**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION **

**FORM      10-Q **

| x | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

| o | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

**SORL      AUTO PARTS, INC.**

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

----

----

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

**18,279,254      **

----

SORL      AUTO      PARTS, INC. 

|                    |                                                                                                                                                                                                 | **Page**                 |
|-------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                    |                                                                                                                                                                                                 |                     |
| PART                I.  | FINANCIAL                INFORMATION (Unaudited)                                                                                                                                                     |                     |
|                    |                                                                                                                                                                                                 |                     |
| Item                1.  | Financial                Statements:                                                                                                                                                                 |                     |
|                    |                                                                                                                                                                                                 |                     |
|                    | Condensed                Consolidated Balance Sheets as of September 30, 2008 (Unaudited)                and                December 31, 2007 (Audited)                                              | 2                        |
|                    |                                                                                                                                                                                                 |                     |
|                    | Condensed                Consolidated Statements of Income and Comprehensive Income (Unaudited)                for                the Three Months and Nine months Ended September 30, 2008 and 2007 | 3                        |
|                    |                                                                                                                                                                                                 |                     |
|                    | Condensed                Consolidated Statements of Cash Flows (Unaudited) for the Three Months                and                Nine months Ended September 30, 2008 and 2007                      | 4                        |
|                    |                                                                                                                                                                                                 |                     |
|                    | Condensed                Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three                months and Nine months Ended September 30, 2008 and 2007                     | 5                        |
|                    |                                                                                                                                                                                                 |                     |
|                    | Notes                to the Condensed Consolidated Financial Statements (Unaudited)                                                                                                                  | 6                        |
|                    |                                                                                                                                                                                                 |                     |
| Item                2.  | Management’s                Discussion and Analysis or Financial Condition and Results of Operations                                                                                           | 16                       |
|                    |                                                                                                                                                                                                 |                     |
| Item                3.  | Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                            | 26                       |
|                    |                                                                                                                                                                                                 |                     |
| Item                4T. | Controls                and Procedures                                                                                                                                                               | 27                       |
|                    |                                                                                                                                                                                                 |                     |
| PART                II. | OTHER                INFORMATION                                                                                                                                                                     | 27                       |
|                    |                                                                                                                                                                                                 |                     |
| Item                4.  | Submission                of Matters To a Vote of Security Holders                                                                                                                                   |                  27 |
|                    |                                                                                                                                                                                                 |                     |
| Item                6.  | Exhibits                                                                                                                                                                                             | 28                       |
|                    |                                                                                                                                                                                                 |                     |
| SIGNATURES              |                                                                                                                                                                                                 | 29                       |

----

**SORL      Auto Parts, Inc. and Subsidiaries**

**Condensed      Consolidated Balance Sheets**

**September      30, 2008(unaudited) and December 31, 2007**

|                                                                     |   | **September 30,****2008** |                  | **December 31,****2007** |    |
|--------------------------------------------------------------------------|--------|--------------------------------|-----------------------|-------------------------------|---------|
|                                                                     |   | **(Unaudited)**                |                  | **(Audited)**                 |    |
| **Assets**                                                               |   |                           |                  |                          |    |   |   |
| **Current                  Assets**                                      |   |                           |                  |                          |    |   |   |
| Cash                  and Cash Equivalents                               |   | US$                            |  5,950,987       |                          | US$     |  4,340,211 |   |
| Accounts                  Receivable, Net of Provision                   |   |                           | 36,210,887            |                          |    | 30,586,239 |   |
| Notes                  Receivable                                        |   |                           | 6,809,907             |                          |    | 9,410,385 |   |
| Inventory                                                                |   |                           | 20,831,986            |                          |    | 8,220,373 |   |
| Prepayments                                                              |   |                           | 2,730,862             |                          |    | 1,336,212 |   |
| Other                  Current Assets                                    |   |                           | 3,614,446             |                          |    | 4,275,294 |   |
| **Total                  Current Assets**                                |   |                           | 76,149,075            |                          |    | 58,168,714 |   |
| **Fixed                  Assets**                                        |   |                           |                  |                          |    |   |   |
| Property,                  Plant and Equipment                           |   |                           | 32,545,735            |                          |    | 27,889,182 |   |
| Less:                  Accumulated Depreciation                          |   |                           | (8,325,938            | )                             |    | (6,094,229 | ) |
| Property,                  Plant and Equipment, Net                      |   |                           | 24,219,797            |                          |    | 21,794,953 |   |
|                                                                     |   |                           |                  |                          |    |   |   |
| **Land                  Use Rights, Net**                                |   |                           | 14,632,351            |                          |    | 13,889,705 |   |
|                                                                     |   |                           |                  |                          |    |   |   |
| **Other                  Assets**                                        |   |                           |                  |                          |    |   |   |
| Deferred                  Compensation Cost-Stock Options                |   |                           | 24,844                |                          |    | 69,571 |   |
| Intangible                  Assets                                       |   |                           | 161,733               |                          |    | 76,150 |   |
| Less:                  Accumulated Amortization                          |   |                           | (35,274               | )                             |    | (25,116 | ) |
| Intangible                  Assets, Net                                  |   |                           | 126,459               |                          |    | 51,034 |   |
| Other                  Non-current Assets                                |   |                           | -                     |                          |    | - |   |
| Total                  Other Assets                                      |   |                           | 151,303               |                          |    | 120,605 |   |
| **Total                  Assets**                                        |   | **US$**                        | ** 115,152,526** |                          | **US$** | ** 93,973,977** |   |
|                                                                     |   |                           |                  |                          |    |   |   |
| **Liabilities                  and Shareholders' Equity**                |   |                           |                  |                          |    |   |   |
| **Current                  Liabilities**                                 |   |                           |                  |                          |    |   |   |
| Accounts                  Payable and Notes Payable                      |   | US$                            |  5,093,924       |                          | US$     |  5,305,172 |   |
| Deposit                  Received from Customers                         |   |                           | 5,538,253             |                          |    | 2,079,946 |   |
| Short                  Term Bank Loans                                   |   |                           | 2,002,533             |                          |    | 3,370,328 |   |
| Income                  Tax Payable                                      |   |                           | 491,587               |                          |    | 373,769 |   |
| Accrued                  Expenses                                        |   |                           | 3,233,396             |                          |    | 1,859,938 |   |
| Other                  Current Liabilities                               |   |                           | 429,628               |                          |    | 463,563 |   |
| **Total                  Current Liabilities**                           |   |                           | 16,789,321            |                          |    | 13,452,716 |   |
| **Minority                  Interest**                                   |   |                           | 9,812,875             |                          |    | 8,024,152 |   |
| **Shareholders'                  Equity**                                |   |                           |                  |                          |    |   |   |
| Common                  Stock - $0.002 Par Value; 50,000,000 Authorized, |   |                           |                  |                          |    |   |   |
| 18,279,254                  - Issued and Outstanding as of               |   |                           |                  |                          |    |   |   |
| June                  30, 2008 and December 31, 2007 respectively        |   |                           | 36,558                |                          |    | 36,558 |   |
| Additional                  Paid In Capital                              |   |                           | 37,498,452            |                          |    | 37,498,452 |   |
| Reserves                                                                 |   |                           | 2,897,555             |                          |    | 1,882,979 |   |
| Accumulated                  Other Comprehensive Income                  |   |                           | 10,876,022            |                          |    | 5,432,189 |   |
| Retained                  Earnings                                       |   |                           | 37,241,743            |                          |    | 27,646,931 |   |
|                                                                     |   |                           | 88,550,330            |                          |    | 72,497,109 |   |
| **Total                  Liabilities and Shareholders' Equity**          |   | **US$**                        | ** 115,152,526** |                          | **US$** | ** 93,973,977** |   |

**The      accompanying notes are an integral part of these financial      statements**

----

**SORL      Auto Parts, Inc. and Subsidiaries**

**Condensed      Consolidated Statements of Income and Comprehensive Income(unaudited)**

**For      The Three Months and Nine Months Ended on September 30, 2008 and      2007**

|                                                                |   | **Three Months Ended September 30,** |               | **Nine Months Ended September 30,** |   |
|---------------------------------------------------------------------|--------|----------------------------------------------------------|--------------------|---------------------------------------------------------|--------|
|                                                                |   | **2008**                                                 |               | **2007**                                                |   | **2008** |   | **2007** |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Sales                                                               |   | US$                                                      | 32,967,579         |                                                    |   | 29,703,227 |   |   | 105,812,140 |   |   | 83,309,788 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Cost                  of Sales                                      |   |                                                     | 24,550,613         |                                                    |   | 23,064,724 |   |   | 77,343,967 |   |   | 64,620,063 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Gross                  Profit                                       |   |                                                     | 8,416,966          |                                                    |   | 6,638,503 |   |   | 28,468,173 |   |   | 18,689,725 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Expenses:                                                           |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Selling                  and Distribution Expenses                  |   |                                                     | 2,261,143          |                                                    |   | 1,928,763 |   |   | 6,872,221 |   |   | 4,444,053 |   |
| General                  and Administrative Expenses                |   |                                                     | 3,018,390          |                                                    |   | 1,682,071 |   |   | 7,712,808 |   |   | 4,402,694 |   |
| Financial                  Expenses                                 |   |                                                     | 221,694            |                                                    |   | 349,056 |   |   | 974,690 |   |   | 606,492 |   |
|                                                                |   |                                           |     |                                                    |   |     |   |   |     |   |   |      |   |
| Total                  Expenses                                     |   |                                                     | 5,501,227          |                                                    |   | 3,959,890 |   |   | 15,559,719 |   |   | 9,453,239 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Operating                  Income                                   |   |                                                     | 2,915,739          |                                                    |   | 2,678,613 |   |   | 12,908,454 |   |   | 9,236,486 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Other                  Income                                       |   |                                                     | 276,752            |                                                    |   | 118,334 |   |   | 610,592 |   |   | 502,606 |   |
| Non-Operating                  Expenses                             |   |                                                     | (119,677           | )                                                       |   | (10,357 | ) |   | (374,640 | ) |   | (94,996 | ) |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Provision for Income Taxes    |   |                                                     | 3,072,814          |                                                    |   | 2,786,590 |   |   | 13,144,406 |   |   | 9,644,096 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Provision                  for Income Taxes                         |   |                                                     | 468,935            |                                                    |   | 434,139 |   |   | 1,351,166 |   |   | 373,883 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Net                  Income Before Minority Interest                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| &                  Other Comprehensive Income                   |   | US$                                                      | 2,603,879          |                                                    |   | 2,352,451 |   |   | 11,793,240 |   |   | 9,270,213 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Minority                  Interest                                  |   |                                                     | 261,904            |                                                    |   | 239,867 |   |   | 1,183,852 |   |   | 936,986 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Net                  Income Attributable to Shareholders            |   |                                                     | 2,341,975          |                                                    |   | 2,112,584 |   |   | 10,609,388 |   |   | 8,333,227 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Foreign                  Currency Translation Adjustment            |   |                                                     | 578,065            |                                                    |   | 1,025,919 |   |   | 6,048,704 |   |   | 2,723,508 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Minority                  Interest's Share                          |   |                                                     | (57,807            | )                                                       |   | (102,592 | ) |   | (604,871 | ) |   | (272,351 | ) |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Comprehensive                  Income (Loss)                        |   |                                                     | 2,862,233          |                                                    |   | 3,035,911 |   |   | 16,053,221 |   |   | 10,784,384 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Weighted                  average common share – Basic   |   |                                                     | 18,279,254         |                                                    |   | 18,278,805 |   |   | 18,279,254 |   |   | 18,276,366 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| Weighted                  average common share – Diluted |   |                                                     | 18,283,011         |                                                    |   | 18,312,574 |   |   | 18,287,094 |   |   | 18,323,125 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| EPS                  - Basic                                        |   |                                                     | 0.13               |                                                    |   | 0.12 |   |   | 0.58 |   |   | 0.46 |   |
|                                                                |   |                                                     |               |                                                    |   |   |   |   |   |   |   |   |   |
| EPS –                  Diluted                           |   |                                                     | 0.13               |                                                    |   | 0.12 |   |   | 0.58 |   |   | 0.45 |   |

**The      accompanying notes are an integral part of these financial      statements**

----

**SORL      Auto Parts, Inc. and Subsidiaries**

**Condensed      Consolidated Statements of Cash Flows(unaudited)**

**For      The Three Months and Nine Months Ended on September 30, 2008 and      2007**

|                                                                                                                |   | **Three Months Ended September 30,** |                | **Nine Months Ended September 30,** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------------------|---------------------------------------------------------|--------|
|                                                                                                                |   | **2008**                                                 |                | **2007**                                                |   | **2008** |   | **2007** |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Cash                Flows from Operating Activities**                                                             |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Net                Income                                                                                           |   | US$                                                      |  2,341,975     |                                                    |   | 2,112,584 |   |   | 10,609,388 |   |   | 8,333,227 |   |
| **Adjustments                to reconcile net income (loss) to net cash from operating                activities:** |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Minority                Interest                                                                                    |   |                                                     | 261,904             |                                                    |   | 239,867 |   |   | 1,183,852 |   |   | 936,986 |   |
| Bad                Debt Expense                                                                                     |   |                                                     | 666,231             |                                                    |   | (163,553 | ) |   | 687,513 |   |   | 23,623 |   |
| Depreciation                and Amortization                                                                        |   |                                                     | 695,872             |                                                    |   | 447,548 |   |   | 2,024,931 |   |   | 1,157,942 |   |
| Stock-Based                Compensation Expense                                                                     |   |                                                     | 14,909              |                                                    |   | 46,117 |   |   | 44,727 |   |   | 99,136 |   |
| Loss                on disposal of Fixed Assets                                                                     |   |                                                     | 23,176              |                                                    |   | (1,870 | ) |   | 25,695 |   |   | (762 | ) |
| **Changes                in Assets and Liabilities:**                                                               |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Account                Receivables                                                                                  |   |                                                     | 2,220,955           |                                                    |   | 1,198,001 |   |   | (3,871,416 | ) |   | (3,436,960 | ) |
| Notes                Receivables                                                                                    |   |                                                     | 6,053,775           |                                                    |   | 3,449,736 |   |   | 3,322,456 |   |   | (2,165,666 | ) |
| Other                Currents Assets                                                                                |   |                                                     | (1,347,718          | )                                                       |   | (238,235 | ) |   | 833,926 |   |   | (1,150,292 | ) |
| Inventory                                                                                                           |   |                                                     | (7,198,208          | )                                                       |   | (1,339,563 | ) |   | (11,840,607 | ) |   | (4,034,078 | ) |
| Prepayments                                                                                                         |   |                                                     | 596,577             |                                                    |   | 45,087 |   |   | (1,232,259 | ) |   | 3,377,736 |   |
| Accounts                Payable and Notes Payable                                                                   |   |                                                     | (2,958,382          | )                                                       |   | (252,806 | ) |   | (681,802 | ) |   | 738,224 |   |
| Income                Tax Payable                                                                                   |   |                                                     | (240,729            | )                                                       |   | 774,165 |   |   | 117,818 |   |   | 358,547 |   |
| Deposits                Received from Customers                                                                     |   |                                                     | 1,953,771           |                                                    |   | 56,601 |   |   | 3,265,122 |   |   | 338,953 |   |
| Other                Current Liabilities and Accrued Expenses                                                       |   |                                                     | (85,437             | )                                                       |   | (459,064 | ) |   | 1,118,500 |   |   | (356,077 | ) |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Net                Cash Flows from Operating Activities**                                                         |   |                                                     | **2,998,671**       |                                                    |   | **5,914,615** |   |   | **5,607,844** |   |   | **4,220,539** |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Cash                Flows from Investing Activities**                                                             |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Acquisition                of Property and Equipment                                                                |   |                                                     | (1,559,786          | )                                                       |   | (5,521,198 | ) |   | (2,669,214 | ) |   | (10,856,559 | ) |
| Acquisition                of Land Use Rights                                                                       |   |                                                     | -                   |                                                    |   | (7,377,271 | ) |   | - |   |   | (7,377,271 | ) |
| Investment                in Intangible Assets                                                                      |   |                                                     | -                   |                                                    |   | (5,818 | ) |   | (78,737 | ) |   | (25,733 | ) |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Net                Cash Flows from Investing Activities**                                                         |   |                                                     | **(1,559,786**      | **)**                                                   |   | **(12,904,287** | **)** |   | **(2,747,951** | **)** |   | **(18,259,563** | **)** |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Cash                Flows from Financing Activities**                                                             |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Proceeds                from (Repayment of) Bank Loans                                                              |   |                                                     | -                   |                                                    |   | 3,159,176 |   |   | (1,502,107 | ) |   | 4,652,112 |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Net                Cash flows from Financing Activities**                                                         |   |                                                     | -                   |                                                    |   | **3,159,176** |   |   | **(1,502,107** | **)** |   | **4,652,112** |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Effects                on changes in foreign exchange rate**                                                      |   |                                                     | 30,925              |                                                    |   | 51,979 |   |   | 252,990 |   |   | 222,236 |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Net                Change in Cash and Cash Equivalents                                                              |   |                                                     | 1,469,810           |                                                    |   | (3,778,517 | ) |   | 1,610,776 |   |   | (9,164,676 | ) |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Cash                and Cash Equivalents- Beginning of the year                                                     |   |                                                     | 4,481,177           |                                                    |   | 5,751,342 |   |   | 4,340,211 |   |   | 11,137,501 |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Cash                and cash Equivalents - End of the year**                                                      |   | **US$**                                                  | ** 5,950,987** |                                                    |   | **1,972,825** |   |   | **5,950,987** |   |   | **1,972,825** |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
|                                                                                                                |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| **Supplemental                Cash Flow Disclosures:**                                                              |   |                                                     |                |                                                    |   |   |   |   |   |   |   |   |   |
| Interest                Paid                                                                                        |   |                                                     |  33,564      |                                                    |   | 105,363 |   |   | 136,689  |   |   | 118,277 |   |
| Tax                Paid                                                                                             |   |                                                     |  512,562     |                                                    |   | 331,779 |   |   | 2,901,083  |   |   | 1,185,215 |   |

**The      accompanying notes are an integral part of these financial      statements**

----

**Condensed      Consolidated Statements of Changes in Shareholders' Equity**

| **Three                Months Ended September 30, 2008 and 2007** |   |
|-------------------------------------------------------------------|--------|
|                                                              |   | **Number ** |   | **Common** |   | **Additional** |   | **Reserves** |   | **Retained ** |   | **Accumu. Other** |   |   |   |   |   |
|                                                              |   | **of Share** |   | **Stock** |   | **Paid-in** |   |   |   | **Earnings** |   | **Comprehensive** |   | **Shareholders'** |   | **Minority** |   |
|                                                              |   |   |   |   |   | **Capital** |   |   |   | **(Deficit)** |   | **Income** |   | **Equity** |   | **Interest** |   |
| **Beginning                Balance - July 1, 2007**               |   |   | **18,275,126** |   |   | **36,550** |   |   | **37,467,252** |   |   | **1,424,523** |   |   | **23,581,999** |   |   | **2,630,299** |   |   | **65,140,623** |   |   | **7,203,435** |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                Income                                         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 2,112,584 |   |   | - |   |   | 2,112,584 |   |   | 239,867 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income                         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 923,327 |   |   | 923,327 |   |   | 102,592 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                                |   |   | - |   |   | - |   |   | - |   |   | 215,880 |   |   | (215,880 | ) |   | - |   |   | - |   |   | - |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                Stock issued to previous employees          |   |   | 4,128.00 |   |   | 8.00 |   |   | 31,200 |   |    |                    |   |   | - |   |   | - |   |   | 31,208 |   |   | - |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ***Ending                Balance - September 30, 2007***          |   |   | **18,279,254** |   |   | **36,558** |   |   | **37,498,452** |   |   | **1,640,403** |   |   | **25,478,703** |   |   | **3,553,626** |   |   | **68,207,742** |   |   | **7,545,894** |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Beginning                Balance - July 1, 2008**               |   |   | **18,279,254** |   |   | **36,558** |   |   | **37,498,452** |   |   | **2,661,841** |   |   | **35,135,482** |   |   | **10,355,764** |   |   | **85,688,097** |   |   | **9,493,164** |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                Income                                         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 2,341,975 |   |   | - |   |   | 2,341,975 |   |   | 261,904 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income                         |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 520,258 |   |   | 520,258 |   |   | 57,807 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                                |   |   | - |   |   | - |   |   | - |   |   | 235,714 |   |   | (235,714 | ) |   | - |   |   | - |   |   | - |   |
|                                                    |   |    |                         |   |    |      |   |    |                    |   |    |                        |   |    |                      |   |    |                         |   |    |                       |   |    |                       |   |
| ***Ending                Balance - September 30, 2008***          |   |   | **18,279,254** |   |   | **36,558** |   |   | **37,498,452** |   |   | **2,897,555** |   |   | **37,241,743** |   |   | **10,876,022** |   |   | **88,550,330** |   |   | **9,812,875** |   |

**Nine      Months Ended September 30, 2008 and 2007**

|                                                     |   | **Number **  |           | **Common** |   | **Additional** |   | **Reserves** |           | **Retained ** |   | **Accumu. Other** |   |              |           |         |   |
|----------------------------------------------------------|--------|-------------------|----------------|------------|--------|----------------|--------|--------------|----------------|--------------------|--------|------------------------|--------|-------------------|----------------|--------------|--------|
|                                                     |   | **of Share** |           | **Stock**  |   | **Paid-in**    |   |         |           | **Earnings**       |   | **Comprehensive**      |   | **Shareholders'** |           | **Minority** |   |
|                                                     |   |              |           |       |   | **Capital**    |   |         |           | **(Deficit)**      |   | **Income**             |   | **Equity**        |           | **Interest** |   |
| **Beginning                Balance - January 1, 2007**   |   |              | **18,275,126** |       |   | **36,550**     |   |         | **37,444,051** |               |   | **797,116**            |   |              | **17,988,763** |         |   | **1,102,469** |   |   | **57,368,949** |   |   | **6,336,557** |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Net                Income                                |   |              | -              |       |   | -              |   |         | -              |               |   | -                      |   |              | 8,333,227      |         |   | - |   |   | 8,333,227 |   |   | 936,986 |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income                |   |              | -              |       |   | -              |   |         | -              |               |   | -                      |   |              | -              |         |   | 2,451,157 |   |   | 2,451,157 |   |   | 272,351 |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                       |   |              | -              |       |   | -              |   |         | -              |               |   | 843,287                |   |              | (843,287       | )            |   | - |   |   | - |   |   | - |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| 4,128                options issued                      |   |              | -              |       |   | -              |   |         | 23,201         |               |   | -                      |   |              | -              |         |   | - |   |   | 23,201 |   |   | - |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Common                Stock issued to previous employees |   |              | 4,128.00       |       |   | 8.00           |   |         | 31,200         |               |   | -                      |   |              | -              |         |   | - |   |   | 31,208 |   |    |                     |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| ***Ending                Balance - September 30, 2007*** |   |              | **18,279,254** |       |   | **36,558**     |   |         | **37,498,452** |               |   | **1,640,403**          |   |              | **25,478,703** |         |   | **3,553,626** |   |   | **68,207,742** |   |   | **7,545,894** |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| **Beginning                Balance - January 1, 2008**   |   |              | **18,279,254** |       |   | **36,558**     |   |         | **37,498,452** |               |   | **1,882,979**          |   |              | **27,646,931** |         |   | **5,432,189** |   |   | **72,497,109** |   |   | **8,024,152** |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Net                Income                                |   |              | -              |       |   | -              |   |         | -              |               |   | -                      |   |              | 10,609,388     |         |   | - |   |   | 10,609,388 |   |   | 1,183,852 |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income                |   |              | -              |       |   | -              |   |         | -              |               |   | -                      |   |              | -              |         |   | 5,443,833 |   |   | 5,443,833 |   |   | 604,871 |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                       |   |              | -              |       |   | -              |   |         | -              |               |   | 1,014,576              |   |              | (1,014,576     | )            |   | - |   |   | - |   |   | - |   |
|                                                     |   |              |           |       |   |           |   |         |           |               |   |                   |   |              |           |         |   |   |   |   |   |   |   |   |   |
| ***Ending                Balance - September 30, 2008*** |   |              | **18,279,254** |       |   | **36,558**     |   |         | **37,498,452** |               |   | **2,897,555**          |   |              | **37,241,743** |         |   | **10,876,022** |   |   | **88,550,330** |   |   | **9,812,875** |   |

**The      accompanying notes are an integral part of these financial      statements**

----

**NOTES      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS **

**NOTE      A - DESCRIPTION OF BUSINESS **

**NOTE      B - BASIS OF PRESENTATION **

**NOTE      C - RECENTLY ISSUED FINANCIAL STANDARDS **

----

*The      Hierarchy of Generally Accepted Accounting Principles*

**NOTE      D - RELATED PARTY TRANSACTIONS **

----

|                                                          |   | **Three Months Ended September 30, ** |         | **Nine Months Ended September 30,** |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------|--------------|---------------------------------------------------------|--------|
|                                                          |   | **2008**                                                       |         | **2007**                                                |   | **2008** |   | **2007** |   |
| PURCHASES                PRODUCT AND PACKAGING MATERIAL FROM: |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| Ruili                Group Co., Ltd.                          |   | $                                                              | 9,295,010    |                                                    | $      | 7,577,793 |   | $ | 28,448,919 |   | $ | 20,256,572 |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| Total                                                         |   | $                                                              | 9,295,010    |                                                    | $      | 7,577,793 |   | $ | 28,448,919 |   | $ | 20,256,572 |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| PURCHASES                PLANT AND LAND USE RIGHTS FROM :     |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| Ruili                Group Co., Ltd.                          |   | $                                                              | —      |                                                    | $      | 20,237,525 |   | $ | — |   | $ | 20,237,525 |   |
|                                                          |   | $                                                              | —      |                                                    | $      | 20,237,525 |   | $ | — |   | $ | 20,237,525 |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| SALES                TO:                                      |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |
| Ruili                Group Co., Ltd.                          |   | $                                                              | 540,304      |                                                    | $      | — |   | $ | 2,362,453 |   | $ | 914,683 |   |
|                                                          |   |                                                           |    |                                                    |   |   |   |   |   |   |   |   |   |
| Total                                                         |   | $                                                              | 540,304      |                                                    | $      | — |   | $ | 2,362,453 |   | $ | 914,683 |   |
|                                                          |   |                                                           |         |                                                    |   |   |   |   |   |   |   |   |   |

----

|                                 |   | **September 30,** |    | **December 31, ** |   |
|--------------------------------------|--------|------------------------|---------|-----------------------------|--------|
|                                 |   | **2008**               |    | **2007**                    |   |
| ACCOUNTS                PAYABLE      |   |                   |    |                        |   |   |   |
| Ruili                Group Co., Ltd. |   | $                      | — |                        | $      | 97,503 |   |
| Total                                |   | $                      | — |                        | $      | 97,503 |   |
|                                 |   |                   |    |                        |   |   |   |
| Prepayment                           |   |                   |    |                        |   |   |   |
| Ruili                Group Co., Ltd. |   | $                      | 905,913 |                        | $      | — |   |
| Total                                |   | $                      | 905,913 |                        | $      | — |   |
|                                 |   |                   |    |                        |   |   |   |
| OTHER                CURRENT ASSETS  |   |                   |    |                        |   |   |   |
| Ruili                Group Co., Ltd. |   | $                      | — |                        | $      | 1,761,007 |   |
| Total                                |   | $                      | — |                        | $      | 1,761,007 |   |

**NOTE      E - ACCOUNTS RECEIVABLE**

|                                          |   | **September 30, ** |                                                         | **December 31,** |         |
|-----------------------------------------------|--------|------------------------------|--------------------------------------------------------------|-----------------------|--------------|
|                                          |   | **2008**                     |                                                         | **2007**              |         |
| Beginning                    balance          |   | $                            | 31,296                                                       |                  | $            | 8,769 |   |
| Add:                    Increase to allowance |   |                         | 657,235                                                      |                  |         | 19,218 |   |
| Less:                    Accounts written off |   |                    |            |                  |    |     |   |
| Ending                    balance             |   | $                            |                      688,531                          |                  | $            | 27,987 |   |

|                                                   |   | **September 30, ** |       | **December 31,** |   |
|--------------------------------------------------------|--------|------------------------------|------------|-----------------------|--------|
|                                                   |   | **2008**                     |       | **2007**              |   |
| Accounts                  receivable                   |   | $                            | 36,899,418 |                  | $      | 30,614,226 |   |
| Less:                  allowance for doubtful accounts |   |                         | (688,531   | )                     |   | (27,987 | ) |
| Account                  receivable balance, net       |   | $                            | 36,210,887 |                  | $      | 30,586,239 |   |

----

**NOTE      F - INVENTORIES**

|                           |   | **September 30, ** |                               | **December 31,** |   |
|--------------------------------|--------|------------------------------|------------------------------------|-----------------------|--------|
|                           |   | **2008**                     |                               | **2007**              |   |
| Raw                Material    |   | $                            | 4,282,310                          |                  | $      | 2,354,637 |   |
| Work                in process |   |                         | 3,987,574                          |                  |   | 4,157,643 |   |
| Finished                Goods  |   |                         |                  12,562,102 |                  |   |                  1,708,093 |   |
| Total                Inventory |   | $                            | 20,831,986                         |                  | $      | 8,220,373 |   |

**NOTE      G - PROPERTY, PLANT AND EQUIPMENT**

|                                          |   | **September                30,** |                               | **December                31,** |   |
|-----------------------------------------------|--------|----------------------------------|------------------------------------|---------------------------------|--------|
|                                          |   | **2008**                         |                               | **2007**                        |   |
| Machinery                                     |   | $                                | 21,736,946                         |                            | $      | 18,118,125 |   |
| Molds                                         |   |                             | 1,278,611                          |                            |   | 1,193,488 |   |
| Office                equipment               |   |                             | 561,119                            |                            |   | 358,163 |   |
| Vehicle                                       |   |                             | 974,746                            |                            |   | 757,311 |   |
| Building                                      |   |                             | 7,994,313                          |                            |   | 7,462,096 |   |
| Construction                In Progress       |   |                             |                               |                            |   |   |   |
| Sub-Total                                     |   |                             |                  32,545,734 |                            |   |                  27,889,182 |   |
|                                          |   |                             |                               |                            |   |   |   |
| Less:                Accumulated depreciation |   |                             |                  (8,325,938 | )                               |   |                  (6,094,229 | ) |
|                                          |   |                             |                               |                            |   |   |   |
| Fixed                Assets, net              |   | $                                | 24,219,797                         |                            | $      | 21,794,953 |   |

**NOTE      H- LAND USE RIGHTS**

|                                           |   | **September                30,** |                            | **December                31,** |   |
|------------------------------------------------|--------|----------------------------------|---------------------------------|---------------------------------|--------|
|                                           |   | **2008**                         |                            | **2007**                        |   |
| Cost:                                          |   | $                                | 14,963,026                      |                            | $      | 13,966,870 |   |
| Less:                Accumulated amortization: |   |                             |                  330,675 |                            |   |                  77,165 |   |
| Land                use rights, net            |   | $                                | 14,632,351                      |                            | $      | 13,889,705 |   |

----

**NOTE      I - INTANGIBLE ASSETS**

| **2008**                 |   | **2009** |   | **2010** |   |   **2011** |   | **2012** |   | **Thereafter** |   |
|--------------------------|--------|----------|--------|----------|--------|------------------------|--------|----------|--------|----------------|--------|
| $                  3,791 |   | $        | 15,231 |     | $      | 15,231                 |   | $        | 15,231 |           | $      | 15,231 |   | $ | 64,715 |   |

**NOTE      J - PREPAYMENT**

|                                  |   |  **September 30,  ** |            |  **December 31,** |   |
|---------------------------------------|--------|------------------------------------------|-----------------|-----------------------------|--------|
|                                  |   |  **2008**                         |            |  **2007**            |   |
| Raw                material suppliers |   | $                                        | 2,050,367       |                        | $      | 929,178 |   |
| Equipment                purchase     |   |                                     |  680,495 |                        |   |  407,035 |   |
| Total                prepayment       |   | $                                        | 2,730,862       |                        | $      | 1,336,212 |   |

**NOTE      K - BANK LOANS**

|                                 |   | **September                30,** |       | **December                31,** |   |
|--------------------------------------|--------|----------------------------------|------------|---------------------------------|--------|
|                                 |   | **2008**                         |       | **2007**                        |   |
| Secured                              |   | $                                | 2,002,533  |                            | $      | 3,370,328 |   |
| Less:                Current portion |   | $                                | (2,002,533 | )                               | $      | (3,370,328 | ) |
| Non-current                portion   |   | $                                | —    |                            | $      | — |   |

----

**NOTE      L - ACCRUED EXPENSES**

|                                  |   | **September 30, ** |                              | **December 31, ** |   |
|---------------------------------------|--------|------------------------------|-----------------------------------|-----------------------------|--------|
|                                  |   | **2008**                     |                              | **2007**                    |   |
| Accrued                payroll        |   | $                            | 958,938                           |                        | $      | 601,733 |   |
| Other                accrued expenses |   |                         |                  2,274,458 |                        |   |                  1,258,205 |   |
| Total                accrued expenses |   | $                            | 3,233,396                         |                        | $      | 1,859,938 |   |

**NOTE      M – RESERVE**

|                                          |   | **September                30,** |      | **December                31,** |   |
|-----------------------------------------------|--------|----------------------------------|-----------|---------------------------------|--------|
|                                          |   | **2008**                         |      | **2007**                        |   |
| Statutory                surplus reserve fund |   | $                                | 2,897,555 |                            | $      | 1,882,979 |   |
| Total                                         |   | $                                | 2,897,555 |                            | $      | 1,882,979 |   |

----

**NOTE      N - INCOME TAXES**

| Statutory                tax rate           |   |   | 25.0  | %      |
|---------------------------------------------|--------|--------|-------|--------|
| Tax                holidays and concessions |   |   | -12.5 | %      |
|                                        |   |   |       |   |
| Effective                tax rate           |   |   | 12.5  | %      |

**NOTE      O - LEASES**

|      |   | **2008** |   | **2009** |   | **2010** |   | **2011** |    | **2012** |   | **Thereafter** |   |
|-----------|--------|----------|--------|----------|--------|----------|--------|----------|---------|----------|--------|----------------|--------|
| Buildings |   | $        | 69,832 |     | $      | 280,163  |   | $        | 280,163 |     | $      | 280,163        |   | $ | 67,975 |   | $ | — |   |
| Total     |   | $        | 69,832 |     | $      | 280,163  |   | $        | 280,163 |     | $      | 280,163        |   | $ | 67,975 |   | $ | — |   |

**NOTE      P - ADVERTISING COSTS **

**NOTE      Q - RESEARCH AND DEVELOPMENT EXPENSE **

----

**NOTE      R - WARRANTY CLAIMS**

| Beginning                balance at Jan 01, 2008                                  |   | $ | 863,428                   |   |
|-----------------------------------------------------------------------------------|--------|---|---------------------------|--------|
| Accrued                during the nine months ended September 30, 2008:           |   | $ | 1,539,                396 |   |
| Less:                Actual Paid during the nine months ended September 30, 2008: |   | $ | 1,172,880                 |   |
| Ending                balance at September 30, 2008                               |   | $ | 1,229,944                 |   |

**NOTE      S - STOCK COMPENSATION PLAN **

| **Number                of Shares** |   | **%                of Shares Issued** |   | **Initial                Vesting Date** |
|-------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|
|                                |   |                                  |   |                                    |
| 60,000                              |   | 100%                                  |   | March                1, 2009            |

| Dividend                Yield               |   |   | 0.00                   | %      |
|---------------------------------------------|--------|--------|------------------------|--------|
| Expected                Volatility          |   |   | 75.75                  | %      |
| Risk-Free                Interest Rate      |   |   | 4.59                   | %      |
| Contractual                Term             |   |   | 3                years |   |
| Stock                Price at Date of Grant |   | $      | 4.79                   |   |
| Exercise                Price               |   | $      | 4.79                   |   |

|                                                  |   | **Options ** |    | **Weighted ****Average ****Exercise Price ** |   | **Weighted ****Average ****Remaining ****Contractual Term ** |   | **Aggregate ****Intrinsic ****Value ** |                     |
|-------------------------------------------------------|--------|-------------------|---------|------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------------------------|
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |   |   |
| January                1, 2006                        |   |              | — |                                                             | $      | —                                                                               |   |                                                  | —                  |   | $ | — |   |
| Granted                                               |   |              | 60,000  |                                                             |   | 4.79                                                                                  |   |                                                  | 3                Years   |   |   | — |   |
| Exercised                                             |   |              | — |                                                             |   | —                                                                               |   |                                                  | —                  |   |   | — |   |
| Forfeited                                             |   |              | — |                                                             |   | —                                                                               |   |                                                  | —                  |   |   | — |   |
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |  |   |
| Outstanding                at September 30, 2008 |   |              | 60,000  |                                                             | $      | 4.79                                                                                  |   |                                                  | 0.4                Years |   | $ | — |   |
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |  |   |
| Exercisable                at September 30, 2008 |   |              | — |                                                             |   | —                                                                               |   |                                                  | —                  |   |   | — |   |

| **Number                of Shares** |   | **%                of Shares Issued** |   | **Initial                Vesting Date** |
|-------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|
|                                |   |                                  |   |                                    |
| 4,128                               |   | 100%                                  |   | June                20, 2007       |

| Dividend                Yield               |   |   | 0.00                   | %      |
|---------------------------------------------|--------|--------|------------------------|--------|
| Expected                Volatility          |   |   | 66.70                  | %      |
| Risk-Free                Interest Rate      |   |   | 5.14                   | %      |
| Contractual                Term             |   |   | 3                years |   |
| Stock                Price at Date of Grant |   | $      | 7.09                   |   |
| Exercise                Price               |   | $      | 7.25                   |   |

----

|                                                  |   | **Options ** |    | **Weighted ****Average ****Exercise Price ** |   | **Weighted ****Average ****Remaining ****Contractual Term ** |   | **Aggregate ****Intrinsic ****Value ** |                     |
|-------------------------------------------------------|--------|-------------------|---------|------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------------------------|
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |  |   |
| January                1, 2007                        |   |              | — |                                                             | $      | —                                                                               |   |                                                  | —                  |   | $ | — |   |
| Granted                                               |   |              | 4,128   |                                                             | $      | 7.25                                                                                  |   |                                                  | 3                Years   |   |   | — |   |
| Exercised                                             |   |              | — |                                                             |   | —                                                                               |   |                                                  | —                  |   |   | — |   |
| Forfeited                                             |   |              | — |                                                             |   | —                                                                               |   |                                                  | —                  |   |   | — |   |
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |  |   |
| Outstanding                at September 30, 2008 |   |              | 4,128   |                                                             | $      | 7.25                                                                                  |   |                                                  | 1.8                Years |   | $ | — |   |
|                                                  |   |              |         |                                                             |   |                                                                                       |   |                                                  |                          |   |   |  |   |
| Exercisable                at September 30, 2008 |   |              | 4,128   |                                                             | $      | 7.25                                                                                  |   |                                                  | 1.8                Years |   | $ | — |   |

| **Number                of Shares** |   | **%                of Shares Issued** |   | **Initial                Vesting Date** |
|-------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|
|                                |   |                                  |   |                                    |
| 100,000                             |   | 100%                                  |   | January                5, 2006          |

| Dividend                Yield               |   |   | 0.00                   | %      |
|---------------------------------------------|--------|--------|------------------------|--------|
| Expected                Volatility          |   |   | 77.62                  | %      |
| Risk-Free                Interest Rate      |   |   | 4.36                   | %      |
| Contractual                Term             |   |   | 4                years |   |
| Stock                Price at Date of Grant |   | $      | 4.70                   |   |
| Exercise                Price               |   | $      | 6.25                   |   |

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|                                                  |   | **Warrants ** |    | **Weighted ****Average ****Exercise Price ** |   | **Weighted ****Average ****Remaining ****Contractual Term ** |   | **Aggregate****Intrinsic****Value** |                     |
|-------------------------------------------------------|--------|--------------------|---------|------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------------------------|--------------------------|
|                                                  |   |               |    |                                                             |   |                                                                                       |   |                                |                          |   |   |   |   |
| January                1, 2006                        |   |               | — |                                                             | $      | —                                                                               |   |                                | —                  |   | $ | — |   |
| Granted                                               |   |               | 100,000 |                                                             | $      | 6.25                                                                                  |   |                                | 4                Years   |   |   | — |   |
| Exercised                                             |   |               | — |                                                             |   | —                                                                               |   |                                | —                  |   |   | — |   |
| Forfeited                                             |   |               | — |                                                             |   | —                                                                               |   |                                | —                  |   |   | — |   |
|                                                  |   |               |         |                                                             |   |                                                                                       |   |                                |                          |   |   |  |   |
| Outstanding                at September 30, 2008 |   |               | 100,000 |                                                             | $      | 6.25                                                                                  |   |                                | 1.3                Years |   | $ | — |   |
|                                                  |   |               |         |                                                             |   |                                                                                       |   |                                |                          |   |   |  |   |
| Exercisable                at September 30, 2008 |   |               | 100,000 |                                                             | $      | 6.25                                                                                  |   |                                | 1.3                Years |   | $ | — |   |

**NOTE      T- COMMITMENTS AND CONTINGENCIES**

**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS **

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**OVERVIEW      **

The      Company manufactures and distributes automotive air brake valves and related      components in China and internationally for use primarily in vehicles weighing      over three tons, such as trucks and buses. There are forty categories of valves      with over one thousand different specifications. Management believes that it      is      the largest manufacturer of automotive brake valves in China. 

**OUTLOOK**

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES **

**Results      of Operations **

***(1)      Results of operations for the three months ended September 30, 2008 as compared      to the three months ended September 30, 2007.***

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**SALES      **

|                                                       |   | **Three                  Months ended**               |   | **Three                  Months ended** |   |
|------------------------------------------------------------|--------|-------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                       |   | **30-Sep-08**                                         |   | **30-Sep-07**                           |   |
|                                                       |   | **(U.S.                   dollars in millions)** |   |
| Air                  brake valves & related components |   | $                                                     | 24.5   |                                    |   | 74 | % | $ | 22.4 |   |   | 75 | % |
| Non-valve                  products                        |   | $                                                     | 8.5    |                                    |   | 26 | % | $ | 7.3 |   |   | 25 | % |
| Total                                                      |   | $                                                     | 33.0   |                                    |   | 100 | % | $ | 29.7 |   |   | 100 | % |

|                                  |   | **Three                  Months**                     |       |       |       | **Three                  Months** |   |   |   |
|---------------------------------------|--------|-------------------------------------------------------|------------|------------|------------|-----------------------------------|--------|--------|--------|
|                                  |   | **ended**                                             |       |       |       | **ended**                         |   |   |   |
|                                  |   | **30-Sep-08%**                                        | ** ** | ** ** | ** ** | **30-Sep-07%**                    |   |   |   |
|                                  |   | **(U.S.                   dollars in millions)** |       |
| China                  OEM market     |   | $                                                     | 10.4       |       |       | 32                                | %      | $      | 9.2    |   |   | 31 | % |
| China                  Aftermarket    |   | $                                                     | 8.4        |       |       | 26                                | %      | $      | 7.7    |   |   | 26 | % |
| International                  market |   | $                                                     | 14.1       |       |       | 42                                | %      | $      | 12.8   |   |   | 43 | % |
|                                  |   |                                                  |            |       |       |                                   |   |   |        |   |   |  |   |
| Total                                 |   | $                                                     | 33.0       |       |       | 100                               | %      | $      | 29.7   |   |   | 100 | % |

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**COST      OF SALES**

**GROSS      PROFIT **

**SELLING      AND DISTRIBUTION EXPENSES **

|   | (1) | Increased                transportation expense for domestic and export sales: During                the third quarter of 2008, transportation costs increased by $132,201                as                compared to $552,453 for the same period of 2007. The increase in                transportation expense was mainly due to increased sales and the                rise in                the transportation cost resulted from the increased price of oil                and the                strict restrictions on overloading implemented by the Chinese government                since the third quarter of 2007. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Increased                packaging expense: Packaging costs were $658,168 for the three months                ended September 30, 2008, which was an increase of $173,629 as compared                with the same period of 2007 and was consistent with the revenue                growth.                The increase in packaging expense was mainly due to the increased                sales,                the increased price of packing materials and the higher standard                for                packaging materials with the increased international sales in the                third                quarter of 2008. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (3) | Increased                product warranty expense: The Company recorded $479,042 of product                warranty expenses for the three months ended September 30, 2008,                as                compared to $                326,735                for the three months ended September 30, 2007, which was an increase                of                $152,307. The                increase was mainly due to increased                sales. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**GENERAL      AND ADMINISTRATIVE EXPENSES**

**RESEARCH      AND DEVELOPMENT EXPENSE **

**DEPRECIATION      AND AMORTIZATION **

**FINANCIAL      EXPENSE **

----

**OTHER      INCOME **

**INCOME      TAX **

**STOCK-BASED      COMPENSATION **

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

**MINORITY      INTEREST **

**FINANCIAL      CONDITION **

**Liquidity      and Capital Resources **

----

***(      2) Results of operations for the nine months ended September 30, 2008 as      compared to the nine months ended September 30, 2007.***

**SALES      **

|                                                       |   |  **Nine                  months ended**                |   | **Nine                  months ended** |   |
|------------------------------------------------------------|--------|-------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                       |   |  **30-Sep-08**                                         |   | **30-Sep-07**                          |   |
|                                                       |   |  **(U.S.                   dollars in millions)** |   |
| Air                  brake valves & related components |   | $                                                           | 80.2   |                                   |   | 76 | % | $ | 63.7 |   |   | 76 | % |
| Non-valve                  products                        |   | $                                                           | 25.6   |                                   |   | 24 | % | $ | 19.6 |   |   | 24 | % |
| Total                                                      |   | $                                                           | 105.8  |                                   |   | 100 | % | $ | 83.3 |   |   | 100 | % |

|                                  |   | **Nine                  months**                     |       |        |       | **Nine                  months** |   |        |   |
|---------------------------------------|--------|------------------------------------------------------|------------|-------------|------------|----------------------------------|--------|-------------|--------|
|                                  |   | **ended**                                            |       |        |       | **Ended**                        |   |        |   |
|                                  |   | **30-Sep-08**                                        | ** ** | **% ** | ** ** | **30-Sep-07**                    |   | **%**  |   |
|                                  |   | **(U.S.                   dollars in million)** |       |
| China                  OEM market     |   | $                                                    | 38.6       |        |       | 36                               | %      | $           | 30.1   |   |   | 36 | % |
| China                  Aftermarket    |   | $                                                    | 28.8       |        |       | 28                               | %      | $           | 21.1   |   |   | 25 | % |
| International                  market |   | $                                                    | 38.3       |        |       | 36                               | %      | $           | 32.1   |   |   | 39 | % |
|                                  |   |                                                 |       |        |       |                        |   |        |   |   |   |   |   |
| Total                                 |   | $                                                    | 105.8      |        |       | 100                              | %      | $           | 83.3   |   |   | 100 | % |

----

**COST      OF SALES**

**GROSS      PROFIT **

**SELLING      AND DISTRIBUTION EXPENSES **

| (1) | Increased                transportation expense for domestic and export sales: During the                nine months                of                2008, transportation costs increased by $ 997,719 as compared to                $1,136,850 for the same period of 2007. The increase in transportation                expense was mainly due to increased sales and the rise in the                transportation cost resulted from the increased price of oil and                the                strict restriction on overloading implemented by the Chinese government                since the third quarter of 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Increased                packaging expense: Packaging costs were $1,969,191 for the                nine months                ended September 30, 2008, which was an increase of $ 583,088 as compared                with the same period of 2007 and was consistent with the revenue                growth.                The increase in packaging expense was mainly due to the increased                sales,                the increased price of packing materials and the higher standard                for                packaging materials with the increased international sales in the                third                quarter of 2008. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Increased                product warranty expense: The Company recorded $1,539,396 of product                warranty expenses for the nine months ended September 30, 2008, as                compared to $                912,623                for the nine months ended September 30, 2007, an increase of $626,773.                The                increase was mainly due to increased                sales. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**GENERAL      AND ADMINISTRATIVE EXPENSES**

**RESEARCH      AND DEVELOPMENT EXPENSE **

**DEPRECIATION      AND AMORTIZATION **

**FINANCIAL      EXPENSE **

**OTHER      INCOME **

----

**INCOME      TAX **

**STOCK-BASED      COMPENSATION **

**MINORITY      INTEREST **

**FINANCIAL      CONDITION **

**Liquidity      and Capital Resources **

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**OFF-BALANCE      SHEET AGREEMENTS **

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

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**ITEM      4T. CONTROLS AND PROCEDURES **

**Evaluation      of Disclosure Controls and Procedures**

**Changes      in Internal Control over Financial Reporting**

**PART      II OTHER INFORMATION**

**ITEM      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

| 1. | Election                of Directors |
|----|--------------------------------------|

|                           |   | For    |       | Withheld |   |
|--------------------------------|--------|--------|------------|----------|--------|
| Xiao                Ping Zhang |   |   | 15,870,854 |     |   | 97,381 |   |
| Xiao                Feng Zhang |   |   | 15,870,554 |     |   | 97,681 |   |
| Jung                Kang Chang |   |   | 15,870,604 |     |   | 97,631 |   |
| Li                Min Zhang    |   |   | 15,870,854 |     |   | 97,381 |   |
| Zhi                Zhong Wang  |   |   | 15,870,544 |     |   | 97,691 |   |
| Yi                Guang Huo    |   |   | 15,870,844 |     |   | 97,391 |   |
| Jiang                Hua Feng  |   |   | 15,836,738 |     |   | 131,497 |   |

| 2. | Ratification                of Auditors |
|----|-----------------------------------------|

| For        |   | Against |   | Abstain |   |
|------------|--------|---------|--------|---------|--------|
| 15,922,732 |   |    | 30,493 |    |   | 15,010 |   |

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**ITEM      6. EXHIBITS**

| EXHIBITNO. |   | DOCUMENT                DESCRIPTION                                                                                                                                                                                                        |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                       |
| 3.1(1)     |   | Certificate                of Incorporation, as amended                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                       |
| 3.2(1)     |   | Amended                and Restated Bylaws                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                       |
| 4.1(2)     |   | Form                of Underwriters’ Common Stock Purchase Warrants                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                       |
| 4.2(2)     |   | Specimen                Common Stock Certificate                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                       |
| 31.1(1)    |   | Certification                of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a), promulgated under the Securities and Exchange Act of 1934,                as                amended.             |
|       |   |                                                                                                                                                                                                                                       |
| 31.2(1)    |   | Certification                of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a), promulgated under the Securities and Exchange Act of 1934,                as                amended.             |
|       |   |                                                                                                                                                                                                                                       |
| 32.1(3)    |   | Certifications                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief                Financial Officer). |

| (1)    | filed                herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (2)    | Incorporated                herein by reference from the Registrant’s Registration Statement on Form                S-1, Commission File No.333-137019, as filed with the Securities                and                Exchange Commission on August 31, 2006.                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3)    | Furnished                herewith. In accordance with Item 601(b)(32) of Regulation S-K, this                Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange                Act or otherwise subject to the liabilities of that section. Such                certifications will not be deemed incorporated by reference into                any                filing under the Securities Act of 1933, as amended, or the Exchange                Act,                except to the extent that the registrant specifically incorporates                it by                reference. |

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**SIGNATURES      **

| Dated                : November 12, 2008 | SORL                AUTO PARTS, INC.          |
|------------------------------------------|-----------------------------------------------|
|                                     |                                          |
|                                     | By:                /s/ Xiao Ping Zhang        |
|                                     |                                |
|                                     | Name:                Xiao Ping Zhang          |
|                                     | Title:                Chief Executive Officer |

| By:                /s/ Zong Yun Zhou          |
|-----------------------------------------------|
|                                     |
| Name:                Zong Yun Zhou            |
| Title:                Chief Financial Officer |

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| EXHIBITNO. |   | DOCUMENT                DESCRIPTION                                                                                                                                                                                                        |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                       |
| 3.1(1)     |   | Certificate                of Incorporation, as amended                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                       |
| 3.2(1)     |   | Amended                and Restated Bylaws                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                       |
| 4.1(2)     |   | Form                of Underwriters’ Common Stock Purchase Warrants                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                       |
| 4.2(2)     |   | Specimen                Common Stock Certificate                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                       |
| 31.1(1)    |   | Certification                of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a), promulgated under the Securities and Exchange Act of 1934,                as                amended.             |
|       |   |                                                                                                                                                                                                                                       |
| 31.2(1)    |   | Certification                of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule                15d-14(a), promulgated under the Securities and Exchange Act of 1934,                as                amended.             |
|       |   |                                                                                                                                                                                                                                       |
| 32.1(3)    |   | Certifications                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief                Financial Officer). |

| (1)    | filed                herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (2)    | Incorporated                herein by reference from the Registrant’s Registration Statement on Form                S-1, Commission File No.333-137019, as filed with the Securities                and                Exchange Commission on August 31, 2006.                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3)    | Furnished                herewith. In accordance with Item 601(b)(32) of Regulation S-K, this                Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange                Act or otherwise subject to the liabilities of that section. Such                certifications will not be deemed incorporated by reference into                any                filing under the Securities Act of 1933, as amended, or the Exchange                Act,                except to the extent that the registrant specifically incorporates                it by                reference. |

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