RMB 5,000,000, entered into on May 1, 2010 with maturity on May 1, 2011; RMB 3,000,000 entered into on June 30, 2010 and payable on demand; RMB 2,000,000 entered into on July 22, 2010 and payable on demand. The loans bear interest at 6.9% per annum. These loans are guaranteed by Liuzhou Credit Guarantee Co., Ltd, a company specifically providing the credit guarantees for Small and Medium-sized Enterprises. The loans were used for working capital.	$	1,525,227	$	1,509,958

On June 24, 2010, the Company obtained a loan from an industrial and commercial bank in PRC for RMB 10,000,000 with maturity on June 24, 2011. The loan bears interest at 5.31% per annum. The loan is guaranteed by Guangxi Huibang Investment Guarantee Co., Ltd. The loan was used for working capital.		1,525,227		1,509,958

On December 16, 2010, the Company obtained a loan from a commercial bank in PRC for RMB 1,000,000 with maturity on June 14, 2011. The interest rate is currently 6.12% per annum, which was 120% of the borrowing rate of The People’s Bank, and adjusted quarterly. The loan was used for working capital. The loan is secured against bill receivable of $181,126. (Note 4)		152,523		150,996

During first quarter of 2011, the Company obtained two loans from two unrelated persons in PRC for RMB 220,000. The loan has maturity on demand and interest rate is currently 20% per annum and used for temporary working capital		33,555		-

On January 1, 2011, the Company obtained a loan from a commercial bank in PRC for RMB 950,000 with maturity on June 30, 2011. The interest rate is currently 6.12% per annum, which was 120% of the borrowing rate of The People’s Bank, and adjusted quarterly. The loan was used for working capital. The loan is secured against bill receivable of $162,857 (Note 4)		144,897		-

	$	3,381,429	$	3,170,912

16. RELATED PARTY TRANSACTIONS

Loan from Related Party

The Company obtained a short-term loan from one its manager for $76,261 (RMB 500,000) during first quarter of 2011. The loan has maturity on demand and interest rate is currently 20% per annum and used for temporary working capital.

Other Payable – Related Party

Other payable represented certain Company’s expenses paid by the Company’s CEO, which will be repaid to the CEO upon demand and without interest.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

17. LONG TERM PAYABLE - SUBSIDY RECEIVED IN ADVANCE

The subsidy received in advance represents an interest free long-term loan from local government, as support for the Company’s technological innovation. As of March 31, 2011 and December 31, 2010, the long term loan was $186,840 and $184,970 (RMB 1,225,000), respectively. The loan is not required to be repaid upon the passing of project inspection by government. The project is currently in the stage of technological innovation.

18. INCOME TAXES

There is no income tax for companies domiciled in the Cayman Islands and British Virgin Islands. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to Cayman Islands and British Virgin Islands tax jurisdiction where the US parent company ORB and GPC are domiciled, respectively.

Shenzhen ORB is governed by the Income Tax Law of the PRC concerning private-run enterprises in special district. Prior to 2008, Shenzhen ORB was subject to tax at a statutory rate of 15% on income reported in the statutory financial statements after appropriated tax adjustments. According to the new income tax law that became effective January 1, 2008, for those enterprises to which the 15% tax rate was previously applicable, the applicable rates shall be gradually increased over a five-year period to reach the new statutory income tax rate of 25% as follows:

Year	Tax Rate
2007		15	%
2008		18	%
2009		20	%
2010		22	%
2011		24	%
2012		25	%

Liuzhou Rubber Sealing is governed by the Income Tax Law of the PRC concerning private-run enterprises, and is subject to tax at a statutory rate of 25% for 2011 and 2010 on income reported in the statutory financial statements after appropriated tax adjustments.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2011 and 2010:

	2011			2010
US statutory rates		34.0	%		34.0	%
Tax rate difference		(9.8	)%		(9.0	)%
Effect of tax holiday		2.4	%		(3.0	)%
Other		1.4	%		(2.0	)%
Effective income tax rate		28.0	%		20.0	%

Deferred tax assets at March 31, 2011 and December 31, 2010 consisted of the following:

Deferred tax assets arising from	2011		2010
Tax and book basis difference of fixed assets of Liuzhou Rubber Sealing due to the acquisition by ORB	$	8,497	$	8,763
Less valuation allowance		-		-
Net deferred tax asset	$	8,497	$	8,763

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

The provision for income tax for the three months ended March 31, 2011 and 2010 consisted of the following:

	2011		2010
Income tax expense – current	$	189,392	$	43,592
Income tax expense – deferred		435		-
Total income tax expense	$	189,827	$	43,592

19. ACQUISITION OF LIUZHOU RUBBER SEALING AND UNAUDITED PRO FORMA INFORMATION

On November 3, 2010, ORB completed the acquisition of 100% of the equity interest in Liuzhou Rubber Sealing. Pursuant to the terms of the stock purchase agreement among the parties, all of the issued and outstanding shares of Liuzhou Rubber Sealing were exchanged for 2.06 million ordinary shares of the Company. The fair value of the consideration transferred was valued at an amount of $1.072 per share, which was the Company’s 2010 earnings per share (excluding the net income of Liuzhou Rubber Sealing) multiplied by the average P/E ratio of 5 similar companies. For convenience of reporting the acquisition for accounting purposes, November 1, 2010 has been designated as the acquisition date. At the acquisition date, all contractual cash flows are expected to be collected.

The purchase price for Liuzhou Rubber Sealing was 2,060,000 shares of common stock equivalent to $2,207,453. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired and liabilities assumed at acquisition date are used for the purpose of purchase price allocation. The excess of the fair value of the net assets acquired over the purchase price $172,518 was recorded as bargain purchase gain.

The following unaudited pro forma consolidated results of operations for ORB and Liuzhou Rubber Sealing for the three months ended March 31, 2010 presents the operations of ORB and Liuzhou Rubber Sealing as if the acquisitions occurred on January 1, 2010. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisitions been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

	2010
Net revenue	$	2,660,379
Cost of revenue		1,745,797

Gross profit		914,582
Total operating expenses		325,132

Income from operations		589,450
Total non-operating expense		(48,315	)

Income before income tax		541,135
Income tax		124,250

Net income	$	416,885

Weighted average shares outstanding		3,376,575

Earnings per share	$	0.12

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

20. STATUTORY RESERVES

Pursuant to the corporate law of the PRC effective January 1, 2006, the Company’s operating subsidiary, Shenzhen ORB is now only required maintaining statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

Surplus reserve fund

The Company’s Chinese subsidiaries are required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the registered capital. As of March 31, 2011 and December 31, 2010, the Company’s Chinese subsidiaries had statutory reserve of $360,388 and $339,560, respectively.

The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any. The fund may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their equity interest or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such capital issuance is not less than 25% of the registered capital.

Common welfare fund

Common welfare fund is a voluntary fund into which the Company’s Chinese subsidiaries can elect to transfer 5% to 10% of its net income. The Company’s Chinese subsidiaries did not make any contribution to this fund for 2010 and 2009.

This fund can only be utilized on capital items for the collective benefit of the Company’s Chinese subsidiaries employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.

21. COMMITMENTS

Rents

Shenzhen ORB and Liuzhou Rubber Sealing entered into several cancellable and non-cancellable warehouse and office lease agreements with monthly payments that vary from $111 to $11,200 and the maturity date from January 31, 2011 to September 30, 2019. All non cancellable operating leases expire within a one year period from the balance sheet date. Total rental expenses for the three months ended March 31, 2011 and 2010 were $92,808 and $12,754, respectively.

Consulting Service

On March 1, 2010, Shenzhen ORB entered into a consulting service agreement expiring on December 31, 2010 with a consulting company. In August 2010, this agreement was extended until December 31, 2011.

During the quarter ended March 31, 2011, the agreement was cancelled and the prepayment $146,421 (RMB 960,000) was refunded. (See note 6.)

22. OPERATING RISKS

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

The Company’s sales, purchase and expense transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.

23. SUBSEQUENT EVENTS

Private Placement

On May 4, 2011, the Company entered into one or more Securities Purchase Agreements with a number of accredited investors in connection with a private placement transaction pursuant to which the Company issued 1,236,641 shares of ordinary stock, par value $0.000384 per share, and warrants to purchase thirty percent (30%) of one (1) share of the ordinary stock. The aggregate purchase price for the shares and warrants was approximately $1.45 million. The Company paid no underwriting discounts or commissions in connection with the transaction. The warrants are immediately exercisable, expire on the five year anniversary of their issuance and entitle their holders to purchase up to 370,938 ordinary shares at an initial exercise price of $1.47 per share.

The Company agrees to reserve from issuance up to 4,273,504 Ordinary Shares (the “Make-Good Shares”). The Make-Good Shares shall be reserved for the benefit of the Investors, and shall be issued to the Investors in the event the Company fails to achieve 90% of either of the following financial Performance Thresholds for the 12-month periods ending December 31, 2011 and December 31, 2012:

(1)

For 2011, audited Net Income under US GAAP, but increased by any cash or non-cash charges incurred as a result of the Offering, including without limitation, as a result of the issuance, exercise or any anti-dilution adjustment, equals or exceeds Seven Million Dollars ($7,000,000 Performance Threshold);

(2)

For 2012, audited Net Income under US GAAP, but increased by any cash or non-cash charges incurred as a result of the Offering, including without limitation, as a result of the issuance, exercise or any anti-dilution adjustment, equals or exceeds Ten Million Dollars ($10,000,000 Performance Threshold)

If the Company achieves less than 90% of the Performance Thresholds, then the number of the Make-Good Shares to be distributed to each investor shall be calculated as follows: number of shares purchased in the private placement multiplied by the lowest threshold, which is the percentage by which the Performance Threshold was not achieved.

Acquisition of Hebei Hongtu

On May 18, 2011, ORB entered into a stock purchase agreement (the “Stock Purchase Agreement”) to acquire 100% of the equity interest in Hebei Hongtu Auto Parts Co., Ltd,, a company registered in the PRC (“Hongtu”), from Hongtu’s shareholders. The acquisition was effective on May 20, 2011. Pursuant to the terms of the Stock Purchase Agreement among the parties, all of the issued and outstanding shares of Hongtu were exchanged for 3.7 million ordinary shares of the Company. The Stock Purchase Agreement contained such representations, warranties, obligations and conditions as are customary for transactions of the type governed by such agreements.

As a result of the consummation of the transactions contemplated by the Stock Purchase Agreement, Hongtu become a direct subsidiary of ShenZhen ORB. Prior to the closing of the transaction, there were no material relationships between the Company and Hongtu, or any of their respective affiliates, directors or officers, or any associates of their respective officers or directors, other than in respect of the Stock Purchase Agreement.

ORB AUTOMOTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(unaudited)

The purchase of Hongtu will be accounted for as a business combination under ASC Topic 805, “Business Combinations”.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under the sections entitled “Risk Factors” located in our Annual Report on Form 10-K, as filed with the SEC on April 15, 2011. We may use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

COMPANY OVERVIEW

ORB, formerly known as Action Acquisition Corporation, was formed in the Cayman Islands on September 27, 2006. On September 10, 2010, ORB entered into and closed a share exchange agreement with GPC, a privately held company formed under the laws of the British Virgin Islands. Pursuant to the share exchange agreement, ORB acquired all of the issued and outstanding capital stock of GPC in exchange for 10,129,725 ordinary shares and 98,885.37 preference shares of the Company. Prior to our acquisition of GPC, we were in the development stage and had not yet commenced business operations. We had no interest in any property.

GPC is a holding company, owning 100% of the issued and outstanding capital stock of Shenzhen ORB. Shenzhen ORB provides bonding solutions for a wide range of industrial applications including, shipping, construction, and electronics, with a strong presence in the Chinese automotive sector. Shenzhen ORB is a market leader in the windshield adhesive business in Shenzhen, China.

The share exchange was accounted for as a "reverse acquisition," since the GPC shareholders own a majority of the outstanding shares of the Company's capital stock immediately following the transaction. GPC was deemed to be the acquiror in the reverse acquisition. As the Company, the legal acquiror, was a non-operating shell, the reverse acquisition was considered to be a capital transaction in substance rather than a business combination. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the share exchange are those of GPC and are recorded at the historical cost basis of GPC, and the consolidated financial statements after completion of the share exchange include the assets and liabilities of the Company and GPC, historical operations of GPC and operations of the Company from the closing date of the share exchange. Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling shareholders with respect to the election of members of the Company's board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company. Further, as a result of the issuance of the shares of the Company capital stock pursuant to the share exchange, a change in control of the Company occurred on the date of the consummation of the transaction. The Company continues to be a "smaller reporting company" following the share exchange.

On November 3, 2010, ORB completed the acquisition of 100% of the equity interest in Hebei Xinhua Rubber Sealing Group Liuzhou Sealing Co., Ltd., a company registered in the PRC (“Liuzhou Rubber Sealing”), from Liuzhou Rubber Sealing’s shareholders. Pursuant to the terms of the stock purchase agreement among the parties, all of the issued and outstanding shares of Liuzhou Rubber Sealing were exchanged for 2.06 million ordinary shares of the Company, valued at $2.21 million. As of December 31, 2010, 2,060,000 shares were issued. ORB's equity interest in Liuzhou Rubber Sealing is currently held in trust for the benefit of ORB until such time as the legal transfer of title is completed in China.

CRITICAL ACCOUNTING POLICIES

In presenting our consolidated financial statements in conformity with US GAAP, we are required to make certain estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it will likely result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with US GAAP.

Use of Estimates

In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

Accounts Receivable

The Company’s policy is to maintain reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

Inventory

Inventory is valued at the lower of cost or net realizable value with cost determined on a weighted average basis. Management compares the cost of inventory with the net realizable value and an allowance is made for writing down its inventory to net realizable value, if lower.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred and additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets without salvage value and estimated lives ranging from 3 to 20 years as follows:

Computer and office equipment	5 to 10 years
Motor vehicle	5 years
Electric equipment	3 to 5 years
Plant and machinery	5 to 20 years

Revenue Recognition

The Company's revenue recognition policies are in compliance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition.” Sales revenue may be recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, or the possible return of the goods. Generally, sales revenue is recognized when the delivery of goods is completed and accepted by customer. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.

Sales revenue represents the invoiced value of goods, net of VAT. All Company products are sold in the PRC and subject to Chinese VAT of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the PRC government to collect this tax.

Cost of Goods Sold

Research and Development

Research and development costs are related primarily to the Company testing its new materials in the development stage. Research and development costs are expensed as incurred.

Foreign Currency Translation and Transactions and Comprehensive Income

The accompanying consolidated financial statements are presented in USD. GPC’s functional currency is USD; while Shenzhen ORB and Liuzhou Rubber Sealing’s functional currency is the RMB. The functional currencies of the Company’s foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the average exchange rate during the fiscal year. The translation adjustments are recorded as a separate component of shareholders’ equity, captioned accumulated other comprehensive income. Gains and losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations. There have been no significant fluctuations in the exchange rate for the conversion of RMB to USD after the balance sheet date.

Segment Reporting

FASB ASC Topic 280, “Segment Reporting,” requires the use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

ASC Topic 820 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment. The Company consists of one reportable business segment. All of the Company’s assets are located in the PRC and all of the Company’s revenue is generated in the PRC.

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

As of March 31, 2011, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales:

	2011					2010
	$		% of Sales			$		% of Sales
Net Revenue		4,074,309					923,069
Cost of Goods Sold		2,818,744		69	%		557,788		60	%
Gross Profit		1,255,565		31	%		365,281		40	%
Operating Expenses		503,724		12	%		147,020		16	%
Income from Operations		751,841		19	%		218,261		24	%
Other Income (expenses), net		(73,389)		(2	)%		241		0	%
Income tax expense		189,827		5	%		43,592		5	%
Net Income		488,625		12	%		174,910		19	%

NET REVENUE

Net revenue for the three months ended March 31, 2011 was $4.07 million, as compared to net revenue of $0.92 million for the same period of 2010, an increase of $3.15 million, or approximately 341%. This growth in revenue was attributed primarily to the acquisition of Liuzhou Rubber Sealing in the 4th quarter of 2010, and the overall recovery of the Chinese economy, as well as the recovery of the auto industry through the PRC’s effective economic stimulus programs. Shenzhen ORB’s main product is sealant, for which sales increased $0.40 million, or 46%, as compared to the same period of 2010. Revenues from primer and abluent are approximately same compared to 2010 period. In addition, sales of sealing rubber strips, the main product of our new acquired subsidiary Liuzhou Rubber Sealing, resulted in an additional $2.72 million in net revenue. Liuzhou Rubber Sealing is the exclusive supplier of sealing rubber strip to the primary car models which are built by our largest customer. The Company currently anticipates continued growth as a result of the recovery of the auto industry and other relevant industries.

COST OF GOODS SOLD

Cost of goods sold includes material costs, labor costs, and related overhead, which are directly attributable to the manufacture of our products. For the three months ended March 31, 2011, cost of goods sold amounted to $2.82 million, an increase of $2.26 million, or approximately 405%, as compared to the same period of 2010. The increase in the cost of goods sold was directly related to increase in production and sales volume in the three months ended March 31, 2011; of which, $0.14 million was due to the increase in sales volume in our primer product line, partially offset by approximately $0.12 million which was due to the decreased purchase price for raw materials, and Liuzhou Rubber Sealing brought additional $2.14 million of cost of goods sold as a result of our acquisition. Cost of goods sold as a percentage of sales were approximately 69% for the three months ended March 31, 2011 and 60% for the same period of 2010; The increase in the cost of goods sold as a percentage of sales in the three months ended March 31, 2011 was mainly arising from the relatively higher cost from Liuzhou Rubber Sealing which was 79% as a percentage of sales, while it was 49% for Shenzhen ORB. We believe that our cost of goods sold will remain relatively stable as we continue to benefit from improved operating efficiencies.

GROSS PROFIT

Gross profit for the three months ended March 31, 2011 was $1.26 million, an increase of $0.89 million, or approximately 244%, as compared to the same period of 2010. Our gross profit margin was 31% for the three months ended March 31, 2011 and 40% for the 2010 period. The increase in our gross profit was mainly due to the increase in our revenue period to period, while the decrease in our gross profit margin was primarily due to relatively higher production costs for Liuzhou Rubber Sealing.

OPERATING EXPENSES

Operating expenses consisted of selling, general and administrative expenses, and research and development expenses, totaling $0.50 million for the three months ended March 31, 2011, compared to $0.15 million for the same period of 2010, an increase of $0.35 million, or 243%. The increase in operating expenses was primarily due to increased general and administrative expenses which resulted from acquisition of Liuzhou Rubber Sealing; as well as increased selling expenses, which included shipping and handling expenses, as a result of increased sales and production activities.

NET INCOME

For the three months ended March 31, 2011, net income was $0.49 million as compared to $0.17 million for the same period of 2010, an increase of $0.32 million, or approximately 179%. This increase in net income was attributable to increased efficiency of our operations through economies of scale combined with increased revenue, as well as the newly acquired subsidiary Liuzhou Rubber Sealing, brought $0.21 million to net income. Our management believes that net income will continue to increase as we continue to increase our sales, offer better quality products and control our manufacturing costs.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2011, the Company had cash and cash equivalents of $578,370, other current assets of $12.73 million, and current liabilities of $8.29 million. Working capital was $5.12 million at March 31, 2011. The ratio of current assets to current liabilities was 1.61-to-1 as of March 31, 2011.

The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2011 and 2010, respectively:

	2011			2010
Cash provided by (used in):
Operating Activities	$	(131,722	)	$	(363	)
Investing Activities		(478,797	)		-
Financing Activities		293,513			-

Net cash flow used in operating activities was $131,722 for the three months ended March 31, 2011, as compared to net cash flow used in operating activities of $363 for the same period of 2010. The increase in net cash outflow during 2011 was mainly due to the increased bills receivable outstanding, restricted cash held in the bank, and increased inventory on hand which resulted from increased sales, as well as timely payment made for clearing our account payable outstanding, despite we had an increase in net income, decrease in account receivable outstanding and increase in bills payable.

Net cash flow used in investing activities was $478,797 for the three months ended March 31, 2011, which contained $38,635 for the purchase of fixed assets, $13,872 for construction in progress and $426,290 for prepayment for equipment purchase. While in the 2010 period, we did not have any investing activity.

Net cash flow provided by financing activities was $293,513 for the three months ended March31, 2011, which contained proceeds of $177,725 from short term loans and $115,788 of loan and advance from related parties. While in the 2010 period, we did not have any financing activity.

We believe that we have sufficient cash to continue our current business through 2011 due to expected increases in sale revenue and net income from operations through the acquisition of other adhesive sealant manufacturers. We expect to finance such expansion through bank loans, the issuance of debt or equity securities, or a combination thereof. Failure to obtain such financing could have a material adverse effect on our business expansion.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Our standard payment term for accounts receivable is 60 days. For the three months ended March 31, 2011, we had accounts receivable turnover of 6.94 on an annualized basis, with sales outstanding of 57 days and inventory turnover of 4.33 on an annualized basis. For the same period of 2010, we had accounts receivable turnover of 3.90 on an annualized basis, with sales outstanding of 94 days and inventory turnover of 4.29 on an annualized basis. The higher accounts receivable turnover and lower days outstanding in 2011 compared to 2010 is due to our rapid growth in sales in 2011 and quick collection on accounts receivable as a result of increased bills receivable collected from our clients in lieu of payment for accounts receivable, which resulted in lower accounts receivable but higher bills receivable outstanding at March 31, 2011. Bills receivable is the bank acceptance issued by the bank with payment guaranteed; we can either cash the bills receivable with the bank or transfer it to our vendors for payment of accounts payable. The inventory turnover remains relatively stable for the three months ended March 31, 2011 and 2010.

CONTRACTUAL OBLIGATIONS

The Company was obligated for the following short term loans at March 31, 2011 and December 31, 2010:

	2011		2010
From a commercial bank in the PRC for RMB 5,000,000, entered into on May 1, 2010 with maturity on May 1, 2011; RMB 3,000,000 entered into on June 30, 2010 and payable on demand; RMB 2,000,000 entered into on July 22, 2010 and payable on demand. The loans bear interest at 6.9% per annum. These loans are guaranteed by Liuzhou Credit Guarantee Co., Ltd, a company specifically providing the credit guarantees for Small and Medium-sized Enterprises. The loans were used for working capital.	$	1,525,227	$	1,509,958

On June 24, 2010, the Company obtained a loan from an industrial and commercial bank in PRC for RMB 10,000,000 with maturity on June 24, 2011. The loan bears interest at 5.31% per annum. The loan is guaranteed by Guangxi Huibang Investment Guarantee Co., Ltd. The loan was used for working capital.		1,525,227		1,509,958

On December 16, 2010, the Company obtained a loan from a commercial bank in PRC for RMB 1,000,000 with maturity on June 14, 2011. The interest rate is currently 6.12% per annum, which was 120% of the borrowing rate of The People’s Bank, and adjusted quarterly. The loan was used for working capital. The loan is secured against bill receivable of $181,126. (Note 4)		152,523		150,996

During first quarter of 2011, the Company obtained two loans from two unrelated persons in PRC for RMB 220,000. The loan is due on demand and interest rate is currently 20% per annum and used for temporary working capital		33,555		-

On January 1, 2011, the Company obtained a loan from a commercial bank in PRC for RMB 950,000 with maturity on June 30, 2011. The interest rate is currently 6.12% per annum, which was 120% of the borrowing rate of The People’s Bank, and adjusted quarterly. The loan was used for working capital. The loan is secured against bill receivable of $162,857 (Note 4)		144,897		-
	$	3,381,429	$	3,170,912

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and (2) accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our chief executive officer and chief financial officer concluded that as of March 31, 2011, our controls and procedures were not effective due to certain significant deficiencies (as defined in Public Company Accounting Oversight Board Standard No. 2) in our internal controls over financial reporting.

This is due to the fact that we lacks sufficient personnel with the appropriate level of knowledge, experience and training in the application of US generally accepted accounting principals (“GAAP”) standards, especially related to complicated accounting issues. This could cause us to be unable to fully identify and resolve certain accounting and disclosure issues that could lead to a failure to maintain effective controls over preparation, review and approval of certain significant account reconciliation from Chinese GAAP to US GAAP and necessary journal entries. Our internal audit function is significantly deficient due to insufficient qualified resources and appropriate systems to perform such function. Therefore, the ability to prevent and control lapses and errors in our accounting function could not be rendered effectively.

Also, we are integrating the financial resources of several businesses in our new corporate structure. The relatively small number of professionals we employ in bookkeeping and accounting functions prevents us from appropriately segregating duties within our internal control systems. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

Based on the control deficiencies identified above, we intend to design and plan to implement, specific remediation initiatives which include:

Evaluating the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China that will test and monitor the implementation of our accounting and internal control procedures.

Engaging an outside, independent internal controls consultant to assist us in addressing the aforementioned deficiencies and generally provide guidance on proper US accounting practices.

Increasing our accounting and financing personnel resources, by retaining more US GAAP knowledgeable financial professionals.

These remedial measures may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) we may fail to meet future reporting obligations on a timely basis, (ii) our consolidated financial statements may contain material misstatements, (iii) we may be required to restate prior period financial results, (iv) we may be subject to litigation and/or regulatory proceedings, and (v) our business and operating results may be harmed.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from the disclosure provided in Part 1, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 1A. Risk Factors

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

(a)

Exhibits

Exhibit Number		Description of Exhibit

3.1		Memorandum of and Articles of Association of the Company (incorporated by reference to Exhibit 3 of the Company’s Quarterly Report on Form 10-Q filed on May 15, 2008 (SEC File No. 000-52341))

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized..

	ORB Automotive Corporation

May 23, 2011	By: /s/ Junning Ma
	Name: Junning Ma
	Title: President and Chief Executive Officer

	ORB Automotive Corporation

May 23, 2011	By: /s/ Guangning Xu
	Name: Guangning Xu
	Title: Vice Chief Financial Officer

Action Acquisition CORP - FORM 10-Q - May 23, 2011

Attached files

Action Acquisition CORP Reports