----

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

**FORM 10-Q/A****Amendment No. 2**

| **(Mark One)**                                                |
|---------------------------------------------------------------|
|                                                          |   |
| x                                                             | **QUARTERLY   REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                          |   |
| **For the quarterly period ended****June 30, 2005**           |
|                                                          |   |
| o                                                             | **TRANSITION   REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT** |
|                                                          |   |
| **For the transition period from_____________to____________** |
|                                                          |   |
| **Commission file number  000-11991**               |

| **SORL AUTO   PARTS, INC.**                            |
|--------------------------------------------------------|
|                                                        |
| *(Exact name   of issuer as specified in its charter)* |

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

| **No. 1169 Yumeng Road**                     |
|----------------------------------------------|
| **Ruian Economic Development District**      |
| **Ruian City, Zhejiang Province**            |
| **People’s Republic Of China**          |
|                                              |
| *(Address of   principal executive offices)* |
|                                         |
| **86-577-65817720**                          |
|                                              |
| *(Issuer’s   telephone number)*         |

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  Large 

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

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

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

As of August 11, 2005 there were **13,285,867** shares of Common Stock outstanding

----

Reason For Amendment

This filing is being amended to include, revise or omit information necessary to improve the disclosures as follows:

•          The table of contents have been revised to caption all items required under Form 10-Q. Where items are inapplicable to the Company it is so stated. The body of the document has been similarly revised.

- i -

----

**INDEX**

| PART I.    | FINANCIAL INFORMATION (unaudited)                                                            |   |
|------------|----------------------------------------------------------------------------------------------|--------|
|       |                                                                                         |   |
| Item 1.    | Financial Statements:                                                                        | 1      |
|       |                                                                                         |   |
|       | Consolidated Balance Sheets                                                                  | 1      |
|       |                                                                                         |   |
|       | Consolidated Statements of Operations                                                        | 2      |
|       |                                                                                         |   |
|       | Consolidated Statements of Cash Flows                                                        | 4      |
|       |                                                                                         |   |
|       | Notes to the Condensed Financial Statements                                                  | 5      |
|       |                                                                                         |   |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results   of Operations | 11     |
|       |                                                                                         |   |
| Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                                   | 17     |
|       |                                                                                         |   |
| Item 4.    | Controls and Procedures                                                                      | 17     |
|       |                                                                                         |   |
| PART II.   | OTHER INFORMATION                                                                            |   |
|       |                                                                                         |   |
| Item 1.    | Legal Proceedings                                                                            | 18     |
|       |                                                                                         |   |
| Item 1A.   | Risk Factors                                                                                 | 18     |
|       |                                                                                         |   |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                                  | 18     |
|       |                                                                                         |   |
| Item 3.    | Defaults upon Senior Securities                                                              | 18     |
|       |                                                                                         |   |
| Item 4.    | Submission of Matters to a Vote of Security Holders                                          | 18     |
|       |                                                                                         |   |
| Item 5.    | Other information                                                                            | 18     |
|       |                                                                                         |   |
| Item 6.    | Exhibits                                                                                     | 18     |
|       |                                                                                         |   |
| SIGNATURES | 19                                                                                           |

----

**PART I FINANCIAL INFORMATION**

| **Item 1.** | **Financial Statements** |
|-------------|--------------------------|

**SORL Auto Parts, Inc. and Subsidiaries Consolidated Balance Sheets June 30, 2005 and December 31, 2004**

|                                                       |   |    | **June 30, 2005** |   |    | **December 31,  2004** |   |
|------------------------------------------------------------|--------|---------|-------------------|--------|---------|------------------------|--------|
|                                                       |   |    |                   |   |    |                        |   |
|                                                       |   |    | **(Unaudited)**   |   |    | **(Audited)**          |   |
| **Assets**                                                 |   |    |              |   |    |                   |   |
| **Current Assets**                                         |   |    |              |   |    |                   |   |
| Cash and Cash Equivalents                                  |   | US$     | 317,030           |   | US$     | 729,875                |   |
| Trade Receivables, Net of Provision                        |   |    | 18,988,834        |   |    | 12,595,905             |   |
| Notes Receivable                                           |   |    | 934,783           |   |    | 129,675                |   |
| Inventory                                                  |   |    | 2,604,395         |   |    | 1,875,300              |   |
| Prepayments                                                |   |    | 1,810,466         |   |    | 1,404,710              |   |
| Other Currents (Receivables, or discontinued   operations) |   |    | 62,742            |   |    | 393,300                |   |
|                                                       |   |    |                   |   |    |                        |   |
| Total Current Assets                                       |   |    | 24,718,250        |   |    | 17,128,765             |   |
| **Fixed Assets**                                           |   |    |              |   |    |                   |   |
| Property, Plant and Equipment                              |   |    | 8,590,023         |   |    | 7,517,796              |   |
| Less:    Accumulated Depreciation                     |   |    | (2,554,240        | )      |    | (2,165,142             | )      |
|                                                       |   |    |                   |   |    |                        |   |
| Fixed Assets, Net                                          |   |    | 6,035,783         |   |    | 5,352,654              |   |
| **Other Assets**                                           |   |    |              |   |    |                   |   |
| Loans Receivable                                           |   |    | 0                 |   |    | 0                      |   |
| Intangible Assets                                          |   |    | 43,173            |   |    | 43,174                 |   |
| Less:  Accumulated   Amortization                     |   |    | (8,013            | )      |    | (4,454                 | )      |
| Intangible Assets, Net                                     |   |    | 35,160            |   |    | 38,720                 |   |
| Other LT Assets (Discontinued Operations)                  |   |    | 0                 |   |    | 0                      |   |
|                                                       |   |    |                   |   |    |                        |   |
| Total Other                                                |   |    | 35,160            |   |    | 38,720                 |   |
|                                                       |   |    |                   |   |    |                        |   |
| **Total Assets**                                           |   | **US$** | **30,789,193**    |   | **US$** | **22,520,139**         |   |
|                                                       |   |    |                   |   |    |                        |   |
| **Liabilities and Shareholders’   Equity**            |   |    |              |   |    |                   |   |
| **Current Liabilities**                                    |   |    |              |   |    |                   |   |
| Accounts Payable                                           |   | US$     | 5,101,678         |   | US$     | 4,717,655              |   |
| Deposit Received from Customers                            |   |    | 1,499,868         |   |    | 861,624                |   |
| ST Bank Loans                                              |   |    | 8,174,590         |   |    | 4,830,918              |   |
| Accrued Expenses                                           |   |    | 221,866           |   |    | 625,769                |   |
| Other Current Liabilities                                  |   |    | 1,075,428         |   |    | 0                      |   |
| Total Current Liabilities                                  |   |    | 16,073,430        |   |    | 11,035,966             |   |
| **Long-Term Liabilities**                                  |   |    |              |   |    |                   |   |
| LT Bank Loans                                              |   |    | 0                 |   |    | 0                      |   |
| Other LT Liabilities                                       |   |    | 0                 |   |    | 0                      |   |
|                                                       |   |    |                   |   |    |                        |   |
| Total Liabilities                                          |   |    | 16,073,430        |   |    | 11,035,966             |   |
|                                                       |   |    |                   |   |    |                        |   |
| **Minority Interest**                                      |   |    | 1,471,577         |   |    | 1,148,418              |   |
| **Shareholders’ Equity**                              |   |    |              |   |    |                   |   |
| Common Stock                                               |   |    | 26,574            |   |    | 26,565                 |   |
| Paid In Capital                                            |   |    | 4,082,237         |   |    | 4,082,246              |   |
| Reserves                                                   |   |    | 0                 |   |    | 0                      |   |
| Retained Earnings (Deficit)                                |   |    | 9,135,375         |   |    | 6,226,944              |   |
|                                                       |   |    |                   |   |    |                        |   |
|                                                       |   |    | 13,244,186        |   |    | 10,335,755             |   |
|                                                       |   |    |                   |   |    |                        |   |
| **Total Liabilities and   Shareholders’ Equity**      |   | **US$** | **30,789,193**    |   | **US$** | **22,520,139**         |   |
|                                                       |   |    |                   |   |    |                        |   |

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

- 1 -

----

**SORL Auto Parts, Inc. and Subsidiaries Consolidated Statements of Operations For The Second Quarter Ended on June 30, 2005 and 2004**

|                                              |   |   | **2005 Q2** |   | **2005 YTD** |       |   | **2004 Q2** |       | **2004 YTD** |   |
|---------------------------------------------------|--------|--------|-------------|--------|--------------|------------|--------|-------------|------------|--------------|--------|
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Sales                                             |   | US$    | 14,924,151  |   |         | 29,440,016 |   | US$         | 11,340,173 |         |   | 20,409,618 |   |
| Cost   of Sales                                   |   |   | 11,561,779  |   |         | 22,857,952 |   |        | 8,686,430  |         |   | 15,525,677 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Gross   Profit                                    |   |   | 3,362,372   |   |         | 6,582,064  |   |        | 2,653,743  |         |   | 4,883,941 |   |
| Expenses:                                         |   |   |        |   |         |       |   |        |       |         |   |   |   |
| Selling and Distribution Expenses                 |   |   | 954,666     |   |         | 1,881,755  |   |        | 387,736    |         |   | 1,012,874 |   |
| General and Administrative Expenses               |   |   | 652,039     |   |         | 1,206,293  |   |        | 839,266    |         |   | 1,408,171 |   |
|                                              |   |   | 0           |   |         | 0          |   |        | 0          |         |   | 0 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Total   Expenses                                  |   |   | 1,606,705   |   |         | 3,088,048  |   |        | 1,227,002  |         |   | 2,421,045 |   |
| Operating   Income                                |   |   | 1,755,667   |   |         | 3,494,016  |   |        | 1,426,741  |         |   | 2,462,896 |   |
| Financial   Expenses                              |   |   | (126,348    | )      |         | (186,800   | )      |        | (76,267    | )            |   | (156,175 | ) |
| Other   Income                                    |   |   | 0           |   |         | 0          |   |        | 0          |         |   | 0 |   |
| Non-Operating   Expenses                          |   |   | (66,473     | )      |         | (75,626    | )      |        | (36,187    | )            |   | (36,187 | ) |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Income   (Loss) Before Provision for Income Taxes |   |   | 1,562,846   |   |         | 3,231,590  |   |        | 1,314,287  |         |   | 2,270,534 |   |
| Provision   for Income Taxes                      |   |   | 0           |   |         | 0          |   |        | 0          |         |   | 0 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Net   Income Before Minority Interest             |   | US$    | 1,562,846   |   |         | 3,231,590  |   | US$         | 1,314,287  |         |   | 2,270,534 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Minority   Interest                               |   |   | 156,285     |   |         | 323,159    |   |        | 131,428    |         |   | 227,053 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Net   Income Attributable to Shareholders         |   |   | 1,406,561   |   |         | 2,908,431  |   |        | 1,182,859  |         |   | 2,043,481 |   |
|                                              |   |   |             |   |              |            |   |        |            |         |        |  |   |
| Weighted   average common share - Basic           |   |   | 13,287,055  |   |         | 13,287,055 |   |        | 13,282,253 |         |   | 13,282,253 |   |
| Weighted   average common share - Diluted         |   |   | 13,287,055  |   |         | 13,287,055 |   |        | 13,282,253 |         |   | 13,282,253 |   |
| EPS   - Basic                                     |   |   | 0.11        |   |         | 0.22       |   |        | 0.09       |         |   | 0.15 |   |
| EPS   - Diluted                                   |   |   | 0.11        |   |         | 0.22       |   |        | 0.09       |         |   | 0.15 |   |

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

- 2 -

----

**SORL Auto Parts, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity For The Second Quarter Ended on June 30, 2005 and 2004**

|                                                      |   | **Number of Common Shares** |               | **Common Stock** |   | **Additional Paid in Capital** |   | **Retained Earnings (Deficit)** |               | **Shareholders’ Equity** |   | **Minority Interest** |   |
|-----------------------------------------------------------|--------|-----------------------------|--------------------|------------------|--------|--------------------------------|--------|---------------------------------|--------------------|-------------------------------|--------|-----------------------|--------|
|                                                      |   |                             |                    |             |        |                                |   |                                 |                    |                          |        |                       |   |  |  |   |  |  |   |
| **Beginning Balance - Dec 31, 2003**                      |   |                        | **12,953,720**     |             |   | **25,908**                     |   |                            | **26,858,092**     |                          |   | **1,420,000**         |   |   | **28,304,000** |   |   | —   |   |
| **Corporate Reorganization:**                             |   |                        |               |             |   |                           |   |                            |               |                          |   |                  |   |   |   |   |   |   |   |
| Distribution of Discontinued Operations to   Shareholders |   |                        | —   |             |   | —               |   |                            | (22,775,189        | )                             |   | —      |   |   | (22,775,189 | ) |   | —   |   |
| Acquisition of Enchanted Village                          |   |                        | 328,533            |             |   | 657                            |   |                            | (657               | )                             |   | —      |   |   | —   |   |   | —   |   |
| Capital Contributed by Minority Shareholders              |   |                        | —   |             |   | —               |   |                            | —   |                          |   | —      |   |   | —   |   |   | 614,313 |   |
| Net   Income (Loss)                                       |   |                        | —   |             |   | —               |   |                            | —   |                          |   | 2,043,481             |   |   | 2,043,481 |   |   | 227,053 |   |
| **Ending Balance – June 30, 2004**                   |   |                        | **13,282,253**     |             |   | **26,565**                     |   |                            | **4,082,246**      |                          |   | **3,463,481**         |   |   | **7,572,292** |   |   | **841,366** |   |
|                                                      |   |                             |                    |             |        |                                |   |                                 |                    |                          |        |                       |   |  |  |   |  |  |   |
| **Beginning Balance - Dec 31, 2004**                      |   |                        | **13,282,253**     |             |   | **26,565**                     |   |                            | **4,082,246**      |                          |   | **6,226,944**         |   |   | **10,335,755** |   |   | **1,148,418** |   |
| Common   Stock – Adjustment for fractional shares    |   |                        | 4,802              |             |   | 9                              |   |                            | (9                 | )                             |   | —      |   |   | —   |   |   | —   |   |
| Net   Income (Loss)                                       |   |                        | —   |             |   | —               |   |                            | —   |                          |   | 2,908,431             |   |   | 2,908,431 |   |   | 323,159 |   |
|                                                      |   |                             |                    |             |        |                                |   |                                 |                    |                          |        |                       |   |  |  |   |  |  |   |
| **Ending Balance – June 30, 2005**                   |   |                        | **13,287,055**     |             |   | **26,574**                     |   |                            | **4,082,237**      |                          |   | **9,135,375**         |   |   | **13,244,186** |   |   | **1,471,577** |   |
|                                                      |   |                             |                    |             |        |                                |   |                                 |                    |                          |        |                       |   |  |  |   |  |  |   |

Note:   Common stock has a par value of $0.002

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

- 3 -

----

**SORL Auto Parts, Inc. and Subsidiaries Consolidated Statements of Cash Flows For The Six Months Ended on June 30, 2005 and 2004**

|                                                                                    |   |    | **2005**   |   |    | **2004**   |   |
|-----------------------------------------------------------------------------------------|--------|---------|------------|--------|---------|------------|--------|
|                                                                                    |   |    |            |   |    |            |   |
| **Cash Flows from Operating   Activities**                                              |   |    |       |   |    |       |   |
| Net   Income (Loss)                                                                     |   | US$     | 2,908,431  |   | US$     | 2,043,481  |   |
| **Adjustments   to reconcile net income (loss) to net cash from operating activities:** |   |    |       |   |    |       |   |
| Loss from Sale/Disposal of Assets                                                       |   |    | 0          |   |    | 0          |   |
| Amortization                                                                            |   |    | 3,559      |   |    | (4,228     | )      |
| Depreciation                                                                            |   |    | 389,098    |   |    | 173,948    |   |
| **Changes   in Assets and Liabilities:**                                                |   |    |       |   |    |       |   |
| Trade Receivables                                                                       |   |    | (6,392,929 | )      |    | (9,343,024 | )      |
| Notes Receivables                                                                       |   |    | (805,108   | )      |    | (302,065   | )      |
| Other Receivables                                                                       |   |    | 330,558    |   |    | (20,846    | )      |
| Inventory                                                                               |   |    | (729,095   | )      |    | 54,546     |   |
| Prepayments, Deposits, and Other Current Assets                                         |   |    | (405,756   | )      |    | 2,042,988  |   |
| Trade Payables                                                                          |   |    | 384,023    |   |    | 4,532,656  |   |
| Deposits Received from Customers                                                        |   |    | 638,244    |   |    | 611,534    |   |
| Other Payables and Accrued Expenses                                                     |   |    | 671,525    |   |    | 249,435    |   |
| Minority Interest                                                                       |   |    | 323,159    |   |    | 227,053    |   |
|                                                                                    |   |    |            |   |    |            |   |
| **Net   Cash Flows from Operating Activities**                                          |   |    | (2,684,291 | )      |    | 265,478    |   |
| **Cash Flows from Investing   Activities**                                              |   |    |       |   |    |       |   |
| Acquisition of Property and Equipment                                                   |   |    | (1,072,227 | )      |    | (53,112    | )      |
| Investment in Intangible Assets                                                         |   |    | 0          |   |    | (28,343    | )      |
| Investing in Activities - Discontinued Ops                                              |   |    | 0          |   |    | 0          |   |
|                                                                                    |   |    |            |   |    |            |   |
| **Net   Cash Flows from Investing Activities**                                          |   |    | (1,072,227 | )      |    | (81,455    | )      |
| **Cash Flows from Financing   Activities**                                              |   |    |       |   |    |       |   |
| Proceeds from Borrowings                                                                |   |    | 3,343,672  |   |    | (1,899     | )      |
| Proceeds from Share Issuance                                                            |   |    | 0          |   |    | 25,917     |   |
| Paid-in Capital Increase                                                                |   |    | 0          |   |    | (9         | )      |
|                                                                                    |   |    |            |   |    |            |   |
| **Net   Cash Flows from Financing Activities**                                          |   |    | 3,343,672  |   |    | 24,009     |   |
| Net   Increase (Decrease) in Cash                                                       |   |    | (412,845   | )      |    | 208,032    |   |
| Cash   - Beginning of Term                                                              |   |    | 729,875    |   |    | 0          |   |
|                                                                                    |   |    |            |   |    |            |   |
| **Cash - End of Term**                                                                  |   | **US$** | 317,030    |   | **US$** | 208,032    |   |
|                                                                                    |   |    |            |   |    |            |   |
| **Supplemental Cash Flow   Disclosures:**                                               |   |    |       |   |    |       |   |
| Interest Paid                                                                           |   |    | 177,015    |   |    | 153,135    |   |
| Tax Paid                                                                                |   |    | 0          |   |    | 0          |   |
|                                                                                    |   |    |            |   |    |            |   |
| **Supplemental Disclosures of   Non-Cash Investing and Financing Activities**           |   |    |       |   |    |       |   |
| Cash Balance per Current Balance Sheet                                                  |   |    | 317,030    |   |    | 208,032    |   |
| Check                                                                                   |   |    | (0         | )      |    | (0         | )      |
|                                                                                    |   |    |            |   |    |            |   |

- 4 -

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DESCRIPTION OF BUSINESS**

          SORL Auto Parts is principally engaged in the manufacture and distribution of automotive air brake valves and hydraulic brake valves for vehicles weighing more than three tons, such as trucks, vans and buses, through its 90% ownership of Ruili  Group Ruian Auto Parts Company Limited (Ruian) in the PRC.  The subsidiary  distributes products both in China and internationally under SORL Auto Parts  trademarks.  The Company’s product range includes 36 categories of brake valves with over 800 different specifications.  The Company is rated as one of the top 100 auto component suppliers in China.

**REORGANIZATION**

          In March 2004, pursuant to a Joint Venture Agreement between the Ruili Group Co., Ltd., a PRC corporation (“Ruili Group”), and Fairford Holdings, Inc., a Hong Kong Company (“Fairford”), the parties formed a sino-foreign joint venture (the “Joint Venture”) under the name Ruili Group Ruian Auto Parts Co. Ltd., of which Fairford owned 90% and the Ruili Group owned 10%.  The shareholders and their respective equity interests in Fairford and the Ruili Group were identical.  In connection with its formation, the Joint Venture acquired the business segment of the Ruili Group relating to the manufacture and sale of various kinds of valves for automotive brake systems and related operations (the “Transferred Business”).  This was accomplished by the transfer from the Ruili Group to Fairford of the relevant assets and liabilities of the Transferred Businessincluding trade receivables, inventories, plant and machinery, and the assumption of short and long term borrowings for a purchase price of $6,390,000.  The consideration was based on a valuation provided by Ruian Ruiyang Assets Valuation Co., Ltd., an independent PRC valuation firm.  Fairford then transferred these assets and liabilities to the Joint Venture as consideration for its 90% ownership interest of the Joint Venture.  The Ruili Group transferred inventory as its capital contribution for its 10% interest in the Joint Venture.  The assets and liabilities transferred to the Joint Venture by Fairford and the Ruili Group represented all the assets and liabilities of the Transferred Business.  Certain historical information of the Transferred Business is based on the operation of the Transferred Business when it was owned by the Ruili Group.

          In May 2004, pursuant to the terms of a Share Exchange Agreement (the “Exchange Agreement”) dated as of April 4, 2004, among the Company, Keating Reverse Merger Fund, LLC, Xiao Ping Zhang, Xiao Feng Zhang and Shuping Chi (collectively, the “Sellers”); and Fairford, the Company acquired from the Sellers (the “Acquisition”) all of the issued and outstanding equity interests of Fairford (the “Fairford Shares”).  As consideration for the Fairford Shares, the Company issued 1,000,000 shares of its Series A Convertible Preferred Stock, which were convertible into an aggregate of the 194,305,800 shares of common stock.  The consideration for the Acquisition was determined through arms length negotiations between the management and the Fairford Sellers.  As a result of the Acquisition, the Fairford Sellers acquired approximately 97.5% of the Company’scommon stock on an as converted basis.

          A current report on Form 8-K was filed on May 24, 2004 to present the financials of the predecessor company (Ruili Group) for the years ended December 31, 2003 and 2002.  The historical financial statements filed with the 8-K reflected the assets and liabilities of both the Transferred Business and the non-transferred business.

          Subsequent to the transfer and reorganization that occurred in March, 2004, the Company began presenting its financial statements as that of the successor company, being only those assets, liabilities, results of operations, and cash flows relating to the Transferred Business.  Prior periods were restated to reflect comparable prior period results of the Transferred Business.

- 5 -

----

**BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS**

          The financial statements for the periods ended June 30, 2005 and 2004 have been prepared to present the financial position, results of operations and cash flows of the continuing business of SORL Auto Parts, Inc. The financial statements reflect the accounts of the “transferred business” (as described in the preceding paragraphs titled “REORGANIZATION”), from the Ruili Group to the Joint Venture.

**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

          ACCOUNTING METHOD - The Company uses the accrual method of accounting for financial statement and tax return purposes.

          PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of SORL Auto Parts, Inc. and its majority owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in the consolidation.

          USE OF ESTIMATES - The preparation of financial statements in conformity with U.S.  generally accepted accounting principles requires management to make estimates  and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements  and the reported amounts of revenues and expenses during the reporting period.  Management makes its best estimate of the ultimate outcome for these items based on  historical trends and other information available when the financial statements are prepared.  Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management.  Actual results could differ from those estimates.  

          FAIR VALUE OF FINANCIAL INSTRUMENTS - For certain of the Company’s financial instruments, including cash and cash  equivalents, trade receivables and payables, prepaid expenses, deposits and other current assets, short-term bank borrowings, and other payables and accruals,  the carrying amounts approximate fair values due to their short maturities.

          RELATED PARTY TRANSACTIONS - A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company.  A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

          FINANCIAL RISK FACTORS AND FINANCIAL RISK MANAGEMENT - The Company is exposed to the following risk factors:

          (i)          Credit risks - The Company has policies in place to ensure that sales of products are made to customers with an appropriate credit history.  The Company has two customers that respectively account for more than 7% of its total revenues for the period.  The Company also has a concentration of credit risk due to geographic sales as a majority of its products are marketed and sold in the PRC.

          (ii)         Liquidity risks - Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and ability to close out market positions.

          (iii)        Interest rate risk - The interest rate and terms of repayments of short-term and long-term bank borrowings are approximately 5.58% per annum.  The Company’s income and cash flows are substantially independent of changes in market interest rates.  The Company has no significant interest-bearing assets.  The Company’s policy is to maintain all of its borrowings in fixed rate instruments.

- 6 -

----

          CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

          INVENTORIES - Inventories are stated at the lower of cost or net realizable value, with cost computed on a weighted-average basis.  Cost includes all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.  Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

          PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.  The initial cost of the asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.  Depreciation is provided using the straight-line method over the assets estimated useful life for periods ranging from five to ten years.  Significant improvements and betterments are capitalized where it is probable that the expenditure resulted in an increase in the future economic benefits expected to be obtained form the use of the asset beyond its originally assessed standard of performance.  Routine repairs and maintenance are expensed when incurred.  Gains and losses on disposal of fixed assets are recognized in the income statement based on the netdisposal proceeds less the carrying amount of the assets.

          IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets, such as property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  An impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the  difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

          INTANGIBLE ASSETS - Intangible assets represent technology know-how.  Intangible assets are measured initially at cost.  Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably.  After initial recognition, intangible assets are measured at cost less any impairment losses.  Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives.

          TRADE RECEIVABLES AND ALLOWANCE FOR BAD DEBTS - The Company presents trade receivables, net of allowances for doubtful accounts and returns, to ensure accounts receivable are not overstated due to uncollectibility.  Trade receivables generated from credit sales have general credit terms of 45 to 60days.  The allowances are calculated based on detailed review of certain individual customer accounts, historical rates and an estimation of the overall economic conditions affecting the Company’s customer base.  The Company reviews a customer’s credit history before extending credit.  If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

          REVENUE RECOGNITION - Revenue from the sale of goods is recognized when the risks and rewards of ownership of the goods have transferred to the buyer.  Revenue consist of the invoice value for the sale of goods and services net of value-added tax (“VAT”), rebates and discounts.  The Company is subject to the following surtaxes, which are recorded as deductions from gross sales: Education Surtax (levied at 4% of net VAT payable).

          INCOME TAXES - The Company accounts for income taxes under the provision of Statement of Financial Accounting Standards (“SFAS” No.  109), “Accounting for Income Taxes,” whereby deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities  that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect  taxable income.  Valuation allowances are established when necessary; to reduce deferred income tax assets to the amount expected to be realized.

- 7 -

----

          FOREIGN CURRENCY TRANSLATION - The reporting currency of the Company is U.S.  dollars and the financial records are maintained and the financial statements are prepared in Chinese Renminbi  (“RMB”).  Transactions in other currencies are translated into the reporting currencies at exchange rates prevailing at the time of the transactions.  Monetary assets and liabilities denominated in other currencies at the balance sheet date are re-translated at exchange rates prevailing at that date.  Non-monetary assets and liabilities in other currencies are translated at historical rates.  

RECENTLY ISSUED ACCOUNTING STANDARDS

          Interpretation No.  46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No.  51” (FIN 46).  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  FIN 46 does not have any impact on the financial position or results of operations of theCompany.

          In April 2003, the FASB issued SFAS No.  149, “Accounting for Amendment of statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including  certain derivative instruments embedded in other contracts and for hedging  activities under FASB Statement No.  133, accounting for Derivative Instruments and Hedging Activities.  This Statement is generally effective for contracts entered into or modified after June 30, 2003, and all provisions should be applied prospectively.  This statement does not affect the Company.

          In May 2003, the FASB issued SFAS No.  150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which establishes  standards for how an issuer classifies and measures certain financial instruments with  characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period ofadoption.  Restatement is not permitted.  This statement does not affect the Company.

          In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No.  151 “Inventory Costs - an amendment of ARB No.  43, Chapter 4” (“SFAS 151”).  This statement amends the guidance in ARB No.  43, Chapter 4, “Inventory Pricing,” to clarify the accounting  for abnormal amounts of idle facility expense, freight, handling costs, and wasted  material (spoilage).  SFAS 151 requires that those items be recognized as current-period charges.  In addition, this Statement requires that allocation of fixed production overheads to costs of conversion be based upon the normal capacity of the production facilities.  The provisions of SFAS 151 are effective for fiscal years beginning after June 15, 2005.  As such, the Company is required to adopt theseprovisions at the beginning of the fiscal year ended December 31, 2006.  The Company is currently evaluating the impact of SFAS 151 on its consolidated financial statements.

          In December 2004, the FASB issued SFAS No.  123R, “Share-Based Payment” (“SFAS 123R”).  SFAS 123R revises FASB Statement No.  123 “Accounting for Stock-Based Compensation” and supersedes APB Opinion No.  25 “Accounting for Stock Issued to Employees”.  SFAS 123R requires all public and non-public companies to measure and recognize compensation expense for all stock-based payments for services received at the grant-date fair value, with the cost recognized over the vesting period (or the  requisite  service  period).  SFAS 123R is effective for non-small business issuers for fiscal years beginning after June 15, 2005.  As such, the Company is required to adopt these provisions at the beginning of the fiscal quarter ended December 31, 2006.  Retroactive application of the provisions of SFAS 123R to the beginning ofthe fiscal year that includes the effective date is permitted, but not required.  The Company is currently evaluating the impact of SFAS 123R on its consolidated financial statements.

- 8 -

----

**ACCOUNT DETAILS**

| **1.** | **RESEARCH AND DEVELOPMENT EXPENSES** |
|--------|---------------------------------------|

           Research and development costs are expensed as incurred.  They amounted to approximately $49,496 and $10,109 for the two quarters ended June 30, 2005 and 2004, respectively.

| **2.** | **RELATED   PARTY TRANSACTIONS** |
|--------|----------------------------------|

           The followingrelated party transactions occurred for the two quarters ended June 30, 2005:the company purchased $7M finished products and $0.5M packaging materials fromRuili Group; sold $1.9M products to Ruili Group.  The company purchased $1Mfinished products from Ruili Group for the two quarters ended on June 30,2004.

| **3.** | **TRADE   RECEIVABLES** |
|--------|-------------------------|

           The change inthe allowance for doubtful accounts at June 30, 2005 and 2004 are summarized asfollows:

|                                     |   | **2005** |               | **2004** |   |
|------------------------------------------|--------|----------|--------------------|----------|--------|
|                                     |   |          |                    |     |        |  |   |
| Beginning balance                        |   |     | 68,384             |     |   | —   |   |
| Add:  provision for current quarter |   |     | 14,949             |     |   | —   |   |
| Less:  Accounts written off         |   |     | —   |     |   | —   |   |
|                                     |   |          |                    |     |        |  |   |
| Ending balance                           |   |     | 83,333             |     |   | —   |   |

           The company’s trade receivables are summarized as follows:

|                                        |   | **2005** |       | **2004** |   |
|---------------------------------------------|--------|----------|------------|----------|--------|
|                                        |   |          |            |     |        |  |   |
| Trade Receivables                           |   |     | 19,072,167 |     |   | 12,505,509 |   |
| Less:  Allowance for doubtful accounts |   |     | (83,333    | )        |   | —   |   |
|                                        |   |          |            |     |        |  |   |
| Trade Receivables, Net of   Provision       |   |     | 18,988,834 |     |   | 12,505,509 |   |

| **4.** | **INVENTORIES** |
|--------|-----------------|

           On June 30, 2005 and 2004, inventories consist of the following:

|            |   | **2005** |      | **2004** |   |
|-----------------|--------|----------|-----------|----------|--------|
|            |   |          |           |     |        |  |   |
| Raw Material    |   |     | 950,644   |     |   | 162,161 |   |
| Work in process |   |     | 664,948   |     |   | 601,805 |   |
| Finished Goods  |   |     | 988,803   |     |   | 1,018,488 |   |
|            |   |          |           |     |        |  |   |
| Total Inventory |   |     | 2,604,395 |     |   | 1,782,454 |   |

- 9 -

----

| **5.** | **PROPERTY, PLANT AND EQUIPMENT** |
|--------|-----------------------------------|

           Property, plant and equipment consisted of the following, on June 30, 2005 and 2004:

|                                 |   | **2005** |       | **2004** |   |
|--------------------------------------|--------|----------|------------|----------|--------|
|                                 |   |          |            |     |        |  |   |
| Machinery                            |   |     | 7,331,785  |     |   | 5,964,618 |   |
| Mould                                |   |     | 1,017,914  |     |   | 1,015,016 |   |
| Office equipment                     |   |     | 96,894     |     |   | —   |   |
| Vehicle                              |   |     | 143,430    |     |   | —   |   |
| Less:  Accumulated depreciation |   |     | (2,554,240 | )        |   | (1,803,470 | ) |
|                                 |   |          |            |     |        |  |   |
| Fixed Assets, net                    |   |     | 6,035,783  |     |   | 5,176,164 |   |

           Depreciation expense charged to operations was $389,098 and $173,948 for the two quarters ended June 30, 2005 and 2004, respectively.

| **6.** | **BANK BORROWINGS** |
|--------|---------------------|

           The loans were borrowed from the banks and are guaranteed by Ruili Group Corporation, China, a related party.  These bank borrowings were from the local banks or financial institutions and were for the financing of general working capital.  Interest was charged at approximately 5% per annum.

| **7.** | **INCOME TAXES** |
|--------|------------------|

           The Company registered in the PRC is subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in their PRC statutory financial statements in accordance with relevant income tax laws.  According to applicable tax laws regarding Sino-Foreign Joint Venture Manufacturers, the Company is exempted from income taxes in the PRC for the two quarters ended June 30, 2005 and 2004.  Thereafter, the Company is entitled to a tax concession of 50% of the applicable income tax rate of 26.4% for the following three years ending in 2008.

| **8.** | **OTHER TAXES** |
|--------|-----------------|

           Other taxes consisted of the following, on June 30, 2005 and 2004:

|                  |   | **2005** |               | **2004** |   |
|-----------------------|--------|----------|--------------------|----------|--------|
|                  |   |          |                    |     |        |  |   |
| VAT Payable           |   |     | 6,467              |     |   | 142,654 |   |
| Education Surtax      |   |     | 697                |     |   | 5,914 |   |
| City Construction Tax |   |     | —   |     |   | —   |   |

| **9.** | **LEASES** |
|--------|------------|

           The Companyhas a lease agreement with the Ruili Group Co., Ltd., a related party, for therental of a manufacturing plant.  The lease is for an eleven year termending in February 2014.  Rent expense for the two quarters ended June 30,2005 and 2004 was $219,504 and $219,504 respectively.

           Futureminimum rental payments as of each fiscal year end are as follows:

| **2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **Thereafter** |   |
|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
|          |   |          |   |          |   |          |   |          |   |                |   |
| $219,505 |   | $439,009 |   | $439,009 |   | $439,009 |   | $439,009 |   | $1,829,204     |   |

           in total of $ 3,804,745.

- 10 -

----

| **10.** | **ADVERTISING COSTS** |
|---------|-----------------------|

           Advertising costs are expensed as incurred and are classified as selling expenses.  Advertising costs accounted to approximately $16,957 and $1,334 for the two quarters ended June 30, 2005 and 2004, respectively.

**SUBSEQUENT EVENT**

          The People’s Bank of China, China’s central bank, recently announced that with approval from the State Council, and beginning from July 21, 2005, China will implement a regulated, managed floating exchange rate system based on market supply and demand and in reference to a package of currencies.  Current US Dollar exchange rate is 8.11 to Chinese RMB, a 2% drop compared with 8.28, the exchange rate prior to July 21, 2005.  This change of exchange rate will have no material impact to the overall operation of the Company.  However, since export revenues have accounted for 30% of the total sales, the company will monitor closely the changes in cost and selling price in order to make strategic decisions in a proper way and timely manner.  

| **Item 2.** | **Management’s Discussion And Analysis of Financial Condition and   Results of Operations.** |
|-------------|---------------------------------------------------------------------------------------------------|

          The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management.  This report includes  forward-looking statements.  Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements.  Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from timeto time, which could cause actual results or outcomes to differ materially from those projected.  Undue reliance should not be place on these forward-looking statements  that speak only as of the date hereof.  We undertake no obligation to update these forward-looking statements.

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

**OVERVIEW**

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

          Fairford was organized in Hong Kong as a limited liability company on November 3, 2003.  Fairford owns 90% of the equity interest of Ruili Group Ruian Auto Parts Co., Ltd., a Sino-foreign joint venture (the “Joint Venture”) established pursuant to the laws of the People’s Republic of China (“PRC” or “China”).  The Joint Venture is a joint venture between Fairford and Ruili Group Co., Ltd. (the “Ruili Group”).

          The Ruili Group was incorporated in the PRC in 1987 to specialize in the development, production and sale of various kinds of automotive parts.  Its headquarters are located in the Ruian District of Wenzhou City, one of the leading automotive parts manufacturing centers of China with more than 1400 auto parts manufacturing companies.  Its major product lines include valves for air brake systems, auto metering products, auto electric products, anti-lock brake systems and retarders.  Some of those products were developed and are manufactured through affiliated companies of Ruili Group.  Due to its leading position in the industry, the Chairman of the Ruili Group, Mr. Xiao Ping Zhang, has been elected as the Chairman of Wenzhou Auto Parts Association, one of the leading auto parts trade associations in China.  Mr. Zhang is also Chairman and Chief Executive Officer of theCompany.  The Joint Venture was established in the PRC on March 4, 2004 as a Sino-foreign joint venture company with limited liability by the Ruili Group and Fairford.  Fairford and Ruili Group contributed 90% and 10%, respectively, of the paid-in capital in the aggregate amount of US$7,100,000.

- 11 -

----

          In connection with its formation, effective January 19, 2004, the Joint Venture acquired the business of the Ruili Group relating to the manufacture and Sale of various kinds of valves for automotive brake systems and related operations (the “Transferred Business”).  This was accomplished by the transfer from the Ruili Group to Fairford of the relevant assets and liabilities of the Transferred Business  including trade receivables, inventories, plant and machinery, and the assumption of  short and long term borrowings, at a consideration of US$6,390,000.  The consideration was based on a valuation by an independent PRC valuation firm.  Fairford then injected these assets and liabilities as a capital contribution for its 90% interest in the Joint Venture.  The Ruili Group also transferred inventory as its capital contribution for its 10% interest in the JointVenture.  The assets and liabilities transferred to the Joint Venture by Fairford and the Ruili Group represented all the relevant assets and liabilities of the Transferred Business.  Certain historical information of the Transferred Business is based on the operation of such Business when it was owned by the Ruili Group.

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

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

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

          Below is a description of accounting policies, which we consider critical to the preparation and understanding of our financial statements.  In addition, certain amounts included in or affecting our financial statements and related disclosure must be estimated, which requires us to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared.  Actual results may differ from these estimates under different assumptions or conditions.  The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our consolidated financial statements.  We believe that the following critical accounting policies set forth below involve themost significant judgments and estimates used in the preparation of our consolidated financial statements.  We evaluate these policies on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods we consider reasonable in the particular circumstances, as well as our forecasts as to how these might change in the future.

ACCOUNTING METHOD

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

- 12 -

----

TRADE RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

          The Company presents trade receivables, net of allowances for doubtful accounts.  The allowances are calculated based on review of individual customer accounts.

INVENTORIES

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

INCOME TAXES

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

          Under a Tax Holiday, the Company is granted exemption form income tax for two years commencing from the first cumulative profit-making year and 50% reduction in the local income tax rate in the following three years.  2004 is the first accumulative profit-making year.  SORL is entitled to a 50% income tax reduction in 2006, 2007 and 2008.  Thereafter, the applicable income tax rate is 26.40% in Wenzhou city which is located in the coastal economic development zones.

REVENUE RECOGNITION

          In accordance with the provisions of Staff Accounting Bulletin No.  103, revenue is recognized when merchandise is shipped and title passes to the customer and collectibility is reasonably assured.  Revenues consist of the invoice value of the sale of goods and services net of value added tax, rebates and discounts.  The Company is subject to the following surtaxes, which are recorded as deductions from gross sales: Education Tax.

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

CONCENTRATION OF CREDIT RISK

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

- 13 -

----

**RESULTS OF OPERATIONS**

| **(1)** | **FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004** |
|---------|------------------------------------------------------------|

          SALES

          Sales for the quarter ended June 30, 2005 increased by US$3.6 million or 31% to US$14.9 million, primarily as a result of a 30% increase in the volume of total products shipped, from 1.11 million units to 1.44 units between the two periods.  While domestic market demand, especially in the replacement market, remained strong, revenues from the export business increased at a much higher rate.  Total export revenue for the quarter ended June 30, 2005 increased by US$3.2 million or 176% to US$5 million, accounting for approximately one third of total sales for the quarter.  The Company continues its efforts in international marketing to acquire new customers, including advertising in professional newspapers and magazines, and attending exhibitions in the U.S., Brazil and Germany.  The Company continues to develop new products and provide additionalspecifications to its existing customer base.

          COST OF SALES

          Cost of sales for the quarter ended June 30, 2005 increased to $11.6M from $8.7M for the quarter ended June 30, 2004, or 32% increase.  The cost increase was in line with the increase of sales revenue.  

          GROSS PROFIT

          Gross profit for the quarter ended June 30, 2005 increased by $0.7M to US$3.4M from US$2.7M for the quarter ended June 30, 2004.  This improvement in gross profit was primarily due to the increase in the sales both in the domestic and international market.  The gross profit margin remained the same, 23%, for the two quarters.

          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

          Selling, general and administrative expenses for the quarter ended June 30, 2005 was $1.6M or 11% of total net sales compared to $1.2M or 11% of total net sales for the quarter ended June 30, 2004.  The increase of the expenses was in line with the growth of the business.

          DEPRECIATION AND AMORTIZATION

          Depreciation and amortization expense increased to $201k during the quarter ended June 30, 2005, comparing the quarterly depreciation & amortization expense of $120k in the previous year.  The increase was primarily attributable to the fact that the Company had over $1M asset acquisitions in 2005.

          INTEREST EXPENSE

          Interest expense for the quarter ended June 30, 2005 increased by $34k to $117k from $73k for the quarter ended June 30, 2004.  The increase in interest expense is due to the higher debt balance over the year.  

          INCOME TAX

          There was no income tax for both the quarters ended June 30, 2005 and 2004.  As a result of the Joint Venture (i.e.  Ruili Group Auto Parts Co., Ltd.) obtaining its foreign joint-venture status in 2004, it is exempted from PRC income tax in both fiscal 2004 and 2005.

- 14 -

----

          MINORITY INTEREST

          Minority Interest represents a 10% non-controlling interest in the company.  Minority Interest in income amounted to US$156k and US$132k for quarters ended June 30, 2005 and 2004, respectively.

          NET INCOME

          The net income for the quarter ended June 30, 2005 increased by $0.2M, or 19% to a net income of US$1.4M from a net income of US$1.2M for the quarter ended June 30, 2004 due to the factors discussed above.

| **(2)** | **FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004** |
|---------|----------------------------------------------------------|

          SALES

          Sales for the two quarters ended June 30, 2005 increased by US$9 million or 44% to US$29.4 million, primarily as a result of the increase in the volume of the Company’s products shipped attributable in substantial part to an increase in export sales.  Export sales increased by approximately 91% from the comparable period.  Export growth is primarily attributed to continuing market efforts and new products development.

          COST OF SALES

          Cost of sales for the two quarters ended June 30, 2005 increased to $22.9M from $15.5M for the two quarters ended June 30, 2004, or 47% increase. The cost increase was in line with the a corresponding increase in sales volume as well as more products being purchased from outside vendors which carry higher costs than the products manufactured internally.

          GROSS PROFIT

          Gross profit for the two quarters ended June 30, 2005 increased by $1.7M or 34 % to US$6.6M from US$4.9M for the two quarters ended June 30, 2004. This increase in gross profit was primarily due to the increase in the sales both in the domestic and international market. The gross profit margin dropped 2% from 24% in the first half of 2004 to 22% in current two quarters. This decrease was due to the fact that 22% of the Company’s gross sales were from products that were purchased from outside vendors as opposed to products manufactured internally, which carried lower cost and higher profit margins.

          SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

          Selling, general and administrative expenses for the two quarters ended June 30, 2005 was $3.1M or 10% of net sales compared to $2.4M or 12% of net sales for the two quarters ended June 30, 2004.  The decrease in selling, general and administrative expenses as a percentage of the net sales was due primarily to the economies of scale resulting from the increase in sales.

          DEPRECIATION AND AMORTIZATION

          Depreciation and amortization expense increased to $393k during the two quarters ended June 30, 2005, comparing the depreciation & amortization expense of $170k in the first half of previous year.

- 15 -

----

          INTEREST EXPENSE

          Interest expense for the two quarters ended June 30, 2005 increased by $22k to $177k from $153k for the two quarters ended June 30, 2004.  The increase in interest expense was due to the higher debt balance over the year.

          INCOME TAX

          There was no income tax for the two quarters ended June 30, 2005 and 2004.  As a result of the Joint Venture (i.e.  Ruili Group Auto Parts Co., Ltd.) obtaining its foreign joint-venture status in 2004, it is exempted from PRC income tax.

          MINORITY INTEREST

          Minority Interest represents a 10% non-controlling interest in the company.  Minority Interest in income amounted to US$323k and US$132k for the two quarters ended June 30, 2005 and 2004, respectively.

          NET INCOME

          The net income for the two quarters ended June 30, 2005 increased by $0.8M, or 36% to a net income of US$2.9M from a net income of US$2.1M for the two quarters ended June 30, 2004 due to the factors discussed above.

**FINANCIAL CONDITION**

| **(1)** | **LIQUIDITY AND CAPITAL RESOURCES** |
|---------|-------------------------------------|

          OPERATING - The Company’s operations utilized cash resources of $2,684,291 for the six months ended June 30, 2005, as compared to generating cash resources of $265,478 for the six months ended June 30, 2004, primarily as a result of that cash generated in 2005 was consumed to support the increase of receivables and inventory and reduce the accounts payables.  

          Accounts receivable for the 6 months ended June 30, 2005 increased by approximately $6,393,000 from $12,595,905 to $18,988,834. the increase is primarily attributable to credit terms of 120 days being extended to OEM customers which exceed the normal credit terms of 45-60 days extended to other customers, in addition to the increase in sales revenue.

          “Days Sales Outstanding” (DSO) which is a common measure of liquidity, is computed by dividing accounts receivable at the balance sheet date by the daily net credit sales during the period. Days sales outstanding for the 6 months ended June 30, 2005 was 116 as compared to 97 days for the year ended December 31, 2004. The increase in the DSO primarily results from the extended terms offered to the OEM customers.

          At June 30, 2005, the Company had cash and cash equivalents of $317,030, as compared to cash and cash equivalents of $208,032 at June 30, 2004.  The Company had working capital of $8,644,820 at June 30, 2005, as compared to a working capital deficiency of $11,007,175 at June 30, 2004, reflecting current ratios of 1.54:1 and 0.84:1, respectively.  The improvement in working capital during the six months ended June 30, 2005 was primarily a result of the growth of profit.  

          The Company anticipates that its working capital resources are adequate to fund the anticipated costs and expenses for the remainder of the fiscal year ending December 31, 2005.

- 16 -

----

          INVESTING - During the six months ended June 30, 2005, the Company utilized $1,072,227 in the acquisition of property and equipment.  During the six months ended June 30, 2004, the Company utilized $81,455 in investing activities, the major components of which were the acquisition of property and equipment of $53,112 and purchasing a software of $28,343.  

          FINANCING - During the six months ended June 30, 2005, the Company generated $3,343,672 from bank loans; during the six months ended June 30, 2004, the Company generated $24,009 in financing activities, consisting of the net proceeds from the new issuance of common shares of $25,908.

          At June 30, 2005, the Company does not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

| **Item 3** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|------------|----------------------------------------------------------------|

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

          With respect to foreign currency exchange rates, the Company does not believe that the 2% appreciation or fluctuation of the RMB against the USD would have a detrimental effect on the Company’s operation; even though the Company has almost one third of its revenues attributable to sales outside the PRC since on the one hand in the past the exchange rates to other currencies were fluctuating except for that to the US dollar, and on the other hand, exports to the US are still not material in relation to overall export sales.  

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

| **Item 4.** | **Controls And Procedures** |
|-------------|-----------------------------|
|        |                        |   |
|        | (a)                         | Evaluation   of Disclosure Controls and Procedures. |

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

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

|   | (b) | Changes in   Internal Controls. |
|--------|-----|---------------------------------|

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

- 17 -

----

**PART II OTHER INFORMATION**

| Item 1.  | Legal   Proceedings                                           |
|----------|---------------------------------------------------------------|
|     | Not   Applicable                                              |
|     |                                                          |
| Item 1A. | Risk Factors                                                  |
|     | Not   Applicable                                              |
|     |                                                          |
| Item 2.  | Unregistered   Sales of Equity Securities and Use of Proceeds |
|     | Not   Applicable                                              |
|     |                                                          |
| Item 3.  | Defaults   upon Senior Securities                             |
|     | Not   Applicable                                              |
|     |                                                          |
| Item 4.  | Submission   of Matters to a Vote of Security Holders         |
|     | Not   Applicable                                              |
|     |                                                          |
| Item 5.  | Other   information                                           |
|     | Not   Applicable                                              |

| **Item. 6** | **Exhibits.** |
|-------------|---------------|
|        |          |   |
|        | (a)           | Exhibits: |

| **EXHIBIT NO.** |   | **DOCUMENT DESCRIPTION**                                                                                                                                                      |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                               |
| 3.1             |   | Articles of   Incorporation (1)                                                                                                                                               |
|            |   |                                                                                                                                                                          |
| 3.2             |   | Bylaws (1)                                                                                                                                                                    |
|            |   |                                                                                                                                                                          |
|  10.1      |   | Share   Exchange Agreement and Plan of Reorganization (2)                                                                                                                     |
|            |   |                                                                                                                                                                          |
|  31.1      |   | Certification   of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),   promulgated under the Securities and Exchange Act of 1934, as amended.  (3) |
|            |   |                                                                                                                                                                          |
|  31.2      |   | Certification   of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a),   promulgated under the Securities and Exchange Act of 1934, as amended.  (3) |
|            |   |                                                                                                                                                                          |
|  32.1      |   | Certification   pursuant to 18 U.S.C.  Section 1350,   as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief   Executive Officer).  (3)       |
|            |   |                                                                                                                                                                          |
|  32.2      |   | Certification   pursuant to 18 U.S.C.  Section 1350,   as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief   Financial Officer).  (3)       |

|        |
|--------|
| (1)    | Incorporated   herein by reference from the Registrant’s Form 10-QSB filed with the   Securities and Exchange Commission, File No. 000-11991 on May 28, 2003. |
|   |   |
| (2)    | Incorporated   herein by reference from the Registrant’s Form 8-K Current Report and   amendment thereto as filed with the Securities and Exchange Commission, on   May 24, 2004. |
|   |   |
| (3)    | Filed   herewith. |

- 18 -

----

**SIGNATURES**

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to report to be signed on its behalf by the undersigned thereunto duly authorized.

| Dated:  June 15, 2006 | SORL AUTO PARTS, INC. |
|---------------------------------|-----------------------|
|                            |                  |   |
|                            |                  |   |
|                            | By:                   | /s/ Xiao Ping   Zhang |
|                            |                  |  |
|                            | Name:                 | Xiao Ping   Zhang |
|                            | Title:                | Chief   Executive Officer |

- 19 -

----