UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 000-50883

WONDER AUTO TECHNOLOGY, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	88-0495105
(State or other jurisdiction of incorporation or organization)	(I.R.S. Empl. Ident. No.)

No. 16 Yulu Street

Taihe District

Jinzhou City, Liaoning

People’s Republic of China, 121013 

(Address of principal executive offices, Zip Code)

(86) 416-2661186

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 x No o

Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ¨Accelerated filer ¨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).

Yes ¨ No x

The number of shares outstanding of each of the issuer’s classes of common equity, as of October 31, 2007 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.0001 par value	23,959,994

TABLE OF CONTENT

		Page
	PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	14
	PART II
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Securities Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits	16

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

1

Wonder Auto Technology, Inc.

Condensed Consolidated Financial Statements

For the three and nine months ended

September 30, 2007

(Stated in US dollars)

2

Wonder Auto Technology, Inc.

Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2007

Index to Condensed Consolidated Financial Statements

	Pages
Condensed Consolidated Statements of Income and Comprehensive Income	F-1
Condensed Consolidated Balance Sheets	F2 - 3
Condensed Consolidated Statements of Cash Flows	F4 - 5
Notes to Condensed Consolidated Financial Statements	F6 - 23

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

	Three months ended						Nine months ended
	September 30						September 30
	(unaudited)						(unaudited)
	2007			2006			2007			2006
Sales revenue	$	27,293,856		$	19,458,451		$	72,416,290		$	53,064,779
Cost of sales		(20,184,152	)		(15,473,090	)		(54,335,057	)		(42,767,223	)
Gross profit		7,109,704			3,985,361			18,081,233			10,297,556
Operating expenses
Administrative expenses		967,086			499,007			2,543,758			1,103,075
Research and development costs		255,086			145,570			732,706			345,455
Selling expenses		641,205			662,776			1,997,820			1,903,563
		1,863,377			1,307,353			5,274,284			3,352,093
Income from operations		5,246,327			2,678,008			12,806,949			6,945,463
Interest income		25,846			55,012			80,623			76,360
Other income		45,116			82,972			84,442			199,656
Government grants - Note 4		-			-			786,154			-
Finance costs		(798,472	)		(253,001	)		(1,810,754	)		(706,995	)
Equity in net income of an unconsolidated affiliate		-			140,223			34,147			140,223
Income before income taxes		4,518,817			2,703,214			11,981,561			6,654,707
Income taxes - Note 5		(583,779	)		(335,007	)		(1,016,503	)		(797,194	)
Minority interests		(260,427	)		-			(746,504	)		-
Net income	$	3,674,611		$	2,368,207		$	10,218,554		$	5,857,513
Other comprehensive income
Foreign currency translation adjustments		589,115			309,577			1,665,857			481,332
Comprehensive income	$	4,263,726		$	2,677,784		$	11,884,411		$	6,338,845
Earnings per share: basic and diluted	$	0.15		$	0.10		$	0.43		$	0.3
Weighted average number of shares outstanding:
basic and diluted		23,959,994			23,959,994			23,959,994			19,718,086

See the accompanying notes to condensed consolidated financial statements

F-1

Wonder Auto Technology, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2007 and December 31, 2006

(Stated in US Dollars)

	September 30,		December 31,
	2007		2006
	(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	9,014,720	$	8,203,699
Restricted cash		8,809,878		4,876,879
Trade receivables (net of allowance of doubtful accounts of $44,969 in 2007 and $32,150 in 2006)		35,322,157		24,696,982
Bills receivable		10,793,979		3,098,314
Other receivables, prepayments and deposits		2,232,826		1,254,209
Inventories - Note 6		14,861,379		13,689,374
Amount due from a related company		72,541		69,561
Deferred taxes		279,042		237,570
Total current assets		81,386,522		56,126,588
Intangible assets - Note 7		9,632,919		4,250,800
Property, plant and equipment, net - Note 8		18,961,099		13,945,846
Land use right		1,214,979		1,203,256
Deposit for acquisition of property, plant and equipment		2,808,343		1,740,548
Investment in an unconsolidated affiliate - Note 4		-		527,627
Deferred taxes		246,443		205,475
TOTAL ASSETS	$	114,250,305	$	78,000,140

See the accompanying notes to condensed consolidated financial statements

F-2

Wonder Auto Technology, Inc.

Condensed Consolidated Balance Sheets (Cont’d)

As of September 30, 2007 and December 31, 2006

(Stated in US Dollars)

	September 30,		December 31,
	2007		2006
	(Unaudited)		(Audited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities
Trade payables	$	16,063,285	$	9,631,537
Bills payable		9,844,920		8,628,078
Other payables and accrued expenses		3,209,480		3,121,533
Provision for warranty - Note 9		889,174		1,049,344
Income tax payable		623,291		398,768
Amount due to an unconsolidated affiliate		-		37,492
Dividend payable to minority stockholders		376,978		-
Secured short-term bank loans - Note 10		13,286,640		14,326,831
Total current liabilities		44,293,768		37,193,583
Secured long-term bank loans - Note 10		17,107,077		-
TOTAL LIABILITIES		61,400,845		37,193,583
COMMITMENTS AND CONTINGENCIES - Note 11
MINORITY INTERESTS		2,738,064		2,579,572
STOCKHOLDERS’ EQUITY
Preferred stock: par value $0.0001 per share; authorized 10,000,000 shares, none issued and outstanding		-		-
Common stock: par value $0.0001 per share; authorized 90,000,000 shares, issued and outstanding 23,959,994 shares in 2007 and 2006		2,396		2,396
Additional paid-in capital		22,140,143		22,140,143
Statutory and other reserves		3,148,265		3,148,265
Accumulated other comprehensive income		3,117,995		1,452,138
Retained earnings		21,702,597		11,484,043
TOTAL STOCKHOLDERS’ EQUITY		50,111,396		38,226,985
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	114,250,305	$	78,000,140

See the accompanying notes to condensed consolidated financial statements

F-3

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

	Nine months ended September 30
	(Unaudited)
	2007			2006
Cash flows from operating activities
Net income	$	10,218,554		$	5,857,513
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,434,556			1,030,576
Amortization of intangible assets and land use right		64,624			20,673
Deferred taxes		(64,505	)		(34,043	)
Loss on disposal of property, plant and equipment		15,636			-
Gain on disposal of Man Do		(500	)		-
Provision for doubtful debts		11,144			-
Written down (recovery) of obsolete inventories		67,782			(69,708	)
Exchange loss on translation of monetary assets and liabilities		492,825			-
Equity in net income of an unconsolidated affiliate		(34,147	)		(140,223	)
Minority interests		746,504			-
Changes in operating assets and liabilities:
Trade receivables		(8,870,324	)		(6,841,892	)
Bills receivable		(7,270,838	)		(366,251	)
Other receivables, prepayments and deposits		(717,530	)		(297,497	)
Inventories		(374,688	)		(4,453,132	)
Trade payables		6,270,135			3,269,026
Bills payable		854,241			(250,718	)
Other payables and accrued expenses		1,036,024			(21,153	)
Provision for warranty		(201,004	)		416,125
Income tax payable		210,416			104,660
Net cash flows provided by (used in) operating activities		3,888,905			(1,776,044	)
Cash flows from investing activities
Payments to acquire trademarks and patents		(1,982	)		(6,268	)
Payments to acquire and for deposit for acquisition of property, plant and equipment		(5,661,884	)		(1,380,935	)
Proceeds from sales of property, plant and equipment		11,171			-
Installment payment to acquire Jinzhou Dongwoo		(2,420,000	)		-
Increase in restricted cash		(3,932,999	)		(828,356	)
Proceeds from sales of marketable securities		-			37,608
Net cash paid to acquire Jinzhou Wanyou - Note 4		(5,526,485	)		-
Payment to acquire an unconsolidated affiliate		-			(1,200,000	)
Cash inflow from disposal of Man Do		500			-
Cash acquired from the RTO		-			419
Net cash flows used in investing activities	$	(17,531,679	)	$	(3,377,532	)

See the accompanying notes to condensed consolidated financial statements

F-4

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Cash Flows (Cont’d)

For the nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

	Nine months ended September 30
	(Unaudited)
	2007			2006
Cash flows from financing activities
Dividend paid to stockholders	$	-		$	(1,707,724	)
Dividend paid to minority stockholders		(357,280	)		-
Dividend paid to Winning		(343,934	)		-
New bank loans		29,486,379			12,631,366
Repayment of bank loans		(14,848,096	)		(10,309,721	)
Repayment to stockholders		-			(5,149	)
Net proceeds from issuance of shares		-			10,142,020
Advance from a related company		-			64,480
Net cash flows provided by financing activities		13,937,069			10,815,272
Effect of foreign currency translation on cash and cash equivalents		516,726			175,899
Net increase in cash and cash equivalents		811,021			5,837,595
Cash and cash equivalents - beginning of period		8,203,699			4,368,757
Cash and cash equivalents - end of period	$	9,014,720		$	10,206,352
Supplemental disclosures for cash flow information:
Non-cash investing and financing activities:
Acquisition of Jinzhou Wanyou - Note 4	$	2,840,317		$	-
Cash paid for:
Interest	$	906,045		$	605,319
Income taxes	$	586,935		$	726,578

See the accompanying notes to condensed consolidated financial statements

F-5

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

1. Corporate information

Wonder Auto Technology, Inc. (the “Company”) was incorporated in the State of Nevada on June 8, 2000. The Company’s shares are quoted for trading on the Nasdaq Stock Market in the United States.

Pursuant to that certain Share Exchange Agreement dated June 22, 2006, the Company acquired a 100% ownership interest in Wonder Auto Limited (“Wonder”), a limited company organized in the British Virgin Islands, in exchange for the issuance to Empower Century Limited and Choice Inspire Limited (collectively, “Wonder’s Former Stockholders”) of 14,627,200 shares (as adjusted for a 2.448719-for-1 forward stock split on July 26, 2006 (the “Forward Stock Split”)) of the Company’s common stock and 6,499,994 shares (as adjusted for the Forward Stock Split) to certain investors who invested $12 million into Wonder and purchased $8 million Wonder’s stock from Empower Century Limited immediately prior to such share exchange transaction.

The aforesaid share exchange transaction was completed on June 22, 2006 and thereafter Wonder became a wholly owned subsidiary of the Company and Wonder’s Former Stockholders became the majority stockholders of the Company. This transaction constituted a reverse takeover transaction (“RTO”).

Following the RTO, through Wonder, the Company indirectly owned Man Do Auto Technology Co., Ltd. (“Man Do”) and Jinzhou Halla Electrical Equipment Co., Ltd. (“Jinzhou Halla”). The entire issued and outstanding common stock of Man Do is directly held by Wonder. In respect of Jinzhou Halla, 61% of its common stock is directly held by Wonder and the remaining 39% is indirectly held by Wonder through Man Do.

On August 23, 2006, Wonder entered into a Share Purchase Agreement (the “Dongwoo Share Purchase Agreement”) with Winning International Development Limited (“Winning”), a British Virgin Islands limited company, which held 50% equity interest in Jinzhou Dongwoo Precision Co., Ltd. (“Jinzhou Dongwoo”). The remaining equity interest in Jinzhou Dongwoo is held 25% each by two independent third parties. Jinzhou Dongwoo was established in the People’s Republic of China (the “PRC”) and is a supplier of raw materials to Jinzhou Halla. The board of directors of Jinzhou Dongwoo consists of 5 members, three of which were nominated by Wonder while the other two shareholders of Jinzhou Dongwoo each nominated one of the remaining two board members. The board is the highest authority of Jinzhou Dongwoo and has power to make operating and financing decisions. Before November 18, 2006, valid board action required the approval of more than two-thirds of the board members (i.e. four board members or more). Based on the foregoing, the management of the Company was of the view that the Company had significant influence but not control over the operations of Jinzhou Dongwoo. On November 18, 2006, Jinzhou Dongwoo amended its Memorandum and Articles of Association to eliminate the supermajority requirement, such that valid board action now requires the approval of only more than a half of the board members. Accordingly, without any change in the composition of the board, the Company obtained control over Jinzhou Dongwoo as of November 18, 2006, and the results of operations and the financial position of Jinzhou Dongwoo have been consolidated with the Company since then.

F-6

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

1. Corporate information (Cont’d)

On September 21, 2006, Jinzhou Halla together with two independent third parties established Jinzhou Wanyou Mechanical Parts Co., Ltd. (“Jinzhou Wanyou”) in the PRC. Jinzhou Halla contributed $0.5 million to its registered capital representing 20.41% equity interest thereon. Jinzhou Wanyou is principally engaged in manufacturing of shock absorber rods, vibration-dampers and rotary axles for automotive alternators and starters.

On April 2, 2007, Wonder and Jinzhou Halla acquired the remaining 79.59% equity interest in Jinzhou Wanyou in two separately negotiated equity purchase transactions between Wonder and Jinzhou Halla and the aforesaid two former equity owners of Jinzhou Wanyou. In the first transaction, Wonder entered into a Share Purchase Agreement (“Jinzhou Wanyou Share Purchase Agreement I”) with Hong Kong Friend Birch Limited, a Hong Kong corporation, which held 40.81% equity interest in Jinzhou Wanyou. In the second transaction, Jinzhou Halla entered another Share Purchase Agreement (“Jinzhou Wanyou Share Purchase Agreement II”) with Jinzhou Wonder Auto Suspension System Co., Ltd., which held 38.78% equity ownership in Jinzhou Wanyou. After the completion of these two equity purchase transactions, Jinzhou Wanyou became a wholly-owned subsidiary of the Company. More details and accounting treatment on the further investment in Jinzhou Wanyou are set forth in Note 4.

Man Do declared a special interim dividend on September 30, 2007 by the way of distribution in specie of all assets and liabilities held by Man Do on that date.  In order to rationalise the structure of the group, on the same date, Wonder entered into a Share Transfer Agreement with Xiangdong Gao, a beneficial stockholder of the Company, to transfer all of its shares in Man Do to Xiangdong Gao (the "Share Transfer") at a cash consideration of $500.  Upon the completion of the Share Transfer on September 30, 2007.  Wonder directly holds 100% of common stock of Jinzhou Halla.

2. Description of business

Following the RTO, the Company commenced to be engaged in the design, development, manufacture and marketing of automotive electrical parts, specifically starters and alternators, in the PRC.

The products of the Company are suitable for use in a variety of automobiles. However, most of the Company’s products are used in passenger cars with smaller engines having displacement below 1.6 liters. The Company has also begun to manufacture and sell rectifier and regulator products for use in alternators as well as various rods and shafts for use in shock absorbers, alternators and starters.

F-7

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

2. Description of business (Cont’d)

The Company’s customers include automakers, engine manufacturers and, increasingly, auto parts suppliers. The Company also offers to its customers’ product design and development services for their new car models or automotive components based on customers’ specifications.

The raw materials used in the Company’s production are mainly divided into four categories, metal parts, semiconductors, chemicals and packaging materials.

3. Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted from these statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2006, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month and nine-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

4. Summary of significant accounting policies

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

On April 2, 2007, Wonder and Jinzhou Halla acquired the remaining 79.59% equity interest in Jinzhou Wanyou in two separately negotiated equity purchase transactions between Wonder and Jinzhou Halla and two former equity owners of Jinzhou Wanyou. After the completion of these two equity purchase transactions, Jinzhou Wanyou became a wholly-owned subsidiary of the Company.

F-8

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Principles of consolidation (cont’d)

In the first transaction, Wonder acquired a 40.81% equity interest in Jinzhou Wanyou from Hong Kong Friend Birch Limited, a Hong Kong corporation, for a total cash consideration of up to $8.42 million pursuant to the Jinzhou Wanyou Share Purchase Agreement I dated April 2, 2007. Under the Jinzhou Wanyou Share Purchase Agreement I, the total cash consideration is scheduled to be paid by Wonder in three installments as follows. The first installment payment of $2.8 million was made in June 2007. The second cash installment payment of $1.41 million will be paid before December 31, 2007. The final cash installment payment of $4.21 million will be paid if Jinzhou Wanyou achieves minimum net income of approximately $2.95 million (RMB 23 million) for the period from April 2, 2007 to April 1, 2008. If Jinzhou Wanyou fails to achieve the minimum net income threshold, the remaining $4.21 million payment will be proportionately reduced. Under the Jinzhou Wanyou Share Purchase Agreement I, no premium is payable by Wonder if Jinzhou Wanyou exceeds the net income target threshold.

In the second transaction, Jinzhou Halla acquired a 38.78% equity ownership in Jinzhou Wanyou from Jinzhou Wonder Auto Suspension System Co., Ltd. for a total cash consideration of up to $8.0 million pursuant to the Jinzhou Wanyou Share Purchase Agreement II dated April 2, 2007. Under the Jinzhou Wanyou Share Purchase Agreement II, the total consideration will be paid in three installments. The first payment of $3.0 million was made in June 2007. The second $3.0 million cash installment will be paid if Jinzhou Wanyou achieves minimum net income of approximately $2.95 million (RMB 23 million) for the period from April 2, 2007 to April 1, 2008. The remaining $2 million cash payment will be paid if Jinzhou Wanyou attains minimum net income of approximately $3.72 million (RMB 29 million) for the period from April 2, 2008 to April 1, 2009. In the case that Jinzhou Wanyou fails to achieve these net income thresholds, the corresponding payments will be proportionately reduced. Under the Jinzhou Wanyou Share Purchase Agreement II, no premium is payable by the Jinzhou Halla if Jinzhou Wanyou exceeds the net income target threshold.

F-9

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Principles of consolidation (cont’d)

The financial position of Jinzhou Wanyou as of April 2, 2007 is as follows:

	Carrying amount			Fair value adjustment pursuant to SFAS 141		Fair market value
Cash and cash equivalents	$	273,515				$	273,515
Trade receivable, net		562,107					562,107
Bills receivable		64,592					64,592
Other receivable, prepayment and deposits		192,696					192,696
Inventories		224,421					224,421
Amount due from Jinzhou Halla		694,267					694,267
Property, plant and equipment, net		1,069,720					1,069,720
Deposit for acquisition of property, plant and equipment		18,990					18,990
Intangible assets - customer contracts		-		$	49,053		49,053
Trade payables		(293,537	)				(293,537	)
Other repayable and accrued expenses		(15,507	)				(15,507	)
Net assets	$	2,791,264				$	2,840,317
79.59% equity interest acquired						$	2,260,608
Goodwill							4,949,392
Initial purchase price of acquisition						$	7,210,000
Satisfied by:
Cash payment						$	5,800,000
Outstanding amount included in other payable and accrued expenses							1,410,000
						$	7,210,000
Net cash paid to acquire Jinzhou Wanyou						$	5,526,485

As of September 30, 2007, the consolidated balance sheet includes a goodwill identified upon the acquisition of 79.59% equity interest in Jinzhou Wanyou amounting to $4.95 million which represents the excess of the initial purchase price of $7.21 million over the attributable share of fair value of acquired identifiable net assets of Jinzhou Wanyou of $2.26 million at the time of acquisition on April 2, 2007.

F-10

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Principles of consolidation (cont’d)

The above initial purchase price for Jinzhou Wanyou does not include the $9.21 million of contingent consideration pursuant to the Share Purchase Agreements. The remaining consideration shall be payable upon Jinzhou Wanyou’s fulfillment of targeted net profits. The recognition and allocation of contingent consideration will be treated as additional purchase price and allocated to goodwill subsequently.

The following unaudited pro forma financial information presents the combined results of operating of the Company with the operations of Jinzhou Wanyou for the nine months ended September 30, 2007, as if the acquisition had occurred as of the beginning of fiscal year 2007:

	(Unaudited)
Revenue	$	73,252,407
Net income	$	10,351,712
Earnings per share: basic and diluted	$	0.43

This unaudited pro forma financial information is presented for informational purposes only. The unaudited pro forma financial information may not necessarily reflect the future results of operations or the results of operations would have been had the Company owned and operated this business as of the beginning of the period presented.

Goodwill

As of December 31, 2006, the consolidated balance sheet reflects a goodwill identified upon acquisition of Jinzhou Dongwoo amounting to $2.77 million which represents the excess of the purchase price of $4.85 million over the attributable share of fair value of acquired identifiable net assets of Jinzhou Dongwoo of $2.08 million at the time of acquisition on August 23, 2006.

Pursuant to Wonder’s August 23, 2006 Dongwoo Share Purchase Agreement with Winning for the acquisition of a 50% equity interest of Jinzhou Dongwoo, all the 2005 distributable profit of Jinzhou Dongwoo shall be owned by the shareholders in Jinzhou Dongwoo before the signing date of the Dongwoo Share Purchase Agreement on condition that any distribution of such distributable profit to them will not cause any shortage of Jinzhou Dongwoo’s working capital.

On February 6, 2007, after considering the sufficiency of Jinzhou Dongwoo’s working capital, the board of the directors of Jinzhou Dongwoo declared a cash dividend to the former shareholders amounting to $0.68 million in respect of the fiscal year ended December 31, 2005. Pursuant to the Dongwoo Share Purchase Agreement, Winning was entitled to its portion of $0.34 million. Since it represents the distribution of pre-acquisition profits of Jinzhou Dongwoo, a corresponding upward adjustment to goodwill was made as an additional contingent consideration in the first quarter of 2007.

F-11

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Goodwill (Cont’d)

As of September 30, 2007, the consolidated balance sheet includes a goodwill identified upon the acquisition of 79.59% equity interest in Jinzhou Wanyou amounting to $4.95 million which represents the excess of the initial purchase price of $7.21 million over the attributable share of fair value of acquired identifiable net assets of Jinzhou Wanyou of $2.26 million at the time of acquisition on April 2, 2007.

Minority interests

Minority interests resulted from the consolidation of our 50% owned subsidiary, Jinzhou Dongwoo, as a result of the Company’s determination that it had acquired control over Jinzhou Dongwoo’s operations in November 2006.

Investment in an unconsolidated affiliate

The Company accounts for the 20.41% investment in Jinzhou Wanyou (an investment in which the Company exercises significant influence but which it does not control) using the equity method, under which the share of Jinzhou Wanyou’s net income is recognized in the period in which it is earned by Jinzhou Wanyou. As of December 31, 2006, the investment in an unconsolidated affiliate of $0.53 million represents the Company’s attributable share of the underlying net assets of Jinzhou Wanyou.

Upon the completing of the acquisition of the remaining 79.59% on April 2, 2007 as discussed above in note 4, the results of operations and the financial position of Jinzhou Wanyou is consolidated since then.

Customer contracts

Customer contracts are stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over their estimated useful lives of 1 year from the date of acquisition.

Government grant

Government grant income represents the cash receipt from the relevant government authorities as an encouragement to the capitalization of the retained profits by the Company’s subsidiaries. Government grant is recognized as income at the time when the approval documents are obtained from the relevant government authorities and when they are received.

F-12

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Capitalized interest

The interest cost associated with the major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Use of estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes, provision for warranty and the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.

Revenue recognition

Revenue from sales of the Company’s products is recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are put into use by its customers, the sales price is fixed or determinable and collection is reasonably assured.

Basic and diluted earnings per share

The Company reports basic earnings per share in accordance with SFAS No. 128, “Earnings Per Share”. Basic earnings per share is computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the common stock outstanding during the reporting periods.

Concentrations of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade and bills receivables. As of September 30, 2007, substantially all of the Company’s cash and cash equivalents and restricted cash were held by major financial institutions located in the PRC, which management believes are of high credit quality. With respect to trade and bills receivables, the Company extends credit based on an evaluation of the customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade receivables.

F-13

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Concentrations of credit risk (Cont’d)

Regarding bills receivable, they are undertaken by the banks to honor the payments at maturity and the customers are required to place deposits with the banks equivalent to certain percentage of the bills amount as collateral. These bills receivable can be sold to any third party at a discount before maturity. The Company does not maintain allowance for bills receivable in the absence of bad debt experience and the payments are undertaken by the banks.

During the reporting periods, customers represented 10% or more of the Company’s condensed consolidated sales are:

	Three months ended				Nine months ended
	September 30				September 30
	(Unaudited)				(Unaudited)
	2007		2006		2007		2006
Beijing Hyundai Motor Company	$	4,858,784	$	3,764,316	$	11,564,156	$	9,897,869
Harbin Dongan Auto Engine Co., Ltd.		8,197,952		2,791,369		15,644,109		4,386,528
Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd.		6,478,245		4,799,022		13,835,630		10,094,598
	$	19,534,981	$	11,354,707	$	41,043,895	$	24,378,995

Allowance of doubtful accounts

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectibility of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. Among other things, the Company considers the historical level of credit losses and applies percentages to aged receivable categories. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers was to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

Based on the above assessment, during the reporting periods, management has established a general provisioning policy for an allowance equivalent to 100% of the gross amount of trade receivables due over 1 year. Additional specific provision is made against trade receivables aged less than 1 year to the extent which they are considered to be doubtful.

Bad debts are written off when identified. The Company extends unsecured credit to customers ranging from three to nine months in the normal course of business. The Company does not accrue interest on trade accounts receivable.

F-14

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Allowance of doubtful accounts (Cont’d)

Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad debts have been written off directly to the profit and loss. This general provisioning policy has not changed in the past since establishment and the management considers that the aforementioned general provisioning policy is adequate and not too excessive and does not expect to change this established policy in the near future.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition. In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase as our projected demand requirements; decrease due to market conditions, product life cycle changes. The Company estimates the demand requirements based on market conditions, forecasts prepared by its customers, sales contracts and orders in hand.

In addition, the Company estimates net realizable value based on intended use, current market value and inventory aging analyses. The Company writes down the inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventories and the estimated market value based upon assumptions about future demand and market conditions.

Based on the above assessment, the Company has established a general 50% provision for inventories aged over 1 year.

Historically, the actual net realizable value has been close to the management estimate.

F-15

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

Depreciation is provided on straight-line basis over their estimated useful lives. The principal depreciation rates are as follows:

	Annual			Residual
	rate			value
Buildings		3 - 4.5	%		10	%
Plant and machinery		9	%		10	%
Motor vehicles		9 - 18	%		10	%
Furniture, fixtures and equipment		15 - 18	%		10	%
Tools and equipment		15 - 18	%		0 to 10	%
Leasehold improvements		20	%		Nil

Construction in progress mainly represents expenditures in respect of the Company’s new offices and factories under construction. All direct costs, including interest, relating to the acquisition or construction of the Company’s new office and factories are capitalized as construction in progress. No depreciation is provided in respect of construction in progress.

Maintenance or repairs are charged to expense as incurred. Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Land use right

Land use right is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over the terms of the lease of 30 years obtained from the relevant PRC land authority.

Impairment of long-lived assets

Long-lived assets are tested for impairment in accordance with SFAS No. 144 and Accounting Principles Board (“APB”) Opinion 18, “Equity Method of Accounting for Investments in Common Stock.” The Company periodically evaluates potential impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company recognizes impairment of long-lived assets and investment in an affiliate in the event that the net book values of such assets exceed the future undiscounted cash flows attributable to such assets. During the reporting periods, the Company has not identified any indicators that would require testing for impairment.

F-16

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

4. Summary of significant accounting policies (Cont’d)

Warranty

It is the policy of the Company to provide after sales support by way of a warranty program. The Company provided warranties to certain customers with warranty periods ranging from two years or 50,000 km to three years or 60,000 km, whichever comes first.

Based on past experience, the Company has established a policy of making a general provision for warranty such that the closing balance of this provision equals 1.5% of the budgeted sales for the year.

Recently issued accounting pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year. The adoption of FIN 48 has no material effect on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The provisions of this statement should be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except in some circumstances where the statement shall be applied retrospectively. We are currently evaluating the effect, if any, of SFAS 157 on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 are effective for our fiscal year beginning January 1, 2008. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS 159 will have on our financial statements upon adoption.

F-17

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

5. Income taxes

United States

Wonder Auto Technology, Inc. is subject to the U.S. federal income tax at a tax rate of 34%. No provision for the U.S. federal income taxes has been made as the Company had no taxable income for the reporting period.

BVI

Wonder and Man Do were incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.

PRC

Enterprise income tax (“EIT”) to Jinzhou Halla, Jinzhou Dongwoo and Jinzhou Wanyou in the PRC is charged at 27%, of which 24% is for national tax and 3% is for local tax, of the assessable profits. As approved by the relevant tax authority in the PRC, Jinzhou Halla, Jinzhou Dongwoo and Jinzhou Wanyou were entitled to two years’ exemption, from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% tax reduction for the immediate next three calendar years (“tax holiday”). The tax holiday of Jinzhou Halla commenced in the fiscal financial year of 2001. Accordingly, Jinzhou Halla was subject to tax rate of 13.5% for 2003, 2004 and 2005. Furthermore, Jinzhou Halla, being a Foreign Investment Enterprise (“FIE”), engaged in an advanced technology industry, was approved to enjoy a further three years’ 50% tax reduction for 2006, 2007 and 2008. The tax holiday of Jinzhou Dongwoo commenced in the fiscal year 2004. Accordingly, Jinzhou Dongwoo was subject to tax rate of 13.5% for 2006, and we expect will be subject to a tax rate of 13.5% for 2007 and 2008. Jinzhou Wanyou has elected to commence the tax holiday in the fiscal year 2007. Accordingly, Jinzhou Wanyou will be exempted from EIT for 2007 and 2008 and thereafter entitled to a 50% reduction on EIT tax rate 13.5% for 2009, 2010 and 2011.

Jinzhou Halla, Jinzhou Dongwoo and Jinzhou Wanyou, as FIEs, were entitled to another special tax concession which allows an amount equivalent to 40% qualifying domestic capital expenditure as defined and approved under the relevant PRC income tax rule to be used as an offset against the excess of the current year’s EIT over the prior year’s EIT. Jinzhou Halla and Jinzhou Dongwoo were entitled to another special tax concession. An amount equivalent to 50% of the current year’s domestic development expenses can be used as an offset against EIT. These two tax concessions, if unutilized in a particular year, can be carried forward for five years.

F-18

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

6. Inventories

	September 30,			December 31,
	2007			2006
	(Unaudited)			(Audited)
Raw materials	$	5,536,910		$	3,957,527
Work-in-progress		720,126			450,545
Finished goods		8,824,575			9,428,237
		15,081,611			13,836,309
Provision for obsolete inventories		(220,232	)		(146,935	)
	$	14,861,379		$	13,689,374

7. Intangible assets

	September 30,			December 31,
	2007			2006
	(Unaudited)			(Audited)
Costs:
Goodwill - Note 4	$	8,064,619		$	2,771,293
Customer contracts		49,053			-
Know-how		1,531,003			1,468,089
Trademarks and patents		16,411			13,818
		9,661,086			4,253,200
Accumulated amortization		(28,167	)		(2,400	)
Net	$	9,632,919		$	4,250,800

8. Property, plant and equipment

	September 30,			December 31,
	2007			2006
	(Unaudited)			(Audited)
Costs:
Buildings	$	6,182,214		$	5,850,903
Plant and machinery		18,093,855			13,457,393
Furniture, fixtures and equipment		498,468			381,810
Tools and equipment		1,438,854			1,196,095
Leasehold improvements		196,497			151,848
Motor vehicles		736,045			642,172
		27,145,933			21,680,221
Accumulated depreciation		(9,626,920	)		(7,851,156	)
Construction in progress		1,442,086			116,781
Net	$	18,961,099		$	13,945,846

F-19

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

8. Property, plant and equipment (Cont’d)

(i) Pledged property, plant and equipment

As of September 30, 2007, certain property, plant and equipment with aggregate net book value of $8,292,078 was pledged to bank to secure general banking facilities (see note 10a).

(ii) Construction in Progress

Construction in progress mainly comprises capital expenditures for construction of the Company’s new offices and factories.

9. Provision for warranty

	(Unaudited)
Balance as of January 1, 2007	$	1,049,344
Claims paid for the period		(1,108,368	)
Additional provision for the period		907,151
Translation adjustments		41,047
Balance as of September 30, 2007	$	889,174

10. Secured bank loans

	September 30,		December 31,
	2007		2006
	(Unaudited)		(Audited)
Short-term loan, interest rates ranging from 6.12% to  6.84 % per annum	$	9,338,000	$	14,326,831
Short-term loan, interest rates ranging from 0.25% to 0.7%  per month		3,948,640		-
Long-term loan
- due 2009, interest charge at 6.57% per annum		5,336,000		-
- due 2009 to 2013, interest charge at EURIBOR rate plus 2.85% per annum		11,771,077		-
	$	30,393,717	$	14,326,831

As of September 30, 2007, the Company’s total bank lines of credit and borrowings there under were as follows:

Facilities granted	Granted		Amount utilized		Unused
Secured bank loans	$	38,999,090	$	30,393,717	$	8,605,373

F-20

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

10. Secured bank loans (Cont’d)

The above bank loans were secured by the following:

(a) Property, plant and equipment with carrying value of $8,292,078 (see note 8);

(b) Land use right with carrying value of $574,415; and

(c) Bank deposits amount of $1,974,320; and

(d) Guarantees executed by the Company’s CEO and director, Qingjie Zhao, who is also a beneficial owner of 54.2% of the Company’s common stock; and by a related company controlled by certain of the Company’s stockholders including Qingjie Zhao, Xiangdong Gao, Meina Zhang, Qing Lin, Yuquan Zhou, Chengyu Zhang and Chenye Zhang.

During the reporting periods, there was no covenant requirement under the banking facilities granted to the Company.

11. Commitments and contingencies

a. Capital commitment

As of September 30, 2007, the Company had capital commitments amounting to $1,602,642 in respect of the acquisition of property, plant and equipment which were contracted for but not provided in the financial statements.

b. Operating lease arrangement

As of September 30, 2007, the Company had a non-cancelable operating lease for its warehouse. The leases will expire in 2007 and the expected payment is $3,379.

The rental expenses relating to the operating leases were $20,272 and $2,729 for the nine months ended September 30, 2007 and 2006, respectively.

12. Defined contribution plan

The Company has a defined contribution plan for all qualified employees in the PRC. The employer and its employees are each required to make contributions to the plan at the rates specified in the plan. The only obligation of the Company with respect to retirement scheme is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the condensed consolidated statements of operations. The Company contributed $375,406 and $401,317 for the nine months ended September 30, 2007 and 2006, respectively.

F-21

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

13. Segment information

The Company is engaged in the manufacture and distribution of automotive electrical parts, including alternators, starters and rods and shafts in the PRC. The Company has three reportable segments, alternators, starters and rods and shafts based on the type of products. Information for the three segments is disclosed under SFAS131, “Disclosures about Segments of an Enterprise and Related Information” as below:

	Alternators Nine months ended September 30, (Unaudited)				Starters Nine months ended September 30, (Unaudited)				Rods and shafts Nine months ended September 30, (Unaudited)				Total Nine months ended September 30, (Unaudited)
	2007		2006		2007		2006		2007		2006		2007		2006
Revenue from external customers	$	43,492,400	$	32,819,173	$	25,049,076	$	20,245,606	$	3,874,814	$	-	$	72,416,290	$	53,064,779
Interest income		40,431		32,817		21,627		20,244		15,818		-		77,876		53,061
Interest expenses		657,145		374,374		368,790		230,945		-		-		1,025,935		605,319
Amortization		32,017		12,785		8,081		7,888		24,526		-		64,624		20,673
Depreciation		1,188,052		827,745		184,428		202,831		62,076		-		1,434,556		1,030,576
Segment profit		7,695,430		3,145,971		3,544,124		3,582,192		946,622		-		12,186,176		6,728,163
Expenditure for segment assets	$	3,827,747	$	854,072	$	1,409,166	$	526,863	$	424,971	$	-	$	5,661,884	$	1,380,935

	Alternators Three months ended September 30, (Unaudited)				Starters Three months ended September 30, (Unaudited)				Rods and shafts Three months ended September 30, (Unaudited)				Total Three months ended September 30, (Unaudited)
	2007		2006		2007		2006		2007		2006		2007		2006
Revenue from external customers	$	15,337,254	$	12,231,570	$	9,709,148	$	7,226,881	$	2,247,454	$	-	$	27,293,856	$	19,458,451
Interest income		15,462		19,848		8,861		12,043		854		-		25,177		31,891
Interest expenses		215,902		107,970		132,600		62,481		-		-		348,502		170,451
Amortization		10,683		4,468		2,915		2,629		24,526		-		38,124		7,097
Depreciation		414,639		280,378		58,488		85,955		32,077		-		505,204		366,333
Segment profit		2,652,450		1,565,008		1,444,292		1,211,019		497,105		-		4,593,847		2,776,027
Expenditure for segment assets	$	1,631,871	$	366,124	$	527,104	$	217,510	$	255,604	$	-	$	2,414,579	$	583,634

	Alternators				Starters				Rods and shafts				Total
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2007		2006		2007		2006		2007		2006		2007		2006
	(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)
Segment assets	$	69,046,301	$	54,860,505	$	35,168,409	$	22,308,718	$	9,713,521	$	-	$	113,928,231	$	77,169,223

F-22

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2007 and 2006

(Unaudited)

(Stated in US Dollars)

13. Segment information (Cont’d)

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.

	Three months ended						Nine months ended
	September 30						September 30
	(Unaudited)						(Unaudited)
	2007			2006			2007			2006
Total consolidated revenue	$	27,293,856		$	19,458,451		$	72,416,290		$	53,064,779
Total profit for reportable segments	$	4,593,847		$	2,776,027		$	12,186,176		$	6,728,163
Unallocated amounts relating to operations:
Interest income		669			23,121			2,747			23,299
Other income		500			32,253			10,640			33,316
Interest expenses		(449	)		-			(1,593	)		(646	)
Other general expenses		(75,750	)		(128,187	)		(216,409	)		(129,425	)
Income before income taxes	$	4,518,817		$	2,703,214		$	11,981,561		$	6,654,707

	September 30,		December 31,
	2007		2006
	(Unaudited)		(Audited)
Assets
Total assets for reportable segments	$	113,928,231	$	77,169,223
Cash and cash equivalents		210,534		830,917
Other receivables		111,540		-
	$	114,250,305	$	78,000,140

All of the Company’s long-lived assets are located in the PRC. Geographic information about the revenues, which are classified based on the customers, is set out as follows:

	Three months ended				Nine months ended
	September 30				September 30
	(Unaudited)				(Unaudited)
	2007		2006		2007		2006
PRC	$	24,679,203	$	18,387,387	$	66,033,108	$	51,163,166
Others		2,614,653		1,071,064		6,383,182		1,901,613
Total	$	27,293,856	$	19,458,451	$	72,416,290	$	53,064,779

F-23

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

Certain Terms

Except as otherwise indicated by the context, references in this Report to “Wonder Auto,” the “Company,” “we,” “us,” or “our” are references to the combined business of Wonder Auto Technology, Inc. and its wholly-owned subsidiary, Wonder Auto Limited, along with Wonder Auto Limited’s direct and indirect subsidiaries. References to “China” and “PRC” are to the People’s Republic of China. References to “BVI” are to the British Virgin Islands. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” are to the dollar, the legal currency of the United States of America.

Overview of Our Business

Wonder Auto Technology, Inc. is a Nevada holding company whose China-based operating subsidiaries, Jinzhou Halla Electrical Equipment Co., Ltd. (“Jinzhou Halla”), Jinzhou Dongwoo Precision Co., Ltd. (“Jinzhou Dongwoo”) and Jinzhou Wanyou Mechanical Parts Co., Ltd. (“Jinzhou Wanyou”), are primarily engaged in designing, developing, manufacturing and selling automotive electrical parts, specifically alternators and starters, and suspension products in China. On August 23, 2006, Wonder Auto Limited acquired from Winning International Development Limited a 50.0% interest in Jinzhou Dongwoo, a primary supplier of our raw materials and components. We currently control a majority of the board of directors of Jinzhou Dongwoo. In April 2007, we entered into agreements with two shareholders of Jinzhou Wanyou which resulted in our 100.0% ownership of Jinzhou Wanyou. We received approval for such acquisitions from the relevant PRC government authority in May 2007.

Most of our products are used in passenger cars, especially smaller engine vehicles with engine displacement below 1.6 liters. We offer over 150 different models of alternators and over 70 different models of starters. In addition, we have begun to manufacture and sell rectifier and regulator products for use in alternators as well as various rods and shafts for use in shock absorbers, alternators and starters.

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We sell our products to automakers, engine manufacturers and, increasingly, auto parts suppliers, based primarily in China, and we are increasingly exporting our products to the international market.

Recent Developments

On September 12, 2007, we applied with the Securities and Exchange Commission (the “SEC”) to withdraw our registration statement on Form S-1 originally filed on July 6, 2007 for the sale of up to 7,475,000 shares of our common stock. No securities have been sold pursuant to such registration statement and all activities in respect of the public offering have been discontinued due to market conditions.

Third Quarter Financial Performance Highlights

We continued to experience strong demand for our products during the third fiscal quarter of 2007 and growth in our sales revenue and net income. The automobile market in China, especially the market for small engine automobiles, continued to expand in the third quarter of 2007 due, in part, to the implementation of new PRC consumption tax regulations and the promulgation of new regulations which urge government agencies to use tax breaks and preferential oil-pricing policies to encourage consumers to buy low-emission automobiles. We were able to capitalize on this growth trend during the third fiscal quarter of 2007. Our third fiscal quarter financial results also benefited from an increase in exports of our products to foreign countries. Exports accounted for approximately 9.6% of our total sales revenue in the third quarter of 2007.

The following are some financial highlights for the third quarter of 2007:

Sales Revenue: Sales revenue increased $7.8 million, or 40.3%, to $27.3 million for the third quarter of 2007 from $19.5 million for the same period last year.

Gross Margin: Gross margin was 26.0% for the third quarter of 2007, as compared to 20.5% for the same period in 2006.

Net Income: Net income increased $1.3 million, or 55.2%, to $3.7 million for the third quarter of 2007, from $2.4 million for the same period of last year.

Fully diluted net income per share: Fully diluted net income per share was $0.15 for the third quarter of 2007, as compared to $0.10 for the same period last year.

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Results of Operations

The following table sets forth key components of our results of operations for the periods indicated, in dollars and as a percentage of sales revenue.

(All amounts, other than percentages, in thousands of dollars)

	Three months ended								Nine months ended
	September 30,								September 30,
	(unaudited)								(unaudited)
	2007				2006				2007				2006
Sales revenue	$	27,294	100.0	%	$	19,458	100.0	%	$	72,416	100.0	%	$	53,065	100.0	%
Cost of sales		20,184	74.0	%		15,473	79.5	%		54,335	75.0	%		42,767	80.6	%
Gross profit		7,110	26.0	%		3,985	20.5	%		18,081	25.0	%		10,298	19.4	%
Operating expenses
Administrative expenses		967	3.5	%		499	2.6	%		2,544	3.5	%		1,103	2.1	%
Research and development costs		255	0.9	%		146	0.7	%		733	1.0	%		345	0.7	%
Selling expenses		641	2.3	%		663	3.4	%		1,998	2.8	%		1,904	3.6	%
		1,863	6.8	%		1,307	6.7	%		5,274	7.3	%		3,352	6.3	%
Income from operations		5,246	19.2	%		2,678	13.8	%		12,807	17.7	%		6,945	13.1	%
Interest income		26	0.1	%		55	0.3	%		81	0.1	%		76	0.1	%
Other income		45	0.2	%		83	0.4	%		84	0.1	%		200	0.4	%
Government grants		-				-				786	1.1	%		-
Finance costs		798	2.9	%		253	1.3	%		1,811	2.5	%		707	1.3	%
Equity in net income of an
unconsolidated affiliate		-	0.0	%		140	0.7	%		34	0.0	%		140	0.3	%
Income before income taxes		4,519	16.6	%		2,703	13.9	%		11,982	16.5	%		6,655	12.5	%
Income taxes		584	2.1	%		335	1.7	%		1,017	1.4	%		797	1.5	%
Minority interests		260	1.0	%		-	0.0	%		747	1.0	%		-	0.0	%
Net income	$	3,675	13.5	%	$	2,368	12.2	%	$	10,219	14.1	%	$	5,858	11.0	%

Comparison of Three Months Ended September 30, 2007 and September 30, 2006

Sales Revenue. Our sales revenue is generated from sales of our alternator and starter products, and increasingly from the sale of rods and shafts for use in shock absorbers, alternators and starters. Sales revenue increased $7.8 million, or 40.3%, to $27.3 million for the three months ended September 30, 2007 from $19.5 million for the same period ended September 30, 2006. This increase was mainly attributable to the growth in the automobile market in China, the increased market demand for our products, increased sales to our new and existing clients and an increase in revenue from exports, in part, due to our acquisition of Jinzhou Wanyou as discussed below. Revenue from exports constituted approximately 9.6% of sales revenue for the three months ended September 30, 2007, as compared to 5.5% for the same period last year. After Jinzhou Wanyou became our wholly-owned subsidiary in April 2007, we consolidated the financial results of Jinzhou Wanyou in the third quarter of 2007. Since most of Jinzhou Wanyou’s products were exported, the addition of Jinzhou Wanyou, with sales revenue of $2.2 million in the third quarter of 2007, contributed significantly to our increase in sales revenue from exports. Our two new production lines started operation in the third quarter of 2007. We expect the addition of these two new production lines will contribute to the further increase of our sales revenue.

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Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, components, labor and overhead. Our cost of sales increased $4.7 million, or 30.4%, to $20.2 million for the three months ended September 30, 2007 from $15.5 million during the same period in 2006. This increase was mainly due to the increase of our sales revenue. As a percentage of sales revenue,the cost of sales decreased to 74.0% during the three months ended September 30, 2007 from 79.5% in the same period of 2006. We were able to benefit from economies of scale and reductions in our per unit costs of raw materials, components, labor and equipment because of the significant increase of sales volume in the third quarter of 2007. The decrease of our cost of sales on a percentage basis in the third quarter of 2007 also resulted from more efficient cost control management and improved technology which allowed us to reduce raw material and component consumption per unit of production. In addition, our subsidiary Jinzhou Dongwoo, one of our suppliers that has became our consolidated subsidiary since November 2006, had a gross profit of $777,404 in the third quarter of 2007 and its financial results have been consolidated with ours, thereby lowering our costs of sales by $777,404 in the third quarter of 2007.

Gross Profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit increased $3.1 million, or 78.4%, to $7.1 million for the three months ended September 30, 2007 from approximately $4.0 million for the same period in 2006. Gross profit as a percentage of sales revenue was 26.0% for the three months ended September 30, 2007, as compared to 20.5% during the same period in 2006. Such percentage increase was mainly due to the decreased cost of sales as discussed above. In addition, the increase of the sale price of some of our products and the higher margin of Jinzhou Wanyou’s products (approximately 28%) also contributed to the increase of our gross margin.

Total Expenses. Our total expenses increased $556,024, or 42.5%, to $1.9 million for the three months ended September 30, 2007 from $1.3 million for the same period in 2006. As a percentage of sales revenue, our total expenses increased to 6.8% for the three months ended September 30, 2007 from 6.7% for the same period in 2006. The dollar and percentage increases were primarily attributable to increased administrative and research and development expenses as discussed below.

Administrative Expenses. Our administrative expenses consist of the costs associated with staff and support personnel who manage our business activities and professional fees paid to third parties. Our administrative expenses increased $468,079, or 93.8%, to $967,086 for the three months ended September 30, 2007 from $499,007 for the same period in 2006. As a percentage of sales revenue, administrative expenses increased to 3.5% for the three months ended September 30, 2007, as compared to 2.6% for the same period in 2006. This percentage increase was primarily attributable tothe consolidation of Jinzhou Dongwoo’s and Jinzhou Wanyou’s financial results, the increased costs in connection with improving our internal controls and the addition of three independent directors on our board of directors in 2007. We believe this increase was generally in line with the increase in our sales revenue. We are now working to improve our internal control system to ensure compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”). As a result, we expect that our administrative expenses will continue to increase until we have fully implemented our new accounting system and our SOX 404 evaluation is completed.

Research and Development Costs. Our research and development costs, listed as a new line item under operating expenses starting from the first quarter of 2007, consist of amounts spent on developing new products and enhancing our existing products. Our research and development costs increased $109,516, or 75.2%, to $255,086 for the three months ended September 30, 2007 from $145,570 for the same period in 2006. As a percentage of sales revenue, research and development costs increased to 0.9% for the three months ended September 30, 2007 from 0.7% for the same period in 2006. Such increase was primarily attributable to the purchase of research and development equipment and hiring of new research and development personnel.

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Selling Expenses. Our selling expenses include sales commissions, the cost of advertising and promotional materials, salaries and fringe benefits of sales personnel, after-sale support services and other sales related costs. Our selling expenses decreased $21,571 to $641,205 for the three months ended September 30, 2007 from $662,776 for the same period in 2006. As a percentage of sales revenue, our selling expenses decreased to 2.3% for the three months ended September 30, 2007 from 3.4% for the same period in 2006. This percentage decrease was primarily attributable to the improvement in the quality of our products, which reduced after-sale services. In addition, our increased sales volume created economies of scale thereby reducing our per unit selling expenses.

Income before Income Taxes. Income before income taxes increased $1.8 million, or 67.2%, to $4.5 million during the three months ended September 30, 2007 from $2.7 million during the same period in 2006. Income before income taxes as a percentage of sales revenue increased to 16.6% during the three months ended September 30, 2007 from 13.9% during the same period in 2006 due to the factors described above.

Provision for Income Taxes.

United States. Wonder Auto Technology, Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as Wonder Auto Technology, Inc. had no income taxable in the United States for the third quarter of 2007.

BVI. Our subsidiaries, Wonder Auto Limited and Man Do Auto Technology Co., were incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.

PRC. Foreign invested enterprises (“FIEs”) established in the PRC are generally subject to an enterprise income tax (“EIT”) rate of 33.0%, which includes a 30.0% state income tax and a 3.0% local income tax. FIEs established in Coastal Open Economic Zones, Special Economic Zones or Economic and Technical Development Zones, such as our PRC subsidiaries, are subject to an EIT rate of 27.0%, which is comprised of a 24.0% state income tax and a 3.0% local income tax.

Under the income tax law and the related implementing rules, FIEs engaging in manufacturing businesses with a term of operation exceeding ten years may, subject to approval from local taxation authorities, be entitled to a two-year tax exemption from EIT starting from the year they become profitable and a 50% tax reduction for the three years thereafter.

Our subsidiaries Jinzhou Halla, Jinzhou Dongwoo and Jinzhou Wanyou are subject to EIT at a rate of 27.0% of assessable profits, consisting of a 24.0% national tax and a 3.0% local tax. As approved by the relevant PRC tax authority, Jinzhou Halla and Jinzhou Dongwoo were entitled to a two-year exemption from EIT followed by a 50.0% tax exemption for the next three years, commencing from the first cumulative profit-making year in the fiscal financial year. The tax holiday of Jinzhou Halla commenced in 2001, and Jinzhou Halla was subject to a tax rate of 13.5% for 2003, 2004 and 2005. Furthermore, Jinzhou Halla, as an FIE, is engaged in an advanced technology industry and has been approved to enjoy a further 50.0% tax exemption for 2006, 2007 and 2008. The tax holiday of Jinzhou Dongwoo commenced in 2004. Jinzhou Dongwoo was subject to a tax rate of 13.5% in the third quarter of 2007 and is expected to be subject to a tax rate of 13.5% for remaining period of 2007 and 2008. Finally, Jinzhou Wanyou, is entitled to a two-year EIT exemption for 2007 and 2008 and will receive a 50.0% EIT reduction for 2009, 2010 and 2011, assuming that Jinzhou Wanyou is profitable for each of these years.

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In addition, Jinzhou Halla, Jinzhou Dongwoo and Jinzhou Wanyou, being FIEs, were entitled to a special tax concession which allows an amount equal to 40.0% of the qualifying domestic capital expenditures (as defined and approved under the relevant PRC income tax rule) to be used as an offset against the excess of the current year’s EIT over the prior year’s EIT. Jinzhou Halla and Jinzhou Dongwoo also were entitled to another special tax concession, an amount equivalent to 50.0% of the current year’s domestic development expenses can be used as an offset against EIT. These two tax concessions, if unutilized in a particular year, can be carried forward for five years.

On March 16, 2007, the National People’s Congress of China passed the new EIT Law, which will take effect as of January 1, 2008. Under the new EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to EIT at the rate of 25.0% on its global income. The new EIT Law, however, does not define the term “de facto management bodies.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our global income will be subject to PRC income tax at a tax rate of 25.0%. In addition, under the new EIT Law, dividends from our PRC subsidiaries to us will be subject to a withholding tax. The rate of the withholding tax has not yet been finalized, pending promulgation of implementing regulations. Furthermore, the ultimate tax rate will be determined by treaty between China and the tax residence of the holder of the PRC subsidiaries. We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact. The new EIT Law imposes a unified income tax rate of 25.0% on all domestic-invested enterprises and FIEs, such as our PRC operating subsidiaries, unless they qualify under certain limited exceptions, but the EIT Law permits companies to continue to enjoy their existing preferential tax treatments until such treatments expire in accordance with their current terms. We expect details of the transitional arrangement for the five-year period from January 1, 2008 to December 31, 2012 applicable to enterprises approved for establishment prior to March 16, 2007 to be set out in more detailed implementing rules to be adopted in the future. Any increase in our effective tax rate as a result of the above may adversely affect our operating results. However, details regarding implementation of this new law are expected to be provided in the form of one or more implementing regulations to be promulgated by the PRC government, and the timing of the issuance of such implementing regulations is currently unclear.

Our provision for income taxes increased $248,772 to $583,779 during the three months ended September 30, 2007 from $335,007 during the same period in 2006.

Minority Interest. Our financial statements reflect an adjustment to our consolidated group net income equal to $260,427for the three months ended September 30, 2007, reflecting the minority interests held by third parties in Jinzhou Dongwoo. 

Net income. Our net income increased $1.3 million, or 55.2%, to $3.7 million during the three months ended September 30, 2007 from $2.4 million during the same period in 2006, as a result of the factors described above.

Comparison of Nine Months Ended September 30, 2007 and September 30, 2006

Sales Revenue. Sales revenue increased $19.4 million, or 36.5%, to $72.4 million for the nine months ended September 30, 2007 from $53.1 million for the same period ended on September 30, 2006. This increase was mainly attributable to the growth in the automobile market in China, increased market demand for our products, increased sales to our new and existing clients and an increase in revenue from exports, in part, due to our acquisition of Jinzhou Wanyou as discussed above. Sales revenue from exports constituted 8.8% of revenue for the nine months ended September 30, 2007, as compared to 3.6% for the same period last year.

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Cost of Sales. Our cost of sales increased $11.6 million, or 27.0%, to $54.3 million for the nine months ended September 30, 2007 from $42.8 million during the same period in 2006. This increase was mainly due to the increase of our sales revenue. As a percentage of sales revenue,the cost of goods sold decreased to 75.0% during the nine months ended September 30, 2007 from 80.6% in the same period of 2006. We were able to benefit from economies of scale and reductions in our per unit costs of raw materials, components, labor and equipment because of the significant increase of sales volume in the first nine months of 2007. The percentage decrease of our cost of sales in the first nine months of 2007 also resulted from more efficient cost control management and improved technology which allowed us to reduce raw material and component consumption per unit of production. In addition, the consolidation of the financial results of Jinzhou Dongwoo, one of our suppliers which has became our consolidated subsidiary since November 2006, also contributed to a reduction of our cost of sales during the nine months ended September 30, 2007.

Gross Profit. Our gross profit increased $7.8 million, or 75.6%, to $18.1 million for the nine months ended September 30, 2007 from $10.3 million for the same period in 2006. Gross profit as a percentage of sales revenue was 25.0% for the nine months ended September 30, 2007, as compared to 19.4% during the same period in 2006. Such percentage increase was mainly due to the decreased cost of sales as discussed above.

Total Expenses. Our total expenses increased $1.9 million, or 57.3%, to $5.3 million for the nine months ended September 30, 2007 from $3.4 million for the same period in 2006. As a percentage of sales revenue, our total expenses increased to 7.3% for the nine months ended September 30, 2007 from 6.3% for the same period in 2006. The dollar and percentage increases were primarily attributable to increased administrative and research and development expenses as discussed below.

Administrative Expenses. Our administrative expenses increased $1.4 million, or 130.6%, to $2.5 million, for the nine months ended September 30, 2007 from $1.1 million,for the same period in 2006. As a percentage of sales revenue, administrative expenses increased to 3.5% for the nine months ended September 30, 2007, as compared to 2.1% for the same period in 2006. This percentage increase was primarily attributable to the consolidation of Jinzhou Dongwoo’s and Jinzhou Wanyou’s financial results, the increased costs in connection with improving our internal controls and the addition of three independent directors on our board of directors in the nine months ended September 30, 2007.

Research and Development Costs. Our research and development costs increased $387,251, or 112.1%, to $732,706 for the nine months ended September 30, 2007 from $345,455 for the same period in 2006. As a percentage of sales revenue, research and development costs increased to 1.0% for the nine months ended September 30, 2007 from 0.7% for the same period in 2006. This percentage increase was primarily attributable to the purchase of research and development equipment and hiring of new research and development personnel.

Selling Expenses. Our selling expenses increased $94,257, or 4.9%, to $2.0 million for the nine months ended September 30, 2007 from $1.9 million for the same period in 2006. As a percentage of sales revenue, our selling expenses decreased to 2.8% for the nine months ended September 30, 2007 from 3.6% for the same period in 2006. This percentage decrease was primarily attributable to the improvement in the quality of our products, which reduced after-sale services. In addition, our increased sales volume created economies of scale thereby reducing our per unit selling expenses.

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Government Grants. Our subsidiary Jinzhou Halla received a one-time government grant income of $786,154 in the second quarter of 2007.

Income before Income Taxes. Income before income taxes increased $5.3 million, or 80.0%, to $12.0 million during the nine months ended September 30, 2007 from $6.7 million during the same period in 2006. Income before income taxes as a percentage of sales revenue increased to 16.5% during the nine months ended September 30, 2007 from 12.5% during the same period in 2006 due to the factors described above.

Provision for Income Taxes. Our provision for income taxes increased $219,309 to $1.0 million during the nine months ended September 30, 2007 from $797,194 during the same period in 2006. Our subsidiary Jinzhou Halla is entitled to a special tax concession for qualifying domestic capital expenditures. Jinzhou Halla received a tax refund of $426,325 in the second quarter of 2007 resulting from its purchase of qualifying domestic equipments.

Minority Interest. Our financial statements reflect an adjustment to our consolidated group net income equal to $746,504 for the nine months ended September 30, 2007, reflecting the minority interests held by third parties in Jinzhou Dongwoo. 

Net income. Our net income increased $4.4 million, or 74.5%, to $10.2 million during the nine months ended September 30, 2007 from $5.9 million during the same period in 2006, as a result of the factors described above.

Business Segment Information

Our business operations can be categorized into three segments based on the type of products which we manufacture and sell, specifically alternators, starters and rods and shafts for use in shock absorbers, alternators and starters.

In the third quarter of 2007, our sales revenue from our alternator product line was $15.3 million, our sales revenue from our starter product line was $9.7 million and our sales revenue from our rod and shaft product line was $2.2 million. Our starter product line has historically provided a higher profit margin than our alternator product line. Our subsidiary Jinzhou Halla manufactures and sells both our alternators and starters using largely the same facilities, personnel and other resources. Our rods and shafts are manufactured by our subsidiary Jinzhou Wanyou.

Additional information regarding our alternator, starter and rod and shaft product lines can be found in “ITEM 1. Financial Statements,” specifically in Note 13 thereto.

Liquidity and Capital Resources

As of September 30, 2007, we had cash and cash equivalents (including restrict cash) of $17.8 million. The following table sets forth a summary of our cash flows for the periods indicated:

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Statement of Cash Flow

	Nine Months Ended
	September 30,
	(in thousands)
	2007			2006
Net cash provided by (used in) operating activities	$	3,889		$	(1,776	)
Net cash (used in) investing activities		(17,532	)		(3,378	)
Net cash provided by financing activities		13,937			10,815
Effect of foreign currency translation on cash and cash equivalents		517			176
Net cash flow	$	811		$	5,838

Operating Activities:

Net cash provided by operating activities was $3.9 million for the nine months ended September 30, 2007, which is an increase of $5.7 million from the $1.8 million net cash used in operating activities for the same period in 2006. The increase was mainly due to the $4.4 million increase in net income, the $4.1 million decrease of inventories and the $5.2 million increase in trade payables, bill payables and other payables and accrued expenses which more than offset the $8.9 increase in trade receivables and bill receivables.

Investing Activities:

Net cash used in investing activities in the nine months ended September 30, 2007 was $17.5 million, which is an increase of $14.2 million from net cash used in investing activities of $3.4 million in the same period of 2006. Such increase of net cash used in investing activities was mainly attributable to the $3.1 million increase in restricted cash, $4.3 million increase in payments to acquire and for deposit for acquisition of property, plant and equipment and the $6.7 million increase in payments to acquire Jinzhou Dongwoo and Jinzhou Wanyou. Since the completion of our private placement in June 2006, we have accelerated our investment activity to expand our operational capabilities.。

Financing Activities:

Net cash provided by financing activities in the nine months ended September 30, 2007 totaled $13.9 million as compared to $10.8 million provided by financing activities in the same period of 2006. Although we received $10.1 million net proceeds from the private placement in the nine months ended September 30, 2006, our net proceeds from bank loan increased $12.3 million in the same period of 2007. In addition, the dividend payment in the first nine months of 2007 is $1.0 million less than that in the same period of 2006.

Our debt-to-equity ratio (bank loans to total shareholder’s equity ratio) was 60.7% as of September 30, 2007. We plan to maintain our debt-to-equity ratio below 70%, increase the long-term loans, decrease the short-term loans and increase the ratio of the borrowing in foreign currency to take advantage of the expected increase of the value of RMB against the U.S. dollar. We believe we currently maintain a good business relationship with many banks.

As of September 30, 2007, the amount, maturity date and term of each of our bank loans are as follows.

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In millions of U.S. dollars

Banks	Amounts		Maturity Date	Duration
DEG - Deutsche Investations - and Entwicklun-Gesellschaft MBH	$	11.8	October 15, 2013	7 years
China Construction Bank	$	2.7	October 16, 2007	1 year
China Construction Bank	$	5.3	April 11, 2009	2 year
China Construction Bank	$	2.7	August 2, 2008	1 year
China Construction Bank	$	0.9	February 28, 2008	6 months
Bank of China	$	4.0	March 28, 2008	6 months
Bank of China	$	0.5	October 5, 2007	6 months
Jinzhou Commercial Bank	$	2.5	March 28, 2008	6 months
Total	$	30.4

On September 27, 2007, Jinzhou entered into a credit facility agreement with the Bank of China Jinzhou Tiebei branch (the “Bank”) pursuant to which the Bank has agreed to provide Jinzhou Halla a RMB 80 million (approximately US$10.67 million) revolving credit facility. The agreement permits Jinzhou Halla to request loans under the line of credit facility until September 24, 2008. A separate agreement will be entered into each time advances are made pursuant to the Credit Facility Agreement. As of the date of this report, Jinzhou Halla has borrowed RMB 30 million (approximately $4 million) from the Bank pursuant to the Agreement.

In October 2007, we repaid to China Construction Bank approximately $2.7 million in connection with a loan that matured on October 16, 2007. In addition, we repaid Bank of China approximately $0.5 million in connection with the loan that matured on October 5, 2007. We have no bank loan due before December 31, 2007.

Part of the interest to our China Construction Bank loan is subject to a government subsidy program under which certain payments of interest to the bank will be returned to our Company. In order to encourage and support local companies to continuously develop technology, the local government of Liaoning province established a special fund focused on helping high-growth companies reduce expenses. Our subsidiary Jinzhou Halla has been recognized by Liaoning local government for its technology development and is chosen as one of the seven companies to receive such government subsidy. As of the date of this report, China Construction Bank has returned approximately $560,000 (RMB 4.2 million) interest to Jinzhou Halla.

We believe that we maintain good relationships with the various banks we deal with and our current available working capital, after receiving the aggregate proceeds from our planned capital raising activities and bank loans referenced above, should be adequate to sustain our operations at our current levels through at least the next twelve months.

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management.  Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions.  There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Recently issued accounting pronouncements:

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year. The adoption of FIN 48 has no material effect on our financial statements.

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In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement shall be effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The provisions of this statement should be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except in some circumstances where the statement shall be applied retrospectively. We are currently evaluating the effect, if any, of SFAS 157 on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 are effective for our fiscal year beginning January 1, 2008. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS 159 will have on our financial statements upon adoption.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introduction.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk due primarily to our short-term bank loans. Although the interest rates are fixed for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal. Since September, 2007, the People’s Bank of China has increased the interest rate of Renminbi bank loans with a term of six months or less by 0.2% and loans with a term of six to 12 months by 0.3%. The new interest rates are approximately 6.5% and 7.3% for Renminbi bank loans with a term six months or less and loans with a term of six to 12 months, respectively. The change in interest rates has no impact on our bank loans secured before July 28, 2007. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities at September 30, 2007 would decrease net income before provision for income taxes by approximately $0.3 million for the three months ended September 30, 2007. We monitor interest rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

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Foreign Exchange Risk

The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has no longer been pegged to the U.S. Dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.

Because substantially all of our earnings and cash assets are denominated in Renminbi, but our reporting currency is the U.S. dollar, fluctuations in the exchange rate between the U.S. dollar and the Renminbi will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currencies.

Inflation

Inflationary factors, such as increases in the cost of our products and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.

ITEMS 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules, regulations and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Qingjie Zhao, our President and Chief Executive Officer, and Meirong Yuan, our Chief Financial Officer, has evaluated the design and operating effectiveness of our disclosure controls and procedures as of September 30, 2007. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of September 30, 2007.

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Changes in Internal Control Over Financial Reporting. There has been no change to our internal control over financial reporting during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

Risk factors relating to us are contained in Item 1A of Part II of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. No material change to such risk factors has occurred during the three months ended September 30, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 During the three-month period ended September 30, 2007, we made no unregistered sales of our equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5. OTHER INFORMATION

On September 30, 2007, our indirect, wholly owned subsidiary Man Do Auto Technology Co., Ltd. (“Man Do”) transferred all its ownership of Jinzhou Halla to our wholly owned subsidiary Wonder Auto Limited. Thereafter, Wonder Auto Limited transferred the 100% ownership of Man Do to Mr. Xiangdong Gao for $500. Man Do has no assets other than its 39% ownership in Jinzhou Halla. As a result of the above transactions, Man Do is no longer our subsidiary. The above transactions were made for the sole purpose of simplifying our organizational structure.

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Part of the interest to our China Construction Bank loan is subject to a government subsidy program under which certain payments of interest to the bank will be returned to our Company. In order to encourage and support local companies to continuously develop technology, the local government of Liaoning province established a special fund focused on helping high-growth companies reduce expenses. Our subsidiary Jinzhou Halla has been recognized by Liaoning local government for its technology development and is chosen as one of the seven companies to receive such government subsidy. As of the date of this report, China Construction Bank has returned approximately $560,000 (RMB 4.2 million) interest to Jinzhou Halla.

 ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	English summary of Credit Facility Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
10.2	English summary of Short-Term Loan Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
10.3	English summary of Maximum Amount Mortgage Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 hereunto duly authorized.

DATED: November 1, 2007

WONDER AUTO TECHNOLOGY, INC.

By: /s/ Meirong Yuan

Meirong Yuan

Chief Financial Officer

(On behalf of the Registrant and as

Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description
10.1	English summary of Credit Facility Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
10.2	English summary of Short-Term Loan Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
10.3	English summary of Maximum Amount Mortgage Agreement, Dated September 27, 2007, by and between Jinzhou Halla Electrical Equipment Co., Ltd and Bank of China, Jinzhou Tiebei Branch
31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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