UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q


(Mark
One)


 ̈
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the quarterly period ended June 30,
2010





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT


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
              30-0091294(State
      or other jurisdiction of incorporation or
                organization)
              (IRS
      Employer Identification No.)


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 xNo  ̈





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


Large
      Accelerated Filer  ̈
            Accelerated
      Filer  ̈
            Non-Accelerated
      Filer  ̈ 
          Smaller Reporting Company x





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


Yes  ̈ 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
June 30, 2010 there were 19,304,921shares of Common Stock
outstanding








SORL AUTO
PARTS, INC.


FORM
10-Q


For the
Quarter Ended June 30, 2010





INDEX


PagePART
      I.
                        FINANCIAL INFORMATION (Unaudited)
                        
                        
                        1Item
      1.
                        Financial Statements:
                        
                        
                        1Condensed
      Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December
      31, 2009
                        
                        
                        1Condensed
      Consolidated Statements of Income and Comprehensive Income (Unaudited) for
      the Six Months Ended June 30, 2010 and 2009
                        
                        
                        2Condensed
      Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended
      June 30, 2010 and 2009
                        
                        
                        3Condensed Consolidated Statements
      of Stockholders’ Equity (Unaudited) for the Six monthsended June 30, 2010 and
      2009
                        
                        
                        4Notes to the Condensed
      Consolidated Financial Statements (Unaudited)
                        
                        
                        6Item
      2.
                        Management’s Discussion and
      Analysis or Financial Condition and Results of Operations
                        
                        
                        17Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        
                        28Item
      4.
                        Controls and
      Procedures
                        
                        
                        28PART
      II.
                        OTHER INFORMATION
                        
                        
                        28Item
      6.
                        Exhibits
                        
                        
                        28SIGNATURES
                        
                        
                        29










SORL
Auto Parts, Inc. and Subsidiaries


Consolidated
Balance Sheets


June
30, 2010 and December 31, 2009





June 30, 2010
                          
                          
                          December 31,
                            2009(Unaudited)AssetsCurrent
      AssetsCash
      and Cash Equivalents
                          
                          US$
                          7,975,715
                          
                          
                          US$
                          10,255,259Accounts
      Receivable, Net of Provision
                          
                          
                          45,779,486
                          
                          
                          
                          44,546,107Notes
      Receivable
                          
                          
                          26,376,540
                          
                          
                          
                          13,083,691Inventory
                          
                          
                          23,101,305
                          
                          
                          
                          18,760,724Prepayments
                          
                          
                          8,542,593
                          
                          
                          
                          7,558,140Deferred
      tax assets
                          
                          
                          473,212
                          
                          
                          
                          220,577Other
      current assets
                          
                          
                          1,943,481
                          
                          
                          
                          444,281Total
      Current Assets
                          
                          
                          114,192,332
                          
                          
                          
                          94,868,779Fixed
      AssetsProperty,
      Plant and Equipment
                          
                          
                          42,429,586
                          
                          
                          
                          35,335,958Less:
      Accumulated Depreciation
                          
                          
                          (13,301,430
                          )
                          
                          
                          (11,608,920
                          )Property,
      Plant and Equipment, Net
                          
                          
                          29,128,156
                          
                          
                          
                          23,727,038Leasehold
      Improvements, Net
                          
                          
                          464,324
                          
                          
                          
                          477,681Land
      Use Rights, Net
                          
                          
                          14,110,375
                          
                          
                          
                          14,198,392Other
      AssetsDeferred
      compensation cost-stock options
                          
                          
                          ―
                          
                          
                          
                          ―Intangible
      Assets
                          
                          
                          162,385
                          
                          
                          
                          161,499Less:
      Accumulated Amortization
                          
                          
                          (62,383
                          )
                          
                          
                          (54,380
                          )Intangible Assets, Net
                          
                          
                          100,002
                          
                          
                          
                          107,119Total Other Assets
                          
                          
                          100,002
                          
                          
                          
                          107,119Total
      Assets
                          
                          US$
                          157,995,189
                          
                          
                          US$
                          133,379,009Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesAccounts
      Payable, including $155,996 and $1,985,291 due to related parties at June
      30, 2010 and December 31, 2009, respectively.
                          
                          US$
                          7,285,529
                          
                          
                          US$
                          9,724,715Deposit
      Received from Customers
                          
                          
                          4,476,527
                          
                          
                          
                          3,670,369Short
      term bank loans
                          
                          
                          4,495,264Income
      tax payable
                          
                          
                          1,236,649
                          
                          
                          
                          551,900Accrued
      Expenses
                          
                          
                          4,803,392
                          
                          
                          
                          4,206,297Other
      Current Liabilities, including $54,729 and $200,762 from related parties
      at June 30, 2010 and December 31, 2009, respectively.
                          
                          
                          484,781
                          
                          
                          
                          585,176Total
      Current Liabilities
                          
                          
                          22,782,142
                          
                          
                          
                          18,738,457Non-Current
      LiabilitiesDeferred
      tax liabilities
                          
                          
                          141,918
                          
                          
                          
                          115,481Total Liabilities
                          
                          
                          22,924,060
                          
                          
                          
                          18,853,938Stockholders'
      EquityPreferred
      Stock - No Par Value; 1,000,000 authorized; none issued and outstanding as
      of June 30, 2010 and December 31, 2009
                          
                          
                          ―
                          
                          
                          
                          ―Common
      Stock - $0.002 Par Value; 50,000,000 authorized, 19,304,921 and 18,304,921
      issued and outstanding as of June 30, 2010 and December 31,
      2009
                          
                          
                          38,609
                          
                          
                          
                          36,609Additional
      Paid In Capital
                          
                          
                          46,896,379
                          
                          
                          
                          37,498,401Reserves
                          
                          
                          5,299,522
                          
                          
                          
                          4,425,784Accumulated
      other comprehensive income
                          
                          
                          11,589,014
                          
                          
                          
                          10,939,100Retained
      Earnings
                          
                          
                          57,899,291
                          
                          
                          
                          50,231,052Total
      SORL Auto Parts, Inc. stockholders' equity
                          
                          
                          121,722,815
                          
                          
                          
                          103,130,946Noncontrolling
      Interest In Subsidiaries
                          
                          
                          13,348,314
                          
                          
                          
                          11,394,125Total
      Equity
                          
                          
                          135,071,129
                          
                          
                          
                          114,525,071Total
      Liabilities and Stockholders' Equity
                          
                          US$
                          157,995,189
                          
                          
                          US$
                          133,379,009





The
accompanying notes are an integral part of these financial
statements


1





SORL
Auto Parts, Inc. and Subsidiaries


Consolidated
Statements of Income and Comprehensive Income(Unaudited)


For
The Three Months and Six Months Ended June 30,2010 and 2009





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Sales
                    
                    US$
                    49,897,229
                    
                    
                    
                    29,740,212
                    
                    
                    
                    84,002,283
                    
                    
                    
                    49,983,950Include:
      sales to related parties
                    
                    
                    368,441
                    
                    
                    
                    64,179
                    
                    
                    
                    617,597
                    
                    
                    
                    201,611Cost
      of Sales
                    
                    
                    36,419,878
                    
                    
                    
                    21,318,699
                    
                    
                    
                    60,874,960
                    
                    
                    
                    36,049,624Gross
      Profit
                    
                    
                    13,477,351
                    
                    
                    
                    8,421,513
                    
                    
                    
                    23,127,323
                    
                    
                    
                    13,934,326Expenses:Selling
      and Distribution Expenses
                    
                    
                    2,843,380
                    
                    
                    
                    2,060,718
                    
                    
                    
                    4,827,404
                    
                    
                    
                    3,378,452General
      and Administrative Expenses
                    
                    
                    2,803,915
                    
                    
                    
                    1,481,757
                    
                    
                    
                    5,090,776
                    
                    
                    
                    3,508,055Research
      and development expenses
                    
                    
                    1,738,529
                    
                    
                    
                    791,307
                    
                    
                    
                    3,059,582
                    
                    
                    
                    1,557,758Financial
      Expenses
                    
                    
                    271,178
                    
                    
                    
                    9,129
                    
                    
                    
                    345,819
                    
                    
                    
                    38,091Total
      Expenses
                    
                    
                    7,657,002
                    
                    
                    
                    4,342,911
                    
                    
                    
                    13,323,581
                    
                    
                    
                    8,482,356Operating
      Income
                    
                    
                    5,820,349
                    
                    
                    
                    4,078,602
                    
                    
                    
                    9,803,742
                    
                    
                    
                    5,451,970Other
      Income
                    
                    
                    168,565
                    
                    
                    
                    176,244
                    
                    
                    
                    253,065
                    
                    
                    
                    215,461Non-Operating
      Expenses
                    
                    
                    (43,854
                    )
                    
                    
                    (11,002
                    )
                    
                    
                    (56,513
                    )
                    
                    
                    (14,616
                    )Income
      Before Provision for Income Taxes
                    
                    
                    5,945,060
                    
                    
                    
                    4,243,844
                    
                    
                    
                    10,000,294
                    
                    
                    
                    5,652,815Provision
      for Income Taxes
                    
                    
                    10,964
                    
                    
                    
                    914,125
                    
                    
                    
                    615,542
                    
                    
                    
                    1,272,091Net
      Income
                    
                    US$
                    5,934,096
                    
                    
                    
                    3,329,719
                    
                    
                    
                    9,384,752
                    
                    
                    
                    4,380,724Other
      Comprehensive Income - Foreign Currency Translation
    Adjustment
                    
                    
                    688,424
                    
                    
                    
                    60,385
                    
                    
                    
                    722,428
                    
                    
                    
                    41,183Total
      Comprehensive Income
                    
                    
                    6,622,520
                    
                    
                    
                    3,390,104
                    
                    
                    
                    10,107,180
                    
                    
                    
                    4,421,907Less:Net
      income attributable to Noncontrolling Interest In
    Subsidiaries
                    
                    
                    548,868
                    
                    
                    
                    332,972
                    
                    
                    
                    842,775
                    
                    
                    
                    439,066Other
      Comprehensive Income Attributable to Non-controlling Interest's
      Share
                    
                    
                    68,842
                    
                    
                    
                    6,039
                    
                    
                    
                    72,514
                    
                    
                    
                    4,119Total
      Comprehensive Income Attributable to Non-controlling Interest's
      Share
                    
                    
                    617,710
                    
                    
                    
                    339,011
                    
                    
                    
                    915,289
                    
                    
                    
                    443,185Net
      Income Attributable to Stockholders
                    
                    
                    5,385,228
                    
                    
                    
                    2,996,747
                    
                    
                    
                    8,541,977
                    
                    
                    
                    3,941,658Other
      Comprehensive Income Attributable to Stockholders
                    
                    
                    619,582
                    
                    
                    
                    54,346
                    
                    
                    
                    649,914
                    
                    
                    
                    37,064Total
      Comprehensive Income Attributable to Stockholders
                    
                    
                    6,004,810
                    
                    
                    
                    3,051,093
                    
                    
                    
                    9,191,891
                    
                    
                    
                    3,978,722Weighted
      average common share - Basic
                    
                    
                    19,304,921
                    
                    
                    
                    18,279,254
                    
                    
                    
                    19,089,451
                    
                    
                    
                    18,279,254Weighted
      average common share - Diluted
                    
                    
                    19,304,921
                    
                    
                    
                    18,279,254
                    
                    
                    
                    19,089,451
                    
                    
                    
                    18,279,254EPS
      - Basic
                    
                    
                    0.28
                    
                    
                    
                    0.16
                    
                    
                    
                    0.45
                    
                    
                    
                    0.22EPS
      - Diluted
                    
                    
                    0.28
                    
                    
                    
                    0.16
                    
                    
                    
                    0.45
                    
                    
                    
                    0.22





The
accompanying notes are an integral part of these financial
statements


2





SORL
Auto Parts, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows(Unaudited)


For
The Three Months and Six Months Ended June 30,2010 and 2009





Three Months Ended June 30,
                            
                            
                            Six Months Ended June 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Cash
      Flows from Operating ActivitiesNet
      Income
                            
                            US$
                            5,385,228
                            
                            
                            
                            2,996,747
                            
                            
                            
                            8,541,977
                            
                            
                            
                            3,941,658Adjustments
      to reconcile net income (loss) to net cash from operating
      activities:Noncontrolling
      Interest In Subsidiaries
                            
                            
                            548,868
                            
                            
                            
                            332,972
                            
                            
                            
                            842,775
                            
                            
                            
                            439,066Bad
      Debt Expense
                            
                            
                            731,096
                            
                            
                            
                            (97,231
                            )
                            
                            
                            888,295
                            
                            
                            
                            452,925Depreciation
      and Amortization
                            
                            
                            956,043
                            
                            
                            
                            746,805
                            
                            
                            
                            1,811,315
                            
                            
                            
                            1,476,238Stock-Based
      Compensation Expense
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            9,935Loss
      on disposal of Fixed Assets
                            
                            
                            ―
                            
                            
                            
                            10,098
                            
                            
                            
                            ―
                            
                            
                            
                            10,098Changes
      in Assets and Liabilities:Accounts
      Receivable
                            
                            
                            (5,359,127
                            )
                            
                            
                            (6,897,996
                            )
                            
                            
                            (1,942,290
                            )
                            
                            
                            (5,393,265
                            )Notes
      Receivable
                            
                            
                            (9,848,412
                            )
                            
                            
                            (757,995
                            )
                            
                            
                            (13,177,496
                            )
                            
                            
                            (581,005
                            )Other
      Currents Assets
                            
                            
                            (892,982
                            )
                            
                            
                            1,079,180
                            
                            
                            
                            (1,428,984
                            )
                            
                            
                            3,871,962Inventory
                            
                            
                            (2,192,139
                            )
                            
                            
                            (138,622
                            )
                            
                            
                            (4,220,975
                            )
                            
                            
                            2,865,795Prepayments
                            
                            
                            (1,892,718
                            )
                            
                            
                            4,284,501
                            
                            
                            
                            (950,002
                            )
                            
                            
                            (553,492
                            )Deferred
      tax assets
                            
                            
                            (150,434
                            )
                            
                            
                            (168,203
                            )
                            
                            
                            (250,855
                            )
                            
                            
                            (342,074
                            )Deferred
      assets
                            
                            
                            ―
                            
                            
                            
                            (465,484
                            )
                            
                            
                            ―
                            
                            
                            
                            (465,484
                            )Accounts
      Payable and Notes Payable
                            
                            
                            (637,151
                            )
                            
                            
                            2,714,776
                            
                            
                            
                            (2,609,738
                            )
                            
                            
                            861,550Income
      Tax Payable
                            
                            
                            1,016,940
                            
                            
                            
                            1,281,330
                            
                            
                            
                            680,866
                            
                            
                            
                            1,422,870Deposits
      Received from Customers
                            
                            
                            (324,028
                            )
                            
                            
                            259,233
                            
                            
                            
                            780,928
                            
                            
                            
                            137,259Other
      Current Liabilities and Accrued Expenses
                            
                            
                            896,405
                            
                            
                            
                            190,883
                            
                            
                            
                            407,999
                            
                            
                            
                            340,719Deferred
      tax liabilities
                            
                            
                            12,868
                            
                            
                            
                            21,367
                            
                            
                            
                            25,701
                            
                            
                            
                            42,730Net
      Cash Flows from Operating Activities
                            
                            
                            (11,749,543
                            )
                            
                            
                            5,392,361
                            
                            
                            
                            (10,600,484
                            )
                            
                            
                            8,537,485Cash
      Flows from Investing ActivitiesAcquisition
      of Property and Equipment
                            
                            
                            (3,447,536
                            )
                            
                            
                            (387,131
                            )
                            
                            
                            (6,672,691
                            )
                            
                            
                            (613,314
                            )Sales
      proceeds of disposal of fixed assets
                            
                            
                            ―
                            
                            
                            
                            2,897
                            
                            
                            
                            ―
                            
                            
                            
                            36,692Net
      Cash Flows from Investing Activities
                            
                            
                            (3,447,536
                            )
                            
                            
                            (384,234
                            )
                            
                            
                            (6,672,691
                            )
                            
                            
                            (576,622
                            )Cash
      Flows from Financing ActivitiesProceeds
      from (Repayment of) Bank Loans
                            
                            
                            4,483,578
                            
                            
                            
                            ―
                            
                            
                            
                            4,483,578
                            
                            
                            
                            ―Proceeds
      from Share Issuance
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            9,399,978
                            
                            
                            
                            ―Capital
      contributed by Minority Shareholder
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            1,038,900
                            
                            
                            
                            ―Net
      Cash flows from Financing Activities
                            
                            
                            4,483,578
                            
                            
                            
                            ―
                            
                            
                            
                            14,922,456
                            
                            
                            
                            ―Effects
      on changes in foreign exchange rate
                            
                            
                            68,424
                            
                            
                            
                            7,740
                            
                            
                            
                            71,175
                            
                            
                            
                            5,980Net
      Change in Cash and Cash Equivalents
                            
                            
                            (10,645,077
                            )
                            
                            
                            5,015,867
                            
                            
                            
                            (2,279,544
                            )
                            
                            
                            7,966,843Cash
      and Cash Equivalents- Beginning of the period
                            
                            
                            18,620,792
                            
                            
                            
                            10,746,963
                            
                            
                            
                            10,255,259
                            
                            
                            
                            7,795,987Cash
      and cash Equivalents - End of the period
                            
                            US$
                            7,975,715
                            
                            
                            
                            15,762,830
                            
                            
                            
                            7,975,715
                            
                            
                            
                            15,762,830Supplemental
      Cash Flow Disclosures:Interest
      Paid
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            ―
                            
                            
                            
                            13,736Tax
      Paid
                            
                            
                            35,288
                            
                            
                            
                            261,825
                            
                            
                            
                            1,063,706
                            
                            
                            
                            630,682





The
accompanying notes are an integral part of these financial
statements


3





SORL
Auto Parts, Inc. and Subsidiaries


Consolidated
Statements of Changes in Stockholders' Equity


For
The Three Months Ended June 30, 2010 and 2009





Total
      SORL AutoAdditional
                    
                    
                    
                    
                    
                    Retained
                    
                    
                    Accumu.
      Other
                    
                    
                    Parts,
      Inc.Number
                    
                    
                    Common
                    
                    
                    Paid-in
                    
                    
                    
                    
                    
                    Earnings
                    
                    
                    Comprehensive
                    
                    
                    Shareholders'
                    
                    
                    Noncontrolling
                    
                    
                    Totalof
      Share
                    
                    
                    Stock
                    
                    
                    Capital
                    
                    
                    Reserves
                    
                    
                    (Deficit)
                    
                    
                    Income
                    
                    
                    Equity
                    
                    
                    Interest
                    
                    
                    EquityBeginning
      Balance - April 1, 2009
                    
                    
                    18,279,254
                    
                    
                    
                    36,558
                    
                    
                    
                    37,498,452
                    
                    
                    
                    3,221,571
                    
                    
                    
                    39,624,110
                    
                    
                    
                    10,830,966
                    
                    
                    
                    91,211,657
                    
                    
                    
                    10,111,340
                    
                    
                    
                    101,322,997Net
      Income
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    2,996,747
                    
                    
                    
                    ―
                    
                    
                    
                    2,996,747
                    
                    
                    
                    332,972
                    
                    
                    
                    3,329,719Other
      Comprehensive Income(Loss)
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    54,346
                    
                    
                    
                    54,346
                    
                    
                    
                    6,039
                    
                    
                    
                    60,385Transfer
      to reserve
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    299,675
                    
                    
                    
                    (299,675
                    )
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―Ending
      Balance - June 30, 2009
                    
                    
                    18,279,254
                    
                    
                    
                    36,558
                    
                    
                    
                    37,498,452
                    
                    
                    
                    3,521,246
                    
                    
                    
                    42,321,182
                    
                    
                    
                    10,885,312
                    
                    
                    
                    94,262,750
                    
                    
                    
                    10,450,351
                    
                    
                    
                    104,713,101Beginning
      Balance - April 1, 2010
                    
                    
                    19,304,921
                    
                    
                    
                    38,609
                    
                    
                    
                    46,896,379
                    
                    
                    
                    4,751,711
                    
                    
                    
                    53,061,874
                    
                    
                    
                    10,969,432
                    
                    
                    
                    115,718,005
                    
                    
                    
                    12,730,604
                    
                    
                    
                    128,448,609Net
      Income
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    5,385,228
                    
                    
                    
                    ―
                    
                    
                    
                    5,385,228
                    
                    
                    
                    548,868
                    
                    
                    
                    5,934,096Other
      Comprehensive Income(Loss)
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    619,582
                    
                    
                    
                    619,582
                    
                    
                    
                    68,842
                    
                    
                    
                    688,424Transfer
      to reserve
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    547,811
                    
                    
                    
                    (547,811
                    )
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―
                    
                    
                    
                    ―Ending
      Balance - June 30, 2009
                    
                    
                    19,304,921
                    
                    
                    
                    38,609
                    
                    
                    
                    46,896,379
                    
                    
                    
                    5,299,522
                    
                    
                    
                    57,899,291
                    
                    
                    
                    11,589,014
                    
                    
                    
                    121,722,815
                    
                    
                    
                    13,348,314
                    
                    
                    
                    135,071,129





The
accompanying notes are an integral part of these financial
statements


4





SORL
Auto Parts, Inc. and Subsidiaries


Consolidated
Statements of Changes in Stockholders’ Equity


For
The Six Months Ended June 30, 2010 and 2009





Beginning
      Balance – January 1, 2009
                      
                      
                      18,279,254
                      
                      
                      
                      36,558
                      
                      
                      
                      37,498,452
                      
                      
                      
                      3,126,086
                      
                      
                      
                      38,774,684
                      
                      
                      
                      10,848,248
                      
                      
                      
                      90,284,028
                      
                      
                      
                      10,007,166
                      
                      
                      
                      100,291,194Net
      Income
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      3,941,658
                      
                      
                      
                      ―
                      
                      
                      
                      3,941,658
                      
                      
                      
                      439,066
                      
                      
                      
                      4,380,724Other
      Comprehensive Income(Loss)
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      37,064
                      
                      
                      
                      37,064
                      
                      
                      
                      4,119
                      
                      
                      
                      41,183Transfer
      to reserve
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      395,160
                      
                      
                      
                      (395,160
                      )
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―Ending
      Balance – June 30, 2009
                      
                      
                      18,279,254
                      
                      
                      
                      36,558
                      
                      
                      
                      37,498,452
                      
                      
                      
                      3,521,246
                      
                      
                      
                      42,321,182
                      
                      
                      
                      10,885,312
                      
                      
                      
                      94,262,750
                      
                      
                      
                      10,450,351
                      
                      
                      
                      104,713,101Beginning
      Balance – January 1, 2010
                      
                      
                      18,304,921
                      
                      
                      
                      36,609
                      
                      
                      
                      37,498,401
                      
                      
                      
                      4,425,784
                      
                      
                      
                      50,231,052
                      
                      
                      
                      10,939,100
                      
                      
                      
                      103,130,946
                      
                      
                      
                      11,394,125
                      
                      
                      
                      114,525,071Net
      Income
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      8,541,977
                      
                      
                      
                      ―
                      
                      
                      
                      8,541,977
                      
                      
                      
                      842,775
                      
                      
                      
                      9,384,752Other
      Comprehensive Income(Loss)
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      649,914
                      
                      
                      
                      649,914
                      
                      
                      
                      72,514
                      
                      
                      
                      722,428Common
      stock issued in public offering
                      
                      
                      1,000,000
                      
                      
                      
                      2,000
                      
                      
                      
                      9,397,978
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      9,399,978
                      
                      
                      
                      ―
                      
                      
                      
                      9,399,978Capital
      contributed by Minority Shareholder
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      1,038,900
                      
                      
                      
                      1,038,900Transfer
      to reserve
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      873,738
                      
                      
                      
                      (873,738
                      )
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―Ending
      Balance – June 30, 2010
                      
                      
                      19,304,921
                      
                      
                      
                      38,609
                      
                      
                      
                      46,896,379
                      
                      
                      
                      5,299,522
                      
                      
                      
                      57,899,291
                      
                      
                      
                      11,589,014
                      
                      
                      
                      121,722,815
                      
                      
                      
                      13,348,314
                      
                      
                      
                      135,071,129





The
accompanying notes are an integral part of these financial
statements


5





NOTES
TO UNAUDITED 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 systems, air controlling systems and other
related components for different types of commercial vehicles, such as trucks,
and buses, through its 90% ownership of Ruili Group Ruian Auto Parts Company
Limited (“Ruian”) in the People’s Republic of China (“PRC” or “China”) and 60%
ownership of SORL International Holding, Ltd. ("SIH") in Hong Kong. The Company
distributes products both in China and internationally under SORL trademarks.
The Company’s product range includes 40 categories of brake systems with over
1000 different specifications.





On
November 11, 2009, the Company entered into a joint venture agreement with MGR,
a Hong Kong-based global auto parts distribution specialist firm and a
Taiwanese investor. The new joint venture was named SORL International Holding,
Ltd. ("SIH"). SORL holds a 60% interest in the joint venture, MGR holds a 30%
interest, and the Taiwanese investor holds a 10% interest. SIH is primarily
devoted to expanding SORL's international sales network in Asia-Pacific and
creating a larger footprint in Europe, the Middle East and Africa with a target
to create a truly global distribution network. Based in Hong Kong, SIH is
expanding and establishing channels of distribution in international markets
with SORL's primary products, including spring brake chambers, clutch servos,
air dryers, relay valves and hand brake valves.





On
February 8, 2010, the Company sold 1,000,000 shares of its common stock to
selected institutional investors at a price of $10.00 per share pursuant to a
registered direct offering. This transaction provided net proceeds of
approximately $9.4 million. On March 9, 2010, through Fairford, SORL invested
$9.349 million in its operating subsidiary, the Ruili Group Ruian Auto Parts
Co., Ltd.(the “Joint Venture”) To maintain its 10% shareholding in the Joint
Venture, the Ruili Group increased its capital investment by $1.039 million.
Accordingly, SORL continues to hold a 90% controlling interest in the operating
subsidiary.





NOTE
B - BASIS OF PRESENTATION





The
condensed consolidated financial statements include the accounts of the Company
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 as permitted by the rules and regulations of the United States
Securities and Exchange Commission, although the Company believes that the
disclosures contained in this report 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 condensed 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- RECENTLY ISSUED FINANCIAL STANDARDS





In June
2009, the FASB issued FASB ASC 860-10-05 (Prior authoritative literature: FASB
Statement No. 166, “Accounting for Transfers of Financial Assets—an amendment of
FASB Statement No. 140”).  FASB ASC 860-10-05 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB ASC 860-10-05 is effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. As such, the
Company was required to adopt this standard in January 2010. The adoption of
FASB ASC 860-10-05 has not had a material effect on the Company’s consolidated
financial statements.


6





In June
2009, the FASB issued FASB ASC 810-10-05 (Prior authoritative literature: FASB
Statement No. 167, “Amendments to FASB Interpretation No. 46(R)”). FASB ASC
810-10-05 improves financial reporting by enterprises involved with variable
interest entities and to address (1) the effects on certain provisions of prior
authoritative literature FASB Interpretation No. 46 (revised December 2003),
“Consolidation of Variable Interest Entities”, as a result of the elimination of
the qualifying special-purpose entity concept in prior authoritative literature
SFAS 166 and (2) constituent concerns about the application of certain key
provisions of prior authoritative literature Interpretation 46(R), including
those in which the accounting and disclosures under the Interpretation do not
always provide timely and useful information about an enterprise’s involvement
in a variable interest entity. FASB ASC 810-10-05 is effective as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. As such, the
Company was required to adopt this standard in January 2010. The adoption of
FASB ASC 810-10-05 has not had a material effect on the Company’s consolidated
financial statements.





In June
2009, the FASB issued revised authoritative guidance related to variable
interest entities, which requires entities to perform a qualitative analysis to
determine whether a variable interest gives the entity a controlling financial
interest in a variable interest entity. The guidance also requires an ongoing
reassessment of variable interests and eliminates the quantitative approach
previously required for determining whether an entity is the primary
beneficiary. This guidance, which was reissued by the FASB in December 2009 as
ASU  No. 2009-17, “Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities,” amends ASC Topic 810,
“Consolidation”, and became effective as of the beginning of an entity’s first
annual reporting period that begins after November 15, 2009 (January 1, 2010 for
the Company). The adoption of this guidance has not had a significant impact on
the Company’s consolidated financial statements.





In
January 2010, the FASB issued Accounting Standards Updated (ASU) No. 2010-06,
“Improving Disclosures about Fair Value Measurements,” which amends ASC 820,
“Fair Value Measures and Disclosures.” ASU No. 2010-06 amends the ASC to
require disclosure of transfers into and out of Level 1 and Level 2 fair value
measurements, and also require more detailed disclosure about the activity
within Level 3 fair value measurements. The changes to the ASC as a result of
this update are effective for annual and interim reporting periods beginning
after December 15, 2009 (January 1, 2010 for the Company), except for the
requirements related to Level 3 disclosures, which are effective for annual and
interim reporting periods beginning after December 15, 2010 (January 1, 2011 for
the Company). This guidance requires new disclosures only, and has had no impact
on the Company’s consolidated financial statements.





In
February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements, which amends FASB ASC Topic
855, Subsequent Events. The update provides that SEC filers, as defined in ASU
2010-09, are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial
statements. The update also requires SEC filers to evaluate subsequent events
through the date the financial statements are issued rather than the date the
financial statements are available to be issued. The Company adopted ASU 2010-09
upon issuance. The adoption of this ASU update has no material impact on the
Company’s financial statements.





NOTE
D - RELATED PARTY TRANSACTIONS





The
Company continued to purchase non-valve automotive products, components for
valve parts and packaging materials from the Ruili Group Co., Ltd. The Ruili
Group Co., Ltd., is the minority shareholder of the Joint Venture and is
controlled by the Zhang family, who is also the controlling party of the
Company.




7


The
following related party transactions are reported for the three months and six
months ended June 30, 2010 and 2009:


Three Months Ended June 30,
                                
                                
                                Six Months Ended June 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009PURCHASES
      FROM:Ruili
      Group Co., Ltd.
                                
                                $
                                7,544,548
                                
                                
                                $
                                5,196,406
                                
                                
                                $
                                12,179,573
                                
                                
                                $
                                7,893,422Total
      Purchases
                                
                                $
                                7,544,548
                                
                                
                                $
                                5,196,406
                                
                                
                                $
                                12,179,573
                                
                                
                                $
                                7,893,422SALES
      TO:Ruili
      Group Co., Ltd.
                                
                                $
                                368,441
                                
                                
                                $
                                64,179
                                
                                
                                $
                                617,597
                                
                                
                                $
                                201,611Total
      Sales
                                
                                $
                                368,441
                                
                                
                                $
                                64,179
                                
                                
                                $
                                617,597
                                
                                
                                $
                                201,611





The total
purchases from Ruili Group during the three months ended June 30, 2010 consisted
of $7.3 million of finished products of non-valve auto parts and
$0.3 million of packaging materials. During the six months ended June 30,
2010, the breakdown was approximately $11.0 million of finished
products of non-valve auto parts and $1.1 million of packaging
materials.





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009OTHER
      PAYABLES TO RELATED PARTIESRuili
      Group Co., Ltd.
                    
                    
                    54,729
                    
                    
                    
                    200,762Total
                    
                    
                    54,729
                    
                    
                    
                    200,762ACCOUNTS
      PAYABLE TO RELATED PARTIESRuili
      Group Co., Ltd.
                    
                    $
                    155,996
                    
                    
                    $
                    1,985,291Total
                    
                    $
                    155,996
                    
                    
                    $
                    1,985,291





NOTE
E – ACCOUNTS RECEIVABLE




The
changes in the allowance for doubtful accounts at June 30, 2010 and December 31,
2009 were summarized as follows:




June
      30,
                      2010
                    
                    
                    December
      31,
                      2009Beginning
      balance
                    
                    $
                    57,823
                    
                    
                    $
                    24,997Add:
      Increase to allowance
                    
                    
                    891,359
                    
                    
                    
                    32,826Less:
      Accounts written off
                    
                    
                    —
                    
                    
                    
                    —Ending
      balance
                    
                    $
                    949,182
                    
                    
                    $
                    57,823




8





June
      30,
                          
                          December
      31,2010
                          
                          2009Accounts
      receivable
                          
                          $
                          46,728,668
                          
                          
                          $
                          44,603,930Less:
      allowance for doubtful accounts
                          
                          
                          (949,182
                          )
                          
                          
                          (57,823
                          )Account
      receivable balance, net
                          
                          $
                          45,779,486
                          
                          
                          $
                          44,546,107




NOTE
F - INVENTORIES




On June
30, 2010 and December 31, 2009, inventories consisted of the
following:




June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009Raw
      Material
                            
                            $
                            6,384,218
                            
                            
                            $
                            4,417,094Work
      in process
                            
                            
                            1,994,651
                            
                            
                            
                            2,186,337Finished
      Goods
                            
                            
                            14,722,436
                            
                            
                            
                            12,157,293Total
      Inventory
                            
                            $
                            23,101,305
                            
                            
                            $
                            18,760,724




NOTE
G - PROPERTY, PLANT AND EQUIPMENT




Property,
plant and equipment consisted of the following, on June 30, 2010 and December
31, 2009:




June
      30,
                        
                        
                        December
      31,2010
                        
                        
                        2009Machinery
                        
                        $
                        31,144,552
                        
                        
                        $
                        24,283,034Molds
                        
                        
                        1,283,769
                        
                        
                        
                        1,276,757Office
      equipment
                        
                        
                        775,805
                        
                        
                        
                        700,609Vehicle
                        
                        
                        1,198,890
                        
                        
                        
                        1,092,835Building
                        
                        
                        8,026,569
                        
                        
                        
                        7,982,723Sub-Total
                        
                        
                        42,429,586
                        
                        
                        
                        35,335,958Less:
      Accumulated depreciation
                        
                        
                        (13,301,430
                        )
                        
                        
                        (11,608,920
                        )Fixed
      Assets, net
                        
                        $
                        29,128,156
                        
                        
                        $
                        23,727,038




Depreciation
expense charged to operations was $1,622,136 and $1,303,639 for the six
months ended June 30, 2010 and 2009, respectively.


9





NOTE
H- LEASEHOLD IMPROVEMENTS





June
      30,
                        
                        
                        December
      31,2010
                        
                        
                        2009Cost:
                        
                        $
                        480,582
                        
                        
                        $
                        478,088Less:
      Accumulated amortization:
                        
                        
                        (16,258
                        )
                        
                        
                        (407
                        )Leasehold
      Improvements In Progress, net
                        
                        $
                        464,324
                        
                        
                        $
                        477,681





By law
and practice, when improvements are made to real property and those improvements
are permanently affixed to the property, the title to those improvements
automatically transfers to the owner of the property. The lessee’s interest in
the improvements is not a direct ownership interest but rather it is an
intangible right to use and benefit from the improvements during the term of the
lease. The leasehold improvements are armortized over the lease
term.





In May
2009, the Joint Venture entered into a lease agreement with Ruili Group Co.,
Ltd. for the lease of a manufacturing plant. The lease term is from June
2009 to May 2017. .





In August
2009, SIH entered into a lease agreement with MGR for the lease of an office
with a five-year lease term.





NOTE
I- LAND USE RIGHTS




June
      30,
                          
                          
                          December
      31,2010
                          
                          
                          2009Cost:
                          
                          $
                          15,023,399
                          
                          
                          $
                          14,941,331Less:
      Accumulated amortization:
                          
                          
                          (913,024
                          )
                          
                          
                          (742,939
                          )Land
      use rights, net
                          
                          $
                          14,110,375
                          
                          
                          $
                          14,198,392




According
to the law of China, the government owns all the land in China. Companies and
individuals are authorized to possess and use the land only through land use
rights granted by the Chinese government. The Company purchased the land use
rights from Ruili Group for approximately $13.9 million on September 28, 2007.
The Company has not yet obtained the land use right certificate. However, the
Company has applied to obtain the land use right
certificate. Amortization expenses were $165,346 and $164,944 for the six
months ended June 30, 2010 and 2009, respectively.





NOTE
J - INTANGIBLE ASSETS




Intangible
assets owned by the Company included patent technology and management software
licenses. Gross intangible assets were $162,385, less accumulated amortization
of $62,383 for net intangible assets of $100,002 as of June 30, 2010. Gross
intangible assets were $161,499, less accumulated amortization of $54,380 for
net intangible assets of $107,119 as of December 31, 2009. Amortization expenses
were $7,674 and $7,655 for the six months ended June 30, 2010 and 2009
respectively. Future estimated amortization expense is as follows:





2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              Thereafter$
              8,476
              
              
              $
              16,150
              
              
              $
              16,150
              
              
              $
              16,150
              
              
              $
              11,766
              
              
              $
              30,753




10





NOTE
K - PREPAYMENT




Prepayment
consisted of the following as of June 30, 2010 and December 31,
2009:





June
      30,
                          
                          
                          December
      31,2010
                          
                          
                          2009Raw
      material suppliers
                          
                          $
                          4,026,100
                          
                          
                          $
                          3,059,449Equipment
      purchase
                          
                          
                          4,516,493
                          
                          
                          
                          4,498,691Total
      prepayment
                          
                          $
                          8,542,593
                          
                          
                          $
                          7,558,140





NOTE
L - DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES





Deferred
tax assets consisted of the following as of June 30, 2010





30-June-10
                                    
                                    
                                    31-Dec-09Deferred
      tax assets - currentProvision
                                    
                                    $
                                    141,617
                                    
                                    
                                    $
                                    7,917Subsidiary's
      operating loss carryforwards
                                    
                                    
                                    66,528
                                    
                                    
                                    
                                    33,008Warranty
                                    
                                    
                                    391,382
                                    
                                    
                                    
                                    260,295Deferred
      tax assets
                                    
                                    
                                    599,526
                                    
                                    
                                    
                                    301,220Valuation
      allowance
                                    
                                    
                                    ―
                                    
                                    
                                    
                                    ―Net
      deferred tax assets - current
                                    
                                    $
                                    599,526
                                    
                                    
                                    $
                                    301,220Deferred
      tax liabilities - currentRevenue
      (netoff cost)
                                    
                                    $
                                    126,314
                                    
                                    
                                    $
                                    80,643Deferred
      tax liabilities - current
                                    
                                    
                                    126,314
                                    
                                    
                                    
                                    80,643Net
      deferred tax assets - current
                                    
                                    
                                    473,212
                                    
                                    
                                    
                                    220,577Deferred
      tax liabilities - non-currentLand
      use right
                                    
                                    
                                    141,918
                                    
                                    
                                    
                                    115,481Deferred
      tax liabilities - non-current
                                    
                                    
                                    141,918
                                    
                                    
                                    
                                    115,481




11




Deferred
taxation is calculated under the liability method in respect of taxation effect
arising from all timing differences, which are expected with reasonable
probability to realize in the foreseeable future. The Company and its
subsidiaries do not have income tax liabilities in U.S. as the Company had no
United States taxable income for the reporting period. The Company’s subsidiary
registered in the PRC is subject to income taxes within the PRC at the
applicable tax rate.




NOTE M -Bank Loans




Bank
loans represented the following as of June 30, 2010 and December 31,
2009:




June 30,
                      2010
                    
                    
                    December 31,
                      2009Secured
                    
                    $
                    4,495,264
                    
                    
                    $
                    —Less:
      Current portion
                    
                    $
                    (4,495,264
                    )
                    
                    $
                    —Non-current
      portion
                    
                    $
                    —
                    
                    
                    $
                    —




These
loans were from Agricultural Bank of China, to finance general working capital
as well as new equipment acquisition. Guarantees were provided by Ruili
Group Co., Ltd., a related party. The Company did not provide any sort
of guarantee to any other parties. Interest rates for the loans ranged between
0.74% and 0.83% per annum. The maturity dates of the loans are September
25, 2010 and October 22, 2010, respectively.




NOTE
N - ACCRUED EXPENSES




Accrued
expenses consisted of the following as of June 30, 2010 and December 31,
2009:




June
      30,
                      
                      
                      December
      31,2010
                      
                      
                      2009Accrued
      payroll
                      
                      $
                      1,449,643
                      
                      
                      $
                      1,536,980Other
      accrued expenses
                      
                      
                      3,353,749
                      
                      
                      
                      2,669,317Total
      accrued expenses
                      
                      $
                      4,803,392
                      
                      
                      $
                      4,206,297




NOTE
O – RESERVE




The
reserve funds are comprised of the following:




June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Statutory
      surplus reserve fund
                  
                  $
                  5,299,522
                  
                  
                  $
                  4,425,784Total
                  
                  $
                  5,299,522
                  
                  
                  $
                  4,425,784




12




Pursuant
to the relevant laws and regulations of Sino-foreign joint venture enterprises,
the profits of the Company's subsidiary, which are based on their PRC statutory
financial statements, are available for distribution in the form of cash
dividends after they have satisfied all the PRC tax liabilities, provided for
losses in previous years, and made appropriations to reserve funds, as
determined at the discretion of the board of directors in accordance with PRC
accounting standards and regulations.
 
 As
stipulated by the relevant laws and regulations for enterprises operating in the
PRC, the Company's Sino-foreign joint venture is required to make annual
appropriations to the statutory surplus funds. In accordance with the relevant
PRC regulations and the articles of association of the respective companies, the
Joint Venture is required to allocate a certain percentage of its profits after
taxation, as determined in accordance with PRC accounting standards applicable
to the Company, to the statutory surplus reserve until such reserve reaches 50%
of the registered capital of the Company.
 
 Net
income as reported in the US GAAP financial statements differs from that as
reported in the PRC statutory financial statements. In accordance with the
relevant laws and regulations in the PRC, the profits available for distribution
are based on the statutory financial statements. If the Joint Venture has
foreign currency available after meeting its operational needs, the Joint
Venture may make its profit distributions in foreign currency to the extent
foreign currency is available. Otherwise, it is necessary to obtain approval and
convert such distributions at an authorized bank. The reserve fund consists of
retained earnings which has been allocated to the statutory reserve
fund.
  NOTE
P - 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, the Joint Venture is 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 50% income tax deduction for the following three years ended
December 31, 2006, 2007, and 2008. 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 two
years ended December 31, 2006 and 2007. With the new PRC Enterprise Income Tax
Law, effective on 1st January 2008, the China’s enterprises are generally
subject to a PRC income tax rate of 25% and the Joint Venture is entitled to a
tax concession of 50% of the applicable income tax rate of 25% for the year
ended December 31, 2008.
 
 Additionally,
the Company increased its investment in the Joint Venture as a result of its
financing in December, 2006. In accordance with the Income Tax Law of the
People's Republic of China on Foreign-invested Enterprises and Foreign
Enterprises, the Joint Venture is eligible for additional preferential tax
treatment. For the years 2007 and 2008, the Joint Venture entitled to an income
tax exemption on all pre-tax income generated by the company above its pre-tax
income generated in the fiscal year 2006. Thereafter, the Joint Venture will
enjoy a 50% exemption from the effective income tax rate on any pre-tax income
above its 2006 pre-tax income, to be recognized in the years 2009, 2010 and
2011. The above taxation exemption was superseded, because the Joint
Venture has been awarded the Chinese government's "High-Tech Enterprise"
designation. The High-Tech Enterprise certificate is valid for three years and
provides for a reduced tax rate of 15% for years 2009 through 2011. So, the
Company’s effective income tax rate will be 15% for years 2009 through
2011.
  13


The reconciliation of the effective income tax rate
of the Joint Venture to the statutory income tax rate in the PRC for the
second quarter of 2010 and 2009 is as follows:





June-30-2010
                          
                          
                          June-30-2009Statutory
      tax rate
                          
                          
                          25.0
                          %
                          
                          
                          25.0
                          %Tax
      holidays and concessions
                          
                          
                          -10
                          %
                          
                          
                          -10
                          %Effective
      tax rate
                          
                          
                          15
                          %
                          
                          
                          15
                          %


June-30-2010
                      
                      
                      June-30-2009Computed
      income tax provision at the statutory rate
                      
                      $
                      1,500,044
                      
                      
                      $
                      847,922Tax
      refund
                      
                      
                      (903,699
                      )Deferred
      tax provision
                      
                      
                      (225,332
                      )
                      
                      
                      (299,344
                      )Current
      period permanent differences and other reconciling
    items
                      
                      
                      244,528
                      
                      
                      
                      723,513Total
      income taxes
                      
                      $
                      615,542
                      
                      
                      $
                      1,272,091





Income
taxes are calculated on a separate entity basis. Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes Significant components of the Company’s net deferred tax
assets and liabilities are approximately as follows at December 31,2009. No
valuation allowance is deemed necessary. There currently is no tax benefit or
burden recorded for the United States. The tax authority may examine the tax
returns of the Company three years after the year ended. In the year of 2009,
there were no penalties and interest, which generally are recorded in the
general and administrative expenses or in the tax expenses. The provisions for
income taxes for the six months ended June 30, 2010 and 2009, respectively, are
summarized as follows:





June-30-2010
                  
                  
                  June-30-2009Current
                  
                  $
                  840,873
                  
                  
                  $
                  1,571,435Deferred
                  
                  
                  (225,332
                  )
                  
                  
                  (299,344
                  )Total
                  
                  $
                  615,542
                  
                  
                  $
                  1,272,091





The
Company adopted the provisions of FASB ASC 740-10 (Prior authoritative
literature: FIN No. 48, Accounting for Uncertainty in Income Taxes), on January
1, 2007. As the result of the implementation of the FASB ASC 740-10, Accounting
for Uncertainty in Income Taxes – In Interpretation of FASB ASC 740-10 (Prior
authoritative literature: FASB Statement No. 109), the Company recognized no
material adjustments to unrecognized tax benefits. At the adoption date of
January 1, 2007 and as of June 30, 2010 and 2009, the Company has no
unrecognized tax benefits.


14


NOTE
Q-Non-controlling interest in
subsidiaries





Non-controlling
interest in subsidiaries represents a 10% non-controlling interest, owned by the
Company’s Joint Venture Partner, in the Chinese located Joint Venture, and a 40%
non-controlling interest, owned by the Company’s Joint Venture Partners, in the
Hong Kong located Joint Venture. Net income attributable to non-controlling
interests in subsidiaries amounted to $842,775 and $439,066 for the six
months ended June 30, 2010 and 2009, respectively.





June-30-2010
                  
                  
                  June-30-200910%
      non-controlling interest in Ruian
                  
                  $
                  970,820
                  
                  
                  $
                  439,06640%
      non-controlling interest in SIH
                  
                  $
                  (128,045
                  )
                  
                  
                  ―Total
                  
                  $
                  842,775
                  
                  
                  
                  439,066





NOTE
R - LEASES





In
December 2006, the Joint Venture entered into a lease agreement with Ruili Group
Co., Ltd. for the lease of two apartment buildings. These two apartment
buildings are for the Joint Venture’s management personnel and staff,
respectively. The lease term is from January 2007 to December 2011 for one of
the apartment buildings and from January 2007 to December 2012 for the
other.





In May
2009, the Joint Venture entered into a lease agreement with Ruili Group Co.,
Ltd. for the lease of a manufacturing plant. The lease term is from June
2009 to May 2017. .





In August
2009, SIH entered into a lease agreement with MGR for the lease of an office
with a five-year lease term. The leasehold improvements are armortized over the
lease term.





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




2010
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      2014Lease
      Commitments
                      $
                      415,488
                      
                      $
                      628,179
                      
                      
                      $
                      397,693
                      
                      
                      $
                      329,410
                      
                      
                      $
                      329,410Total
                      $
                      415,488
                      
                      $
                      628,179
                      
                      
                      $
                      397,693
                      
                      
                      $
                      329,410
                      
                      
                      $
                      329,410





NOTE
S - ADVERTISING COSTS





Advertising
costs were $146,873 and $995 for the six months ended June 30, 2010 and 2009,
respectively.





NOTE
T- RESEARCH AND DEVELOPMENT EXPENSE





Research
and development costs are expensed as incurred and were $3,059,582 and
$1,557,758 for the six months ended June 30, 2010 and 2009,
respectively.





NOTE
U - WARRANTY CLAIMS





Warranty
claims were $1,026,504 and $657,492 for the six months ended June 30, 2010 and
2009, respectively. Warranty claims are classified as accrued expenses on the
balance sheet. The movement of accrued warranty expenses for the six months
ended June 30, 2010 was as follows:




Beginning
      balance at January 01, 2010
                
                
                1,735,301Aggregate
      reduction for payments made
                
                
                (152,594
                )Aggregate
      increase for new warranties issued during current period
                
                
                1,026,504Aggregate
      changes in the liability related to pre-existing warranties (changes in
      estimate)
                
                
                ―Ending
      balance at June 30, 2010:
                
                
                2,609,212


15


NOTE
V – SEGMENT INFORMATION





The
Company produces air brake systems, air controlling systems and other related
components for different types of commercial vehicles. Although it
manufactures about 40 varieties of products of air brake systems and
related components, they are basically one general line - air brake
systems. Management does not analyze operational income based on different
features of air brake systems but on one general line of air brake systems only.
Hence, no separate segment analysis by products is presented as the Company’s
only products are air brake systems and related components.





Net sales
from our Chinese market were $37.8 million and $21.3 million for the three
months ended June 30, 2010 and 2009, respectively. Net sales from international
market were $12.1 million and $8.4 million for the three months ended June 30,
2010 and 2009, respectively.





Net sales
from our Chinese market were $63.4 million and $37.0 million for the six months
ended June 30, 2010 and 2009, respectively. Net sales from international market
were $20.6 million and $13.0 million for the six months ended June 30, 2010 and
2009, respectively.





All of
the Company’s long-lived assets are located in the PRC and Hong Kong. The
Company and its subsidiaries do not have long-lived assets in the United States
for the reporting periods.





For the
three months ended June 30, 2010, the Company’s three biggest customers were
Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works, and FAW Jiefang
Automotive Co., Ltd. which accounted for approximately 13.6%, 10.4% and 6.3% of
total sales revenue, respectively. For the three months ended June 30, 2009,
Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works, and FAW Jiefang
Automotive Co., Ltd. accounted for approximately 14.6%, 9.8% and 4.5% of our
total sales revenue, respectively.





For the
six months ended June 30, 2010, the Company’s three biggest customers were
Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works, and FAW Jiefang
Automotive Co., Ltd. which accounted for approximately 11.2%, 10.8% and 6.2% of
total sales revenue, respectively. For the three months ended June 30, 2009,
Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works, and FAW Jiefang
Automotive Co., Ltd. accounted for approximately 9.9%, 6.6% and 4.6% of our
total sales revenue, respectively.





NOTE
W – PURCHASE DISCOUNT





Purchase
discounts represent discounts received from vendors for purchasing raw
materials. The Company did not receive any purchase discounts during the six
months ended June 30, 2010 and 2009.





NOTE
X – SHIPPING AND HANDLING COSTS





Shipping
and handling costs incurred by the Company are included in selling expenses in
the accompanying consolidated statements of income. Shipping and handling costs
were $1,274,864 and $724,919 for the six month ended June 30, 2010 and 2009,
respectively.





NOTE
Y – STOCK COMPENSATION PLAN





The amortization of deferred stock-based
compensation was $0 and $9,935 for the six month ended June 30, 2010
and 2009, respectively. There were no employee stock options or warrants
outstanding as of June 30, 2010.


16


NOTE
Z- COMMITMENTS AND CONTINGENCIES




(1) 
According to the law of China, the government owns all the land in China.
Companies and individuals are authorized to possess and use the land only
through land use rights granted by the Chinese government. The Company purchased
the land use rights from Ruili Group for approximately $13.9 million on
September 28, 2007. The Company has not yet obtained the land use right
certificate. However, the Company has applied to obtain the land use right
certificate.





(2) 
Information regarding lease commitments is provided in Note R.





NOTE
AA - OFF-BALANCE SHEET ARRANGEMENTS





At June
30, 2010, we do not have any material commitments for capital expenditures or
have any transactions, obligations or relationships that could be considered
off-balance sheet arrangements.





NOTEAB–RECLASSIFICATION OF PRIOR
YEAR FINANCIAL STATEMENTS





For the
six month ended June 30, 2010, the Company has reclassified Research and
Development Expenses and Deferred Tax Assets/Liabilities to facilitate a year
over year comparison with the same period of 2009.





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 condensed consolidated financial
statements, as well as information relating to the plans of our current
management. This quarterly report on Form 10-Q includes forward-looking
statements. Any statements contained in this report that are not statements of
historical fact may be deemed to be 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 anticipated. 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
condensed consolidated financial statements and the related notes thereto and
other financial information contained elsewhere in this Form 10-Q.





OVERVIEW





The Company manufactures and distributes automotive air brake
systems, air controlling systems and other related components to automotive
original equipment manufacturers, or OEMs, and the related aftermarket both in
China and internationally for use primarily in different types of commercial
vehicles, such as trucks and buses. There are forty categories of air brake
systems with over one thousand different specifications. Management believes
that it is the largest manufacturer of automotive brake systems in China for
commercial vehicles such as tucks and buses.


17


CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





For a
summary of our accounting policies and estimates, see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates” in our Annual Report on
Form 10-K for the Fiscal Year ended December 31, 2009.





See Note
N to the attached Unaudited Consolidated Financial Statements for the
information regarding changes in taxation by the government of
China.




Results
of Operations




(1)
Results of operations for the three months ended June 30, 2010 as compared to
the three months ended June 30, 2009.




SALES




Three
      Months ended
                  
                  
                  Three
      Months ended30-Jun-10
                  
                  
                  30-Jun-09(U.S. 
      dollars in millions)Air
      brake systems & related components
                  
                  $
                  42.8
                  
                  
                  
                  86
                  %
                  
                  $
                  24.7
                  
                  
                  
                  83
                  %Non-valve
      products
                  
                  $
                  7.1
                  
                  
                  
                  14
                  %
                  
                  $
                  5.0
                  
                  
                  
                  17
                  %Total
                  
                  $
                  49.9
                  
                  
                  
                  100
                  %
                  
                  $
                  29.7
                  
                  
                  
                  100
                  %





Sales
consist of air brake systems and related components manufactured by SORL and
sold to domestic original equipment manufacturers (OEM), aftermarket customers
and export market as well as distribution of non-valve auto parts sourced from
related parties.





Net sales
were $49,897,229 and $29,740,212 for the three months ended June 30, 2010 and
2009, respectively, an increase of $20.2 million or 68.0%.





A
breakdown of net sales revenue for these markets for the second quarter of the
2010 and 2009 fiscal years, respectively, is set forth below:


Three
                                        Months
                                      
                                      Percent
                                      
                                      
                                      Three
                                        Months
                                      
                                      Percentended
                                      
                                      of
                                      
                                      
                                      ended
                                      
                                      of
                                      
                                      Percentage30-Jun-10
                                      
                                      Total Sales
                                      
                                      
                                      30-Jun-09
                                      
                                      Total Sales
                                      
                                      Change(U.S. dollars in million)China
      OEM market
                                      
                                      $
                                      31.2
                                      
                                      
                                      
                                      63
                                      %
                                      
                                      $
                                      14.1
                                      
                                      
                                      
                                      48
                                      %
                                      
                                      
                                      121.3
                                      %China
      Aftermarket
                                      
                                      $
                                      6.7
                                      
                                      
                                      
                                      13
                                      %
                                      
                                      $
                                      7.2
                                      
                                      
                                      
                                      24
                                      %
                                      
                                      
                                      (6.9
                                      )%International
      market
                                      
                                      $
                                      12.0
                                      
                                      
                                      
                                      24
                                      %
                                      
                                      $
                                      8.4
                                      
                                      
                                      
                                      28
                                      %
                                      
                                      
                                      42.9
                                      %Total
                                      
                                      $
                                      49.9
                                      
                                      
                                      
                                      100
                                      %
                                      
                                      $
                                      29.7
                                      
                                      
                                      
                                      100
                                      %
                                      
                                      
                                      68.0
                                      %


18


Global
financial conditions, involving a worldwide macroeconomic decline and weak
global auto market, caused the demand for our products to decline
during the second quarter of 2009. However, the Chinese government’s 4
trillion RMB stimulus package, which positively affected the development of
China’s automobile industry, materially benefited our results in second
quarter of 2010. Further, we promoted our integrated system and modular
supplies of air brake systems to our OEM customers and we increasingly
focused on the light duty, bus and agricultural vehicle market in 2010. As a
result of these positive factors, our sales to the Chinese OEM
market increased by $17.1 million or 121.3%, to $31.2 million for the
second quarter of 2010, compared to $14.1 million for the same period of
2009.





We
achieved total revenue of $6.7 million in Chinese aftermarket sales for the
three months ended June 30, 2010, a slight increase compared to $6.4 million for
the first quarter of 2010. The increased number of new vehicle sales in China
and the expiration of OEM warranties helped drive the increase in our
aftermarket business. Sales of our new model products, applicable to both OEM
and aftermarket, also grew during the first half of 2010. We will continue with
our strategies to further optimize our sales network, to help further penetrate
into new markets. Also, we will continue to focus on investing in new product
development for both the OEM market and the aftermarket, as a means to increase
our sales.





The global
financial crisis has negatively affected our international customers and caused
many world currencies to depreciate against the US dollar, while
the lack of confidence in the growth of the world macro-economy
caused our customers to decrease their inventories in order to lower their
risk in the second quarter of 2009. With the recovery of global economy and
customers' confidence in the growth of economy in 2010, our export sales
increased by $3.6 million or 42.9%, to $12.0 million for the second quarter of
2010, as compared to $8.4 million for the same period of 2009.




COST
OF SALES AND GROSS PROFIT




Cost of
sales for the three months ended June 30, 2010 were $36,419,878
an increase of $15,101,179 or 70.8% from $21,318,699 for the same
period last year. Our gross profit increased by 59.6% from $ 8,421,513
for the second quarter of 2009 to $13,477,351 for the second quarter of
2010.




Gross
margin decreased to 27.0% from 28.3% for the three months ended June 30, 2010
compared with 2009. The decrease in gross margin was primarily due to the
increased costs of primary raw materials and payroll. We focused on
increasing management efficiency, improving the technologies of our products,
and improving our product portfolio to offset our gross profit margin decrease.
We believe that our continued expansion to the higher-profit new valve products
will also help us to maintain or increase our gross profit margins.




SELLING
AND DISTRIBUTION EXPENSES





Selling
and distribution expenses were $2,843,380 for the three months ended June
30, 2010, as compared to $2,060,718 for the same period of 2009,
an increase of $782,662 or 38.0%.





The
increase was mainly due to the increased transportation expense and accrued
warranty expenses as a result of increased sales. As a percentage of
sales revenue, selling expenses decreased to 5.7% for the three months
ended June 30, 2010, as compared to 6.9% for the same period in
2009.





GENERAL
AND ADMINISTRATIVE EXPENSES





General
and administrative expenses were $2,803,915 for the three months ended June
30, 2010, as compared to $1,481,757 for the same period of 2009,
an increase of $1,322,158 or 89.2%. The increase was mainly due to
increased professional expenses and provisions for doubtful
accounts. Because of the impact of the U.S. financial crisis and weakening
international macroeconomic factors, the Company extended the payment term for
accounts receivable for our international customers. As a percentage of
sales revenue, general and administrative expenses increased to 5.6%
for the three months ended June 30, 2010, as compared to 5.0% for the same
period in 2009.


19


RESEARCH
AND DEVELOPMENT EXPENSE




Research
and development expenses include payroll, employee benefits, and other
headcount-related expenses associated with product development. Research and
development expenses also include third-party development costs. For the three
months ended June 30, 2010, research and development expense was $1,738,529, as
compared to $791,307 for the same period of 2009, an increase of $947,222. The
Company will continue to invest in new product development, particularly in
upgrading traditional valve products and in developing electronically
controlled products.




DEPRECIATION
AND AMORTIZATION




Depreciation
and amortization expense increased to $956,043 for the three months ended June
30, 2010, compared with that of $746,805 for the same period of 2009, an
increase of $209,238. The Company will continue to invest in new product
development, particularly in upgrading traditional valve products and in
developing electronically controlled products.




FINANCIAL
EXPENSE




Financial
expense mainly consists of interest expense and exchange loss. The
financial expense for the three months ended June 30, 2010 increased by $262,049
to $271,178 from $9,129 for the same period of 2009, which was
mainly attributed to fluctuations in the exchange rate between U.S. dollars
and RMB. Management is studying alternative methods for managing its risks
associated with currency translation, such as the diversification of currencies
used in export sales.




OTHER
INCOME




Other
income was $168,565 for the three months ended June 30, 2010, as compared to
$176,244 for the three months ended June 30, 2009, a decrease of $7,679. The
decrease was mainly due to more subsidies received from local governments for
the three months ended June 30, 2009. These subsidies were provided to the
Company as economic incentives to secure business commitments and no repayment
by the Company is required.




INCOME
TAX




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 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 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 Ventures, the Joint
Venture was exempt from income taxes in the PRC for each of the fiscal years
ended December 31, 2005 and 2004. Thereafter, the Joint Venture was entitled
to a 50% income tax deduction for each of the three years ended December
31, 2008. Thus, the Joint Venture was exempted from PRC income tax in both
fiscal 2004 and 2005, and entitled to a tax concession of 50% of the
applicable income tax rate of 26.4% for the two years ended December 31, 2006
and 2007. With the new PRC Enterprise Income Tax Law, effective on 1st
January 2008, China’s enterprises are generally subject to a PRC income tax rate
of 25% and the Joint Venture was entitled to a tax concession of 50% of the
applicable income tax rate of 25% for the year ended December 31,
2008.





The
Company increased its investment in the Joint Venture as a result of its
financing in December, 2006. In accordance with the Income Tax Law of
the People's Republic of China on Foreign-invested Enterprises and Foreign
Enterprises, the Joint Venture was eligible for additional preferential tax
treatment for the years 2007 and 2008. In those years, the Joint Venture
was entitled to an income tax exemption on all pre-tax income generated by the
Company above its pre-tax income generated in the fiscal year 2006. In
2009, 2010 and 2011, the Joint Venture will enjoy a 50% exemption from the
applicable income tax rate of 25% on any pre-tax income above its 2006
pre-tax income. The above taxation exemption was superseded, because the Joint
Venture has been awarded the Chinese government's "High-Tech Enterprise"
designation. The High-Tech Enterprise certificate is valid for three years and
provides for a reduced tax rate of 15% for years 2009 through 2011. So,
the effective income tax rate will be 15% for years 2009 through
2011.


20


During
the second quarter ended June 30, 2010 and 2009, the Joint Venture received an
income tax benefit of $930,699 and $0 in accordance with PRC
preferential income tax policy regarding the purchase of domestically
manufactured equipment, which is subject to assessment and approval from the
local state tax bureau . Income
tax expense of $10,964 and $914,125 was recorded for the quarters
ended June 30, 2010 and 2009, respectively.




STOCK-BASED
COMPENSATION




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 was three years. Total deferred stock-based compensation expenses
related to stock options amounted to $178,904. This amount was amortized
over the three year vesting period in a manner consistent with FASB ASC 505-50.
The amortization of deferred stock-based compensation for these equity
arrangements were $0 and $0 for the three months ended June 30, 2010
and 2009, respectively. As of December 31, 2009, the 60,000 options had expired
unexercised.





On June
20, 2007, the Company granted to its previous senior manager of investor
relations, David Ming He, options to purchase 4,128 shares of its common stock
with an exercise price of $7.25 per share. In accordance with the agreement, the
option became vested and exercisable immediately on the date thereof. Total
deferred stock-based compensation expenses related to the 4,128 stock options
granted amounted to $23,201. This amount was charged to General and
administrative expenses during the fiscal year ended December 31, 2007. On
November 13, 2009, David Ming He exercised the options on a cashless basis and
received 460 shares of common stock, based on a formula provided for in the
initial grant.





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 had retained Maxim
Group LLC and Chardan Capital Markets, LLC as its exclusive financial advisors
and investment bankers for a period of twelve months from the date of January 5,
2006. The agreement has now expired. Total expense associated with the 100,000
warrants amounted to $299,052, which, consistent with FASB ASC 505-50, was
recognized during the fiscal year ended December 31, 2006.




On
November 9, 2009, Maxim Group LLC transferred 35,000 warrants to OTA LLC and
35,000 warrants to Maxim Partners, LLC respectively. OTA LLC exercised the
warrants on a cashless basis on November 12, 2009 and received 6,609 shares of
common stock, based on a formula provided for in the initial grant. Maxim
Partners, LLC and Chardan Capital Markets, LLC transferred an additional 35,000
warrants and 30,000 warrants to OTA LLC on December 15, 2009 and December 11,
2009, respectively. OTA LLC exercised the warrants on a cashless basis on
December 18, 2009 and received 18,598 shares of common stock, based on a formula
provided for in the initial grant.





There
were no options or warrants outstanding as of June 30, 2010.





Although
the Company anticipates future issuances of stock awards could have a material
impact on reported net income in future financial statements, we do not expect
them to have a material impact on future cash flow.





NET
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST IN SUBSIDIARIES




Non-controlling
interest in subsidiaries represents a 10% non-controlling interest in the
Chinese located Joint Venture and 40% non-controlling interest in the Hong Kong
located Joint Venture, in each case held by our Joint Venture Partners.
Non-controlling interest in subsidiaries amounted to $548,868 and $332,972 for
the second quarter ended June 30, 2010 and 2009,
respectively.


21


NET
INCOME ATTRIBUTABLE TO STOCKHOLDERS





The net
income attributable to stockholders for the quarter ended June 30,
2010 increased by $2,388,481, to $5,385,228 from $2,996,747 for the quarter
ended June 30, 2009 due to the factors discussed above. Earnings per share
(“EPS”), both basic and diluted, for the quarter ended June 30, 2010 and 2009,
were $0.28 and $0.16 per share, respectively.





FINANCIAL
CONDITION





Liquidity
and Capital Resources





OPERATING
- Net cash used in operating activities was $11,749,543 for three months ended
June 30, 2010 compared with $5,392,361 of net cash provided in operating
activities in the same period in 2009, a decrease of $17,141,904, primarily
due to the increased cash outflow resulted by changes in accounts receivable,
notes receivable, inventory and prepayments. Most accounts receivable of our OEM
customers were converted into notes receivable during the three months ended
June 30, 2010. Those notes mature within one to six months and may be
transferred to our material suppliers as a payment at anytime. We therefore do
not believe that the notes receivable decrease our current
liquidity.





At June
30, 2010, the Company had cash and cash equivalents of $7,975,715, as compared
to cash and cash equivalents of $10,255,259 at December 31, 2009. The Company
had working capital of $91,410,190 at June 30, 2010, as compared to working
capital of $76,130,322 at December 31, 2009, reflecting current ratios
of 5.01:1 and 5.06:1, respectively.





INVESTING
- The Company expended more cash for investing activities in the second quarter
of 2010 than in the second quarter of 2009. During the three months ended
June 30, 2009, the Company expended net cash of $384,234 in investing
activities. For the three months ended June 30, 2010, the Company utilized
$3,447,536 in investing activities for acquisition of property and equipment to
support the growth of the business.





FINANCING
- During the second quarter ended June 30, 2010, the Company received aggregate
bank loans in the amount of $4,483,578 under its credit facilities. The
Company had no borrowings under its credit facilities during the
quarter ended June 30, 2009.





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 collection of accounts receivable from our customers.
During the second quarter of 2010, the Company continued developing higher
profit margin new products, and adopting steps for further cost saving such as
improving material utilization rate. Meanwhile, the Company maintains good
relationships with local banks. We believe that our current cash and cash
equivalents and anticipated cash flow generated from operations and our bank
lines of credit will be sufficient to finance our working capital requirements
for the foreseeable future.





CURRENCY
RISK AND FINANCIAL INSTRUMENTS - Although our
reporting currency is the U.S. dollar, the functional currency of Joint Venture
is RMB. As a result, we are exposed to foreign exchange risk as our revenues and
results of operations may be affected by fluctuations in the exchange rate
between U.S. dollars and RMB. If the RMB depreciates against the U.S. dollar,
the value of our Renminbi revenues, earnings and assets as expressed in our U.S.
dollar financial statements will decline. In recent years, the RMB has been
appreciating against the U.S. dollar.





Assets
and liabilities of our operating subsidiaries are translated into U.S. dollars
at the exchange rate at the balance sheet date, their equity accounts are
translated at historical exchange rate and their income and expenses items are
translated using the average rate for the period. Any resulting exchange
differences are recorded in accumulated other comprehensive income or loss. The
Company is adopting such steps as the diversification of currencies used in
export sales, and the negotiation of export contracts with fixed exchange
rates.


22


As the
Company’s historical debt obligations are primarily short-term in nature, with
fixed interest rates, the Company does not have any 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.





OFF-BALANCE
SHEET AGREEMENTS





At June
30, 2010, we did not have any material commitments for capital expenditures or
have any transactions, obligations or relationships that could be considered
off-balance sheet arrangements.




(
2) Results of operations for the six months ended June 30, 2010 as compared to
the six months ended June 30, 2009.





SALES


Six
      months ended
                                          
                                          Six
      months ended30-Jun-10
                                          
                                          30-Jun-09(U.S. 
      dollars in millions)Air
      brake systems & related components
                                          $
                                          72.3
                                          
                                          
                                          
                                          86
                                          %
                                          $
                                          42.1
                                          
                                          
                                          
                                          84
                                          %Non-valve
      products
                                          $
                                          11.7
                                          
                                          
                                          
                                          14
                                          %
                                          $
                                          7.9
                                          
                                          
                                          
                                          16
                                          %Total
                                          $
                                          84.0
                                          
                                          
                                          
                                          100
                                          %
                                          $
                                          50.0
                                          
                                          
                                          
                                          100
                                          %





Sales
consist of air brake systems and related components manufactured by SORL and
sold to domestic original equipment manufacturers (OEM), aftermarket customers
and export market as well as distribution of non-valve auto parts sourced from
related parties.





Net sales
were $84,002,283 and $49,983,950 for the six months ended June 30, 2010 and
2009, respectively, an increase of $34.0 million or 68.1%.




A
breakdown of net sales revenue for these markets for the six months ended June
30, 2010 and 2009 fiscal years, respectively, is set forth below:




Six
                    months
                  
                  
                  Percent
                  
                  
                  Six
                    months
                  
                  
                  Percent
                  
                  
                  Percentageended
                  
                  
                  of
                  
                  
                  ended
                  
                  
                  of
                  
                  
                  Change30-Jun-10
                  
                  
                  Total
                    Sales
                  
                  
                  30-Jun-09
                  
                  
                  Total
                    Sales(U.S. dollars in million)China
      OEM market
                  
                  $
                  50.4
                  
                  
                  
                  60
                  %
                  
                  $
                  23.3
                  
                  
                  
                  47
                  %
                  
                  
                  116.3
                  %China
      Aftermarket
                  
                  $
                  13.1
                  
                  
                  
                  16
                  %
                  
                  $
                  13.7
                  
                  
                  
                  27
                  %
                  
                  
                  (4.4
                  )%International
      market
                  
                  $
                  20.5
                  
                  
                  
                  24
                  %
                  
                  $
                  13.0
                  
                  
                  
                  26
                  %
                  
                  
                  57.7
                  %Total
                  
                  $
                  84.0
                  
                  
                  
                  100
                  %
                  
                  $
                  50.0
                  
                  
                  
                  100
                  %
                  
                  
                  68.0
                  %





Global
financial conditions, involving a worldwide macroeconomic decline and weak
global auto market, caused the demand for our products to decline
during the first half year of 2009. However, the Chinese government’s 4
trillion RMB stimulus package, which positively affected the development of
China’s automobile industry, materially benefited our results in the first
half year of 2010. Further, we promoted our integrated system and modular
supplies of air brake systems to our OEM customers and we increasingly
focused on the light duty, bus and agricultural vehicle market in 2010. As a
result of these positive factors, our sales to the Chinese OEM
market increased by $27.1 million to $50.4 million for the first half
year of 2010, compared to $23.3 million for the same period of
2009.


23




We
achieved total revenue of $13.1 million in Chinese aftermarket sales for the six
months ended June 30, 2010, a slight decrease compared to $13.7 million for the
same period of 2009. The increased number of new vehicle sales in China and the
expiration of OEM warranties helped drive the increase in our aftermarket
business. Sales of our new model products, applicable to both OEM and
aftermarket, also grew during the first half of 2010. We will continue with our
strategies to further optimize our sales network, to help further penetrate into
new markets. Also, we will continue to focus on investing in new product
development for both the OEM market and the aftermarket, as a means to increase
our sales.




The global
financial crisis has negatively affected our international customers and caused
many world currencies to depreciate against the US dollar, while
the lack of confidence in the growth of the world macro-economy
caused our customers to decrease their inventories in order to lower their
risk in the first half year of 2009. With the recovery of global economy and
customers' confidence in the growth of economy in 2010, our export sales
increased by $7.5 million or 57.7%, to $20.5 million for the six months ended
June 30, 2010, as compared to $13.0 million for the same period of
2009.




COST
OF SALES AND GROSS PROFIT




For thesix months ended June 30,
2010, cost of sales was $60,874,960, an
increase of $24,825,336, or 68.9% from $36,049,624 for the same period last
year.Our gross profitincreased by66.0% from$13,934,326for the six months ended June 30,
2009to $23,127,323for the six months ended June 30,
2010.




Gross
margin decreased by 0.4% for the six months ended June 30, 2010, to 27.5% from
27.9% for the same period of 2009. The decrease in gross margin was
primarily due to the increased costs of  primary raw materials and payroll.
We focused on increasing management efficiency, improving the technologies of
our products, and improving our product portfolio to offset our gross profit
margin decrease. We believe that our continued expansion to the higher-profit
new valve products will also help us to maintain or increase our gross profit
margins.




SELLING
AND DISTRIBUTION EXPENSES





Selling
and distribution expenses were $4,827,404 for the six months ended June 30,
2010, as compared to $3,378,452 for the same period of 2009,
an increase of $1,448,952 or 42.9%.





The
increase was mainly due to the increased transportation expense and accrued
warranty expenses as a result of increased sales. As a percentage of
sales revenue, selling expenses decreased to 5.7% for the six months ended
June 30, 2010, as compared to 6.8% for the same period in
2009.





GENERAL
AND ADMINISTRATIVE EXPENSES





General
and administrative expenses were $5,090,776 for the six months ended June 30,
2010, as compared to $3,508,055 for the same period of 2009, an increase of
$1,582,721or 45.1%.





The
increase was mainly due to increased welfare costs for business expansion and
provisions for doubtful accounts. Because of the impact of the U.S.
financial crisis and weakening international macroeconomic factors, the Company
extended the payment term for accounts receivable for our international
customers. As a percentage of sales revenue, general and administrative
expenses decreased to 6.1% for the six months ended June 30, 2010, as
compared to 7.0% for the same period in 2009.


24




RESEARCH
AND DEVELOPMENT EXPENSE




Research and development expenses
include payroll, employee benefits, and other headcount-related expenses
associated with product development. Research and development expenses also
include third-party development costs. For the six months ended June 30, 2010,
research and development expense was $3,059,582, as compared to $1,557,758 for
the same period of 2009, an increase of $1,501,824. The Company will continue to
invest in new product development, particularly in upgrading traditional valve
products and in developing electronically controlled
products.




DEPRECIATION
AND AMORTIZATION




Depreciation and amortization expense
increased to $1,811,315for the six months ended
June 30, 2010, compared with that of $1,476,238for the same period of 2009, an increase of $335,077. The increase in depreciation and
amortization expense was primarily due to the purchase of production
equipment.




FINANCIAL
EXPENSE




Financial
expense mainly consists of interest expense and exchange loss. The
financial expense for the six months ended June 30, 2010 increased by
$307,728 to $345,819 from $38,091 for the same period of 2009,
which was mainly attributed to fluctuations in the exchange rate between
U.S. dollars and RMB. Management is studying alternative methods for managing
its risks associated with currency translation, such as the diversification of
currencies used in export sales.




OTHER
INCOME




Other
income was $253,065 for the six months ended June 30, 2010, as compared to
$215,461 for the six months ended June 30, 2009, an increase of
$37,604. The increase was mainly due to an increase in sales of raw
material scraps for the six months ended June 30, 2010.




INCOME
TAX




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 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 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 Ventures, the Joint
Venture was exempt from income taxes in the PRC for each of the fiscal years
ended December 31, 2005 and 2004. Thereafter, the Joint Venture was entitled
to a 50% income tax deduction for each of the three years ended December
31, 2008. Thus, the Joint Venture was exempted from PRC income tax in both
fiscal 2004 and 2005, and entitled to a tax concession of 50% of the
applicable income tax rate of 26.4% for the two years ended December 31, 2006
and 2007. With the new PRC Enterprise Income Tax Law, effective on 1st
January 2008, China’s enterprises are generally subject to a PRC income tax rate
of 25% and the Joint Venture was entitled to a tax concession of 50% of the
applicable income tax rate of 25% for the year ended December 31,
2008.





The
Company increased its investment in the Joint Venture as a result of its
financing in December, 2006. In accordance with the Income Tax Law of
the People's Republic of China on Foreign-invested Enterprises and Foreign
Enterprises, the Joint Venture was eligible for additional preferential tax
treatment for the years 2007 and 2008. In those years, the Joint Venture
was entitled to an income tax exemption on all pre-tax income generated by the
Company above its pre-tax income generated in the fiscal year 2006. In
2009, 2010 and 2011, the Joint Venture will enjoy a 50% exemption from the
applicable income tax rate of 25% on any pre-tax income above its 2006
pre-tax income. The above taxation exemption was superseded, because the Joint
Venture has been awarded the Chinese government's "High-Tech Enterprise"
designation. The High-Tech Enterprise certificate is valid for three years and
provides for a reduced tax rate of 15% for years 2009 through 2011. So,
the effective income tax rate will be 15% for years 2009 through
2011.





During
the six months ended June 30, 2010 and 2009, the Joint Venture received an
income tax benefit of $930,699 and $0 in accordance with PRC preferential
income tax policy regarding the purchase of domestically manufactured equipment,
which is subject to assessment and approval from the local state tax bureau.
Income tax expense of $615,542 and $1,272,091 was recorded for
the six months ended June 30, 2010 and 2009, respectively.


25




STOCK-BASED
COMPENSATION




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 was three years. Total deferred stock-based compensation
expenses related to stock options amounted to $178,904. This amount
was amortized over the three year vesting period in a manner consistent
with FASB ASC 505-50. The amortization of deferred stock-based compensation for
these equity arrangements were $0 and $9,935 for the six months ended
June 30, 2010 and 2009, respectively. As of December 31, 2009, the 60,000
options had expired unexercised.





On June
20, 2007, the Company granted to its previous senior manager of investor
relations, David Ming He, options to purchase 4,128 shares of its common stock
with an exercise price of $7.25 per share. In accordance with the agreement, the
option became vested and exercisable immediately on the date thereof. Total
deferred stock-based compensation expenses related to the 4,128 stock options
granted amounted to $23,201. This amount was charged to General and
administrative expenses during the fiscal year ended December 31, 2007. On
November 13, 2009, David Ming He exercised the options on a cashless basis and
received 460 shares of common stock, based on a formula provided for in the
initial grant.





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 had retained Maxim
Group LLC and Chardan Capital Markets, LLC as its exclusive financial advisors
and investment bankers for a period of twelve months from the date of January 5,
2006. The agreement has now expired. Total expense associated with the 100,000
warrants amounted to $299,052, which, consistent with FASB ASC 505-50, was
recognized during the fiscal year ended December 31, 2006.




On
November 9, 2009, Maxim Group LLC transferred 35,000 warrants to OTA LLC and
35,000 warrants to Maxim Partners, LLC respectively. OTA LLC exercised the
warrants on a cashless basis on November 12, 2009 and received 6,609 shares of
common stock, based on a formula provided for in the initial grant. Maxim
Partners, LLC and Chardan Capital Markets, LLC transferred an additional 35,000
warrants and 30,000 warrants to OTA LLC on December 15, 2009 and December 11,
2009, respectively. OTA LLC exercised the warrants on a cashless basis on
December 18, 2009 and received 18,598 shares of common stock, based on a formula
provided for in the initial grant.





There
were no options or warrants outstanding as of June 30, 2010.





Although
the Company anticipates future issuances of stock awards could have a material
impact on reported net income in future financial statements, we do not expect
them to have a material impact on future cash flow.





NET
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST IN SUBSIDIARIES




Non-controlling
interest in subsidiaries represents a 10% non-controlling interest in the
Chinese located Joint Venture and 40% non-controlling interest in the Hong Kong
located Joint Venture, in each case held by our Joint Venture Partners. Net
income attributable to non-controlling interest in subsidiaries amounted to
$842,775 and $439,066 for the six months ended June 30, 2010 and 2009,
respectively.





NET
INCOME ATTRIBUTABLE TO STOCKHOLDERS




The net
income attributable to stockholders for the six months ended June 30,
2010 increased by $4,600,319, to $8,541,977 from $3,941,658 for the
six months ended June 30, 2009 due to the factors discussed above. Earnings per
share (“EPS”), both basic and diluted, for the six months ended June 30, 2010
and 2009, were $0.45 and $0.22 per share, respectively.


26


FINANCIAL
CONDITION





Liquidity
and Capital Resources


OPERATING
- Net cash used in operating activities was $10,600,484 for six months
ended June 30, 2010 compared with $8,537,485 of net cash provided in operating
activities in the same period in 2009, a decrease of $19,137,969, primarily
due to the increased cash outflow resulted by changes in accounts receivable,
notes receivable, inventory and prepayments, accounts Payable and notes payable.
Most accounts receivable of our OEM customers were converted into notes
receivable during the six months ended June 30, 2010. Those notes mature within
one to six months and may be transferred to our material suppliers as a payment
at anytime. We therefore do not believe that the notes receivable decrease
our current liquidity.





At June 30, 2010, the Company had cash
and cash equivalents of $7,975,715, as compared to cash and cash equivalents of
$10,255,259 at December 31, 2009. The Company had working capital of
$91,410,190 at June 30,
2010, as compared to working capital of $76,130,322 at December 31, 2009,
reflecting current ratios of 5.01:1 and 5.06:1,
respectively.





INVESTING
- During the six months ended June 30, 2010, the Company expended net cash
of $6,672,691 in investing activities, mainly for acquisition of new equipment
to support the growth of the business. For the six months ended June 30, 2009,
the Company utilized $576,622 in investing activities.





FINANCING
- During the second quarter ended June 30, 2010, the Company received aggregate
bank loans in the amount of $4,483,578 under its credit facilities. During the
three months ended March 31, 2010, net cash provided by financing activities was
primarily attributable to the net proceeds of our public offering of
approximately $9,399,978. Additionally, another capital increase of $1,038,900
was contributed by Ruili Group to the Joint Venture. Net cash provided
by financing activities was $14,922,456 for six months ended June 30,
2010 compared with $0 in the same period in 2009. The Company had no
borrowings under its credit facilities during the six months ended
June 30, 2009.





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 collection of accounts receivable from our customers.
During the second quarter of 2010, the Company continued developing higher
profit margin new products, and adopting steps for further cost saving such as
improving material utilization rate. Meanwhile, the Company maintains good
relationships with local banks. We believe that our current cash and cash
equivalents and anticipated cash flow generated from operations and our bank
lines of credit will be sufficient to finance our working capital requirements
for the foreseeable future.





CURRENCY
RISK AND FINANCIAL INSTRUMENTS - Although our reporting currency is the U.S.
dollar, the functional currency of Joint Venture is RMB. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations may
be affected by fluctuations in the exchange rate between U.S. dollars and RMB.
If the RMB depreciates against the U.S. dollar, the value of our Renminbi
revenues, earnings and assets as expressed in our U.S. dollar financial
statements will decline. In recent years, the RMB has been appreciating against
the U.S. dollar.





Assets
and liabilities of our operating subsidiaries are translated into U.S. dollars
at the exchange rate at the balance sheet date, their equity accounts are
translated at historical exchange rate and their income and expenses items are
translated using the average rate for the period. Any resulting exchange
differences are recorded in accumulated other comprehensive income or loss. The
Company is adopting such steps as the diversification of currencies used in
export sales, and the negotiation of export contracts with fixed exchange
rates.





As the
Company’s historical debt obligations are primarily short-term in nature, with
fixed interest rates, the Company does not have any 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.


27


OFF-BALANCE
SHEET AGREEMENTS





At June
30, 2010, we did not have any material commitments for capital expenditures or
have any transactions, obligations or relationships that could be considered
off-balance sheet arrangements.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





See the
discussion in Item 2 above, “Liquidity and Capital Resources”.





ITEM
4. CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures:




As of the
end of the period covered by this report, management, including our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
(“Exchange Act”)). Based upon that evaluation, our chief executive officer and
chief financial officer concluded that the disclosure controls and procedures
were effective to ensure that information required to be disclosed in reports we
file or submit under the Exchange Act is (1) recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and (2) accumulated and communicated
to our management to allow their timely decisions regarding required
disclosure.




Changes
in Internal Control over Financial Reporting:




There
were no changes in the Company’s internal control over financial reporting
during the quarter ended June 30, 2010 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II OTHER INFORMATION





ITEM 6. EXHIBITS


(a)
              Exhibits:31.1
              Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.31.2
              Certification
      of Principal Accounting Officer pursuant to Rule 13a-14 and Rule 15d-14(a)
      promulgated under the Securities and Exchange Act of 1934, as
      amended.32.1
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


28


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
      : August 12, 2010
                SORL
      AUTO PARTS, INC.By: /s/ Xiao Ping ZhangName:
      Xiao Ping ZhangTitle:
      Chief Executive Officer





By: /s/ Zong Yun ZhouName:
      Zong Yun ZhouTitle:
      Chief Financial Officer(Principal
      Financial Officer)


29