- Quarterly Report (10-Q)

Share Name	Share Symbol	Market	Type
SORL Auto Parts Inc	NASDAQ:SORL	NASDAQ	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	4.71	4.69	4.72				0	01:00:00

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

f or the quarterly period ended September 3 0 , 200 9

o	TRANSITION REPORT UN DER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission file number 000-11991

SORL AUTO PARTS, INC.

(Exact name of registrant as specified in its charter)

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

No. 1169 Yumeng Road

Ruian Economic Development District

Ruian City, Zhejiang Province

People’s Republic Of China

(Address of principal executive offices)

86-577-6581-7720

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o Smaller Reporting Company x

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

Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of September 30, 2009 there were 18,27 9,254 shares of Common Stock outstanding

SORL AUTO PARTS, INC.

FORM 10-Q

For the Quarter Ended September 30, 2009

INDEX

		Page
PART I.	FINANCIAL INFORMATION (Unaudited)	1

Item 1.	Financial Statements:	1

	Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 (Audited)	1

	Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2009 and 2008	2

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months and Nine Months Ended September 30, 2009 and 2008	3

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three months and Nine Months Ended September 30, 2009 and 2008	4

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis or Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	30

Item 6.	Exhibits	30

SIGNATURES		30

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2009 and December 31, 2008

	September 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
Assets
Current Assets
Cash and Cash Equivalents	US$	12,542,642		US$	7,795,987
Accounts Receivable, Net of Provision		42,598,949			35,797,824
Notes Receivable		11,270,861			7,536,534
Inventory		15,874,610			19,105,845
Prepayments, including $0 and $187,813 to related parties at September 30, 2009 and December 31, 2008, respectively.		6,083,150			1,013,440
Other current assets, including $154,995 and $1,906,070 to related parties at September 30, 2009 and December 31, 2008, respectively.		493,450			4,445,778
Total Current Assets		88,863,662			75,695,408

Fixed Assets
Property, Plant and Equipment		34,329,214			32,927,306
Less: Accumulated Depreciation		(10,910,816	)		(8,951,886	)
Property, Plant and Equipment, Net		23,418,398			23,975,420

Leasehold Improvements in Progress		465,818			―

Land Use Rights, Net		14,279,268			14,514,983

Other Assets
Deferred compensation cost-stock options		―			9,935
Intangible Assets		161,480			161,347
Less: Accumulated Amortization		(50,543	)		(39,018	)
Intangible Assets, Net		110,937			122,329
Deferred tax assets		370,305			189,228
Total Other Assets		481,242			321,492
Total Assets	US$	127,508,388		US$	114,507,303

Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable and Notes Payable, including $1,676,153 and $0 to related parties at September 30, 2009 and December 31, 2008, respectively.	US$	6,694,424		US$	4,623,850
Deposit Received from Customers		6,188,582			6,295,857
Income tax payable		1,677,143			340,138
Accrued Expenses		3,253,979			2,389,314
Other Current Liabilities		531,957			460,124
Total Current Liabilities		18,346,085			14,109,283

Non-Current Liabilities

Deferred tax liabilities		171,062			106,826
Total Liabilities		18,517,147			14,216,109

Stockholders' Equity
Preferred Stock - No Par Value; 1,000,000 authorized; none issued and outstanding as of September 30, 2009 and December 31, 2008		―			―

Common Stock - $0.002 Par Value; 50,000,000 authorized, 18,279,254 issued and outstanding as of September 30, 2009 and December 31, 2008		36,558			36,558
Additional Paid In Capital		37,498,452			37,498,452
Reserves		3,902,190			3,126,086
Accumulated other comprehensive income		10,926,200			10,848,248
Retained Earnings		45,749,676			38,774,684
Total SORL Auto Parts, Inc. stockholders' equity		98,113,076			90,284,028
Noncontrolling Interest In Subsidiaries		10,878,165			10,007,166
Total Equity		108,991,241			100,291,194
Total Liabilities and Stockholders' Equity	US$	127,508,388		US$	114,507,303

The accompanying notes are an integral part of these financial statements

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income(Unaudited)

For The Three Months and Nine Months Ended September 30,2009 and 2008

	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2009			2008			2009			2008
Sales	US$	33,989,937			32,967,579			83,973,887			105,812,140
Include: sales to related parties		181,873			540,304			383,484			2,362,453

Cost of Sales		25,116,609			24,550,613			61,166,233			77,343,967

Gross Profit		8,873,328			8,416,966			22,807,654			28,468,173

Expenses:
Selling and Distribution Expenses		2,131,054			2,261,143			5,509,506			6,872,221
General and Administrative Expenses		1,804,368			3,018,390			6,870,181			7,712,808
Including: Research and development expenses		410,397			721,897			1,968,155			2,458,859
Financial Expenses		37,216			221,694			75,307			974,690

Total Expenses		3,972,638			5,501,227			12,454,994			15,559,719

Operating Income		4,900,690			2,915,739			10,352,660			12,908,454

Other Income		121,567			276,752			337,028			610,592
Non-Operating Expenses		(61,226	)		(119,677	)		(75,842	)		(374,640	)

Income Before Provision for Income Taxes		4,961,031			3,072,814			10,613,846			13,144,406

Provision for Income Taxes		728,322			468,935			2,000,413			1,351,166

Net Income	US$	4,232,709			2,603,879			8,613,433			11,793,240

Other Comprehensive Income - Foreign Currency Translation Adjustment		45,431			578,065			86,614			6,048,704

Total Comprehensive Income		4,278,140			3,181,944			8,700,047			17,841,944

Less:
Net income Attributable to Non-controlling Interest In Subsidiaries		423,271			261,904			862,337			1,183,852

Other Comprehensive Income Attributable to Non-controlling Interest's Share		4,543			57,807			8,662			604,871

Total Comprehensive Income Attributable to Non-controlling Interest's Share		427,814			319,711			870,999			1,788,723

Net Income Attributable to Stockholders		3,809,438			2,341,975			7,751,096			10,609,388

Other Comprehensive Income Attributable to Stockholders		40,888			520,258			77,952			5,443,833

Total Comprehensive Income Attributable to Stockholders		3,850,326			2,862,233			7,829,048			16,053,221

Weighted average common share - Basic		18,279,254			18,279,254			18,279,254			18,279,254

Weighted average common share - Diluted		18,279,254			18,283,011			18,279,254			18,287,094

EPS - Basic		0.21			0.13			0.42			0.58

EPS - Diluted		0.21			0.13			0.42			0.58

The accompanying notes are an integral part of these financial statements

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows(Unaudited)

For The Three Months and Nine Months Ended September 30, 2009 And 2008

	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2009			2008			2009			2008
Cash Flows from Operating Activities
Net Income	US$	3,809,438			2,341,975			7,751,096			10,609,388
Adjustments to reconcile net income (loss) to net cash from operating activities:
Noncontrolling Interest In Subsidiaries		423,271			261,904			862,337			1,183,852
Bad Debt Expense		(450,102	)		666,231			2,823			687,513
Depreciation and Amortization		757,613			695,872			2,233,851			2,024,931
Stock-Based Compensation Expense		―			14,909			9,935			44,727
Loss on disposal of Fixed Assets		1,734			23,176			11,832			25,695
Changes in Assets and Liabilities:
Account Receivables		(1,363,177	)		2,220,955			(6,756,442	)		(3,871,416	)
Notes Receivables		(3,146,091	)		6,053,775			(3,727,096	)		3,322,456
Other Currents Assets		66,151			(1,347,718	)		3,938,113			833,926
Inventory		378,378			(7,198,208	)		3,244,173			(11,840,607	)
Prepayments		(4,513,075	)		596,577			(5,066,567	)		(1,232,259	)
Deferred tax assets		161,398			―			(180,676	)		―
Accounts Payable and Notes Payable		1,204,723			(2,958,382	)		2,066,273			(681,802	)
Income Tax Payable		395,813			(240,729	)		1,818,683			117,818
Deposits Received from Customers		(249,718	)		1,953,771			(112,459	)		3,265,122
Other Current Liabilities and Accrued Expenses		110,096			(85,437	)		450,815			1,118,500
Deferred tax liabilities		21,378			―			64,108			―
Net Cash Flows from Operating Activities		(2,392,170	)		2,998,671			6,610,799			5,607,844

Cash Flows from Investing Activities
Acquisition of Property and Equipment		(834,010	)		(1,559,786	)		(1,447,324	)		(2,669,214	)
Leasehold Improvements in Progress		―			―			(465,484	)		―
Sales proceeds of disposal of fixed assets		―			―			36,692			―
Investment in Intangible Assets		―			―			―			(78,737	)

Net Cash Flows from Investing Activities		(834,010	)		(1,559,786	)		(1,876,116	)		(2,747,951	)

Cash Flows from Financing Activities
Proceeds from (Repayment of) Bank Loans		―			―			―			(1,502,107	)

Net Cash flows from Financing Activities		―			―			―			(1,502,107	)

Effects on changes in foreign exchange rate		5,992			30,925			11,972			252,990

Net Change in Cash and Cash Equivalents		(3,220,188	)		1,469,810			4,746,655			1,610,776

Cash and Cash Equivalents- Beginning of the period		15,762,830			4,481,177			7,795,987			4,340,211

Cash and cash Equivalents - End of the period	US$	12,542,642			5,950,987			12,542,642			5,950,987

Supplemental Cash Flow Disclosures:
Interest Paid		―			33,564			13,736			136,689
Tax Paid		845,072			512,562			1,475,754			2,901,083

The accompanying notes are an integral part of these financial statements

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

Three Months Ended September 30, 2009 and 2008

					Additional							Accumu. Other		Total SORL Auto Parts, Inc.
	Number		Common		Paid-in				Retained			Comprehensive		Shareholders'		Noncontrolling
	of Share		Stock		Capital		Reserves		Earnings			Income		Equity		Interest		Total Equity
Beginning Balance - July 1, 2008		18,279,254		36,558		37,498,452		2,661,841		35,135,482			10,355,764		85,688,097		9,493,164		95,181,261

Net Income		―		―		―		―		2,341,975			―		2,341,975		261,904		2,603,879

Other Comprehensive Income		―		―		―		―		―			520,258		520,258		57,807		578,065

Transfer to reserve		―		―		―		235,714		(235,714	)		―		―		―		―

Ending Balance – September 30, 2008		18,279,254		36,558		37,498,452		2,897,555		37,241,743			10,876,022		88,550,330		9,812,875		98,363,205

Beginning Balance - July 1, 2009		18,279,254		36,558		37,498,452		3,521,246		42,321,182			10,885,312		94,262,750		10,450,351		104,713,101

Net Income		―		―		―		―		3,809,438			―		3,809,438		423,271		4,232,709

Other Comprehensive Income		―		―		―		―		―			40,888		40,888		4,543		45,431

Transfer to reserve		―		―		―		380,944		(380,944	)		―		―		―		―

Ending Balance – September 30, 2009		18,279,254		36,558		37,498,452		3,902,190		45,749,676			10,926,200		98,113,076		10,878,165		108,991,241

The accompanying notes are an integral part of these financial statements

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

Nine Months Ended September 30, 2009 and 2008

					Additional							Accumu. Other
	Number		Common		Paid-in				Retained			Comprehensive		Shareholders'		Noncontrolling
	of Share		Stock		Capital		Reserves		Earnings			Income		Equity		Interest		Total Equity
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		80,521,261

Net Income		―		―		―		―		10,609,388			―		10,609,388		1,183,852		11,793,240

Other Comprehensive Income		―		―		―		―		―			5,443,833		5,443,833		604,871		6,048,704

Transfer to reserve		―		―		―		1,014,576		(1,014,576	)		―		―		―		―

Ending Balance - September 30, 2008		18,279,254		36,558		37,498,452		2,897,555		37,241,743			10,876,022		88,550,330		9,812,875		98,363,205

Beginning Balance - January 1, 2009		18,279,254		36,558		37,498,452		3,126,086		38,774,684			10,848,248		90,284,028		10,007,166		100,291,194

Net Income		―		―		―		―		7,751,096			―		7,751,096		862,337		8,613,433

Other Comprehensive Income		―		―		―		―		―			77,952		77,952		8,662		86,614

Transfer to reserve		―		―		―		776,104		(776,104	)		―		―		―		―

Ending Balance - September 30, 2009		18,279,254		36,558		37,498,452		3,902,190		45,749,676			10,926,200		98,113,076		10,878,165		108,991,241

The accompanying notes are an integral part of these financial statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - DESCRIPTION OF BUSINESS

SORL Auto Parts, Inc. (the “Company”) is principally engaged in the manufacture and distribution of automotive air brake systems and related components for commercial vehicles weighing more than three tons, such as trucks and buses, through its 90% ownership of Ruili Group Ruian Auto Parts Company Limited (the “Joint Venture”) in the People’s Republic of China (“PRC” or “China”). The Company distributes products both in China and internationally under the SORL trademarks. The Company’s product range includes approximately 40 categories of brake valves with over 1,000 different specifications.

NOTE B - BASIS OF PRESENTATION

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

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

Further, in connection with preparation of the condensed consolidated financial statements and in accordance with the recently issued Financial Accounting Standard Board (“FASB”) ASC 855-10 (Prior authoritative literature: FASB Statement No. 165 “Subsequent Events”), management has evaluated subsequent events through November 13, 2009 (the financial statement issue date).

NOTE C- RECENTLY ISSUED FINANCIAL STANDARDS

In December 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: FASB Statement No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No.51" of which the objective is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way - as an entity in the consolidated financial statements. Moreover, FASB ASC 810-10-65 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions.

FASB ASC 810-10-65 is effective for fiscal years beginning after December 15, 2008. The adoption of these standards has not had any significant impact on its consolidated financial statements.

In June 2009, the FASB issued FASB ASC 860-10-05 (Prior authoritative literature: FASB Statement No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140”). FASB ASC 860-10-05 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB ASC 860-10-05 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. As such, the Company is required to adopt this standard in January 2010. The Company is evaluating the impact the adoption of FASB ASC 860-10-05 will have on its consolidated financial statements.

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

In June 2009, the FASB issued FASB ASC 105-10 (Prior authoritative literature: FASB Statement No. 168, " The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ”). FASB ASC 105-10 replaces prior authoritative literature SFAS 162 and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. FASB ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not believe that the adoption of FASB ASC 105-10 has had a material effect on its consolidated financial statements.

NOTE D - RELATED PARTY TRANSACTIONS

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

The Company has a contract with the related party Ruili Group in the amount of 90 million RMB, or about $13.1 million USD, for the period from January 1, 2009 to December 31, 2009, to purchase auto parts and materials.

The following related party transactions are reported for the three months and nine months ended September 30, 2009 and 2008:

	Three Months Ended September 30,				Nine Mon ths Ended September 30,
	2009		2008		2009		2008

PURCHASES FROM:
Ruili Group Co., Ltd.	$	4,240,790	$	9,295,010	$	12,134,212	$	28,448,919

Total Purchases	$	4,240,790	$	9,295,010	$	12,134,212	$	28,448,919

SALES TO:
Ruili Group Co., Ltd.	$	181,873	$	540,304	$	383,484	$	2,362,453

Total Sales	$	181,873	$	540,304	$	383,484	$	2,362,453

The total purchases from Ruili Group during the three months ended September 30, 2009 consisted of $ 3.9 million of finished products of non-valve auto parts and $ 0.3 million of p ackaging materials. During the nine months ended September 30, 2009 , the breakdown was $ 11.1 million of finished products of non-valve auto parts and approximately $ 0.9 million of packaging materials .

On September 28, 2007, the Company purchased land use rights, a manufacturing plant, and an office building from Ruili Group for an aggregate purchase price of approximately RMB152 million (approximately $20.1 million translated with an average exchange rate of 7.5567). DTZ Debenham Tie Leung Ltd., an internationally recognized appraiser, appraised the total asset value at RMB154 million (approximately $20.4 million translated with an average exchange rate of 7.5567). RMB69.4 million (approximately $9.1 million translated with an average exchange rate of 7.5567) of the purchase price was paid by the transfer of an existing project of the Company that included construction-in-progress and with the cash generated from operations and a bank credit line. The Company valued the project and the related construction in progress that was transferred to the Ruili Group as part of the purchase price at our historical cost basis in the assets transferred.

	September 30,		December 31,
	2009		2008

PREPAYMENT

Ruili Group Co., Ltd.	$	―	$	187,813

Total	$	―	$	187,813

OTHER ACCOUNTS RECEIVABLE

Ruili Group Co., Ltd.	$	154,995	$	1,906,070

Total	$	154,995	$	1,906,070

ACCOUNTS PAYABLE

Ruili Group Co., Ltd.	$	1,676,153	$	―

Total	$	1,676,153	$	―

NOTE E - ACCOUNTS RECEIVABLE

The changes in the allowance for doubtful accounts at September 30, 2009 and December 31, 2008 were summarized as follows:

	September 30,			December 31,
	2009			2008

Beginning balance	$	24,997		$	27,987

Add: Increase to allowance		(11,446	)		(2,990	)

Ending balance	$	13,551		$	24,997

	September 30,			December 31,
	2009			2008

Accounts receivable	$	42,612,500		$	35,822,821

Less: allowance for doubtful accounts		(13,551	)		(2 4 ,9 9 7	)

Account receivable balance, net	$	42,598,949		$	35,797,824

NOTE F - INVENTORIES

On September 30, 2009 and December 31, 2008, inventories consisted of the following:

	September 30,		December 31,
	2009		2008

Raw Material	$	3,626,312	$	2,705,224

Work in process		3,114,928		8,074,488

Finished Goods		9,133,370		8,326,133

Total Inventory	$	15,874,610	$	19,105,845

NOTE G - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following, on September 30, 2009 and December 31, 2008:

	September 30,			December 31,
	2009			2008

Machinery	$	23,354,710		$	22,085,672

Molds		1,276,607			1,275,561

Office equipment		660,743			618,403

Vehicle		1,055,366			972,422

Building		7,981,788			7,975,248

Sub-Total		34,329,214			32,927,306

Less: Accumulated depreciation		(10,910,816	)		(8,951,886	)

Fixed Assets, net	$	23,418,398		$	23,975,420

Depreciation expense charged to operations was $1,974,900 and $1,774,361 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE H- LAND USE RIGHTS

	September 30,			December 31,
	2009			200 8

Cost:	$	14,939,581		$	14,927,340
Less: Accumulated amortization:		(660,313	)		(412,357	)
Land use rights, net	$	14,279,268		$	14,514,983

According to the law of China, the government owns all the land in China. Companies and individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. The company purchased the land use rights from Ruili Group for approximately $13.9 million on September 28, 2007. The Company has applied to obtain the land use right certificate, but has not yet obtained the certificate. Amortization expenses were $247,466 and $242,356 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE I - INTANGIBLE ASSETS

Intangible assets owned by the Company included patent technology and management software licenses. Gross intangible assets were $161,480, less accumulated amortization of $50,543 for net intangible assets of $110,937 as of September 30, 2009. Gross intangible assets were $161,347, less accumulated amortization of $39,018 for net intangible assets of $122,329 as of December 31, 2008. Amortization expenses were $11,485 and $8,215 for the nine months ended September 30, 2009 and 2008 respectively. Future estimated amortization expense is as follows:

2009		2010		2011		2012		2013		Thereafter

$	4,650	$	16,135	$	16,135	$	16,135	$	16,135	$	41,699

NOTE J - PREPAYMENT

Prepayment consisted of the following as of September 30 , 2009 and December 31, 2008:

	September 30,			December 31,
	2009			2 008

Raw material suppliers		$	3,329,716		$	878,374

Equipment purchase			2,753,434			135,066

Total prepayment		$	6,083,150		$	1,013,440

NOTE K - DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

Deferred tax assets consisted of the following as of September 30, 2009

	30-Sep-09		31-Dec-08

Deferred tax assets - current

Provision	$	3,637	$	3,990

Warranty		290,717		277,893

Revenue		124,910		―

Deferred tax assets		419,264		281,883

Valuation allowance		―		―

Net deferred tax assets - current	$	419,264	$	281,883

Deferred tax liabilities - current Revenue	$	48,959	$	92,655

Deferred tax liabilities - current		48,959		92,655

Net deferred tax assets - current	$	370,305	$	189,228

Deferred tax liabilities - non-current

Land use right		171,062		106,826
Deferred tax liabilities - non-current	$	171,062	$	106,826

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

NOTE L - ACCRUED EXPENSES

Accrued expenses consisted of the following as of September 30, 2009 and December 31, 2008:

	September 30,		December 31,
	2009		2008

Accrued payroll	$	1,303,426	$	617,522

Other accrued expenses		1,950,553		1,771,792

Total accrued expenses	$	3,253,979	$	2,389,314

NOTE M – RESERVE

The reserve funds are comprised of the following:

	September 30,		December 31,
	2009		2008

Statutory surplus reserve fund	$	3,902,190	$	3,126,086

Total	$	3,902,190	$	3,126,086

Pursuant to the relevant laws and regulations of Sino-foreign joint venture enterprises, the profits of the Company's subsidiary, which are based on their PRC statutory financial statements, are available for distribution in the form of cash dividends after they have satisfied all the PRC tax liabilities, provided for losses in previous years, and made appropriations to reserve funds, as determined at the discretion of the board of directors in accordance with PRC accounting standards and regulations.

As stipulated by the relevant laws and regulations for enterprises operating in the PRC, the Company's Sino-foreign joint venture is required to make annual appropriations to the statutory surplus funds. In accordance with the relevant PRC regulations and the articles of association of the respective companies, the Joint Venture is required to allocate a certain percentage of its profits after taxation, as determined in accordance with PRC accounting standards applicable to the Company, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the Company.

Net income as reported in the US GAAP financial statements differs from that as reported in the PRC statutory financial statements. In accordance with the relevant laws and regulations in the PRC, the profits available for distribution are based on the statutory financial statements. If the Joint Venture has foreign currency available after meeting its operational needs, the Joint Venture may make its profit distributions in foreign currency to the extent foreign currency is available. Otherwise, it is necessary to obtain approval and convert such distributions at an authorized bank. The reserve fund consists of retained earnings which has been allocated to the statutory reserve fund.

NOTE N - INCOME TAXES

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws. According to applicable tax laws regarding Sino-Foreign Joint Ventures, the Joint Venture was exempt from income taxes in the PRC for each of the fiscal years ended December 31, 2005 and 2004. Thereafter, the Joint Venture was entitled to a 50% income tax deduction for each of the three years ended December 31, 2008. Thus, the Joint Venture was exempted from PRC income tax in both fiscal 2004 and 2005, and entitled to a tax concession of 50% of the applicable income tax rate of 26.4% for the two years ended December 31, 2006 and 2007. With the new PRC Enterprise Income Tax Law, effective on 1st January 2008, China’s enterprises are generally subject to a PRC income tax rate of 25% and the Joint Venture was entitled to a tax concession of 50% of the applicable income tax rate of 25% for the year ended December 31, 2008.

The Company increased its investment in the Joint Venture as a result of its financing in December, 2006. In accordance with the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises, the Joint Venture was eligible for additional preferential tax treatment for the years 2007 and 2008. In those years, the Joint Venture was entitled to an income tax exemption on all pre-tax income generated by the company above its pre-tax income generated in the fiscal year 2006. In 2009, 2010 and 2011, the Joint Venture will enjoy a 50% exemption from the applicable income tax rate of 25% on any pre-tax income above its 2006 pre-tax income. In addition, the Joint Venture was entitled to a PRC tax credit equal to 40% of the additional investment in the Joint Venture used to purchase eligible domestic equipment, subject to certain limitations.

The reconciliation of the effective income tax rate of the Joint Venture to the statutory income tax rate in the PRC for the nine months ended September 30, 2009 is as follows:

Statutory tax rate	25.0	%

Tax Tax holidays and concessions	—

EffeEffective tax rate	25.0	%

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes Significant components of the Company’s net deferred tax assets and liabilities are approximately as follows. No valuation allowance is deemed necessary. There currently is no tax benefit or burden recorded for the United States or Hong Kong. The provisions for income taxes for the nine months ended September 30, 2009 and 2008, respectively, are summarized as follows:

	2009			2008
PRC only:
Current	$	2,116,981			$	1,351,166
Deferred		(116,568	)	―

Total	$	2,000,413			$	1,351,166

The Company adopted the provisions of FASB ASC 740-10-05 (Prior authoritative literature: FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”), on January 1, 2007. As the result of the implementation of the FASB ASC 740-10-05, the Company recognized no material adjustments to unrecognized tax benefits. At the adoption date of January 1, 2007 and as of September 30, 2009 and 2008, the Company has no unrecognized tax benefits. The PRC regulators normally have three years that they can go back to examine corporate tax returns.

NOTE O - LEASES

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

In May 2009, the Joint Venture has entered into a lease agreement with Ruili Group Co., Ltd. for the lease of a manufacturing plant. The lease term is from September 2009 to May 2017. The Joint Venture will start to make lease payments and amortize leasehold improvements from January 2010 when the improvement project is completed and the plant is put in use.

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

	2009		2010		2011		2012		Thereafter
Manufacturing Plant	$	―	$	329,136	$	329,136	$	329,136	$	1,453,684
Buildings	$	70,248	$	281,167	$	281,167	$	68,219	$	―
Total	$	70,248	$	610,303	$	610,303	$	397,355	$	1,453,684

NOTE P - ADVERTISING COSTS

Advertising costs were $2,532 and $4,261 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE Q - RESEARCH AND DEVELOPMENT EXPENSE

Research and development costs are expensed as incurred and were $1,968,155 and $2,458,859 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE R - WARRANTY CLAIMS

Warranty claims were $1,104,598 and $1,539, 396 for the nine months ended September 30, 2009 and 2008, respectively. The movement of accrued warranty expenses for the nine months ended September 30, 2009 was as follows:

Beginning balance at January 01, 2009	1,111,569
Aggregate reduction for payments made	(1,053,297	)
Aggregate increase for new warranties issued during current period	1,104,598
Aggregate changes in the liability related to pre-existing warranties (changes in estimate)	―
Ending balance at September 30, 2009:	1,162,870

NOTE S – SEGMENT INFORMATION

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

Net sales from our Chinese market were $26.1 million and $18.8 million for the three months ended September 30, 2009 and 2008, respectively. Net sales from international market were $7.8 million and $14.1 million for the three months ended September 30, 2009 and 2008, respectively.

Net sales from our Chinese market were $63.1 million and $67.4 million for the nine months ended September 30, 2009 and 2008, respectively. Net sales from international market were $20.8 million and $38.3 million for the nine months ended September 30, 2009 and 2008, respectively.

All of the Company’s long-lived assets are located in the PRC. The Company and its subsidiaries do not have long-lived assets in U.S., Hong Kong or anywhere else in the world outside PRC for the reporting periods.

For the three months ended September 30, 2009, our three biggest customers Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works and Beiqi Foton Motor Co., Ltd. Beijing Auman Heavy-Duty Vehicle Works accounted for approximately 9.8%, 9.4% and 6.3% of our total sales revenue, respectively. For the three months ended September 30, 2008, Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works and Beiqi Foton Motor Co., Ltd. Beijing Auman Heavy-Duty Vehicle Works accounted for approximately 1.3%, 4.2% and 2.8% of our total sales revenue, respectively.

For the nine months ended September 30, 2009, our three biggest customers Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works and Beiqi Foton Motor Co., Ltd. Beijing Auman Heavy-Duty Vehicle Works accounted for approximately 10.8%, 7.3% and 4.1% of our total sales revenue, respectively. For the nine months ended September 30, 2008, Dongfeng Axle Co., Ltd., FAW Qingdao Automobile Works and Beiqi Foton Motor Co., Ltd. Beijing Auman Heavy-Duty Vehicle Works accounted for approximately 5.6%, 4.7% and 2.7% of our total sales revenue, respectively.

NOTE T – PURCHASE DISCOUNT

Purchase discounts represent discounts received from vendors for purchasing raw materials. The Company did not receive any purchase discounts during the nine months ended September 30, 2009 and 2008.

NOTE U – SHIPPING AND HANDLING COSTS

Shipping and handling costs incurred by the Company are included in selling expenses in the accompanying consolidated statements of income. Shipping and handling costs were $1,198,654 and $2,134,569 for the nine month ended September 30, 2009 and 2008, respectively.

NOTE V – STOCK COMPENSATION PLAN

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

Pursuant to the Plan, the Company issued 60,000 options with an exercise price of $4.79 per share on March 1, 2006. The 60,000 options became fully vested and exercisable on March 1, 2006, and expired on March 1, 2009.

The Company accounts for stock-based compensation in accordance with FASB ASC 505-50 (Prior authoritative literature: FASB Statement No. 123R, “Share-Based Payment”). The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.

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

As of March 31, 2009 all expenses related to the 60,000 options issued had been fully amortized and the amortization of deferred stock-based compensation for these equity arrangements was $9,935 for the nine months ended September 30, 2009.

A summary of option activity under the Plan as of September 30, 2009 and changes during the nine months ended September 30, 2009 is as follows:

	Options		Weighted Average Exercise P rice		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

January 1, 2006		—	$	—		—	$	—
Granted March 1, 2006		60,000		4.79	3Years			—
Exercised		—		—		—		—
Forfeited		—		—		—		—
Expired		60,000		4.79		—		—
Outstanding at September 30, 2009		—	$	—		—	$	—

Exercisable at September 30, 2009		—	$	—		—	$	—

(ii). Subject to all the terms and provisions of the Plan, on June 20, 2007, the Company granted to its previous senior manager of investor relations, David Ming He, options to purchase 4,128 shares of its common stocks with an exercise price of $7.25 per share. The option became vested and exercisable immediately on the date thereof and will expire, unless exercised, on June 20, 2010.

Number of Shares	% of Shares Issued			Initi al Vesting Date

4,128		100	%	June 20, 2007

The Company accounts for stock-based compensation in accordance with FASB ASC 505-50 (Prior authoritative literature: FASB Statement No. 123R, “Share-Based Payment”). The fair value of each option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.

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

Total stock-based compensation expenses related to the 4,128 stock options granted amounted to $23,201. This amount was charged to General and Administrative Expense during 2007.

A summary of option activity under the Plan as of September 30, 2009 and changes during the nine months ended September 30, 2009 is as follows:

	Options		Weighted Average Exercise P rice		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

January 1, 2007		—	$	—		—	$	—
Granted June 20, 2007		4,128	$	7.25	3Years			—
Exercised		—		—		—		—
Forfeited		—		—		—		—

Outstanding at September 30, 2009		4,128	$	7.25	0.8 Year		$	—

Exercisable at September 30, 2009		4,128	$	7.25	0.8 Year		$	—

(2) On January 5, 2006, the Company issued 100,000 warrants for financial services to be provided by Maxim Group LLC and Chardan Capital Markets, LLC, with an exercise price of $6.25 per share. In accordance with the common stock purchase warrant agreement, the warrants became vested and exercisable immediately on the date thereof. As set forth in the agreement, the Company would retain Maxim Group LLC and Chardan Capital Markets, LLC as its exclusive financial advisors and investment bankers for a period of twelve months from the date of January 5, 2006. The agreement has expired, and unless exercised, the warrants will expire on January 5, 2010.

Number of Shares	% of Shares Issued			Initial Vesting Date

100,000		100	%	January 5, 2006

The Company accounts for these warrants in accordance with FASB ASC 505-50 (Prior authoritative literature: FASB Statement No. 123R, “Share-Based Payment”). The fair value of each warrant is estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table.

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

Total expense associated with the 100,000 warrants amounted to $299,052, which, consistent with FASB ASC 505-50, was recognized during the fiscal year ended December 31, 2006.

A summary of option activity with respect to the warrants as of September 30, 2009 and changes during the nine months ended September 30, 2009 is as follows:

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

January 1, 2006		—	$	—		—	$	—
Granted January 5, 2006		100,000	$	6.25	4Years			—
Exercised		—		—		—		—
Forfeited		—		—		—		—

Outstanding at September 30, 2009		100,000	$	6.25	0.3 Year		$	—

Exercisable at September 30, 2009		100,000	$	6.25	0.3 Year		$	—

NOTE W- COMMITMENTS AND CONTINGENCIES

Information on lease commitments is provided in Note O.

NOTE X - OFF-BALANCE SHEET ARRANGEMENTS

At September 30, 2009, we do not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

NOTE Y- SUBSEQUENT EVENTS

In November 2009, the Company entered into a joint venture agreement with MGR, a Hong Kong-based global auto parts distribution specialist firm. The joint venture is named SORL International Holding, Ltd. (“SIH”). SORL holds a 60% interest in the joint venture.

SIH will be primarily devoted to expanding SORL’s international sales network in the Asia-Pacific region and expanding the company's business in Europe, the Middle East and Africa. The joint venture will complement the Company’s current international sales centers in Australia, United Arab Emirates, India, and the United States.

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

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements, as well as information relating to the plans of our current management. This quarterly report on Form 10-Q includes forward-looking statements. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those anticipated. Undue reliance should not be placed on these forward-looking statements that speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

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

OVERVIEW

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a summary of our accounting policies and estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the Fiscal Year ended December 31, 2008.

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

Results of Operations

(1) Results of operations for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008.

SALES

	Three Months ended				Three Months ended
	30-Sep-09				30-Sep-08

	(U.S. dollars in millions)
Air brake systems & related components	$	29.9	88	%	$	24.5	74	%
Non-valve products	$	4.1	12	%	$	8.5	26	%

Total	$	34.0	100	%	$	33.0	100	%

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

Net sales were $33,989,937 and $32,967,579 for the three months ended September 30, 2009 and 2008, respectively. Compared with the same period of 2008, net sales for the three months ended September 30, 2009 increased by $1.0 million or 3.1% to $34.0 million.

A breakdown of net sales revenue for these markets for the third quarter of the 2009 and 2008 fiscal years, respectively, is set forth below:

	Three Months ended 3 0 - Sep -0 9		Percent of Total Sales			Three Months ended 3 0 - Sep -0 8		Percent of Total Sales			Percentage Change
	(U.S. dollars in million)
China OEM market	$	17.4		51	%	$	10.4		32	%		67.3	%
China Aftermarket	$	8.7		26	%	$	8.4		26	%		3.6	%
International market	$	7.8		23	%	$	14.1		42	%		-44.7	%
Total	$	34.0		100	%	$	33.0		100	%		3.0	%

With the implementation of China III emission standard beginning on July 1, 2008, the consumption of commercial vehicles equipped with China II engines spurred significantly in the first half year of 2008, which resulted in the higher than usual output and sales volume of commercial vehicles in the first half year of 2008. Further, during the 2008 Beijing Olympic Games, our major customers, such as FAW Qiongdao, Beiqi Foton Zhucheng and Beiqi Foton Aumen halted production due to the traffic control in the regions around Beijing. Consequently, our OEM sales in the third quarter of 2008 were sharply decreased compared to the second quarter of 2008.

However, the Chinese’s government’s 4 trillion RMB stimulus package, which positively affected the development of China’s automobile industry, materially benefited our results in the third quarter of 2009. Further, we promoted our integrated system and modular supplies of air brake systems to our OEM customers and we increasingly focused on the bus and agricultural vehicle market in the third quarter of 2009. As a result of these positive factors, our Chinese OEM sales increased by $7.0 million, or 67.3%, to $17.4 million for the three months ended September 30, 2009, compared to $10.4 million for the same period of 2008.

Our Chinese Joint Venture achieved total revenue of $8.7 million in Chinese aftermarket sales for the three months ended September 30, 2009, an increase of $0.3 million, or 3.6% from $8.4 million compared to the same period of last year.

The global financial crisis has negatively affected our international customers, and caused local currencies to depreciate against the US dollar, while the lack of confidence in the growth of the world macro-economy has made our customers decrease their inventories in order to lower their risk. Consequently, our export sales decreased by $6.3 million or 44.7%, to $7.8 million for the three months ended September 30, 2009, as compared to $14.1 million for the same period of 2008.

COST OF SALES AND GROSS PROFIT

Cost of sales for the three months ended September 30, 2009 were $25,116,609, an increase of $565,996, or 2.3% from $24,550,613 for the same period last year. Our gross profit increased by 5.4% from $8,416,966 for the third quarter of 2008 to $8,873,328 for the third quarter of 2009.

We focused on increasing management efficiency, improving the technologies of products, and improving product portfolio to increase our gross profit margin. Gross margin increased to 26.1% from 25.5% for the three months ended September 30, 2009 compared with 2008. We believe that our continued expansion to the higher-profit new valve products will also help us to maintain or increase our gross profit margins.

SELLING AND DISTRIBUTION EXPENSES

Selling and distribution expenses were $2,131,054 for the three months ended September 30, 2009, as compared to $2,261,143 for the same period of 2008, a decrease of $130,089 or 5.8%.

Selling and distribution expenses include salaries and wages, transportation expense, packaging expense, warranty expense, other expenses associated with traveling, advertising, promotions, trade shows and seminars, and other expenses. The decrease in selling and distribution expenses for the three months ended September 30, 2009 was primarily due to the decreased transportation expense. During the third quarter of 2009, transportation costs decreased by $210,919 to $473,735 from $684,654 for the same period of 2008. The decrease in transportation expense was mainly due to decreased international sales and increased delivery efficiency.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $1,804,368 for the three months ended September 30, 2009, as compared to $3,018,390 for the same period of 2008, a decrease of $1,214,022 or 40.2%.The decrease was mainly due to the following factors:

(1)

Because of the impact of the U.S. financial crisis and weakening international macroeconomic factors, the Company extended the payment term accordingly for accounts receivable for our international distributors. As a result, the Company recorded more allowance for doubtful accounts in the third quarter of 2008. During the three months ended September 30, 2009, The Joint Venture reversed a bad debt provision resulting from collecting a significant portion of accounts receivable, which had been reflected as a reduction to general and administrative expenses. Compared with the $666,231 of bad debt provision for the three months ended September 30, 2008, the bad debt provision was negative $450,102 for the three months ended September 30, 2009, a decrease of $1,116,333.


	(2)	Research and development expense , which is included in general and administrative expenses de creased by $ 311,501 to $ 410,397 , as compared to $ 721,897 o f R&D expense for the same period of 2008 , as discussed below.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development costs. We invest in R&D on a regular basis, although the amount may vary from period to period. For the three months ended September 30, 2009, research and development expense was $410,397, as compared to $721,897 for the same period of 2008, a decrease of $311,501. The Company will continue to invest in new product development, particularly in upgrading traditional valve products and in developing electronic controlled products..

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $757,613 for the three months ended September 30, 2009, compared with that of $695,872 for the same period of 2008, an increase of $61,741. The increase in depreciation and amortization expense was primarily due to the addition of purchased production equipment.

FINANCIAL EXPENSE

Financial expense mainly consists of interest expense and exchange loss. The financial expense for the three months ended September 30, 2009 decreased by $184,478 to $37,216 from $221,694 for the same period of 2008, which was mainly due to the lesser exchange loss incurred as compared to the three months ended September 30, 2008.

OTHER INCOME

Other income was $121,567 for the three months ended September 30, 2009, as compared to $276,752 for the three months ended September 30, 2008, a decrease of $155,185. The decrease was mainly due to more subsidies received from local governments for the three months ended September 30, 2008. These subsidies were provided to the Company as economic incentives to secure business commitments and no repayment by the Company is required.

INCOME TAX

STOCK-BASED COMPENSATION

On March 1, 2006, the Board of Directors approved a total of 60,000 options to be issued to the four independent members of the Board of Directors. The contractual term of the options was three years. Total deferred stock-based compensation expenses related to stock options amounted to $178,904. This amount was amortized over the three year vesting period in a manner consistent with FASB ASC 505-50 (Prior authoritative literature: FASB Statement No. 123R). The amortization of deferred stock-based compensation for these equity arrangements was $0 and $14,909 for the three months ended September 30, 2009 and 2008, respectively. As of March 31, 2009, all expenses related to 60,000 options issued had been fully amortized.

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

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST IN SUBSIDIARIES

Non-controlling interest in subsidiaries represents a 10% non-controlling interest in the Joint Venture. Net income attributable to non-controlling interest in subsidiaries amounted to $423,271 and $261,904 for the quarters ended September 30, 2009 and 2008, respectively.

NET INCOME ATTRIBUTABLE TO STOCKHOLDERS

The net income attributable to stockholders for the quarter ended September 30, 2009 increased by $1,467,463 to $3,809,438 from $2,341,975 for the quarter ended September 30, 2008 due to the factors discussed above. Earnings per share (“EPS”), both basic and diluted, for the quarter ended September 30, 2009 and 2008, were $0.21 and $0.13 per share, respectively.

FINANCIAL CONDITION

Liquidity and Capital Resources

OPERATING - Net cash used in operating activities was $2,392,170 for three months ended September 30, 2009 compared with $2,998,671 of net cash provided in operating activities in the same period in 2008, a decrease of $5,390,841, primarily due to the decreased cash flow contributed by changes in prepayments, accounts receivable and notes receivable.

At September 30, 2009, the Company had cash and cash equivalents of $12,542,642 as compared to cash and cash equivalents of $7,795,987 at December 31, 2008. The Company had working capital of $70,517,577 at September 30, 2009, as compared to working capital of $61,586,125 at December 31, 2008, reflecting current ratios of 4.84:1 and 5.36:1, respectively.

INVESTING - During the three months ended September 30, 2008, the Company expended net cash of $1,599,786 in investing activities for acquisition of property and equipment to support the growth of the business. For the three months ended September 30, 2009, the Company utilized $834,010 in investing activities.

FINANCING - The Company had no borrowings under its credit facilities during the quarter ended September 30, 2009 and the third quarter ended September 30, 2008.

Management of the Company has taken a number of steps to restructure its customer base and phase out accounts which failed to make prompt payments. The Company also placed more emphasis on receivable collection. During the third quarter of 2009, the Company continued developing higher profit margin new products, and adopting steps for further cost saving such as improving material utilization rate. Meanwhile, the Company maintains good relationships with local banks. We believe that our current cash and cash equivalents and anticipated cash flow generated from operations and our bank lines of credit will be sufficient to finance our working capital requirements for the foreseeable future.

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

Assets and liabilities of our operating subsidiaries are translated into U.S. dollars at the exchange rate at the balance sheet date, their equity accounts are translated at historical exchange rate and their income and expenses items are translated using the average rate for the period. Any resulting exchange differences are recorded in accumulated other comprehensive income or loss. Because of the minor appreciation of the RMB against the USD during the quarter ended on September 30, 2009, (i) we recorded an exchange loss of $19,927 from export sales for which the payments to us were in USD, and (ii) we also recorded a foreign currency translation adjustment of $45,431 for the quarter, a positive number due to our functional currency in RMB and the appreciation of the RMB against the USD. The Company is adopting such steps as the diversification of currencies used in export sales, and the negotiation of export contracts with fixed exchange rates.

As the Company is currently free of indebtedness for borrowed money, we do not have any interest rate risk at present. However, to the extent that the Company arranges new borrowings in the future, an increase in market interest rate would cause a commensurate increase in the interest expense related to such borrowings.

OFF-BALANCE SHEET AGREEMENTS

At September 30, 2009, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

( 2) Results of operations for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008.

SALES

	Nine months ended				Nine months ended
	30-Sep-09				30-Sep-08

	(U.S. dollars in millions)
Air brake systems & related components	$	72.0	86	%	$	80.2	76	%
Non-valve products	$	12.0	14	%	$	25.6	24	%

Total	$	84.0	100	%	$	105.8	100	%

Net sales were $83,973,887 and $105,812,140 for the nine months ended September 30, 2009 and 2008, respectively. Compared with the same period of 2008, net sales for the nine months ended September 30, 2009 decreased by $21.8 million or 20.6% to $84.0 million.

A breakdown of net sales revenue for these markets for the nine months ended September 30, 2009 and 2008 fiscal years, respectively, is set forth below:

	Nine months ended 30-Sep-09		Percent of Total Sales			Nine months ended 30-Sep-08		Percent of Total Sales			Percentage Change
	(U.S. dollars in million)
China OEM market	$	40.7		48.5	%	$	38.6		36.5	%		5.4	%
China Aftermarket	$	22.4		26.7	%	$	28.8		27.3	%		-22.2	%
International market	$	20.8		24.8	%	$	38.3		36.2	%		-45.7	%
Total	$	84.0		100	%	$	105.8		100	%		-20.6	%

With the implementation of China III emission standard beginning on July 1, 2008, the consumption of commercial vehicles equipped with China II engines spurred significantly in the first half year of 2008, which resulted in the higher than usual output and sales volume of commercial vehicles in the first half year of 2008. Furthermore, during the 2008 Beijing Olympic Games, our major customers, such as FAW Qiongdao, Beiqi Foton Zhucheng and Beiqi Foton Aumen halted production due to the traffic control in the regions around Beijing. Consequently, our OEM sales in the third quarter of 2008 were sharply decreased compared to the second quarter of 2008. However, our Chinese OEM sales achieved a strong growth in the nine months of 2009.

Owing to the global financial crisis, persistent downturn of the macro-economy and weak global auto market, the output and sales of heavy duty trucks and the demand for air brake systems from our OEM customers declined in the first half year of 2009. However, the Chinese’s government’s 4 trillion RMB stimulus package, which positively affected the development of China’s automobile industry, materially benefited our results in the third quarter of 2009. Further, we promoted our integrated system and modular supplies of air brake systems to our OEM customers and we increasingly focused on the bus and agricultural vehicle market in the third quarter of 2009. As a result our Chinese OEM sales increased by $2.1 million, or 5.4%, to $40.7 million for the nine months ended September 30, 2009, compared to $38.6 million for the same period of 2008.

In the first half year of 2009, our customers decreased their inventories in order to lower their risk due to financial crisis. Meanwhile, we improved product portfolio to decrease low profit margin products in the nine months of 2009. Our Chinese Joint Venture achieved total revenue of $22.4 million in Chinese aftermarket sales for the nine months ended September 30, 2009, a decrease of $6.4 million, or 22.2% from $28.8 million compared to the same period of last year.

The global financial crisis has negatively affected our international customers, and caused local currencies to depreciate against the US dollar, while the lack of confidence in the growth of the world macro-economy has made our customers decrease their inventories in order to lower their risk. Consequently, our export sales decreased by $17.5 million or 45.7%, to $20.8 million for the nine months ended September 30, 2009, as compared to $38.3 million for the same period of 2008.

COST OF SALES AND GROSS PROFIT

For the nine months ended September 30 , 2009 , cost of sales was $61,166,233, a decrease of $16,177,734, or 20.9% from $77,343,967 for the same period last year. O ur gross profit d ecreased by 19.9 % f rom $ 28,468,173 for the nine months ended September 30, 2008 to $ 22,807, 654 for the nine months ended September 30, 2009.

We focused on increasing management efficiency, improving the technologies of products, and improving product portfolio to increase our gross profit margin. Gross margin increased by 0.3% for the nine months ended September 30, 2009, to 27.2% from 26.9% for the same period of 2008. We believe that our continued expansion to the higher-profit new valve products will also help us to maintain or increase our gross profit margins.

SELLING AND DISTRIBUTION EXPENSES

Selling and distribution expenses were $5,509,506 for the nine months ended September 30, 2009, as compared to $6,872,221 for the same period of 2008, a decrease of $1,362,715 or 19.8%.

Selling and distribution expenses include salaries and wages, transportation expense, packaging expense, warranty expense, expenses associated with traveling, advertising, promotions, trade shows and seminars, and other expenses. The decrease in selling and distribution expenses for the quarter was primarily due to the following factors:

(1)

Decreased transportation expense: During the nine months ended September 30, 2009, transportation costs decreased by $935,915 to $1,198,654 from $2,134,569 for the nine months ended September 30, 2008. The decrease in transportation expense was mainly due to decreased international sales and increased delivery efficiency.

(2)

Decreased product warranty expense. The Company recorded $1,104,598 of product warranty expenses for the nine months ended September 30, 2009, as compared to $1,539,396 for the nine months ended September 30, 2008, a decrease of $434,798, along with the decreased sales.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $6,870,181 for the nine months ended September 30, 2009, as compared to $7,712,808 for the same period of 2008, a decrease of $842,627 or 10.9% mainly due to the following factor:

(1)

Because of the impact of the U.S. financial crisis and weakening international macroeconomic, the Company extended the payment term accordingly for accounts receivable for our international distributors. As a result, the Company recorded more allowance for doubtful accounts in the third quarter of 2008. During the three months ended September 30, 2009, The Joint Venture reversed a bad debt provision resulting from collecting a significant portion of accounts receivable, which had been reflected as a reduction to general and administrative expenses. Compared with the $687,513 of bad debt provision for the nine months ended September 30, 2008, the bad debt provision was $2,823 for the nine months ended September 30, 2009, a decrease of $684,690.


	(2)	Research and development expense, which is included in general and administrative expenses decreased by $490,704 to $1,968,155, as compared to $2,458,859 of R&D expense for the same period of 2008, as discussed below.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include third-party development costs. We invest in R&D on a regular basis, although the amount may vary from period to period. For the nine months ended September 30, 2009, research and development expense was $1,968,155, as compared to $2,458,859 for the same period of 2008, a decrease of $490,704. The Company will continue to invest in new product development, particularly in upgrading traditional valve products and in developing electronic controlled products.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $ 2,233,851 for the nine months ended September 30 , 2009, compared with that of $ 2,024,931 for the same period of 2008, an increase of $ 208,920 . The increase in depreciation and amortization expense was primarily due to the addition of purchased production equipment .

FINANCIAL EXPENSE

Financial expense mainly consists of interest expense and exchange loss. The financial expense for the nine months ended September 30, 2009 decreased by $899,383 to $75,307 from $974,690 for the same period of 2008, which was mainly the lesser exchange loss incurred as compared to the nine months of 2009.

OTHER INCOME

Other income was $337,028 for the nine months ended September 30, 2009, as compared to $610,592 for the nine months ended September 30, 2008, a decrease of $273,564. The decrease was mainly due to more subsidies received from local governments for the nine months ended September 30, 2008.

INCOME TAX

STOCK-BASED COMPENSATION

On March 1, 2006, the Board of Directors approved a total of 60,000 options to be issued to the four independent members of the Board of Directors. The contractual term of the options was three years. Total deferred stock-based compensation expenses related to stock options amounted to $178,904. This amount was amortized over the three year vesting period in a manner consistent with FASB ASC 505-50 (Prior authoritative literature: FASB Statement No. 123R). The amortization of deferred stock-based compensation for these equity arrangements was $9,935 and $44,727 for the nine months ended September 30, 2009 and 2008, respectively. As of March 31, 2009, all expenses related to 60,000 options issued had been fully amortized.

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

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST IN SUBSIDIARIES

Non-controlling interest in subsidiaries represents a 10% non-controlling interest in the Joint Venture. Net income attributable to non-controlling interest in subsidiaries amounted to $862,337 and $1,183,852 for the nine months ended September 30, 2009 and 2008, respectively.

NET INCOME ATTRIBUTABLE TO STOCKHOLDERS

The net income attributable to stockholders for the nine months ended September 30, 2009 decreased by $2,858,292, to $7,751,096 from $10,609,388 for the nine months ended September 30, 2008 due to the factors discussed above. Earnings per share (“EPS”), both basic and diluted, for the nine months ended September 30, 2009 and 2008, were $0.42 and $0.58 per share, respectively.

FINANCIAL CONDITION

Liquidity and Capital Resources

OPERATING - Net cash provided in operating activities was $6,610,799 for nine months ended September 30, 2009 compared with $5,607,844 of net cash provided in operating activities in the same period in 2008, an increase of $1,002,955 primarily due to the increased cash flow contributed by changes in inventory, other current assets, income tax payable and accounts payable and notes payable.

INVESTING - During the nine months ended September 30, 2008, the Company expended net cash of $2,747,951 in investing activities for acquisition of property and equipment to support the growth of the business. For the nine months ended September 30, 2009, the Company utilized $1,876,116 in investing activities.

FINANCING - During the nine months ended September 30, 2008 , the Company received aggregate bank loans in the amount of $1,967,686 under its credit facilities; these cash inflows was offset by repayments of $3,469,793 on its outstanding debt. The Company had no borrowings under its credit facilities during the nine months ended September 30, 2009.

Management of the Company has taken a number of steps to restructure its customer base and phase out accounts which failed to make prompt payments. The Company also placed more emphasis on receivable collection. During the nine months ended September 30, 2009, the Company continued developing higher profit margin new products, and adopting steps for further cost saving such as improving material utilization rate. Meanwhile, the Company maintains good relationships with local banks. We believe that our current cash and cash equivalents and anticipated cash flow generated from operations and our bank lines of credit will be sufficient to finance our working capital requirements for the foreseeable future.

Assets and liabilities of our operating subsidiaries are translated into U.S. dollars at the exchange rate at the balance sheet date, their equity accounts are translated at historical exchange rate and their income and expenses items are translated using the average rate for the period. Any resulting exchange differences are recorded in accumulated other comprehensive income or loss. Because of the minor appreciation of the RMB against the USD during the nine months ended on September 30, 2009, (i) we recorded an exchange loss of $56,249 from export sales for which the payments to us were in USD, and (ii) we also recorded a foreign currency translation adjustment of $86,614 for the nine months ended on September 30, 2009, a positive number due to our functional currency in RMB and the appreciation of the RMB against the USD. The Company is adopting such steps as the diversification of currencies used in export sales, and the negotiation of export contracts with fixed exchange rates.

OFF-BALANCE SHEET AGREEMENTS

As of September 30, 2009, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

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

Changes in Internal Control over Financial Reporting:

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS

(a)	Exhibits:

	31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

	31.2	Certification of Principal Accounting Officer pursuant to Rule 13a-14 and Rule 15d-14(a) promulgated under the Securities and Exchange Act of 1934, as amended.

	32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

Dated : November 13, 2009	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 (Principal Financial Officer)

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SORL SORL Auto Parts Inc