*Table        of Contents*

----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION **

**FORM      10-Q **

| x | QUARTERLY                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934                for the quarterly period ended June 30,                2008 |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**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 |
|-------------------------------------------------|-------------------------------------------|------------------------------------------|---------------------------------------------------|

**APPLICABLE      ONLY TO CORPORATE ISSUERS **

**18,279,254      **

----

----

*Table        of Contents*

INDEX

|                    |                                                                                                                                                                                                          | **Page** |
|-------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                    |                                                                                                                                                                                                          |          |
| PART                I.  | FINANCIAL                INFORMATION (Unaudited)                                                                                                                                                              | 1        |
|                    |                                                                                                                                                                                                          |     |
| Item                1.  | Financial                Statements:                                                                                                                                                                          | 1        |
|                    |                                                                                                                                                                                                          |     |
|                         | Condensed                Consolidated Balance Sheets as of June 30, 2008                (Unaudited) and December 31, 2007 (Audited)                                                                           | 1        |
|                    |                                                                                                                                                                                                          |     |
|                    | Condensed                Consolidated Statements of Income and Comprehensive                Income (Unaudited) for the Three Months and Six Months Ended June                30, 2008                and 2007 | 2        |
|                         |                                                                                                                                                                                                               |     |
|                         | Condensed                Consolidated Statements of Cash Flows (Unaudited) for                the Three Months and Six Months Ended June 30, 2008 and                2007                                     | 3        |
|                    |                                                                                                                                                                                                          |     |
|                    | Condensed                Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three                months                and Six Months Ended June 30, 2008 and 2007                     | 4        |
|                    |                                                                                                                                                                                                          |     |
|                    | 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                                                                                                                                                                        | 26       |
|                         |                                                                                                                                                                                                          |     |
| PART                II. | OTHER                INFORMATION                                                                                                                                                                              | 26       |
|                    |                                                                                                                                                                                                          |     |
| Item                6.  | Exhibits                                                                                                                                                                                                      | 26       |
|                    |                                                                                                                                                                                                          |     |
| SIGNATURES         | 28                                                                                                                                                                                                            |

----

*Table            of Contents*

**PART      I. FINANCIAL INFORMATION**

**ITEM      1. FINANCIAL STATEMENTS**

| **SORL                Auto Parts, Inc. and Subsidiaries**                         |
|-----------------------------------------------------------------------------------|
| **Consolidated                Balance Sheets**                                    |
| **June                30, 2008 (unaudited) and December 31,                2007** |

|                                                                   |   |                            |            |                                 |    |
|------------------------------------------------------------------------|--------|---------------------------------|-----------------|--------------------------------------|---------|
|                                                                   |   | **Jun                30, 2008** |            | **December                31, 2007** |    |
|                                                                   |   | **(Unaudited)**                 |            | **(Audited)**                        |    |
| **Assets**                                                             |   |                            |            |                                 |    |
| **Current                Assets**                                      |   |                            |            |                                 |    |
| Cash                and Cash Equivalents                               |   | US$                             |  4,481,177 |                                 | US$     | 4,340,211 |   |
| Accounts                Receivable, Net of Provision                   |   |                            | 38,862,983      |                                 |    | 30,586,239 |   |
| Notes                Receivable                                        |   |                            | 12,805,169      |                                 |    | 9,410,385 |   |
| Inventory                                                              |   |                            | 13,531,271      |                                 |    | 8,220,373 |   |
| Prepayments                                                            |   |                            | 3,309,421       |                                 |    | 1,336,212 |   |
| Other                Current Assets                                    |   |                            | 2,259,417       |                                 |    | 4,275,294 |   |
| **Total                Current Assets**                                |   |                            | 75,249,438      |                                 |    | 58,168,714 |   |
| **Fixed                Assets**                                        |   |                            |            |                                 |    |   |   |
| Property,                Plant and Equipment                           |   |                            | 30,828,160      |                                 |    | 27,889,182 |   |
| Less:                Accumulated Depreciation                          |   |                            | (7,676,656      | )                                    |    | (6,094,229 | ) |
| Property,                Plant and Equipment, Net                      |   |                            | 23,151,504      |                                 |    | 21,794,953 |   |
|                                                                   |   |                            |            |                                 |    |   |   |
| **Land                Use Rights, Net**                                |   |                            | 14,627,491      |                                 |    | 13,889,705 |   |
|                                                                   |   |                            |            |                                 |    |   |   |
| **Other                Assets**                                        |   |                            |            |                                 |    |   |   |
| Deferred                Compensation Cost-Stock options                |   |                            | 39,753          |                                 |    | 69,571 |   |
| Intangible                Assets                                       |   |                            | 160,770         |                                 |    | 76,150 |   |
| Less:                Accumulated Amortization                          |   |                            | (31,250         | )                                    |    | (25,116 | ) |
| Intangible                Assets, Net                                  |   |                            | 129,520         |                                 |    | 51,034 |   |
| Total                Other Assets                                      |   |                            | 169,273         |                                 |    | 120,605 |   |
| **Total                Assets**                                        |   | **US$**                         | 113,197,706     |                                 | **US$** | 93,973,977 |   |
|                                                                   |   |                            |            |                                 |    |   |   |
| **Liabilities                and Shareholders' Equity**                |   |                            |            |                                 |    |   |   |
| **Current                Liabilities**                                 |   |                            |            |                                 |    |   |   |
| Accounts                Payable and Notes Payable                      |   |                            | 8,013,208       |                                 |    | 5,305,172 |   |
| Deposit                Received from Customers                         |   |                            | 3,557,350       |                                 |    | 2,079,946 |   |
| Short                Term Bank Loans                                   |   |                            | 1,990,622       |                                 |    | 3,370,328 |   |
| Income                Tax Payable                                      |   |                            | 732,316         |                                 |    | 373,769 |   |
| Accrued                Expenses                                        |   |                            | 3,234,970       |                                 |    | 1,859,938 |   |
| Other                Current Liabilities                               |   |                            | 487,979         |                                 |    | 463,563 |   |
| **Total                Current Liabilities**                           |   |                            | 18,016,445      |                                 |    | 13,452,716 |   |
| **Minority                Interest**                                   |   |                            | 9,493,164       |                                 |    | 8,024,152 |   |
| **Shareholders'                Equity**                                |   |                            |            |                                 |    |   |   |
| Common                Stock - $0.002 Par Value; 50,000,000 authorized, |   |                            |            |                                 |    |   |   |
| 18,279,254                Issued and Outstanding as of                 |   |                            |            |                                 |    |   |   |
| June                30, 2008 and December 31, 2007 respectively        |   |                            | 36,558          |                                 |    | 36,558 |   |
| Additional                Paid In Capital                              |   |                            | 37,498,452      |                                 |    | 37,498,452 |   |
| Reserves                                                               |   |                            | 2,661,841       |                                 |    | 1,882,979 |   |
| Accumulated                Other Comprehensive Income                  |   |                            | 10,355,764      |                                 |    | 5,432,189 |   |
| Retained                Earnings                                       |   |                            | 35,135,482      |                                 |    | 27,646,931 |   |
|                                                                   |   |                            | 85,688,097      |                                 |    | 72,497,109 |   |
| **Total                Liabilities and Shareholders' Equity**          |   | **US$**                         | 113,197,706     |                                 | **US$** | 93,973,977 |   |
|                                                                   |   |                            |            |                                 |    |   |   |
|                                                                   |   |                            |            |                                 |    |   |   |

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

----

*Table          of Contents*

| **SORL                Auto Parts, Inc. and Subsidiaries**                                                |
|----------------------------------------------------------------------------------------------------------|
| **Consolidated                Statements of Income and Comprehensive Income                (unaudited)** |
| **For                The Three Months and Six Months Ended June 30, 2008 and                2007**       |

|                                                           |   | **Three                Months Ended June 30,** |       | **Six                Months Ended June 30,** |   |
|----------------------------------------------------------------|--------|------------------------------------------------|------------|----------------------------------------------|--------|
|                                                           |   | **2008**                                       |       | **2007**                                     |   | **2008** |   | **2007** |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |
| Sales                                                          |   | US$                                            | 42,186,119 |                                         |   | 29,189,572 |   |   | 72,844,561 |   |   | 53,606,561 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Cost                of Sales                                   |   |                                           | 30,776,773 |                                         |   | 22,829,287 |   |   | 52,793,354 |   |   | 41,555,339 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Gross                Profit                                    |   |                                           | 11,409,346 |                                         |   | 6,360,285 |   |   | 20,051,207 |   |   | 12,051,222 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Expenses:                                                      |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Selling                and Distribution Expenses               |   |                                           | 2,771,803  |                                         |   | 1,331,643 |   |   | 4,611,078 |   |   | 2,515,290 |   |
| General                and Administrative Expenses             |   |                                           | 2,718,217  |                                         |   | 1,027,436 |   |   | 4,694,418 |   |   | 2,720,623 |   |
| Financial                Expenses                              |   |                                           | 383,320    |                                         |   | 114,268 |   |   | 752,996 |   |   | 257,436 |   |
| Total                Expenses                                  |   |                                           | 5,873,340  |                                         |   | 2,473,347 |   |   | 10,058,492 |   |   | 5,493,349 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Operating                Income                                |   |                                           | 5,536,006  |                                         |   | 3,886,938 |   |   | 9,992,715 |   |   | 6,557,873 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Other                Income                                    |   |                                           | 222,762    |                                         |   | 351,932 |   |   | 333,840 |   |   | 384,272 |   |
| Non-Operating                Expenses                          |   |                                           | (175,785   | )                                            |   | (80,550 | ) |   | (254,963 | ) |   | (84,639 | ) |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Income                (Loss) Before Provision for Income Taxes |   |                                           | 5,582,983  |                                         |   | 4,158,320 |   |   | 10,071,592 |   |   | 6,857,506 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Provision                for Income Taxes                      |   |                                           | 318,757    |                                         |   | (422,721 | ) |   | 882,231 |   |   | (60,256 | ) |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Net                Income Before Minority Interest             |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| &                Other Comprehensive Income                |   | US$                                            | 5,264,226  |                                         |   | 4,581,041 |   |   | 9,189,361 |   |   | 6,917,762 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Minority                Interest                               |   |                                           | 527,929    |                                         |   | 461,930 |   |   | 921,948 |   |   | 697,119 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Net                Income Attributable to Shareholders         |   |                                           | 4,736,297  |                                         |   | 4,119,111 |   |   | 8,267,413 |   |   | 6,220,643 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Foreign                Currency Translation Adjustment         |   |                                           | 2,110,749  |                                         |   | 1,075,648 |   |   | 5,470,639 |   |   | 1,697,589 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Minority                Interest's Share                       |   |                                           | 211,075    |                                         |   | 107,565 |   |   | 547,064 |   |   | 169,759 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Comprehensive                Income (Loss)                     |   |                                           | 6,635,971  |                                         |   | 5,087,194 |   |   | 13,190,988 |   |   | 7,748,473 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Weighted                average common share - Basic           |   |                                           | 18,279,254 |                                         |   | 18,275,126 |   |   | 18,279,254 |   |   | 18,275,126 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| Weighted                average common share - Diluted         |   |                                           | 18,287,764 |                                         |   | 18,322,260 |   |   | 18,288,958 |   |   | 18,328,526 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| EPS                - Basic                                     |   |                                           | 0.26       |                                         |   | 0.23 |   |   | 0.45 |   |   | 0.34 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
| EPS                - Diluted                                   |   |                                           | 0.26       |                                         |   | 0.22 |   |   | 0.45 |   |   | 0.34 |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |
|                                                           |   |                                           |       |                                         |   |   |   |   |   |   |   |   |   |

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

----

*Table          of Contents*

| **SORL                Auto Parts, Inc. and Subsidiaries**                                          |
|----------------------------------------------------------------------------------------------------|
| **Consolidated                Statements of Cash Flows                (unaudited)**                |
| **For                The Three Months and Six Months Ended June 30, 2008 and                2007** |

|                                                                                                                        |   | **Three                      Months Ended June 30,** |       | **Six                      Months Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------|----------------------------------------------------|--------|
|                                                                                                                        |   | **2008**                                             |       | **2007**                                           |   | **2008** |   | **2007** |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |
| Cash                      Flows from Operating Activities                                                                   |   |                                                 |       |                                               |   |   |   |   |   |
| Net                      Income                                                                                             |   | US$                                                  | 4,736,297  |                                               |   | 4,119,111 |   |   | 8,267,413 |   |   | 6,220,643 |   |
| Adjustments                      to reconcile net income (loss) to net cash from operating                      activities: |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Minority                      Interest                                                                                      |   |                                                 | 527,929    |                                               |   | 461,930 |   |   | 921,948 |   |   | 697,119 |   |
| Bad                      Debt Expense                                                                                       |   |                                                 | 10,450     |                                               |   | (234,154 | ) |   | 21,282 |   |   | 187,176 |   |
| Depreciation                      and Amortization                                                                          |   |                                                 | 674,504    |                                               |   | 370,097 |   |   | 1,329,059 |   |   | 710,394 |   |
| Stock-Based                      Compensation Expense                                                                       |   |                                                 | 14,909     |                                               |   | 38,110 |   |   | 29,818 |   |   | 53,019 |   |
| Loss                      on disposal of Fixed Assets                                                                       |   |                                                 | 2,519      |                                               |   |   |   |   | 2,519 |   |   | 1,108 |   |
| Changes                      in Assets and Liabilities:                                                                     |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Account                      Receivables                                                                                    |   |                                                 | (2,142,593 | )                                                  |   | (2,100,597 | ) |   | (6,092,371 | ) |   | (4,634,961 | ) |
| Notes                      Receivables                                                                                      |   |                                                 | (2,102,462 | )                                                  |   | (1,237,625 | ) |   | (2,731,319 | ) |   | (5,615,402 | ) |
| Other                      Currents Assets                                                                                  |   |                                                 | (165,931   | )                                                  |   | (680,963 | ) |   | 2,181,644 |   |   | (912,057 | ) |
| Inventory                                                                                                                   |   |                                                 | (2,164,427 | )                                                  |   | (2,426,343 | ) |   | (4,642,399 | ) |   | (2,694,515 | ) |
| Prepayments                                                                                                                 |   |                                                 | (712,009   | )                                                  |   | 1,413,829 |   |   | (1,828,836 | ) |   | 3,332,649 |   |
| Accounts                      Payable and Notes Payable                                                                     |   |                                                 | 418,290    |                                               |   | 2,060,032 |   |   | 2,276,580 |   |   | 991,030 |   |
| Income                      Tax Payable                                                                                     |   |                                                 | 218,643    |                                               |   | 64,855 |   |   | 358,547 |   |   | 72,614 |   |
| Deposits                      Received from Customers                                                                       |   |                                                 | 828,703    |                                               |   | (4,080 | ) |   | 1,311,351 |   |   | 282,352 |   |
| Other                      Current Liabilities and Accrued Expenses                                                         |   |                                                 | 1,220,975  |                                               |   | (255,848 | ) |   | 1,203,937 |   |   | (385,245 | ) |
| Net                      Cash Flows from Operating Activities                                                               |   |                                                 | 1,365,797  |                                               |   | 1,588,354 |   |   | 2,609,173 |   |   | (1,694,076 | ) |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Cash                      Flows from Investing Activities                                                                   |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Acquisition                      of Property and Equipment                                                                  |   |                                                 | (552,037   | )                                                  |   | (3,271,641 | ) |   | (1,109,428 | ) |   | (5,335,361 | ) |
| Investment                      in Intangible Assets                                                                        |   |                                                 | (78,109    | )                                                  |   | — |   |   | (78,737 | ) |   | (19,915 | ) |
| Net                      Cash Flows from Investing Activities                                                               |   |                                                 | (630,146   | )                                                  |   | (3,271,641 | ) |   | (1,188,165 | ) |   | (5,355,276 | ) |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Cash                      Flows from Financing Activities                                                                   |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Proceeds                      from (Repayment of) Bank Loans                                                                |   |                                                 | 930,359    |                                               |   | 1,492,936 |   |   | (1,502,107 | ) |   | 1,492,936 |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Net                      Cash flows from Financing Activities                                                               |   |                                                 | 930,359    |                                               |   | 1,492,936 |   |   | (1,502,107 | ) |   | 1,492,936 |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Effects                      on changes in foreign exchange rate                                                            |   |                                                 | 82,357     |                                               |   | 89,213 |   |   | 222,065 |   |   | 170,257 |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Net                      Change in Cash and Cash Equivalents                                                                |   |                                                 | 1,748,367  |                                               |   | (101,138 | ) |   | 140,966 |   |   | (5,386,159 | ) |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Cash                      and Cash Equivalents- Beginning of the year                                                       |   |                                                 | 2,732,810  |                                               |   | 5,852,480 |   |   | 4,340,211 |   |   | 11,137,501 |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Cash                      and cash Equivalents - End of the period                                                          |   | US$                                                  | 4,481,177  |                                               |   | 5,751,342 |   |   | 4,481,177 |   |   | 5,751,342 |   |
|                                                                                                                        |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Supplemental                      Cash Flow Disclosures:                                                                    |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
| Interest                      Paid                                                                                          |   |                                                 | 77,081     |                                               |   | 12,914 |   |   | 103,125 |   |   | 12,914 |   |
| Tax                      Paid                                                                                               |   |                                                 | 505,146    |                                               |   | 495,257 |   |   | 2,388,521 |   |   | 853,436 |   |
|                                                                                                                             |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |                                                 |       |                                               |   |   |   |   |   |   |   |   |   |

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

----

*Table          of Contents*

| **SORL                Auto Parts, Inc. and Subsidiaries**                                    |
|----------------------------------------------------------------------------------------------|
| **Consolidated                Statements of Changes in Shareholders'                Equity** |
|                                                                                         |   |   |   |   |   |   |   |   |
|                                                                                         |
| **Three                Months Ended June 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 - April 1, 2007** |   |                        | **18,275,126** |         |   | **36,550**     |   |               | **37,444,051** |          |   | **1,008,786**                    |   |              | **19,878,625** |         |   | **1,662,216** |   |   | **60,030,228** |   |   | **6,633,940** |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Net                Income                            |   |                        | —        |         |   | —        |   |               | —        |          |   | —                          |   |              | 4,119,111      |         |   | — |   |   | 4,119,111 |   |   | 461,930 |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income            |   |                        | —        |         |   | —        |   |               | —        |          |   | —                          |   |              | —        |         |   | 968,083 |   |   | 968,083 |   |   | 107,565 |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                   |   |                        | —        |         |   | —        |   |               | —        |          |   | 415,737                          |   |              | (415,737       | )            |   | — |   |   | — |   |   | — |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| 4,128                options issued                  |   |                        | —        |         |   | —        |   |               | 23,201         |          |   |                   |   |              | —        |         |   | — |   |   | 23,201 |   |   | — |   |
| ***Ending                Balance - June 30, 2007***  |   |                        | **18,275,126** |         |   | **36,550**     |   |               | **37,467,252** |          |   | **1,424,523**                    |   |              | **23,581,999** |         |   | **2,630,299** |   |   | **65,140,623** |   |   | **7,203,435** |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| **Beginning                Balance - April 1, 2008** |   |                        | **18,279,254** |         |   | **36,558**     |   |               | **37,498,452** |          |   | **2,237,597**                    |   |              | **30,823,429** |         |   | **8,456,090** |   |   | **79,052,126** |   |   | **8,754,160** |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Net                Income                            |   |                        | —        |         |   | —        |   |               | —        |          |   | —                          |   |              | 4,736,297      |         |   | — |   |   | 4,736,297 |   |   | 527,929 |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income            |   |                        | —        |         |   | —        |   |               | —        |          |   | —                          |   |              | —        |         |   | 1,899,674 |   |   | 1,899,674 |   |   | 211,075 |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                   |   |                        | —        |         |   | —        |   |               | —        |          |   | 424,244                          |   |              | (424,244       | )            |   | — |   |   | — |   |   | — |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
|                                                 |   |                        | —        |         |   | —        |   |               | —        |          |   | —                          |   |              | —        |         |   | — |   |   | — |   |   | — |   |
| ***Ending                Balance - June 30, 2008***  |   |                        | **18,279,254** |         |   | **36,558**     |   |               | **37,498,452** |          |   | **2,661,841**                    |   |              | **35,135,482** |         |   | **10,355,764** |   |   | **85,688,097** |   |   | **9,493,164** |   |
|                                                 |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
|                                                      |   |                        |           |         |   |           |   |               |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |

----

*Table          of Contents*

| **Six                Months Ended June 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                              |   |                        | —        |       |   | —        |   |         | —        |          |   | —                          |   |              | 6,220,643      |         |   |   |   |   | 6,220,643 |   |   | 697,119 |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income              |   |                        | —        |       |   | —        |   |         | —        |          |   | —                          |   |              | —        |         |   | 1,527,830 |   |   | 1,527,830 |   |   | 169,759 |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                     |   |                        | —        |       |   | —        |   |         | —        |          |   | 627,407                          |   |              | (627,407       | )            |   | — |   |   | — |   |   | — |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| 4,128                options issued                    |   |                        | —        |       |   | —        |   |         | 23,201         |          |   | —                          |   |              | —        |         |   | — |   |   | 23,201 |   |   | — |   |
| ***Ending                Balance - June 30, 2007***    |   |                        | **18,275,126** |       |   | **36,550**     |   |         | **37,467,252** |          |   | **1,424,523**                    |   |              | **23,581,999** |         |   | **2,630,299** |   |   | **65,140,623** |   |   | **7,203,435** |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| **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                              |   |                        | —        |       |   | —        |   |         | —        |          |   | —                          |   |              | 8,267,413      |         |   |   |   |   | 8,267,413 |   |   | 921,948 |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Other                Comprehensive Income              |   |                        | —        |       |   | —        |   |         | —        |          |   | —                          |   |              | —        |         |   | 4,923,575 |   |   | 4,923,575 |   |   | 547,064 |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| Transfer                to reserve                     |   |                        | —        |       |   | —        |   |         | —        |          |   | 778,862                          |   |              | (778,862       | )            |   | — |   |   | — |   |   | — |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
| 4,128                options issued                    |   |                        | —        |       |   | —        |   |         | —        |          |   | —                          |   |              | —        |         |   | — |   |   | — |   |   | — |   |
| ***Ending                Balance - June 30, 2008***    |   |                        | **18,279,254** |       |   | **36,558**     |   |         | **37,498,452** |          |   | **2,661,841**                    |   |              | **35,135,482** |         |   | **10,355,764** |   |   | **85,688,097** |   |   | **9,493,164** |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |
|                                                   |   |                        |           |       |   |           |   |         |           |          |   |                             |   |              |           |         |   |   |   |   |   |   |   |   |   |

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

----

*Table          of Contents*

**NOTES      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      A - DESCRIPTION OF BUSINESS **

**NOTE      B - BASIS OF PRESENTATION **

**NOTE      C - RECENTLY ISSUED FINANCIAL STANDARDS **

----

*Table          of Contents*

*The      Hierarchy of Generally Accepted Accounting Principles*

**NOTE      D - RELATED PARTY TRANSACTIONS **

----

*Table          of Contents*

|                                 |   | **Three                Months Ended June 30,** |       | **Six                Months Ended June 30, ** |   |
|--------------------------------------|--------|------------------------------------------------|------------|----------------------------------------------------|--------|
|                                 |   | **2008**                                       |       | **2007**                                           |   | **2008** |   | **2007** |   |
| PURCHASES                FROM:       |   |                                      |       |                                          |   |                    |   |                    |   |
| Ruili                Group Co., Ltd. |   | $                                              | 10,649,765 |                                               | $      | 7,300,184 |   | $ | 19,153,909 |   | $ | 12,678,779 |   |
| Total                                |   | $                                              | 10,649,765 |                                               | $      | 7,300,184 |   | $ | 19,153,909 |   | $ | 12,678,779 |   |
|                                 |   |                                           |     |                                               |   |   |   |   |   |   |   |   |   |
| SALES                TO:             |   |                                           |            |                                               |   |  |   |   |  |   |   |  |   |
| Ruili                Group Co., Ltd. |   | $                                              | 1,004,231  |                                               | $      | — |   | $ | 1,822,149 |   | $ | 914,683 |   |
| Total                                |   | $                                              | 1,004,231  |                                               | $      | — |   | $ | 1,822,149 |   | $ | 914,683 |   |

|                                 |   | **June                30,** |      | **December                31,** |   |
|--------------------------------------|--------|-----------------------------|-----------|---------------------------------|--------|
|                                 |   | **2008**                    |      | **2007**                        |   |
| ACCOUNTS                PAYABLE      |   |                        |      |                            |   |
| Ruili                Group Co., Ltd. |   | $                           | 3,453,244 |                            | $      | 97,503 |   |
| Total                                |   | $                           | 3,453,244 |                            | $      | 97,503 |   |
|                                 |   |                        |      |                            |   |   |   |
| OTHER                CURRENT ASSETS  |   |                        |      |                            |   |   |   |
| Ruili                Group Co., Ltd. |   | $                           | —   |                            | $      | 1,761,007 |   |
| Total                                |   | $                           | —   |                            | $      | 1,761,007 |   |

**NOTE      E - ACCOUNTS RECEIVABLE**

|                                      |   |   | **June                30, ** |   |   | **December                31,** |   |
|-------------------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                      |   |   | **2008**                          |   |   | **2007**                        |   |
| Beginning                balance          |   | $      | 27,987                            |   | $      | 8,769                           |   |
| Add:                Increase to allowance |   |   | 3,309                             |   |   | 19,218                          |   |
| Less:                Accounts written off |   |   |                                   |   |   |                                 |   |
| Ending                balance             |   | $      | 31,296                            |   | $      | 27,987                          |   |

|                                                      |   |   | **June                30,** |   |   | **December                31,** |   |
|------------------------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------|--------|
|                                                      |   |   | **2008**                    |   |   | **2007**                        |   |
| Accounts                receivable                   |   | $      | 38,894,279                  |   | $      | 30,614,226                      |   |
| Less:                allowance for doubtful accounts |   |   |  (31,296             | )      |   | (27,987                         | )      |
| Account                receivable balance, net       |   | $      | 38,862,983                  |   | $      | 30,586,239                      |   |

----

*Table          of Contents*

**NOTE      F - INVENTORIES**

|                           |   |   | **June                30, ** |   |   | **December                31,** |   |
|--------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                |   |   | **2008**                          |   |   | **2007**                        |   |
| Raw                Material    |   | $      | 3,419,860                         |   | $      | 2,354,637                       |   |
| Work                in process |   |   | 698,483                           |   |   | 4,157,643                       |   |
| Finished                Goods  |   |   |  9,412,928                 |   |   | 1,708,093                       |   |
| Total                Inventory |   | $      | 13,531,271                        |   | $      | 8,220,373                       |   |

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

|                                          |   |   | **June                30, ** |   |   | **December                31,** |   |
|-----------------------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                          |   |   | **2008**                          |   |   | **2007**                        |   |
| Machinery                                     |   | $      | 20,150,149                        |   | $      | 18,118,125                      |   |
| Molds                                         |   |   | 1,271,005                         |   |   | 1,193,488                       |   |
| Office                equipment               |   |   | 486,988                           |   |   | 358,163                         |   |
| Vehicle                                       |   |   | 973,256                           |   |   | 757,311                         |   |
| Building                                      |   |   | 7,946,761                         |   |   | 7,462,096                       |   |
| Construction                In Progress       |   |   |                            |   |   |                          |   |
| Sub-Total                                     |   |   |  30,828,160                |   |   |  27,889,182              |   |
|                                          |   |   |                              |   |   |                            |   |
| Less:                Accumulated depreciation |   |   |  (7,676,656                | )      |   |  (6,094,229              | )      |
|                                          |   |   |                              |   |   |                            |   |
| Fixed                Assets, net              |   | $      | 23,151,504                        |   | $      | 21,794,953                      |   |

**NOTE      H- LAND USE RIGHTS**

|                                           |   |   | **June                30, ** |   |   | **December                31,** |   |
|------------------------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                           |   |   | **2008**                          |   |   | **2007**                        |   |
| Cost:                                          |   | $      | 14,874,021                        |   | $      | 13,966,870                      |   |
| Less:                Accumulated amortization: |   |   |  246,531                   |   |   | 77,165                          |   |
| Land                use rights, net            |   | $      | 14,627,491                        |   | $      | 13,889,705                      |   |

----

*Table          of Contents*

**NOTE      I - INTANGIBLE ASSETS**

| **2008** |   | **2009** |   | **2010** |   | **2011** | **2012** |   | **Thereafter** |
|----------|--------|----------|--------|----------|--------|----------|----------|--------|----------------|
| $        | 7,616  |     | $      | 15,231   |   | $        | 15,231   | $      | 15,231         |   | $ | 15,231 |   | $ | 60,979 |

**NOTE      J - PREPAYMENT**

|                                  |   |   | **June                30, ** |   |   | **December                31,** |   |
|---------------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|
|                                  |   |   | **2008**                          |   |   | **2007**                        |   |
| Raw                material suppliers |   | $      | 2,643,620                         |   | $      | 929,178                         |   |
| Equipment                purchase     |   |   | 665,801                           |   |   | 407,035                         |   |
| Total                prepayment       |   | $      | 3,309,421                         |   | $      | 1,336,212                       |   |

**NOTE      K - BANK LOANS**

|                                 |   |   | **June                30,** |   |   | **December                31,** |        |
|--------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------|--------|
|                                 |   |   | **2008**                    |   |   | **2007**                        |   |
| Secured                              |   | $      | 1,990,622                   |   | $      | 3,370,328                       |   |
| Less:                Current portion |   | $      | (1,990,622                  | )      | $      | (3,370,328                      | )      |
| Non-current                portion   |   | $      | —                     |   | $      | —                         |   |

**NOTE      L - ACCRUED EXPENSES**

|                                  |   |   | **June                30,** |   |   | **December                31,** |   |
|---------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------|--------|
|                                  |   |   | **2008**                    |   |   | **2007**                        |   |
| Accrued                payroll        |   | $      | 971,493                     |   | $      | 601,733                         |   |
| Other                accrued expenses |   |   | 2,263,477                   |   |   | 1,258,205                       |   |
| Total                accrued expenses |   | $      | 3,234,970                   |   | $      | 1,859,938                       |   |

----

*Table          of Contents*

**NOTE      M - RESERVE**

|                                          |   |   | **June                30,** |   |   | **December                31,** |        |
|-----------------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------|--------|
|                                               |   |   | **2008**                    |   |   | **2007**                        |   |
| Statutory                surplus reserve fund |   | $      | 2,661,841                   |   | $      | 1,882,979                       |   |
| Total                                         |   | $      | 2,661,841                   |   | $      | 1,882,979                       |   |

**NOTE      N - INCOME TAXES**

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

----

*Table          of Contents*

**NOTE      O - LEASES**

|      |   | **2008** |    | **2009** |   | **2010** |   | **2011** |    | **2012** |   | **Thereafter** |
|-----------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|----------------|
| Buildings |   | $        | 140,082 |     | $      | 280,163  |   | $        | 280,163 |     | $      | 280,163        |   | $ | 67,975 |   | $ | — |
| Total     |   | $        | 140,082 |     | $      | 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 six months ended June 30, 2008:           |   | $      | 1,060,353 |   |
| Less:                Actual Paid during the six months ended June 30, 2008: |   | $      | 706,863   |   |
| Ending                balance at June 30, 2008                              |   | $      | 1,216,918 |   |

**NOTE      S - STOCK COMPENSATION PLAN **

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

----

*Table          of Contents*

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

|                                                  |   | **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 June 30, 2008 |   |        | 60,000  |                                                     | $      | 4.79                                                                    |   |                                | 0.7                Years |   | $ | 34,200 |   |
|                                             |   |        |         |                                                     |   |                                                                         |   |                                |                          |   |   |  |   |
| Exercisable                at June 30, 2008 |   |        | — |                                                     |   | —                                                                 |   |                                | —                  |   |   | — |   |

----

*Table          of Contents*

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

|                                        |   |   |                   |   |
|---------------------------------------------|--------|--------|------------------------|--------|
| Dividend                Yield               |   |   | 0.00                   | %      |
| Expected                Volatility          |   |   | 141.47                 | %      |
| 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 June 30, 2008 |   |        | 4,128   |                                                     | $      | 7.25                                                                    |   |                                | 2                Years |   | $ | — |   |
|                                             |   |        |    |                                                     |   |                                                                         |   |                                |                        |   |   |  |   |
| Exercisable                at June 30, 2008 |   |        | 4,128   |                                                     | $      | 7.25                                                                    |   |                                | 2                Years |   | $ | — |   |

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

----

*Table          of Contents*

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

|                                             |   | **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 June 30, 2008 |   |         | 100,000 |                                                     | $      | 6.25                                                                    |   |                                | 1.5                Years |   | $ | — |   |
|                                             |   |         |    |                                                     |   |                                                                         |   |                                |                          |   |   |  |   |
| Exercisable                at June 30, 2008 |   |         | 100,000 |                                                     | $      | 6.25                                                                    |   |                                | 1.5                Years |   | $ | — |   |

**NOTE      T- COMMITMENTS AND CONTINGENCIES**

| Information                regarding land use rights and lease commitments is provided in Notes                H and                O. |
|----------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

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

**OVERVIEW      **

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES **

**Results      of Operations **

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

**SALES      **

|                                                       |   | **Three                  Months ended**         |   | **Three                  Months ended** |   |
|------------------------------------------------------------|--------|-------------------------------------------------|--------|-----------------------------------------|--------|
|                                                       |   | **30-Jun-08**                                   |   | **30-Jun-07**                           |   |
|                                                       |   | **(U.S.                  dollars in millions)** |   |
| Air                  brake valves & related components |   | $                                               | 31.6   |                                    |   | 75 | % | $ | 22.2 |   |   | 76 | % |
| Non-valve                  products                        |   | $                                               | 10.5   |                                    |   | 25 | % | $ | 7 |   |   | 24 | % |
| Total                                                      |   | $                                               | 42.1   |                                    |   | 100 | % | $ | 29.2 |   |   | 100 | % |

----

*Table          of Contents*

|                                |   |                                                | **Three                Months** |   |   |   |   |   | **Three                  Months** |   |   |   |   |
|-------------------------------------|--------|-----------------------------------------------------|---------------------------------|--------|--------|--------|--------|--------|-----------------------------------|--------|--------|--------|--------|
|                                |   |                                                | **ended**                       |   |   |   |   |   | **ended**                         |   |   |   |   |
|                                |   |                                                | **30-Jun-08**                   |   |   | **%**  |   |   | **30-Jun-07**                     |   |   | **%**  |   |
|                                |   | **(U.S.                 dollars in millions)** |                            |
| China                OEM market     |   | $                                                   | 17.5                            |   |   | 42     | %      | $      | 12                                |   |   | 41     | %      |
| China                Aftermarket    |   | $                                                   | 10.5                            |   |   | 25     | %      | $      | 6.3                               |   |   | 22     | %      |
| International                market |   | $                                                   | 14.1                            |   |   | 33     | %      | $      | 10.9                              |   |   | 37     | %      |
| Total                               |   | $                                                   | 42.1                            |   |   | 100    | %      | $      | 29.2                              |   |   | 100    | %      |

----

*Table          of Contents*

**COST      OF SALES**

**GROSS      PROFIT **

**SELLING      AND DISTRIBUTION EXPENSES **

|   | (1) | Increased                transportation expense: During the second quarter of 2008, transportation                costs increased by $601,609 as compared to $ 335,397 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 increased number of loads necessitated                by                the overloading control measures imposed by the Chinese government                since                the third quarter of 2007. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Increased                packaging expense: Packaging costs were $737,920 for the three months                ended June 30, 2008, an increase of $274,166 as compared with the                same                period of 2007, which was consistent with the revenue growth. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Increased                product warranty expense. The Company recorded $612,994 of product                warranty expenses for the three months ended June 30, 2008, as compared                to                $                321,083                for the three months ended June 30, 2007, an increase of $291,911. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

**GENERAL      AND ADMINISTRATIVE EXPENSES**

|  | (1) | The                expansion of economic activities, facilities and workforce resulted                in                increased depreciation, office expenses, staff salary, work insurance                and                welfare, travel expenses and other miscellaneous fees totaling an                increase                of $ 437,985 as compared to the same period of                2007. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | R&D                expense, which is included in general and administrative expenses,                increased by $936,867, as compared to $330,797 of R&D expense for the                same period of 2007, as discussed                below. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | During                the three months ended June 30, 2007, the reversal of the bad debt                provision resulted in a negative $ 234,154 for bad debt provision,                which                was included in the General and Administrative expenses. Even though                the                bad debt provision recognized during the three months ended June                30, 2008                was $ 10,450, such number combined with the negative $234,154 number                results in an increase of $244,604 in General and Administrative                expenses. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RESEARCH      AND DEVELOPMENT EXPENSE **

**DEPRECIATION      AND AMORTIZATION **

**FINANCIAL      EXPENSE **

**OTHER      INCOME **

**INCOME      TAX **

----

*Table          of Contents*

**STOCK-BASED      COMPENSATION **

**MINORITY      INTEREST **

**FINANCIAL      CONDITION **

**Liquidity      and Capital Resources **

----

*Table          of Contents*

| ***(2)*** | ***Results                of operations for the six months ended June 30, 2008 as compared                to the                six months ended June 30,                2007.*** |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**SALES      **

|                                                       |   | **Six                  Months ended**           |   | **Six                  Months ended** |   |
|------------------------------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------|--------|
|                                                       |   | **30-Jun-08**                                   |   | **30-Jun-07**                         |   |
|                                                       |   | **(U.S.                  dollars in millions)** |   |
| Air                  brake valves & related components |   | $                                               | 55.7   |                                  |   | 77 | % | $ | 41.3 |   |   | 77 | % |
| Non-valve                  products                        |   | $                                               | 17.1   |                                  |   | 23 | % | $ | 12.3 |   |   | 23 | % |
| Total                                                      |   | $                                               | 72.8   |                                  |   | 100 | % | $ | 53.6 |   |   | 100 | % |

----

*Table          of Contents*

|                                |   |   | **Six                Months**                      |   |   |   |   |   | **Six                Months** |   |   |   |   |
|-------------------------------------|--------|--------|----------------------------------------------------|--------|--------|--------|--------|--------|-------------------------------|--------|--------|--------|--------|
|                                |   |   | **ended**                                          |   |   |   |   |   | **ended**                     |   |   |   |   |
|                                |   |   | **30-Jun-08**                                      |   |   | **%**  |   |   | **30-Jun-07**                 |   |   | **%**  |   |
|                                     |   |   | **(U.S.                 dollars in million)** |   |
| China                OEM market     |   | $      | 28.2                                               |   |   | 39     | %      | $      | 20.9                          |   |   | 39     | %      |
| China                Aftermarket    |   | $      | 20.4                                               |   |   | 28     | %      | $      | 13.4                          |   |   | 25     | %      |
| International                market |   | $      | 24.2                                               |   |   | 33     | %      | $      | 19.3                          |   |   | 36     | %      |
| Total                               |   | $      | 72.8                                               |   |   | 100    | %      | $      | 53.6                          |   |   | 100    | %      |

**COST      OF SALES**

**GROSS      PROFIT **

----

*Table          of Contents*

**SELLING      AND DISTRIBUTION EXPENSES **

|  | (1) | Increased                transportation expense: During the                six months                of                2008, transportation costs increased by $865,519 as compared to $584,397                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 increased number                of loads                necessitated by the overloading control measures imposed by the Chinese                government since the third quarter of 2007. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|
|  | (2) | Increased                packaging expense: Packaging costs were $1,311,023 for the                six months                ended June 30, 2008, an increase of $ 409,458 as compared with the                same                period of 2007, which was consistent with the revenue growth. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|  | (3) | Increased                product warranty expense. The Company recorded $1,060,353 of product                warranty expenses for the                six months                ended June 30, 2008, as compared to $                585,888                for the six months ended June 30, 2007, an increase of $474,465. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**GENERAL      AND ADMINISTRATIVE EXPENSES**

|  | (1) | The                expansion of economic activities, facilities and workforce resulted                in                increased depreciation, office expenses, staff salary, work insurance                and                welfare, travel expenses and other miscellaneous fees totaling $2,506,665,                an increase of $739,624 as compared to the same period of                2007. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|
|  | (2) | R&D                expense, which is included in general and administrative expenses,                increased by $1,096,616, as compared to $ 553,672 of R&D expense for                the same period of 2007, as discussed below. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RESEARCH      AND DEVELOPMENT EXPENSE **

----

*Table          of Contents*

**DEPRECIATION      AND AMORTIZATION **

**FINANCIAL      EXPENSE **

**OTHER      INCOME **

**INCOME      TAX **

**STOCK-BASED      COMPENSATION **

**MINORITY      INTEREST**

----

*Table          of Contents*

**FINANCIAL      CONDITION **

**Liquidity      and Capital Resources **

----

*Table          of Contents*

**OFF-BALANCE      SHEET AGREEMENTS **

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

**ITEM      4T. CONTROLS AND PROCEDURES **

**Evaluation      of Disclosure Controls and Procedures**

**Changes      in Internal Control over Financial Reporting**

**PART      II OTHER INFORMATION **

**ITEM      6. EXHIBITS**

| EXHIBIT              NO. | DOCUMENT                DESCRIPTION |
|--------------------------|-------------------------------------|

| 3.1                (1) | Articles                  of Incorporation |
|------------------------|--------------------------------------------|

| 3.2                (1) | Bylaws |
|------------------------|--------|

----

*Table            of Contents*

| 4.1                (2) | Form                  of Underwriters’ Common Stock Purchase                  Warrants |
|------------------------|----------------------------------------------------------------------------------------------|

| 4.2                (2) | Specimen                  Common Stock Certificate |
|------------------------|----------------------------------------------------|

| 31.1 (3) | 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 (3) | 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 (4) | 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) | Incorporated                herein by reference from the Registrant’s Form 10-QSB filed with the                Securities and Exchange Commission on May 28,                2003. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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) | Filed                herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | 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. |

----

*Table          of Contents*

**SIGNATURES**

|                                   |                                          |                                   |
|----------------------------------------|-----------------------------------------------|----------------------------------------|
| Dated                : August 13, 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 |
|   |                                          |
|   |                                          |
|   |                                          |

----