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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|(Mark One)                                                                       
|---------------------------------------------------------------------------------
|                                                                                 
|x                                                                                
|                                                                                 
|For the quarterly period ended September 30, 2006                                
|                                                                                 
|o                                                                                
|                                                                                 
|For the transition period   from   ____________________  to  ____________________
|                                                                                 
|Commission file number  000-11991                                                

|SORL AUTO   PARTS, INC.                                                                                                
|-----------------------------------------------------------------------------------------------------------------------
|                                                                                                                       
|(Exact name   of registrant as specified in its charter)                                                               
|                                                                                                                       
|DELAWARE                                                                                                               
|                                                                                                                       
|(State or   other jurisdiction of incorporation or organization)                                                       
|                                                                                                                       
|No. 1169 Yumeng Road   Ruian Economic Development District   Ruian City, Zhejiang Province   Peoples Republic Of China
|                                                                                                                       
|(Address of   principal executive offices)                                                                             
|                                                                                                                       
|86-577-6581-7720                                                                                                       
|                                                                                                                       
|(Registrants   telephone number)                                                                                      

Indicate by check mark whether the registrant (1) 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
o
|----- | ----

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

|Large Accelerated   Filer
o | Accelerated Filer
o | Non-Accelerated   Filer
x
|--------------------------- | ------------------- | -------------------------

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

|Yes
o | No
x
|----- | ----

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the registrant classes of common equity, as of the latest practicable date:

As of October 31, 2006 there were 13,346,555 shares of Common Stock outstanding

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SORL AUTO PARTS, INC. FORM 10-Q For the Quarter Ended September 30, 2006

INDEX

|           |                                                                                                                                                          | Page
|---------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                                                                          |     
|PART I.    | FINANCIAL INFORMATION (unaudited)                                                                                                                        | 3   
|           |                                                                                                                                                          |     
|Item 1.    | Financial Statements:                                                                                                                                    | 3   
|           |                                                                                                                                                          |     
|           | Condensed Consolidated Balance Sheets as of   September 30, 2006 (Unaudited) and December 31, 2005 (Audited)                                             | 3   
|           |                                                                                                                                                          |     
|           | Condensed Consolidated Statements of   Operations and Comprehensive Income (Unaudited) for the Three and Nine Months   Ended September 30, 2006 and 2005 | 4   
|           |                                                                                                                                                          |     
|           | Condensed Consolidated Statements of Cash   Flows (Unaudited) for the Three and Nine Months Ended September 30, 2006 and   2005                          | 6   
|           |                                                                                                                                                          |     
|           | Condensed Consolidated Statements of   Stockholders Equity (Unaudited) for the Nine Months Ended September 30, 2006   and 2005                          | 5   
|           |                                                                                                                                                          |     
|           | Notes to the Condensed Consolidated   Financial Statements (Unaudited)                                                                                   | 7   
|           |                                                                                                                                                          |     
|Item 2.    | Managements Discussion and Analysis or   Financial Condition and Results of Operations                                                                  | 16  
|           |                                                                                                                                                          |     
|Item 3.    | Quantitative and Qualitative Disclosures   About Market Risk                                                                                             | 32  
|           |                                                                                                                                                          |     
|Item 4.    | Controls and Procedures                                                                                                                                  | 31  
|           |                                                                                                                                                          |     
|PART II.   | OTHER INFORMATION                                                                                                                                        | 32  
|           |                                                                                                                                                          |     
|Item 1.    | Legal Proceedings                                                                                                                                        | 33  
|           |                                                                                                                                                          |     
|Item 1A.   | Risk Factors                                                                                                                                             | 33  
|           |                                                                                                                                                          |     
|Item 2.    | Unregistered Sales of Equity Securities and   Use of Proceeds                                                                                            | 33  
|           |                                                                                                                                                          |     
|Item 3.    | Defaults Upon Senior Securities                                                                                                                          | 33  
|           |                                                                                                                                                          |     
|Item 4.    | Submission Of Maters To a Vote of Security   Holders                                                                                                     | 33  
|           |                                                                                                                                                          |     
|Item 5.    | Other Information                                                                                                                                        | 33  
|           |                                                                                                                                                          |     
|Item 6.    | Exhibits                                                                                                                                                 | 33  
|           |                                                                                                                                                          |     
|SIGNATURES | 34                                                                                                                                                      

2

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PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

SORL Auto Parts, Inc. and SubsidiariesConsolidated Balance Sheets September 30, 2006 and December 31, 2005

|                                                                                                                                             |     | September 30,2006 |            | December 31,2005 | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------------- | ---------- | ---------------- | 
|                                                                                                                                             |     |                   |            |                  | 
|                                                                                                                                             |     | (Unaudited)       |            | (Audited)        | 
|Assets                                                                                                                                       |     |                   |            |                  | 
|Current Assets                                                                                                                               |     |                   |            |                  | 
|Cash and Cash Equivalents                                                                                                                    | US$ |                   | 1,190,574  | US$              | 
|Accounts Receivable, Net of Provision                                                                                                        |     |                   | 28,219,063 |                  | 
|Notes Receivable                                                                                                                             |     |                   | 3,521,942  |                  | 
|Inventory                                                                                                                                    |     |                   | 2,298,109  |                  | 
|Prepayments                                                                                                                                  |     |                   | 1,719,034  |                  | 
|Other current assets                                                                                                                         |     |                   | 1,081,395  |                  | 
|                                                                                                                                             |     |                   |            |                  | 
|Total Current Assets                                                                                                                         |     |                   | 38,030,117 |                  | 
|Fixed Assets                                                                                                                                 |     |                   |            |                  | 
|Property, Plant and Equipment                                                                                                                |     |                   | 12,147,798 |                  | 
|Less: Accumulated Depreciation                                                                                                               |     |                   | (3,779,836 | )                | 
|                                                                                                                                             |     |                   |            |                  | 
|Property, Plant and Equipment, Net                                                                                                           |     |                   | 8,367,962  |                  | 
|Construction in progress                                                                                                                     |     |                   |            |                  | 
|Other Assets                                                                                                                                 |     |                   |            |                  | 
|Deferred compensation cost-stock options                                                                                                     |     |                   | 218,879    |                  | 
|Intangible Assets                                                                                                                            |     |                   | 45,200     |                  | 
|Less: Accumulated Amortization                                                                                                               |     |                   | (16,485    | )                | 
|Intangible Assets, Net                                                                                                                       |     |                   | 28,715     |                  | 
|Other Non-current Assets                                                                                                                     |     |                   | 56,185     |                  | 
|                                                                                                                                             |     |                   |            |                  | 
|Total Other Assets                                                                                                                           |     |                   | 303,779    |                  | 
|                                                                                                                                             |     |                   |            |                  | 
|Total Assets                                                                                                                                 | US$ |                   | 46,701,858 | US$              | 
|                                                                                                                                             |     |                   |            |                  | 
|Liabilities and Shareholders   Equity                                                                                                       |     |                   |            |                  | 
|Current Liabilities                                                                                                                          |     |                   |            |                  | 
|Accounts Payable and Notes Payable                                                                                                           | US$ |                   | 8,438,819  | US$              | 
|Deposit Received from Customers                                                                                                              |     |                   | 967,998    |                  | 
|Short term bank loans                                                                                                                        |     |                   | 10,874,101 |                  | 
|Accrued Expenses                                                                                                                             |     |                   | 841,410    |                  | 
|Other Current Liabilities                                                                                                                    |     |                   | 545,832    |                  | 
|Total Current Liabilities                                                                                                                    |     |                   | 21,668,160 |                  | 
|Minority Interest                                                                                                                            |     |                   | 2,419,374  |                  | 
|Shareholders Equity                                                                                                                         |     |                   |            |                  | 
|Common Stock - $0.002 Par Value; 50,000,000   authorized, 13,346,555 issued and outstanding as of September 30, 2006 and   December 31, 2005 |     |                   | 26,693     |                  | 
|Additional Paid In Capital                                                                                                                   |     |                   | 4,922,074  |                  | 
|Accumulated other comprehensive income                                                                                                       |     |                   | 740,904    |                  | 
|Retained Earnings                                                                                                                            |     |                   | 16,924,653 |                  | 
|                                                                                                                                             |     |                   |            |                  | 
|                                                                                                                                             |     |                   | 22,614,324 |                  | 
|                                                                                                                                             |     |                   |            |                  | 
|Total Liabilities and   Shareholders Equity                                                                                                 | US$ |                   | 46,701,858 | US$              | 
|                                                                                                                                             |     |                   |            |                  | 

The accompanying notes are an integral part of these financial statements

3

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SORL Auto Parts, Inc. and SubsidiariesConsolidated Statements of Operations and Comprehensive Income

|                                                                   |     | Three Months Ended   September 30, |            | Nine Months Ended   September 30, | 
|------------------------------------------------------------------ | --- | ---------------------------------- | ---------- | --------------------------------- | 
|                                                                   |     |                                    |            |                                   | 
|                                                                   |     | 2006                               |            | 2005                              | 
|                                                                   |     |                                    |            |                                   | 
|Sales                                                              | US$ |                                    | 21,288,002 |                                   | 
|Cost   of Sales                                                    |     |                                    | 16,511,343 |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Gross   Profit                                                     |     |                                    | 4,776,659  |                                   | 
|Operating   Expenses                                               |     |                                    |            |                                   | 
|Selling   and Distribution Expenses                                |     |                                    | 1,163,077  |                                   | 
|General   and Administrative Expenses                              |     |                                    | 1,028,862  |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Total   Operating Expenses                                         |     |                                    | 2,191,939  |                                   | 
|Operating   Income                                                 |     |                                    | 2,584,720  |                                   | 
|Financial   Expenses                                               |     |                                    | 259,587    |                                   | 
|Other   Income                                                     |     |                                    | 24,280     |                                   | 
|Non-Operating   Expenses                                           |     |                                    | 75,841     |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Income   Before Provision for Income Taxes                         |     |                                    | 2,273,572  |                                   | 
|Provision   for Income Taxes                                       |     |                                    | 311,208    |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Net   Income Before Minority Interest & Other Comprehensive Income | US$ |                                    | 1,962,364  |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Minority   Interest                                                |     |                                    | (196,236   | )                                 | 
|                                                                   |     |                                    |            |                                   | 
|Net   Income Attributable to Shareholders                          |     |                                    | 1,766,128  |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Foreign   Currency Translation Adjustment                          |     |                                    | 262,110    |                                   | 
|Minority   Interests Share                                        |     |                                    | (26,211    | )                                 | 
|                                                                   |     |                                    |            |                                   | 
|Comprehensive   Income                                             |     |                                    | 2,002,027  |                                   | 
|                                                                   |     |                                    |            |                                   | 
|Weighted   average common share - Basic                            |     |                                    | 13,346,555 |                                   | 
|Weighted   average common share - Diluted                          |     |                                    | 13,368,387 |                                   | 
|EPS   - Basic                                                      |     |                                    | 0.13       |                                   | 
|EPS   - Diluted                                                    |     |                                    | 0.13       |                                   | 

The accompanying notes are an integral part of these financial statements

4

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SORL Auto Parts, Inc. and SubsidiariesConsolidated Statements of Changes in Shareholders Equity

|                                                                  |  | Nine   Months Ended September 30, 2006 and 2005 |           
|----------------------------------------------------------------- |  | ----------------------------------------------- | ----------
|                                                                  |  |                                                 |           
|                                                                  |  | Number   of Share                               |           
|                                                                  |  |                                                 |           
|Beginning Balance - December 31, 2004                             |  |                                                 | 13,282,253
|Common   Stock  Adjustment for fractional shares                 |  |                                                 | 4,802     
|Common   Stock  Issuance for payment financial advisory services |  |                                                 | 10,000    
|Net   Income                                                      |  |                                                 |          
|Other   Comprehensive Income                                      |  |                                                 |          
|Paid   In Capital Contributions                                   |  |                                                 |          
|                                                                  |  |                                                 |           
|Ending Balance - September 30, 2005                               |  |                                                 | 13,297,055
|                                                                  |  |                                                 |           
|Beginning Balance - December 31, 2005                             |  |                                                 | 13,346,555
|Net   Income                                                      |  |                                                 |          
|Other   Comprehensive Income                                      |  |                                                 |          
|Paid   In Capital Contributions                                   |  |                                                 |          
|                                                                  |  |                                                 |           
|Ending Balance - September 30, 2006                               |  |                                                 | 13,346,555
|                                                                  |  |                                                 |           

The accompanying notes are an integral part of these financial statements

5

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SORL Auto Parts, Inc. and SubsidiariesConsolidated Statements of Cash Flows

|                                                                                    |     | Three Months Ended Septmber 30, |            | Nine Months Ended September 30, | 
|----------------------------------------------------------------------------------- | --- | ------------------------------- | ---------- | ------------------------------- | 
|                                                                                    |     |                                 |            |                                 | 
|                                                                                    |     | 2006                            |            | 2005                            | 
|                                                                                    |     |                                 |            |                                 | 
|Cash Flows from Operating Activities                                                |     |                                 |            |                                 | 
|Net   Income                                                                        | US$ |                                 | 1,766,128  |                                 | 
|Adjustments to reconcile net income (loss) to net cash from   operating activities: |     |                                 |            |                                 | 
|Minority   Interest                                                                 |     |                                 | 196,236    |                                 | 
|Bad   Debt Expense                                                                  |     |                                 | (83,168    | )                               | 
|Depreciation   and Amortization                                                     |     |                                 | 266,058    |                                 | 
|Loss   on disposal of Fixed Assets                                                  |     |                                 | 2,129      |                                 | 
|Stock-Based   Compensation Expense                                                  |     |                                 | 89,672     |                                 | 
|Changes in Assets and Liabilities:                                                  |     |                                 |            |                                 | 
|Account   Receivables                                                               |     |                                 | 1,250,818  |                                 | 
|Notes   Receivables                                                                 |     |                                 | (2,366,405 | )                               | 
|Other   Currents Assets                                                             |     |                                 | (674,145   | )                               | 
|Inventory                                                                           |     |                                 | (923,930   | )                               | 
|Prepayments                                                                         |     |                                 | (309,766   | )                               | 
|Account   Payables and Notes payable                                                |     |                                 | 787,423    |                                 | 
|Deposits   Received from Customers                                                  |     |                                 | 161,447    |                                 | 
|Other   Currents liability                                                          |     |                                 | 366,871    |                                 | 
|                                                                                    |     |                                 |            |                                 | 
|Net Cash Flows from Operating   Activities                                          |     |                                 | 529,368    |                                 | 
|Cash Flows from Investing Activities                                                |     |                                 |            |                                 | 
|Acquisition   of Property and Equipment                                             |     |                                 | (1,189,727 | )                               | 
|Investment   in Construction in progress                                            |     |                                 |           |                                 | 
|                                                                                    |     |                                 |            |                                 | 
|Net Cash Flows from Investing   Activities                                          |     |                                 | (1,189,727 | )                               | 
|Cash Flows from Financing Activities                                                |     |                                 |            |                                 | 
|Proceeds   from (Repayment of) Bank Loans                                           |     |                                 | (632,227   | )                               | 
|                                                                                    |     |                                 |            |                                 | 
|Net Cash flows from Financing   Activities                                          |     |                                 | (632,227   | )                               | 
|Effects on changes in foreign exchange rate                                         |     |                                 | 262,110    |                                 | 
|Net   Increase (Decrease) in Cash                                                   |     |                                 | (1,030,476 | )                               | 
|Cash   - Beginning of the term                                                      |     |                                 | 2,221,050  |                                 | 
|                                                                                    |     |                                 |            |                                 | 
|Cash - End of the term                                                              | US$ |                                 | 1,190,574  |                                 | 
|                                                                                    |     |                                 |            |                                 | 
|Supplemental Cash Flow Disclosures:                                                 |     |                                 |            |                                 | 
|Interest   Paid                                                                     |     |                                 | 163,862    |                                 | 
|Tax   Paid                                                                          |     |                                 | 297,662    |                                 | 
|                                                                                    |     |                                 |            |                                 | 

The accompanying notes are an integral part of these financial statements

6

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A -          Description of Business

SORL Auto Parts, Inc. (the Company) is principally engaged in the manufacture and distribution of automotive air brake valves and related components for commercial vehicles weighing more than three tons, such as trucks and buses, through its 90% ownership of Ruili Group Ruian Auto Parts Company Limited (the Joint Venture) in the Peoples Republic of China (PRC or China).  The Company distributes products both in China and internationally under the SORL trademarks.  The Companys product range includes approximately 40 categories of brake valves with over 800 different specifications.

Note B -          Basis of Presentation

The condensed consolidated financial statements include the accounts of SORL Auto Parts, Inc. and its majority owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in the consolidation. Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Companys annual report on Form 10-K and other reports filed with the SEC.

The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole.

Note C -          Recent Pronouncements

In March 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 156, Accounting for Servicing of Financial Assets  an amendment of FASB Statement No. 140 (SFAS 156).  SFAS 156 amends FASB Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities.  SFAS 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practical.  SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006.  As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2007.  The Company is currently evaluating the impact of SFAS 156 on its consolidated financial statements.

7

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Note D -          Related Party Transactions

The Company continued to purchase non-valve automotive components, raw materials and packaging materials from the Ruili Group Co., Ltd., which is the minority shareholder of the Joint Venture, and also has the common controlling party, i.e. the Zhang family. The following related party transactions occurred for the three or nine months ended September 30, 2006 and 2005:

|                                             |  | Three Months Ended   September 30, |           | Nine Months Ended   September 30, |  
|-------------------------------------------- |  | ---------------------------------- | --------- | --------------------------------- | -
|                                             |  |                                    |           |                                   |  
|                                             |  | 2006                               |           | 2005                              |  
|                                             |  |                                    |           |                                   |  
|PURCHASES FROM:                              |  |                                    |           |                                   |  
|Ruili Group Co., Ltd.                        |  | $                                  | 5,435,210 |                                   | $
|Ruian Ruili Haizhiguan   Auto Part Co., Ltd. |  |                                    |          |                                   |  
|                                             |  |                                    |           |                                   |  
|Total                                        |  | $                                  | 5,435,210 |                                   | $
|SALES TO:                                    |  |                                    |           |                                   |  
|Ruili Group Co., Ltd.                        |  | $                                  | 1,768,115 |                                   |  
|                                             |  |                                    |           |                                   |  
|Total                                        |  | $                                  | 1,768,115 |                                   |  

The total purchases from Ruili Group during the three months ended September 30, 2006 consisted of $ 5.1 million of finished products for non-valve auto parts and $0.3 million of packaging materials. During the nine months ended September 30, 2006, the breakdown was $ 15.2 million and $ 0.7 million, respectively.

|                                      |  | September   30, 2006 |           | December   31, 2005 |  
|------------------------------------- |  | -------------------- | --------- | ------------------- | -
|                                      |  |                      |           |                     |  
|ACCOUNTS PAYABLE AND OTHER   PAYABLES |  |                      |           |                     |  
|Ruili Group Co., Ltd.                 |  | $                    | 2,357,875 |                     | $
|Shuping Chi                           |  |                      |          |                     |  
|                                      |  |                      |           |                     |  
|Total                                 |  |                      | 2,357,875 |                     |  

|                      |  | September   30, 2006 |   | December   31, 2005 |  
|--------------------- |  | -------------------- | - | ------------------- | -
|                      |  |                      |   |                     |  
|Prepayment            |  |                      |   |                     |  
|Ruili Group Co., Ltd. |  | $                    |  |                     | $
|                      |  |                      |   |                     |  
|Total                 |  |                      |  |                     |  

8

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Note E -          Accounts Receivable

The changes in the allowance for doubtful accounts at September 30, 2006 and December 31, 2005 are summarized as follows:

|                                        |  | September 30,   2006 |          | December 31,   2005 |  
|--------------------------------------- |  | -------------------- | -------- | ------------------- | -
|                                        |  |                      |          |                     |  
|Beginning balance                       |  | $                    | 914,721  |                     | $
|Add: Increase (Decrease)   to allowance |  |                      | (851,125 | )                   |  
|Less: Accounts written off              |  |                      |         |                     |  
|                                        |  |                      |          |                     |  
|Ending balance                          |  | $                    | 63,596   |                     | $

The companys receivables are summarized as follows:

|                                        |  | September 30,   2006 |            | December 31,   2005 |  
|--------------------------------------- |  | -------------------- | ---------- | ------------------- | -
|                                        |  |                      |            |                     |  
|Accounts receivable                     |  | $                    | 28,282,659 |                     | $
|Less: allowance for   doubtful accounts |  |                      | (63,596    | )                   |  
|                                        |  |                      |            |                     |  
|Account receivable   balance, net       |  | $                    | 28,219,063 |                     | $

Note F -          Inventories

On September 30, 2006 and December 31, 2005, inventories consisted of the following:

|                |  | September 30,   2006 |           | December 31,   2005 |  
|--------------- |  | -------------------- | --------- | ------------------- | -
|                |  |                      |           |                     |  
|Raw Material    |  | $                    | 730,304   |                     | $
|Work in process |  |                      | 737,152   |                     |  
|Finished Goods  |  |                      | 830,653   |                     |  
|                |  |                      |           |                     |  
|Total Inventory |  | $                    | 2,298,109 |                     | $

9

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Note G -          Property, Plant and Equipment

Property, plant and equipment consisted of the following, on September 30, 2006 and December 31, 2005:

|                               |  | September   30,   2006 |            | December   31,   2005 |  
|------------------------------ |  | ---------------------- | ---------- | --------------------- | -
|                               |  |                        |            |                       |  
|Machinery                      |  | $                      | 10,027,067 |                       | $
|Moulds                         |  |                        | 1,102,324  |                       |  
|Office equipment               |  |                        | 218,628    |                       |  
|Vehicle                        |  |                        | 274,130    |                       |  
|Building                       |  |                        | 525,649    |                       |  
|                               |  |                        |            |                       |  
|Sub-Total                      |  |                        | 12,147,798 |                       |  
|Less: Accumulated depreciation |  |                        | (3,779,836 | )                     |  
|                               |  |                        |            |                       |  
|PPE, Net                       |  | $                      | 8,367,962  |                       | $

Depreciation expense charged to operations was $ 778,616 and $623,123 for the nine months ended September 30, 2006 and 2005, respectively.

Note H -          Intangible Assets

Gross intangible assets were $45,200, less accumulated amortization of $16,485 for net intangible assets of $28,715 as of September 30, 2006. Gross intangible assets were $44,297, less accumulated amortization of $11,873 for net intangible assets of $32,424 as of December 31, 2005. Amortization expenses were $ 4,437 and $ 5,544 for the nine months ended September 30, 2006 and 2005 respectively. Future estimated amortization expense is as follows:

|2006                              |  | 2007 |       | 2008 |   | 2009  |  | 2010 |       | Thereafter |  
|--------------------------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---------- | -
|                                  |  |      |       |      |   |       |  |      |       |            |  
|$                             639 |  | $    | 3,617 |      | $ | 3,617 |  | $    | 3,617 |            | $

Note I -          Prepayment

Prepayment consisted of the following as of September 30, 2006 and December 31, 2005:

|                       |  | September 30,   2006 |           | December 31,   2005 |  
|---------------------- |  | -------------------- | --------- | ------------------- | -
|                       |  |                      |           |                     |  
|Raw material suppliers |  | $                    | 833,685   |                     | $
|Equipment purchase     |  |                      | 885,349   |                     |  
|                       |  |                      |           |                     |  
|Total prepayment       |  | $                    | 1,719,034 |                     | $

10

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Note J -          Accrued Expenses

Accrued expenses consisted of the following as of September 30, 2006 and December 31, 2005:

|                       |  | September 30,   2006 |         | December 31,   2005 |  
|---------------------- |  | -------------------- | ------- | ------------------- | -
|                       |  |                      |         |                     |  
|Accrued payroll        |  | $                    | 390,858 |                     | $
|Accrued rent           |  |                      |        |                     |  
|Accrued legal          |  |                      |        |                     |  
|Other accrued expenses |  |                      | 450,552 |                     |  
|                       |  |                      |         |                     |  
|Total accrued expenses |  | $                    | 841,410 |                     | $

Note K -          Bank Loans

Bank loans represented the following as of September 30, 2006 and December 31, 2005:

|                      |  | September 30,   2006 |             | December 31,   2005 |  
|--------------------- |  | -------------------- | ----------- | ------------------- | -
|                      |  |                      |             |                     |  
|Secured               |  | $                    | 10,874,101  |                     | $
|Less: Current portion |  | $                    | (10,874,101 | )                   | $
|                      |  |                      |             |                     |  
|Non-current portion   |  | $                    |            |                     | $

These loans were from two banks, Bank of China and CITIC Bank, to finance general working capital as well as new equipment acquisition. Corporate or personal guarantees were provided for those bank loans as follows:

| | $6.9   M | Guaranteed   by Ruili Group Co., Ltd., a related party;                                                                             
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------
| | $2.5M    | Guaranteed   by Ruili Group Co., Ltd., a related party, and Mr. Xiao Ping Zhang and Ms.   Shu Ping Chi, both principal shareholders;
| | $1.4M    | Guaranteed   by Shenghuabo Group Co., Ltd., a non-related party.                                                                    

The Company did not provide any sort of guarantee to any other parties. Interest rates for the loans ranged between 5.220% and 5.580% per annum.

Note L -          Income Taxes

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.  According to applicable tax laws regarding Sino-Foreign Joint Venture Manufacturers, the Joint Venture was exempted from income taxes in the PRC for the fiscal years ended December 31, 2005 and 2004.  Thereafter, the Joint Venture is entitled to a tax concession of 50% of the statutory income tax rate of 26.4%, for the following three years ended December 31, 2006, 2007, and 2008.

11

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The reconciliation of the effective income tax rate of the Joint Venture to the statutory income tax rate in the PRC for the nine months ended September 30, 2006 is as follows:

|Statutory tax rate           |  |  | 26.4  | %
|---------------------------- |  |  | ----- | -
|Tax holidays and concessions |  |  | -13.2 | %
|                             |  |  |       |  
|Effective tax rate           |  |  | 13.2  | %

No provision for deferred tax liabilities has been made, since the Joint Venture had no material temporary differences between the tax bases of assets and liabilities and their carrying amounts.

Note M -          Lease

The Company has a lease agreement with Ruili Group Co., Ltd., a related party, for the rental of a manufacturing plant.  The lease is for a ten year term ending in February 2014.  Rent expenses for the nine months ended September 30, 2006 and 2005, were $ 340,760 and $329,932 respectively.

Future minimum rental payments for the years ended December 31 are as follows:

|2006            |  | 2007 |         | 2008 |   | 2009    |  | 2010 |         | Thereafter |  
|--------------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---------- | -
|                |  |      |         |      |   |         |  |      |         |            |  
|$        98,780 |  | $    | 439,540 |      | $ | 439,540 |  | $    | 439,540 |            | $

Note N -          Advertising Costs

Advertising costs are expensed as incurred and are classified as selling expenses.  Advertising costs were $23,358 and $18,542 for the nine months ended September 30, 2006 and 2005, respectively.

Note M -          Research and Development Expenses

Research and development costs are expensed as incurred and were $ 468,942 and $ 176,652 for the nine months ended September 30, 2006 and 2005, respectively.

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Note P -          Warranty Claims

Warranty claims were $1,174,437 and $287,211 for the nine months ended September 30, 2006 and 2005, respectively. The movement of accrued warranty expenses for the nine months ended September 30, 2006 is as follows. Accrued warranty expenses are included in Accrued Expenses.

|Beginning balance at   January 01, 2006                              |  | $ | 179,932   | 
|-------------------------------------------------------------------- |  | - | --------- | 
|Accrued during the nine months ended September   30, 2006:           |  | $ | 1,174,437 | 
|Less: Actual Paid during the nine months ended September   30, 2006: |  | $ | 1,077,554 | 
|                                                                     |  |   |           | 
|Ending balance at
September30, 2006:                                 |  | $ | 276,815   | 

Note Q -          Stock-Based Compensation

(1) The Companys 2005 Stock Compensation Plan (the Plan) permits the grant of share options and shares to its employees for up to 1,700,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant.

Pursuant to the Plan, the Company issued 60,000 options with an exercise price of $4.79 per share on March 1, 2006. In accordance with the vesting provisions of the grants, the options will become vested and exercisable under the following schedules.

|Number of Shares |  | % of   Shares Issued |      | Initial   Vesting Date | 
|---------------- |  | -------------------- | ---- | ---------------------- | 
|                 |  |                      |      |                        | 
|60,000           |  |                      | 100% |                        | 

The Company accounts for stock-based compensation in accordance with SFAS No. 123 Revised, Share-Based Payment. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.

|Dividend Yield               |  |   | 0.00    | %
|---------------------------- |  | - | ------- | -
|Expected Volatility          |  |   | 96.54   | %
|Risk-Free Interest Rate      |  |   | 4.59    | %
|Contractual Term             |  |   | 3 years |  
|Stock Price at Date of Grant |  | $ | 4.79    |  
|Exercise Price               |  | $ | 4.79    |  

Total deferred stock-based compensation expenses related to the 60,000 stock options granted amounted to $178,904.  This amount is amortized over three years in a manner consistent with Financial Accounting Standards Board Interpretation No. 123 (R).  The amortization of deferred stock-based compensation for these equity arrangements was $14,909 and $ 34,788 respectively for the three months ended September 30, 2006 and the nine months ended September 30, 2006. As of September 30, 2006, there was $ 144,116 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan. The cost is expected to be recognized over a period of 2.4 years.

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A summary of option activity under the Plan as of September 30, 2006 and changes during the nine months then ended is as follows:

|                                   |  | Options |        | Weighted   Average   Exercise Price |   | Weighted   Average   Remaining   Contractual Term |  | Aggregate   Intrinsic   Value |          
|---------------------------------- |  | ------- | ------ | ----------------------------------- | - | ------------------------------------------------- |  | ----------------------------- | ---------
|                                   |  |         |        |                                     |   |                                                   |  |                               |          
|1-Jan-06                           |  |         |       |                                     | $ |                                                  |  |                               |         
|Granted                            |  |         | 60,000 |                                     |   | 4.79                                              |  |                               | 3 Years  
|Exercised                          |  |         |       |                                     |   |                                                  |  |                               |         
|Forfeited                          |  |         |       |                                     |   |                                                  |  |                               |         
|                                   |  |         |        |                                     |   |                                                   |  |                               |          
|Outstanding at September 30, 2006  |  |         | 60,000 |                                     | $ | 4.79                                              |  |                               | 2.4 Years
|                                   |  |         |        |                                     |   |                                                   |  |                               |          
|Exercisable at September  30, 2006 |  |         |       |                                     |   |                                                  |  |                               |         
|                                   |  |         |        |                                     |   |                                                   |  |                               |          

(2) On January 5, 2006 the Company issued 100,000 warrants for financial services to be provided by Maxim Group LLC and Chardan Capital Markets, LLC, with an exercise price of $6.25 per share. In accordance with the common stock purchase warrant agreement, the warrants became vested and exercisable immediately on the date thereof. As set forth in the agreement, the Company will retain Maxim Group LLC and Chardan Capital Markets, LLC as its exclusive financial advisors and investment bankers for a period of twelve months.

|Number of Shares |  | % of   Shares Issued |      | Initial   Vesting Date | 
|---------------- |  | -------------------- | ---- | ---------------------- | 
|                 |  |                      |      |                        | 
|100,000          |  |                      | 100% |                        | 

The Company accounts for stock-based compensation in accordance with SFAS No. 123 Revised, Share-Based Payment. The fair value of each warrant is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.

|Dividend Yield               |  |   | 0.00    | %
|---------------------------- |  | - | ------- | -
|Expected Volatility          |  |   | 95.01   | %
|Risk-Free Interest Rate      |  |   | 4.36    | %
|Contractual Term             |  |   | 4 years |  
|Stock Price at Date of Grant |  | $ | 4.70    |  
|Exercise Price               |  | $ | 6.25    |  

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Total deferred stock-based compensation expenses related to the 100,000 warrants granted amounted to $299,052.  This amount is amortized over one year in a manner consistent with Financial Accounting Standards Board Interpretation No. 123 (R).  The amortization of deferred stock-based compensation for these equity arrangements was $74,763 and $ 224,289 respectively for the three months ended September 30, 2006 and the nine months ended September 30, 2006. As of September 30, 2006, there was $74,763 of total unrecognized compensation cost related to the share-based compensation arrangements granted under the agreement. The cost is expected to be recognized over a period of three months.

A summary of warrant activity as of September 30, 2006 and changes during the nine months then ended is as follows:

|                                   |  | Warrants |         | Weighted   Average   Exercise   Price |   | Weighted   Average   Remaining   Contractual   Term |  | Aggregate    Intrinsic   Value |          
|---------------------------------- |  | -------- | ------- | ------------------------------------- | - | --------------------------------------------------- |  | ------------------------------ | ---------
|                                   |  |          |         |                                       |   |                                                     |  |                                |          
|1-Jan-06                           |  |          |        |                                       | $ |                                                    |  |                                |         
|Granted                            |  |          | 100,000 |                                       | $ | 6.25                                                |  |                                | 4 Years  
|Exercised                          |  |          |        |                                       |   |                                                    |  |                                |         
|Forfeited                          |  |          |        |                                       |   |                                                    |  |                                |         
|                                   |  |          |         |                                       |   |                                                     |  |                                |          
|Outstanding at September 30, 2006  |  |          | 100,000 |                                       | $ | 6.25                                                |  |                                | 3.3 Years
|                                   |  |          |         |                                       |   |                                                     |  |                                |          
|Exercisable at September  30, 2006 |  |          | 100,000 |                                       | $ | 6.25                                                |  |                                | 3.3 Years
|                                   |  |          |         |                                       |   |                                                     |  |                                |          

Note R -          Commitments and Contingencies

None.

Note S -          Subsequent Event

The Company has filed with the Securities and Exchange Commission a registration statement for a follow-on public offering of shares of the Companys Common Stock for up to $30,000,000 through Maxim Group LLC and Chardan Capital Markets LLC, as underwriters.

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|Item 2. | Managements Discussion And Analysis Of Financial Condition And   Results Of Operations
|------- | ---------------------------------------------------------------------------------------

The following is managements discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management.  This report includes forward-looking statements.  Generally, the words believes, anticipates, may, will, should, expect, intend, estimate, continue, and similar expressions  or the negative thereof or comparable terminology are intended to identify forward-looking statements.  Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time

to time, which could cause actual results or outcomes to differ materially from those projected.  Undue reliance should not be placed on these forward-looking statements that speak only as of the date hereof.  We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-Q.

OVERVIEW

On May 10, 2004, we acquired all of the issued and outstanding equity interests of Fairford Holdings Limited, a Hong Kong limited liability company (Fairford).  Until we acquired Fairford, we had only nominal assets and liabilities and limited business operations.  Although Fairford became a wholly owned subsidiary following the acquisition, because the acquisition resulted in a change of control, the acquisition was recorded as a reverse merger whereby Fairford is considered to be the accounting acquirer.  As such, the following results of operations are those of Fairford.

Fairford was organized in Hong Kong as a limited liability company on November 3, 2003.  Fairford owns 90% of the equity interest of Ruili Group Ruian Auto Parts Co., Ltd., a Sino-foreign joint venture (the Joint Venture) established pursuant to the laws of the Peoples Republic of China (PRC or China).  The Joint Venture is a joint venture between Fairford and Ruili Group Co., Ltd.  (the Ruili Group).  In connection with its formation, effective January 19, 2004 the Joint Venture acquired the business of the Ruili Group relating to the manufacture and sale of various kinds of valves for automotive brake systems and related operations (the Transferred Business).  This was accomplished by the transfer from the Ruili Group to Fairford of the relevant assets and liabilities of the Transferred Business including trade
receivables, inventories and machinery, and the assumption of short and long term borrowings, at a consideration of US$6,390,000.  The consideration was based on a valuation by an independent PRC valuation firm.  Fairford then contributed these assets and liabilities as a capital contribution for its 90% interest in the Joint Venture.  The Ruili Group also transferred inventory as its capital contribution for its 10% interest in the Joint Venture.  The assets and liabilities transferred to the Joint Venture by Fairford and the Ruili Group represented all the relevant assets and liabilities of the Transferred Business.  Certain historical information of the Transferred Business is based on the operation of the Transferred Business when it was owned by the Ruili Group.

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Pursuant to the formation of the Joint Venture, on January 17, 2004, the Ruili Group and Fairford signed a binding Joint Venture agreement (the JV Agreement).  Pursuant to the JV Agreement, the Board of Directors consists of three directors; Fairford has the right to designate two members of the board and the Ruili Group has the right to designate one member.  The majority of the Board has decision making authority with respect to operating matters.  As a result, Fairford maintains operating control over the Joint Venture.

The transactions were accounted for as a reverse spin-off in accordance with EITF 02-11 Accounting for Spin-offs.  Accordingly, SORL Auto Parts, Inc. was deemed to be the spinnor for accounting purposes.

As a result of the foregoing, through Fairfords 90% interest in the Joint Venture, the Company manufactures and distributes automotive air brake valves and related components in China and internationally for use primarily in vehicles weighing over three tons, such as trucks and buses.  There are forty categories of valves with over eight hundred different specifications.  Management believes that it is the largest manufacturer of automotive brake valves in China.

On a going forward basis, we are taking the following steps to improve our operating results:  We are restructuring our customer base to phase out those accounts which frequently fail to make prompt payments.  We are placing more effort on receivables collection.  We are continuing to develop higher profit margin new products.  We are adopting steps for further cost saving such as improving material utilization rates.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Below is a description of accounting policies, which we consider critical to the preparation and understanding of our financial statements.  In addition, certain amounts included in or affecting our financial statements and related disclosure must be estimated, which requires us to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared.  Actual results may differ from these estimates under different assumptions or conditions.  The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our consolidated financial statements.

We believe that the following critical accounting policies set forth below involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.  We evaluate these policies on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods we consider reasonable in the particular circumstances, as well as our forecasts as to how these might change in the future.

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Accounting Method

The Company uses the accrual method of accounting which recognizes revenues when earned and expenses when incurred.

Accounts Receivable and Allowance for Doubtful Accounts

The Company presents accounts receivable, net of allowance for doubtful accounts.  The allowance is calculated based on review of individual customer accounts.

Inventories

Inventories are stated at the lower of cost or net realizable value.  Cost is calculated on the weighted-average basis and includes all costs to acquire and other costs incurred in bringing the inventories to their present location and condition.  The Company evaluates the net realizable value of its inventories on a regular basis and records a provision for loss to reduce the computed weighted-average cost if it exceeds the net realizable value.

Income Taxes

Taxes are calculated in accordance with taxation principles currently effective in the PRC.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  A valuation allowance is provided for the amount of deferred tax assets and liabilities that, based on available evidence, are not expected to be realized.

Under a Tax Holiday in PRC, the Joint Venture was granted an exemption from income taxes for two years commencing from the first cumulative profit-making year and a 50% reduction in the income tax rates for the following three years.  Fiscal year ended December 31, 2004 was the first accumulative profit-making year.  The Joint Venture is entitled to a 50% income tax reduction in the fiscal years ended December 31, 2006, 2007 and 2008. The statutory income tax rate is 26.4% in Ruian City which is located in the coastal economic development zones, the Joint Venture was subject to a tax rate of 13.2% from the years of 2006 to 2008.

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Revenue Recognition

In accordance with the provisions of Staff Accounting Bulletin No. 103, revenue is recognized when merchandise is shipped and title passes to the customer and collectibility is reasonably assured.  Revenues consist of the invoice value of the sale of goods and services net of value added tax, rebates and discounts.

The Company does not receive revenue for shipping and handling costs to customers.  Shipping and handling expenses incurred by the Company are included in selling expenses in the accompanying consolidated statements of income.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of accounts receivable.  The Company performs ongoing credit evaluations with respect to the financial condition of its creditors, but does not require collateral.  In order to determine the value of the Companys accounts receivable, the Company records a provision for doubtful accounts to cover probable credit losses.  Management reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collectibility of outstanding accounts receivable.

Results of Operations (1) Results of operations for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005.SALES

|                                      |  | Three Months end 2006 |      | Three Months end 2005 | 
|------------------------------------- |  | --------------------- | ---- | --------------------- | 
|                                      |  |                       |      |                       | 
|Air brake valves & related components |  | $                     | 15.9 | M                     | 
|Non-valve products                    |  | $                     | 5.4  | M                     | 
|                                      |  |                       |      |                       | 
|Total                                 |  | $                     | 21.3 |                       | 

Sales consist of air brake valves and related components manufactured by SORL and sold to domestic original equipment manufacturers (OEM) and aftermarket customers as well as distribution of non-valve auto parts sourced from the Ruili Group.

Net sales were $21,288,002 and $16,376,928 for the three months ended September 30, 2006 and 2005, respectively. Net sales for the three months ended September 30, 2006 increased by $4.9 million or 30% to $21.3 million, compared with the same period of 2005. The increase in sales was mainly from the international market and OEM market.  This increase was a result of the Companys efforts to develop more customers and penetrate these market segments.

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A breakdown of net sales revenue for our three market segments, domestic OEM, domestic aftermarket and the international market, for the three months ended September 30, 2006 and 2005 is as follows:

|                     |  | Three   Months end   2006    |      | % |  | Three   Months end   2005 |   | % |     
|-------------------- |  | ---------------------------- | ---- | - |  | ------------------------- | - | - | ----
|                     |  |                              |      |   |  |                           |   |   |     
|                     |  | (U.S.    dollars in million) |     
|China OEM market     |  | $                            | 6.7  |   |  | 32                        | % | $ | 4.5 
|China Aftermarket    |  | $                            | 5.2  |   |  | 24                        | % | $ | 4.9 
|International market |  | $                            | 9.4  |   |  | 44                        | % | $ | 7.0 
|                     |  |                              |      |   |  |                           |   |   |     
|Total                |  | $                            | 21.3 |   |  | 100                       | % | $ | 16.4

The sluggish Chinese heavy duty truck market has been gradually restoring. The sales for the OEM market increased $2.2 million or 48.9% for the three months ended September 30, 2006, as compared to the same period of 2005.  The Companys strategy is to introduce more innovative products to meet the OEM customers needs.

Currently SORL has 27 authorized distributors covering nearly all regions in China, who in turn sell our products to over 800 sub-distributors.  Based on the well established and continuously improving sales networks, SORL achieved total revenue of $5.2 million in domestic aftermarket sales for the three months ended September 30, 2006, an increase of $0.3 million, or 6.1% as compared to the same period of last year.

Export sales grew by $2.4 million or approximately 34.3% for the three months ended September 30, 2006, as compared to $7.0 million for the same period of 2005. This increase reflects our continued focus on customer service, strong execution, introduction of new products, increased productivity of our expanded contract sales force, more efficient targeted marketing spending on our catalogs, web sites and international trade shows as well as the continued success of our customer acquisition and retention efforts resulting from improved service levels in these market segments.  Additionally, the Company has been able to offer a much wider product line including non-valve products which are outsourced from the Ruili Group.  Such outsourced non-valve products include power steering pumps and other pumps, automobile electrical components and auto meters.

COST OF SALES

Cost of sales for the three months ended September 30, 2006 increased to $16.5 million from $ 12.9 million for the same period of 2005, a $3.6 million or 27.9 % increase which was consistent with the increase in revenues.

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GROSS PROFIT

For the three months ended September 30, 2006, gross profit was $4,776,659, as compared to $3,467,042 for the same period of 2005, an increase of $1,309,617 or 37.8%.  Gross margin was 22.4% for the three months ended September 30, 2006, an increase of 1.2% from 21.2% for the same period of 2005.

The approximately 2.5% appreciation of RMB against the U.S. dollar (USD) had certain negative impact on gross margin.  About 44% of total revenue for the three months ended September 30, 2006 was denominated in USD, while nearly all costs were denominated in RMB.  The impact from the appreciation of the RMB was approximately 0.7% on Gross Margin.

We purchase various components and raw materials for use in our manufacturing processes.  The principal raw materials we purchased are aluminum and steel.  For the three months ended September 30, 2006, the market price of steel remained relatively stable, but the market price of aluminum increased $336 per ton or 17.3% as compared to the same period of 2005.  The rising price of materials had an adverse impact on gross margin, since some of the increases cannot be passed on to our customers.  This negatively impacted our gross margin by approximately $0.52 million in the third quarter of 2006.

Those negative impacts on Gross Margin were largely offset by economies of scale, shift of sales mix and consistent efforts in production technique optimization. In 2006, we took several steps to mitigate the adverse impact from the increase in raw material cost. For example, from April 2006, we used substitute material of lower cost in our production while maintaining the same quality level of products, thereby reducing the negative impact associated with raw material price. Meanwhile, we replaced the machining approach with a molding process, thereby reducing processing steps and materials consumption and increasing productivity. Furthermore, we shifted the product mix and introduced valve products with higher profit margins. In addition, in the process of removing impurities from liquid aluminum, historically we have used the high-temperature method. The adoption of a new technique of using a
low-temperature method helped save power consumption.

SELLING EXPENSES

Selling expenses were $1,163,077 for the three months ended September 30, 2006, as compared to $849,854 for the same period of 2005, an increase of $313,223 or 36.9%. The increase was mainly due to the effect of the following factors:

|(1) | Increased   transportation expenses for domestic sales. Although the Company had taken   many efforts to optimize its shipping management, with an increase of 26.6%   for the sales to domestic market, the associated transportation expenses   still increased by $60,697 for the three months ended September 30, 2006, as   compared to $136,124 for the same period of 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                   
|(2) | Decreased   transportation expenses for export sales. The company recorded $99,255 for   the three months ended September 30, 2006, as compared to $132,551 for the   same period of 2005, a decrease of $33,296 or 25%, mainly due to the FOB   basis on which the international sales are generally made since 2006.                                                            

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| | (3)          Increased   product warranty expenses. The Company recorded $290,897 of product warranty   expenses for the three months ended September 30, 2006, as compared to $58,690   for the same period of 2005, an increase of $232,207, mainly attributed to a   specific 3-R Warranties service charge (for repair, replacement and refund)   paid to an OEM customer. Due to miscommunication in certain technical   parameters for the products, the Company bore the responsibility and reached   an agreement with the customer for a one-time indemnification to cover its   remedial expenses. The Company accrues the costs of unsettled product   warranty claims based on the historical claims made in previous years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $1,028,862 for the three months ended September 30, 2006, as compared to $822,925 for the same period of 2005, an increase of $205,937 or 25%. The increase was mainly due to such factors as below:

The expansion of economic activities, facilities and workforce resulted in increased depreciation, office expenses, staff salary and welfare, travel expenses, supplies and utilities totaling $226,627, as compared to the same period of 2005. The R&D expense, which is included in general and administrative expenses, increased by $ 101,650, as compared to the same period of 2005, as discussed below.The stock-based compensation expenses increased by $24,672, as compared to $65,000 for the third quarter of 2005.

The aforementioned increases were partly offset by the reversing of bad debt provision of $120,179, which was mainly due to the collection of a significant portion of account receivables with aging over one year during the three months ended September 30, 2006. In 2005, the Company temporarily extended credit terms to certain OEM customers and aftermarket distributors as our then domestic market strategy. On the other hand, the Company still provided allowances for bad debt consistent with our normal practices. During the three months ended September 30, 2006, those account receivables under the above mentioned extended term arrangements gradually matured and were collected, hence the reversing of bad debt provision.

Additionally, professional fees and expenses decreased $26,833, mainly due to the over accrued professional fees and expenses in the first and second quarters, which was offset in the third quarters of 2006. This also partly offset the aforementioned increases.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense was $228,806 for the three months ended September 30, 2006, as compared to $127,156 for the same period of 2005, an increase of $101,650, as a result of the Companys establishment of a team to develop new innovative products. This increase was primarily due to higher personnel-related costs resulting from an increase in employee headcount in our project team, material consumption and supplies and utilities as we strengthened our internal development efforts.

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DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $266,058 for the three months ended September 30, 2006, compared with that of $236,010 for the same period of 2005, an increase of $30,048 or 12.7%, as a result of new investment in fixed assets, mainly production equipment and tools.

FINANCIAL EXPENSE

Financial expense for the three months ended September 30, 2006 increased by $114,419 to $259,587 from $145,168 for the same period of 2005.  Financial expense mainly consists of interest expense and exchange loss. The interest expense increased by $24,576 to $163,862 for the three months ended September 30, 2006, compared with that of $139,286 for the same period of 2005, mainly due to the higher outstanding average debt balance during the year. The funds were used for working capital purposes, as well as new equipment purchases, to support the anticipated increase in revenues in the fourth quarter of fiscal 2006. The account receivable and deposit received from customers which arose from exportation transaction are denominated in US dollars, the appreciation of RMB against the U.S. dollar resulted in more exchange loss during the third quarter ended September 30, 2006.The company recognized the
exchange loss for the three months ended September 30,2006 and the same period of 2005, $95,809 and $5,266 respectively, and increase of $90,543.

OTHER INCOME

Other income included $18,863 of subsidy income from local governments for the three months ended September 30, 2006. These subsidies were provided to the Company as economic incentives to secure business commitments and no repayment by the Company is required.

INCOME TAX

There was no income tax expense for the fiscal year ended December 31, 2005 and 2004.  As a result of the Joint Venture obtaining its sino-foreign joint venture status in 2004, in accordance with applicable PRC tax regulations, the Joint Venture was exempted from PRC income tax in both fiscal 2004 and 2005.  Thereafter, the Joint Venture is entitled to a tax concession of 50% of the applicable income tax rate of 26.4% for the three years ended December 31, 2006, 2007, and 2008. Income taxes expense of $311,208 was recorded for the third quarter of 2006.

STOCKBASED COMPENSATION

On January 5, 2006 the Company issued 100,000 warrants for the financial services to be provided by Maxim Group LLC and Chardan Capital Markets, LLC, with an exercise price of $6.25 per share and a contractual term of four years. In accordance with the common stock purchase warrant agreement, the warrants will become vested and exercisable immediately on the date thereof. Total deferred stock-based compensation expenses related to 100,000 warrants amounted to $299,052.  This amount is amortized over one year in a manner consistent with Financial Accounting Standards Board Interpretation No. 123 (R).  The amortization of deferred stock-based compensation for these equity arrangements was $ 74,763 for the three months ended September 30, 2006.

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On March 1, 2006, the Board of Directors approved a total of 60,000 options to be issued to the four independent members of the Board of Directors.  The contractual term of the options is three years. Total deferred stock-based compensation expenses related to stock options amounted to $178,904.  This amount is amortized over the three year vesting period in a manner consistent with Financial Accounting Standards Board Interpretation No. 123R.  The amortization of deferred stock-based compensation for these equity arrangements was $ 14,909 for the three months ended September 30, 2006.

Although the Company anticipates future issuances of stock awards to have a material impact on net income, in future financial statements we do not expect these transactions to have a material impact on future cashflow.

MINORITY INTEREST

Minority interest represents a 10% non-controlling interest in the Joint Venture.  Minority interest in income amounted to $ 196,236 and $163,645 for the three months ended September 30, 2006 and 2005, respectively.

FINANCIAL CONDITION

Liquidity and Capital Resources

OPERATING - The Companys operations generated cash of $529,368 for the three months ended September 30, 2006, as compared to a negative operating cash flow of $2,628,028 for the same period of 2005, primarily as a result of the following:

1.          For the three months ended September 30, 2006, net income was $1,766,128 as compared to $1,472,808 for the same period of 2005, an increase of $293,320, the increase was primarily as a result of the increase in sales. Some expense items not resulting from cash transactions, such as the depreciation of fixed assets, amortization of intangible assets or stock-based option and bad debt expense contributed an increase of $ 274,691 to the cash inflows from operations .

2.         During the
three months ended September 30, 2006, the increase or decrease of various
current operating assets and liabilities resulted in an aggregate decrease of
cash inflows from operations of $ 1,707,687.

As of September 30, 2006, the Company had cash and cash equivalents of $1,190,574, as compared to cash and cash equivalents of $961,131 as of December 31, 2005.  The Company had working capital of $ 16,361,957 as of September 30, 2006, as compared to working capital of $10,571,086 as of December 31, 2005, reflecting current ratios of 1.76:1 and 1.49:1, respectively.

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INVESTING - During the three months ended September 30, 2006, the Company expended net cash of $ 1,189,727 in investing activities, mainly for acquisition of property and equipment to support the growth of business.  For the three months ended September 30, 2005, the Company utilized $902,847 in investing activities.

FINANCING During the three months ended September 30, 2006, the Company received aggregate bank loans in the amount of $2,619,561 under its credit facilities, and the Company repaid $ 3,251,788 on its outstanding debt.

Management of the Company has taken a number of steps to restructure its customer base and phase out accounts which had failed to make prompt payments. The Company also placed more emphasis on receivable collection.  During the quarter, the Company continued to develop high profit margin new products, as well as adopting steps for further cost saving such as improving material utilization rate.

While we believe that funds generated from operations and our revolving bank lines of credit will be sufficient to finance our working capital requirements for the foreseeable future, we continue our efforts to raise capital to finance further expansion of production, build our international sales networks in new markets, strengthen our R&D workforce, and supplement our working capital.

The Company has filed with the Securities and Exchange Commission a registration statement for a follow-on public offering of shares of the Companys Common Stock for up to $30,000,000 through Maxim Group LLC and Chardan Capital Markets LLC, as underwriters.

( 2) Results of operations for the nine months ended September 30, 2006 as compared to the six months ended September 30, 2005.

SALES

|                                      |  | Nine Months end 2006 |      | Nine Months end 2005 | 
|------------------------------------- |  | -------------------- | ---- | -------------------- | 
|                                      |  |                      |      |                      | 
|Air brake valves & related components |  | $                    | 44.6 | M                    | 
|Non-valve products                    |  | $                    | 16.2 | M                    | 
|                                      |  |                      |      |                      | 
|Total                                 |  | $                    | 60.8 | M                    | 

Sales consist of air brake valves and related components manufactured by SORL and sold to domestic original equipment manufacturers (OEM) and aftermarket customers as well as distribution of non-valve auto parts sourced from the Ruili Group.

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Net sales were $60,824,588 and $45,794,109 for the nine months ended September 30, 2006 and 2005, respectively. Net sales for the nine months ended September 30, 2006 increased by $15 million or 32.8% to $60.8 million, compared with the same period of 2005. The increase in sales was mainly from the international market.  This increase was the result of the Companys efforts to develop more customers and penetrate these market segments.

A breakdown of net sales revenue for our three market segments, domestic OEM, domestic aftermarket and the international market, for the nine months ended September 30, 2006 and 2005 is as follows:

|                     |  | Nine   Months end   2006   |      | % |  | Nine   Months end    2005 |   | % |     
|-------------------- |  | -------------------------- | ---- | - |  | ------------------------- | - | - | ----
|                     |  |                            |      |   |  |                           |   |   |     
|                     |  | (U.S.  dollars in million) |     
|China OEM market     |  | $                          | 18.5 |   |  | 30                        | % | $ | 16.2
|China Aftermarket    |  | $                          | 17.9 |   |  | 29                        | % | $ | 13.3
|International market |  | $                          | 24.4 |   |  | 41                        | % | $ | 16.3
|                     |  |                            |      |   |  |                           |   |   |     
|Total                |  | $                          | 60.8 |   |  | 100                       | % | $ | 45.8

The sluggish Chinese heavy duty truck market has been gradually restoring. The sales for the OEM market increased $2.3 million or14.2% for the nine months ended September 30, 2006, as compared to the same period of 2005. The Companys strategy is to introduce more innovative products to meet the OEM customers needs.

Currently SORL has 27 authorized distributors covering nearly all regions in China, who in turn sell our products to over 800 sub-distributors.  Based on the well established and continuously improving sales networks, SORL achieved total revenue of $17.9 million in domestic aftermarket sales for the nine months ended September 30, 2006, an increase of $4.6 million, or 34.6% as compared to the same period of last year.

Export sales grew by $8.1 million or approximately 49.7% for the nine months ended September 30, 2006, as compared to $16.3 million for the same period of 2005. This increase reflects our continued focus on customer service, strong execution, introduction of new products, increased productivity of our expanded contract sales force, more efficient targeted marketing spending on our catalogs, web sites and international trade shows as well as the continued success of our customer acquisition and retention efforts resulting from improved service levels in these market segments.  Additionally, the Company has been able to offer a much wider product line including non-valve products which are outsourced from the Ruili Group.  Such outsourced non-valve products include power steering pumps and other pumps, automobile electrical components and auto meters.

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COST OF SALES

Cost of sales for the nine months ended September 30, 2006 increased to $47 million from $ 35.7 million for the same period of 2005, a $11.3 million or 31.7% increase which was consistent with the increase in revenue.

GROSS PROFIT

For the nine months ended September 30, 2006, gross profit was $ 13,811,761, as compared to $ 10,046,681 for the same period of 2005, an increase of $ 3,765,080 or 37.5%.  Gross margin was 22.7% for the nine months ended September 30, 2006, an increase of 0.8% from 21.9% for the same period of 2005.

About 41% of total revenue for the nine months ended September 30, 2006 was denominated in USD, while nearly all costs were denominated in RMB. The approximately 2.5% appreciation of RMB against the U.S. dollar (USD) had certain negative impact on gross margin.

We purchase various components and raw materials for use in our manufacturing processes.  The principal raw materials we purchased are aluminum and steel.  For the nine months ended September 30, 2006, the market price of aluminum and steel continued to increase. The rising price of materials had an adverse impact on gross margin, since some of the increases cannot be passed on to our customers.

Those negative impacts on Gross Margin were largely offset by economies of scale, shift of sales mix and consistent efforts in production technique optimization. In 2006, we took several steps to mitigate the adverse impact from the increase in raw material cost. For example, from April 2006, we used substitute material of lower cost in our production while maintaining the same quality level of products, thereby reducing the negative affection associated with raw material price. Meanwhile, we replaced the machining approach with a molding process, thereby reducing processing steps and materials consumption and increasing productivity. Furthermore, we shifted the product mix and introduced valve products with higher profit margins. In addition, in the process of removing impurities from liquid aluminum, historically we have used the high-temperature method. The adoption of a new technique of using a
low-temperature method helped save power consumption.

SELLING EXPENSES

Selling expenses were $3,407,535 for the nine months ended September 30, 2006, as compared to $ 2,732,863 for the same period of 2005, an increase of $ 674,672 or 24.7%. The increase was mainly due to the effect of the following factors:

(1) Increased transportation expenses for domestic sales. Although the Company had taken many efforts to optimize its shipping management, with an increase of 23.4% for the sales to domestic market, the associated transportation expenses still increased by $ 83,124 for the nine months ended September 30, 2006, as compared to $ 368,253 for the same period of 2005.

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(2) Decreased transportation expenses for export sales. The company recorded $ 216,165 for the nine months ended September 30, 2006, as compared to $ 484,976 for the same period of 2005, a decrease of $ 268,811 or 55%, mainly due to the FOB basis on which the international sales are generally made since 2006.

(3) Increased product warranty expenses. The Company recorded $1,174,437 of product warranty expenses for the nine months ended September 30, 2006, as compared to $287,211 for the same period of 2005, an increase of $ 887,226, mainly attributed to a specific 3-R Warranties service charge (for repair, replacement and refund) paid to an OEM customer. Due to miscommunication in certain technical parameters for the products, the Company bore the responsibility and reached an agreement with the customer for a one-time indemnification to cover its remedial expenses. The Company accrues the costs of unsettled product warranty claims based on the historical claims made in previous years.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $ 2,212,113 for the nine months ended September 30, 2006, as compared to $ 2,027,085 for the same period of 2005, an increase of $ 185,028 or 9.1%.The increase was mainly due to such factors as below:

The expansion of economic activities, facilities and workforce resulted in increased depreciation, office expenses, staff salary and welfare, travel expenses, supplies and utilities totaling $ 356,932, as compared to the same period of 2005. The R&D expense, which is included in general and administrative expenses, increased by $ 292,290, as compared to the same period of 2005, as discussed below.The stock-based compensation expenses increased by $ 194,077, as compared to $ 65,000 for the same period of 2005. Additionally, another increase came from an increase in professional fees of $263,152, the professional fees included audit and legal fees associated with SEC filings, related consulting fees, stock transfer fees and other items associated with the costs of being a public entity.

The aforementioned increases were largely offset by the reversing of bad debt provision of $ 921,423, which was mainly due to the collection of a significant portion of account receivables with aging over one year during the nine months ended September 30, 2006. In 2005, the Company temporarily extended credit terms to certain OEM customers and aftermarket distributors as our then domestic market strategy. On the other hand, the Company still provided allowances for bad debt consistent with our normal practices. During the nine months ended September 30, 2006, those account receivables under the above mentioned extended term arrangements gradually matured and were collected, hence the reversing of bad debt provision.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense was $ 468,942 for the nine months ended September 30, 2006, as compared to $ 176,652 for the same period of 2005, an increase of $292,290, as a result of the Companys establishment of a team to develop new innovative products.  This increase was primarily due to higher personnel-related costs resulting from an increase in employee headcount in our project team, material consumption and supplies and utilities as we strengthened our internal development efforts.

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DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $783,053 for the nine months ended September 30, 2006, compared with that of $ 628,667 for the same period of 2005, an increase of $ 154,386 or 24.6%, as a result of new investment in fixed assets, mainly production equipment and tools.

FINANCIAL EXPENSE

Financial expense for the nine months ended September 30, 2006 increased by $ 435,780 to $ 767,034 from $ 331,254 for the same period of 2005.  Financial expense mainly consists of interest expense and exchange loss. The interest expense increased by $248,845 to $ 565,146 for the nine months ended September 30, 2006, compared to the $ 316,301 for the same period of 2005, mainly due to the higher outstanding average debt balance during the year. The funds were used for working capital purposes, as well as new equipment purchases, to support the anticipated increase in revenues in the fourth quarter of fiscal 2006. The account receivable and deposit received from customers which arose from exportation transaction are denominated in US dollars, the appreciation of RMB against the U.S. dollar resulted in more exchange loss during the nine months ended September 30, 2006.The company recognized the
exchange loss for the nine months ended September 30,2006 and the same period of 2005, $140,306 and $14,734 respectively, and increase of $125,572.

OTHER INCOME

Other income included $ 87,559 of subsidy income from local governments for the nine months ended September 30, 2006. These subsidies were provided to the Company as economic incentives to secure business commitments and no repayment by the Company is required.

INCOME TAX

There was no income tax expense for the fiscal year ended December 31, 2005 and 2004.  As a result of the Joint Venture obtaining its sino-foreign joint venture status in 2004, in accordance with applicable PRC tax regulations, the Joint Venture was exempted from PRC income tax in both fiscal 2004 and 2005.  Thereafter, the Joint Venture is entitled to a tax concession of 50% of the applicable income tax rate of 26.4% commencing the three years ended December 31, 2006, 2007, and 2008. Income taxes expense of $ 898,713 was recorded for nine months ended September 30, 2006.

29

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MINORITY INTEREST

Minority interest represents a 10% non-controlling interest in the Joint Venture.  Minority interest in income amounted to $ 638,677 and $ 486,686 for the nine months ended September 30, 2006 and 2005, respectively.

STOCKBASED COMPENSATION

On January 5, 2006 the Company issued 100,000 warrants for the financial services to be provided by Maxim Group LLC and Chardan Capital Markets, LLC, with an exercise price of $6.25 per share and a contractual term of four years. In accordance with the common stock purchase warrant agreement, the warrants became vested and exercisable immediately on the date thereof. Total deferred stock-based compensation expenses related to the 100,000 warrants granted amounted to $299,052.  This amount is amortized over one year in a manner consistent with Financial Accounting Standards Board Interpretation No. 123 (R). The amortization of deferred stock-based compensation for these equity arrangements was $ 224,289 for the nine months ended September 30, 2006.

On March 1, 2006, the Board of Directors approved a total of 60,000 options to be issued to the four independent members of the Board of Directors.  The contractual term of the options is three years. Total deferred stock-based compensation expenses related to stock options amounted to $178,904. This amount is amortized over the three year vesting period in a manner consistent with Financial Accounting Standards Board Interpretation No. 123R.  The amortization of deferred stock-based compensation for these equity arrangements was $ 34,788 for the nine months ended September 30, 2006.

Although the Company anticipates future issuances of stock awards to have a material impact on net income, in future financial statements we do not expect these transactions to have a material impact on future cashflow.

FINANCIAL CONDITION

Liquidity and Capital Resources

OPERATING - The Companys operations generated cash of $6,996,576 for the nine months ended September 30, 2006, as compared to a negative operating cash flow of $ 5,312,317 for the same period of 2005, primarily as a result of the following:

1.          For the nine months ended September 30, 2006, net income was $ 5,748,099 as compared to $ 4,380,178 for the same period of 2005, an increase of $ 1,367,921. The increase was primarily as a result of the increases in sales. Additionally, some expense items not resulting from cash transactions, such as the depreciation of fixed assets, amortization of intangible assets or stock-based option and bad debt expense contributed an increase of $ 241,544 to the cash inflows from operations.

30

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2.          During the nine months ended September 30, 2006, the increase or decrease of various current operating assets and liabilities resulted in an aggregate increase of cash inflows from operations of $ 368,256.

As of September 30, 2006, the Company had cash and cash equivalents of $1,190,574, as compared to cash and cash equivalents of $961,131 as of December 31, 2005.  The Company had working capital of $ 16,361,957 as of September 30, 2006, as compared to working capital of $10,571,086 as of December 31, 2005, reflecting current ratios of 1.76:1 and 1.49:1, respectively.

INVESTING - During the nine months ended September 30, 2006, the Company expended net cash of $ 2,063,307 in investing activities, including $ 1,719,295 for acquisition of property and equipment to support the growth of business and $ 344,012 for investment in construction in progress.  For the nine months ended September 30, 2005, the Company utilized $ 1,975,074 in investing activities.

FINANCING  During the nine months ended September 30, 2006, the Company received aggregate bank loans in the amount of $ 9,733,125 under its credit facilities, and the Company repaid $ 15,030,530 on its outstanding debt.

Management of the Company has taken a number of steps to restructure its customer base and phase out accounts which had failed to make prompt payments, the Company also placed more emphasis on receivable collection.  During the quarter, the Company continued to develop high profit margin new products, as well as adopting steps for further cost saving such as improving material utilization rate.

While we believe that funds generated from operations and our revolving bank lines of credit will be sufficient to finance our working capital requirements for the foreseeable future, we continue our efforts to raise capital to finance further expansion of production, build our international sales networks in new markets, strengthen our R&D workforce, and supplement our working capital.

The Company has filed with the Securities and Exchange Commission a registration statement for a follow-on public offering of shares of the Companys Common Stock for up to $30,000,000 through Maxim Group LLC and Chardan Capital Markets LLC, as underwriters.

Item 3. Controls And Procedures

(a)          Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that the Company files or submits pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions (SEC) rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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In conjunction with the close of each fiscal quarter and under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company conducts an update, a review and an evaluation of the effectiveness of the Companys disclosure controls and procedures. It is the conclusion of the Companys Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that the Companys disclosure controls and procedures were effective.

(b)          Changes in Internal Controls.

During the period covered by the Quarterly Report on Form 10-Q, there were no changes in our internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 4. Quantitative and Qualitative Disclosures about Market Risk

The Company does not have any market risk with respect to such factors as commodity prices, equity prices, and other market changes that affect market risk sensitive investments.

With respect to foreign currency exchange rates, the approximately 2.5% appreciation or fluctuation of the RMB against the USD did not have a material adverse effect on the Companys operations, even though the Company has over one third of its total revenue denominated in USD.  This is because of the relatively small change and our ability to absorb such effect through cost saving approaches.  It is believed that further RMB appreciation against USD, if any, would be on a gradual basis with relatively small adjustments, so as to avoid a drastic impact on the Chinese economy as a whole.

As the Companys debt obligations are primarily short-term in nature, with fixed interest rates, the Company does not have any material risk from an increase in market interest rates.  However, to the extent that the Company arranges new borrowings in the future, an increase in market interest rate would cause a commensurate increase in the interest expense related to such borrowings.

PART II OTHER INFORMATION

|Item 1. | Legal Proceedings.
|------- | ------------------
|        |                   
|None.   |                   

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|Item 1A.          | Risk Factors                                         
|----------------- | -----------------------------------------------------
|                  |                                                      
|Not   applicable.
|                 
|Item 2.           | Unregistered Sales of Securities and Use of Proceeds.
|                  |                                                      
|None.             |                                                      
|                  |                                                      
|Item 3.           | Defaults Upon Senior Securities.                     
|                  |                                                      
|None.             |                                                      
|                  |                                                      
|Item 4.           | Submission of Matters to a Vote of Security Holders. 
|                  |                                                      
|None.             |                                                      
|                  |                                                      
|Item 5.           | Other Information.                                   
|                  |                                                      
|None.             |                                                      
|                  |                                                      
|Item 6.           | Exhibits.                                            

|(a) | Exhibits:
|--- | ---------
|    |          
|    | 3.1      
|    |          
|    | 3.2      
|    |          
|    | 10.1     
|    |          
|    | 31.1     
|    |          
|    | 31.2     
|    |          
|    | 32.1     
|    |          
|    | 32.2     

|   
|---
|(1)
|   
|(2)
|   
|(3)

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SIGNATURES

Pursuant to the requirements 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.

|Dated:  November 6, 2006 | SORL AUTO   PARTS, INC.
|------------------------ | -----------------------
|                         |                        
|                         |                        
|                         | By:                    
|                         |                        
|                         | Name:                  
|                         | Title:                 
|                         |                        
|                         | By:                    
|                         |                        
|                         | Name:                  
|                         | Title:                 
|                         |                        

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