10-Q

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, 2009

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: 001-33648

WONDER AUTO TECHNOLOGY, INC.

 (Exact Name of Registrant as Specified in Its Charter)

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

No. 16 Yulu Street

Taihe District, Jinzhou City, Liaoning

People’s Republic of China, 121013

(Address of principal executive offices, Zip Code)

(86) 416-518-6632

(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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨   No ¨

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

Large accelerated filer¨Accelerated filerxNon-accelerated filer¨(Do not check if a smaller reporting company) Smaller reporting company¨

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 November 2, 2009 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.0001 par value	26,959,994

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
	PART II
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Submission of Matters to a Vote of Securities Holders	57
Item 5.	Other Information	58
Item 6.	Exhibits	58

i

PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

Wonder Auto Technology, Inc.

Condensed Consolidated Financial Statements

For the three and nine months ended

September 30, 2009 and 2008

(Stated in US dollars)

- 1 - -

Wonder Auto Technology, Inc.

Condensed Consolidated Financial Statements

Three and nine months ended September 30, 2009 and 2008

Index to Condensed Consolidated Financial Statements

	Pages
Condensed Consolidated Statements of Income and Comprehensive Income	3
Condensed Consolidated Balance Sheets	4 - 5
Condensed Consolidated Statements of Cash Flows	6 - 7
Notes to Condensed Consolidated Financial Statements	8 - 26

- 2 - -

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

For the three and nine months ended September 30, 2009 and 2008

	Three months ended						Nine months ended
	September 30,						September 30,
	(Unaudited)						(Unaudited)
	2009			2008			2009			2008
Sales revenue	$	58,961,604		$	39,265,821		$	148,588,838		$	107,041,424
Cost of sales		45,007,159			29,139,968			112,320,802			79,238,857
Gross profit		13,954,445			10,125,853			36,268,036			27,802,567
Operating expenses
Administrative expenses		2,594,285			1,676,857			7,662,331			4,444,210
Research and development expenses		487,572			459,804			1,408,479			1,128,026
Selling expenses		2,080,438			1,209,170			4,811,601			2,912,020
		5,162,295			3,345,831			13,882,411			8,484,256
Income from operations		8,792,150			6,780,022			22,385,625			19,318,311
Other income		149,146			107,023			827,043			520,349
Government grants		397,277			-			749,815			-
Net finance (costs)/income - Note 3		(1,481,640	)		139,381			(3,511,726	)		(1,380,951	)
Equity in net income of an unconsolidated affiliate		-			567,802			-			792,924
Income before income taxes and noncontrolling interests		7,856,933			7,594,228			20,450,757			19,250,633
Income taxes - Note 4		(939,622	)		(632,570	)		(2,492,651	)		(1,859,813	)
Net income before noncontrolling interests		6,917,311			6,961,658			17,958,106			17,390,820
Net income attributable to noncontrolling interests		(410,290	)		(608,120	)		(903,823	)		(1,785,599	)
Net income attributable to Wonder Auto Technology, Inc. common stockholders	$	6,507,021		$	6,353,538		$	17,054,283		$	15,605,221
Net income before noncontrolling interests	$	6,917,311		$	6,961,658		$	17,958,106		$	17,390,820
Other comprehensive income Foreign currency translation adjustments		167,348			185,858			112,056			4,448,672
Comprehensive income		7,084,659			7,147,516			18,070,162			21,839,492
Comprehensive income attributable to noncontrolling interests		(421,159	)		(623,982	)		(904,590	)		(2,372,767	)
Comprehensive income attributable to Wonder Auto Technology, Inc. common stockholders	$	6,663,500		$	6,523,534		$	17,165,572		$	19,466,725
Earnings per share attributable to Wonder Auto Technology, Inc. common stockholders: basic and diluted	$	0.24		$	0.24		$	0.63		$	0.58
Weighted average number of sharesoutstanding: basic and diluted		26,959,994			26,959,994			26,959,994			26,959,994

See the accompanying notes to condensed consolidated financial statements

- 3 - -

Wonder Auto Technology, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2009 and December 31, 2008

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	21,419,751	$	8,159,156
Restricted cash		21,283,623		24,181,645
Trade receivables, net		50,640,997		46,571,619
Bills receivable		21,351,329		8,388,926
Other receivables, prepayments and deposits		9,225,466		16,408,304
Inventories - Note 5		46,916,547		44,016,192
Amount due from Hony Capital		-		7,637,216
Income tax recoverable		-		289,000
Deferred taxes		1,204,625		1,075,766
Total current assets		172,042,338		156,727,824
Intangible assets - Note 6		22,097,408		22,062,560
Property, plant and equipment, net - Note 7		71,883,262		69,131,579
Land use rights		10,206,638		10,391,527
Deposit for acquisition of property, plant and equipment		2,554,387		3,845,774
Deferred taxes		628,382		870,500
TOTAL ASSETS	$	279,412,415	$	263,029,764

See the accompanying notes to condensed consolidated financial statements

- 4 - -

`

Wonder Auto Technology, Inc.

Condensed Consolidated Balance Sheets (Cont’d)

As of September 30, 2009 and December 31, 2008

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Audited)
LIABILITIES AND EQUITY
LIABILITIES
Current liabilities
Trade payables	$	30,633,985	$	21,616,932
Bills payable		31,161,376		31,247,100
Other payables and accrued expenses		13,540,880		20,465,014
Provision for warranty - Note 8		2,581,872		2,377,620
Payable to Hony Capital		-		10,187,216
Income tax payable		602,290		-
Secured borrowings - Note 9		54,010,768		44,055,803
Early retirement benefits cost		371,247		419,301
Total current liabilities		132,902,418		130,368,986
Secured borrowings - Note 9		18,577,971		16,054,478
Deferred revenue - government grants		3,382,726		2,806,777
Early retirement benefits cost		519,895		798,115
TOTAL LIABILITIES		155,383,010		150,028,356
COMMITMENTS AND CONTINGENCIES - Note 10
STOCKHOLDERS’ EQUITY
Preferred stock: par value $0.0001 per share; authorized 10,000,000 shares in 2009 and 2008; none issued and outstanding		-		-
Common stock: par value $0.0001 per share Authorized 90,000,000 shares in 2009 and 2008; issued and outstanding 26,959,994 shares in 2009 and 2008		2,696		2,696
Additional paid-in capital - Note 2		67,711,999		71,349,599
Statutory and other reserves		7,944,120		7,628,541
Accumulated other comprehensive income		9,609,908		8,424,270
Retained earnings		31,708,870		14,654,587
TOTAL WONDER AUTO TECHNOLOGY, INC. STOCKHOLDERS’ EQUITY		116,977,593		102,059,693
NONCONTROLLING INTERESTS		7,051,812		10,941,715
TOTAL EQUITY		124,029,405		113,001,408
TOTAL LIABILITIES AND EQUITY		279,412,415	$	263,029,764

See the accompanying notes to condensed consolidated financial statements

- 5 - -

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2009 and 2008

	Nine months ended
	September 30,
	(Unaudited)
	2009			2008
Cash flows from operating activities
Net income attributable to Wonder Auto Technology, Inc. common stockholders	$	17,054,283		$	15,605,221
Adjustments to reconcile net income attributable to Wonder Auto Technology, Inc. common stockholders to net cash provided by operating activities:
Depreciation		4,239,790			2,248,751
Amortization of intangible assets and land use rights		297,888			85,162
Deferred taxes		111,617			(208,858	)
Loss (gain) on disposal of property, plant and equipment		59,490			(1,205	)
Provision for doubtful debts		303,738			(4,020	)
Provision of obsolete inventories		26,149			43,671
Exchange loss (gain) on translation of monetary assets and liabilities		387,701			(828,205	)
Equity net income of a non-consolidated affiliate		-			(792,924	)
Share-based payment compensation		-			109,772
Noncontrolling interests		903,823			1,785,599
Deferred revenue amortized		(193,408	)		-
Changes in operating assets and liabilities :
Trade receivables		(4,366,425	)		(15,303,061	)
Bills receivable		(11,649,801	)		6,302,977
Other receivables, prepayments and deposits		1,694,880			(1,860,072	)
Inventories		(2,926,673	)		(6,365,418	)
Trade payables		9,010,565			3,254,639
Other payables and accrued expenses		(4,604,814	)		(1,584,738	)
Amount due from a related company		-			78,516
Early retirement benefit costs		(325,977	)		-
Provision for warranty		203,981			542,873
Income tax payable		886,176			(9,835	)
Net cash flows provided by operating activities	$	11,112,983		$	3,098,845

See the accompanying notes to condensed consolidated financial statements

- 6 - -

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Cash Flows (Cont’d)

For the nine months ended September 30, 2009 and 2008

	Nine months ended September 30,
	(Unaudited)
	2009			2008
Cash flows from investing activities
Payments to acquire intangible assets	$	(146,600	)	$	(7,080	)
Payments to acquire and for deposit for acquisition of property, plant and equipment and land use right		(6,463,215	)		(11,776,593	)
Proceeds from sales of property, plant and equipment		29,125			100,988
Proceeds from sales of Money Victory Limited		5,950,000			-
Net cash paid to acquire Jinzhou Hanhua Electrical Systems Co., Ltd.		-			(3,042,676	)
Net cash paid to acquire Money Victory Limited		-			(5,000,000	)
Net cash paid to acquire Jinzhou Karham Co., Ltd.		-			(703,712	)
Net cash paid to acquire Fuxin Huirui Mechanical Co., Ltd.		-			(140,990	)
Net cash paid to acquire Yearcity		(9,936,057	)		-
Net cash paid to acquire Jinzhou Wanyou Mechanical Parts Co., Ltd.		(1,705,437	)		-
Net cash flows used in investing activities		(12,272,184	)		(20,570,063	)
Cash flows from financing activities
Dividend paid to Winning		-			(384,500	)
Government grants received		769,006			-
Decrease in bills payable		(1,381,350	)		(4,819,593	)
Decrease in restricted cash		2,888,474			4,011,467
Proceeds from secured borrowings		64,274,001			15,631,122
Repayment of secured borrowings		(52,193,550	)		(9,196,570	)
Net cash flows provided by financing activities		14,356,581			5,241,926
Effect of foreign currency translation on cash and cash equivalents		63,215			980,483
Net increase (decrease) in cash and cash equivalents		13,260,595			(11,248,809	)
Cash and cash equivalents - beginning of period		8,159,156			26,102,993
Cash and cash equivalents - end of period	$	21,419,751		$	14,854,184
Supplemental disclosures for cash flow information:
Cash paid for:
Interest	$	3,382,425		$	1,346,694
Income taxes	$	1,489,450		$	1,656,577
Non-cash investing and financing activities:
Settlement of amount due to Hony Capital II, L.P.
(“Hony Capital”) by offsetting with amount due from Hony Capital	$	7,626,804		$	-

See the accompanying notes to condensed consolidated financial statements

- 7 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies

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 Global Market in the United States.

The Company is principally engaged in the design, development, manufacture and marketing of automotive electrical parts, specifically starters and alternators and manufacturing of engine valves and tappets for motor vehicles mainly in the People’s Republic of China (the “PRC”). The major target markets of the Company’s products are the PRC, South Korea and Brazil.

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.

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.

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 accounting principles generally accepted in the United States of America 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 our audited consolidated financial statements for the year ended December 31, 2008, included in our Annual Report on Form 10-K for the year ended December 31, 2008.

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-months and nine-months 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.

- 8 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies (Cont’d)

Basis of presentation (Cont’d)

In accordance with FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, the noncontrolling interest is presented within total equity. Certain 2008 amounts in the consolidated financial statements have been reclassified to conform to the 2009 presentation. These reclassifications have no effect on net income or stockholders’ equity as previously reported.

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.

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, 2009, 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.

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)
	2009		2008		2009		2008
Beijing Hyundai Motor Company	$	9,313,686	$	4,322,161	$	23,416,316	$	16,693,305
Harbin Dongan Auto Engine Co., Ltd.		6,252,524		5,126,701		15,863,696		13,630,673
	$	15,566,210	$	9,448,862	$	39,280,012	$	30,323,978

- 9 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies (Cont’d)

Fair value of financial instruments

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157 (“SFAS”) on January 1, 2008. The adoption of SFAS 157 did not materially impact the Company’s financial position, results of operations or cash flows.

SFAS No. 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”) requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the SFAS No. 159 fair value option was not elected. Except for secured borrowings disclosed as below, the carrying amounts of other financial assets and liabilities approximate to their fair value due to short maturities:

	As of September 30, 2009				As of December 31, 2008
	(Unaudited)				(Audited)
	Carrying amount		Fair value		Carrying amount		Fair value
Secured borrowings	$	72,588,739	$	72,889,049	$	60,110,281	$	61,196,042

The fair values of secured borrowings and government loan are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Recently issued accounting pronouncements

Noncontrolling Interests (Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted SFAS 160 on January 1, 2009. As a result, we have reclassified financial statement line items within our Condensed Consolidated Balance Sheets and Statements of Income and Comprehensive Income for the prior period to conform to this standard.

Business Combinations(Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R)). This ASC guidance revised SFAS No. 141, “Business Combinations” and addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. The adoption of this standard has no material impact on the Company’s financial statements.

- 10 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies (Cont’d)

Recently issued accounting pronouncements (Cont’d)

Intangibles-Goodwill and Other (Included in ASC 350”, previously FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of this standard has no material effect on the Company's financial statements.

Business Combinations (Included in ASC 805, previously FSP No. 141R-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”). FSP 141R-1 amends the provisions in FASB Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in Statement 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in evaluating the impact of SFAS 141(R). The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Fair Value Measurements and Disclosures (Included in ASC 820, previously FSP No. 157-4, “Determining Whether a Market is Not Active and a Transaction Is Not Distressed”.) FSP No. 157-4 clarifies when markets are illiquid or that market pricing may not actually reflect the “real” value of an asset. If a market is determined to be inactive and market price is reflective of a distressed price then an alternative method of pricing can be used, such as a present value technique to estimate fair value. FSP No. 157-4 identifies factors to be considered when determining whether or not a market is inactive. FSP No. 157-4 would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. The adoption of this standard has no material effect on the Company's financial statements.

Investments - Debt and Equity Securities - Overall - Transition and Open Effective Date Information (Included in ASC 320-10-65, previously FASB Staff Position No. 115-2 and Statement of Financial Accounting Standards No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”). ASC 320-10-65 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and securities with unrealized losses. The adoption of this statement has no material impact on the Company’s financial statements.

- 11 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies (Cont’d)

Recently issued accounting pronouncements (Cont’d)

Interim Disclosures about Fair Value of Financial Instruments (Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1). This guidance requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This guidance also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP 107-1 has no material impact on the Company’s financial statements.

Subsequent Events (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165). SFAS No.165, “Subsequent Events” establishes accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the balance sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. We adopted this statement effective June 1, 2009 and have evaluated all subsequent events through the filing date with the SEC.

Accounting for Transfers of Financial Assets (To be included in ASC 860 “Transfers and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an Amendment of FASB Statement No. 140.”).SFAS 166 addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Also, SFAS 166 removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. SFAS 166 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Consolidation of Variable Interest Entities – Amended (To be included in ASC 810 “Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). SFAS 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” to require an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. SFAS 167 also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

- 12 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Corporate information and summary of significant accounting policies

Recently issued accounting pronouncements (Cont’d)

FASB Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1). In June 2009, the Financial Accounting Standard Board (“FASB”) approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of our financial statements or disclosures as a result of implementing the Codification.

As a result of our implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, we will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update 2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. ASC Update 2009-05 will become effective for the Company’s annual financial statements for the year ended December 31, 2009. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

- 13 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2. Acquisition

On January 4, 2009, Jinzhou Halla Electrical Equipment Co., Ltd. (“Jinzhou Halla”) entered into an equity transfer agreement (the “Equity Transfer Agreement”) with Magic Era Group Limited (“Magic Era”), a British Virgin Islands corporation, pursuant to which Jinzhou Halla agreed to acquire the 35% remaining equity interest in Yearcity Limited (“Yearcity”) at a consideration RMB48 million (equivalent to $7.04 million) (“Yearcity Consideration”), which was settled on July 3, 2009. Yearcity does not have any assets except its 100% equity ownership of Jinan Worldwide Auto Accessories Co., Ltd. (“Jinan Worldwide”). Upon the completion of acquisition, Yearcity became the wholly owned subsidiary of the Company. Jinan Worldwide is a company established in PRC and engaged in the manufacturing of engine valves and tappets. The Company is the second largest market manufacturer of alternators and starters with its customers mainly engaged in gasoline engine and vehicle market in the PRC. Jinan Worldwide is the largest market manufacturer of engine valves and tappets in PRC with its customers mainly diesel engine and vehicle business. The acquisition can provide the Company an opportunity to expand its market from gasoline engine parts market to diesel engine parts market in the PRC.

During 2008, the Company disposed of an unconsolidated affiliate, Money Victory Limited (“Money Victory”), to Golden Stone Capital Limited (“Golden Stone”) at a cash consideration of $5.95 million (“Money Victory Consideration”) which was still outstanding and included in other receivables as of December 31, 2008.  On January 4, 2009, Wonder Auto Limited, Jinzhou Hall, Magic Era and Golden Stone entered into a debt transfer agreement agreed that a partial Yearcity Consideration amounted to $5.95 million was settled by offsetting with Money Victory Consideration. During the third quarter of 2009, the Company was notified by the PRC authority that this offsetting arrangement was not approved, and paid cash to settle the $5.95 million to Magic Era in July 10, 2009 and received the same amount from Golden Stone on July 13, 2009.

In accordance with SFAS No.160, the acquisition of noncontrolling interest in Yearcity was accounted for as equity transaction. The carrying amount of the noncontrolling interest in Yearcity was adjusted to reflect the change in the Company’s equity interest in Yearcity. The difference between the fair value of the consideration paid or payable and the amount by which the noncontrolling interest of Yearcity adjusted was recognized in equity attributable to the Company.

- 14 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2. Acquisition (Cont’d)

The schedule below illustrates the effects of changes in the Company’s equity interest in Yearcity on the Company’s equity:

	Nine months ended
	September 30,
	(Unaudited)
	2009			2008
Net income attributable to Wonder Auto Technology, Inc. common stockholders	$	17,054,283		$	15,605,221
Transfers to noncontrolling interest
Decrease in the Company’s additional paid-in capital for purchase of 35% equity interest of Yearcity (Note a)		(3,637,600	)		-
Change from net income attributable to Wonder Auto Technology, Inc. common stockholders and transfers to noncontrolling interest	$	13,416,683		$	15,605,221

Note:-

a)	Total cash consideration paid for the acquisition of 35% equity interest in Yearcity	$	7,042,165
	35% noncontrolling interest in Yearcity		(4,794,493	)
	35% noncontrolling interest in accumulated other comprehensive income		1,074,349
	35% noncontrolling interest in statutory and other reserves		315,579
		$	3,637,600

- 15 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

3. Net finance (costs)/incom1e

	Three months ended						Nine months ended
	September 30,						September 30,
	(Unaudited)						(Unaudited)
	2009			2008			2009			2008
Interest income	$	(178,901	)	$	(62,547	)	$	(669,569	)	$	(229,700	)
Interest expenses		1,052,799			668,202			3,260,773			1,777,908
Bills discounting charges		39,951			58,599			358,779			211,050
Bank charges		135,080			49,426			316,170			123,788
Net exchange loss (gain)		413,808			(853,061	)		183,292			(502,095	)
Finance charges from early retirement benefits cost		18,903			-			62,281			-
	$	1,481,640		$	(139,381	)	$	3,511,726		$	1,380,951

4. Income taxes

United States

Wonder Auto Technology, Inc. is subject to the United States of America Tax law at tax rate of 34%.  No provision for the US federal income taxes has been made as the Company had no taxable income in this jurisdiction for the reporting period.

BVI

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

- 16 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

4. Income taxes (Cont’d)

PRC

Corporate income tax (“CIT”) to Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou Hanhua, Jinzhou Karham, Fuxin Huirui and Jinan Worldwide in the PRC was charged at 27%, of which 24% is for national tax and 3% is for local tax, of the assessable profits before 2008.  The PRC’s legislative body, the National People’s Congress, adopted the unified CIT Law on March 16, 2007.  This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008.  Under the new tax law, a unified income tax rates is set at 25% for both domestic enterprises and foreign-invested enterprises.  However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities.  Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new tax rate over a five year period beginning on the effective date of the CIT Law.  Enterprises that are currently entitled to exemptions for a fixed term will continue to enjoy such treatment until the exemption term expires.  Preferential tax treatment will continue to be granted to industries and projects that qualify for such preferential treatments under the new tax law.  As approved by the relevant tax authority in the PRC, Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou Hanhua, Jinzhou Karham, Fuxin Huirui and Jinan Worldwide 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 reduction has been further extended for 2009 and 2010. 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 2007, and the Company expects it will be subject to a tax rate of 12.5% for 2008 and 25% for 2009.  Jinzhou Wanyou has elected to commence the tax holiday in the fiscal year 2007.  Accordingly, Jinzhou Wanyou will be exempted from CIT for 2007 and 2008 and thereafter entitled to a 50% reduction on CIT tax rate to 12.5% for 2009, 2010 and 2011.  The tax holiday of Jinzhou Hanhua commenced in the fiscal year 2005.  Accordingly, Jinzhou Hanhua was subject to tax rate of 13.5% for 2007, and we expect it will be subject to a tax rate of 12.5% for 2008 and 2009.  Jinzhou Karham has elected to commence the tax holiday in the fiscal year 2008.  Accordingly, Jinzhou Karham will be exempted from CIT for 2008 and 2009 and thereafter entitled to a 50% reduction on CIT tax rate 12.5% for 2010, 2011 and 2012.  The tax holiday of Fuxin Huirui commenced in the fiscal year 2008.  Accordingly, Fuxin Huirui will be exempted from CIT for 2008 and 2009 and thereafter entitled to a 50% reduction on CIT tax rate 12.5% for 2010, 2011 and 2012.  The tax holiday of Jinan Worldwide commenced in the fiscal year of 2006.  Accordingly, Jinan Worldwide was subject to tax rate of 12.5% for 2008, 2009 and 2010.  Wonder Motor Co., Ltd (“Wonder Motor”) and Jinzhou Wonder is subject to a rate of 25%.

- 17 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5. Inventories

	September30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Raw materials	$	8,082,536		$	9,783,335
Work-in-progress		3,662,811			3,708,490
Finished goods		35,479,684			30,807,295
		47,225,031			44,299,120
Provision for obsolete inventories		(308,484	)		(282,928	)
Net	$	46,916,547		$	44,016,192

6. Intangible assets

	September30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Costs:
Goodwill	$	18,904,782		$	18,904,782
Customer contracts		49,053			49,053
Know-how with infinite useful life		1,830,345			1,683,645
Know-how with finite useful life		1,467,000			1,467,000
Trademarks and patents		26,145			26,144
		22,277,325			22,130,624
Accumulated amortization		(179,917	)		(68,064	)
Net	$	22,097,408		$	22,062,560

7. Property, plant and equipment

	September30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Costs:
Buildings	$	33,554,414		$	31,276,571
Plant and machinery		43,715,520			40,140,804
Furniture, fixtures and equipment		1,327,889			1,207,159
Tools and equipment		5,452,696			4,879,920
Leasehold improvements		787,960			602,785
Motor vehicles		1,926,721			1,972,149
		86,765,200			80,079,388
Accumulated depreciation		(18,695,501	)		(14,835,046	)
Construction in progress		3,813,563			3,887,237
Net	$	71,883,262		$	69,131,579

- 18 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(i) Pledged property, plant and equipment

As of September 30, 2009, certain property, plant and equipment with aggregate net book value of $23,614,908 was pledged to bank to secure general banking facilities (note 9(a)).

(ii) Construction in Progress

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

8. Provision for warranty

	(Unaudited)
Balance as of January 1, 2009	$	2,377,620
Claims paid for the period		(1,041,275	)
Additional provision for the period		1,245,257
Translation adjustments		270
Balance as of September 30, 2009	$	2,581,872

9. Secured borrowings

	September30,			December 31,
	2009			2008
	(Unaudited)			(Audited)
Short-term borrowings
Short-term loans - Note 9(i)	$	50,024,701		$	42,481,386
Long-term loans - current portion		3,986,067			1,574,417
		54,010,768			44,055,803
Long-term borrowings - Note 9(ii)
Interest bearing:-
- at 5.35% per annum		1,026,900			-
- at 5.76% per annum		9,388,800			-
- at 6.95% per annum		12,148,338			11,760,895
- at 7.56% per annum		-			5,868,000
		22,564,038			17,628,895
Less: current maturities		(3,986,067	)		(1,574,417	)
		18,577,971			16,054,478
	$	72,588,739		$	60,110,281

- 19 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

9.  Secured borrowings (Cont’d)

Notes :-

(i) The weighted-average interest rate for short-term loans as of September 30, 2009 and December 31, 2008, were 5.63% and 6.75%, respectively.

(ii) Long-term borrowings are repayable as follows:-

	September30,		December 31,
	2009		2008
	(Unaudited)		(Audited)
Within one year	$	3,986,067	$	1,574,417
After one year but within two years		5,416,392		9,016,834
After two years but within three years		5,416,392		3,148,834
After three years but within four years		4,554,463		3,148,834
After four years but within five years		2,163,824		739,976
After five years		1,026,900		-
	$	22,564,038	$	17,628,895

As of September 30, 2009, the Company’s had total bank lines of credit and borrowings there under as follows:

Facilities granted	Granted		Amount utilized		Unused
Secured borrowings	$	94,775,535	$	72,588,739	$	22,186,796

The above secured borrowings were secured by the following:

(a) Property, plant and equipment with carrying value of $23,614,908 (note 7);

(b) Land use right with carrying value of $4,894,199;

(c) Guarantees executed by third parties;

(d) Guarantees executed by a third party of which Jinan Worldwide executed a counter guarantee to that third party’s guarantee;

(e) Guarantees executed by Yuncong Ma, the Company’s director; and

(f) Guarantees executed by a related company of which Mr. Qingjie Zhao (“Mr. Zhao”), a director of the Company, is a director and a shareholder.

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

- 20 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

10. Commitments and contingencies

(a) Capital commitment

As of September 30, 2009, the Company had capital commitments in respect of the acquisition of property, plant and equipment and acquisition of a subsidiary as described in note 14(i) amounting to $1,311,885 and $12 million respectively, which were contracted for but not provided in the financial statements.

(b) Operating lease arrangement

As of September 30, 2009, the Company had non-cancelable operating leases for its warehouses and shuttle bus.  The leases will expire in December 2009 and the expected payment is $95,055.

The rental expense relating to the operating leases was $499,784 and Nil for the nine months ended September 30, 2009 and 2008 respectively.

11. Defined contribution plan

Pursuant to the relevant PRC regulations, the Company is required to make contributions at a rate of 30.6% to 45% of employees’ salaries and wages to a defined contribution retirement scheme organized by a state-sponsored social insurance plan in respect of the retirement benefits for the Company’s employees in the PRC.  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 income.  The Company contributed $2,266,795 and $771,961 for the nine months ended September 30, 2009 and 2008 respectively.

- 21 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12. Segment information

The Company uses the “management approach” in determining reportable operating segments.  The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments.  Management, including the chief operating decision maker, reviews operating results solely by monthly revenue of alternator, starter, rods and shafts and valves and tappets and operating results of the Company and, as such, the Company has determined that the Company has four operating segments as defined by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”: Alternator, starter, rods and shafts and valves and tappets.

	Alternators				Starters				Rodsand shafts				Valves and Tappets				Total
	Ninemonths ended				Ninemonths ended				Ninemonths ended				Ninemonths ended				Ninemonths ended
	September30,				September30,				September30,				September30,				September30,
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
Revenue from external customers	$	53,010,493	$	51,355,332	$	48,357,149	$	42,788,285	$	14,433,097	$	12,897,807	$	32,788,099	$	-	$	148,588,838	$	107,041,424
Interest income		75,488		60,446		66,597		42,916		11,046		21,588		516,242		-		669,373		124,950
Interest expenses		1,257,505		1,059,478		1,203,520		890,111		88,077		39,378		1,070,450		-		3,619,552		1,988,967
Amortization		109,970		34,052		82,390		35,721		1,374		12,263		88,445		-		282,179		82,036
Depreciation		1,222,557		1,372,358		955,531		684,275		332,057		183,856		1,624,895		-		4,135,040		2,240,489
Segment profit		7,414,933		9,803,626		5,645,040		6,431,405		3,249,381		3,167,650		4,831,344		-		21,140,698		19,402,681
Expenditure for segment assets	$	2,162,837	$	1,741,361	$	1,904,149	$	2,688,607		831,898	$	3,001,533	$	1,308,329	$	-	$	6,207,213	$	7,431,501

	Alternators				Starters				Rodsand shafts				Valves and Tappets				Total
	Three months ended				Three months ended				Three months ended				Three months ended				Three months ended
	September30,				September30,				September30,				September30,				September30,
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
Revenue from external customers	$	21,201,583	$	19,167,752	$	20,070,969	$	15,275,137	$	4,755,762	$	4,822,932	$	12,933,290	$	-	$	58,961,604	$	39,265,821
Interest income		41,017		23,194		37,489		16,066		5,826		11,958		94,496		-		178,828		51,218
Interest expenses		405,001		349,163		457,216		348,293		27,254		29,345		203,279		-		1,092,750		726,801
Amortization		33,419		11,664		30,716		12,339		458		-		29,485		-		94,078		24,003
Depreciation		365,577		344,885		399,831		284,465		113,336		77,739		543,814		-		1,422,558		707,089
Segment profit		2,850,327		4,026,928		2,177,896		2,486,831		914,798		1,000,499		2,149,597		-		8,092,618		7,514,258
Expenditure for segment assets	$	959,561	$	568,958	$	851,950	$	1,517,152	$	541,006	$	296,549	$	737,103	$	-	$	3,089,620	$	2,382,659

	Alternators				Starters				Rodsand shafts				Valves and Tappets				Total
	September 30,		December31,		September 30,		December31,		September 30,		December31,		September 30,		December31,		September 30,		December31,
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
	(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)
Segment assets	$	84,509,537	$	72,097,609	$	77,460,373	$	58,300,925	$	35,417,792	$	30,146,314	$	75,806,500	$	92,832,061	$	273,194,202	$	253,376,909

- 22 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12. 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)
	2009			2008			2009			2008
Total consolidated revenue	$	58,961,604		$	39,265,821		$	148,588,838		$	107,041,424
Total profit for reportable segments	$	8,092,618		$	7,514,258		$	21,140,698		$	19,402,681
Unallocated amounts relating to operations:
Interest income		73			11,329			196			104,750
Equity in net income of an non-consolidated affiliate		-			567,802			-			792,924
Other income		1,744			-			3,109			122,315
Exchange loss		(40	)		(60,266	)		(226	)		(241,446	)
Finance costs		(372	)		(4,472	)		(1,051	)		(7,637	)
Amortization		(5,237	)		(3,126	)		(15,709	)		(3,126	)
Depreciation		(36,089	)		(3,888	)		(104,750	)		(8,262	)
Other expenses		(195,764	)		(427,409	)		(571,510	)		(911,566	)
Income before income taxes and noncontrolling interests	$	7,856,933		$	7,594,228		$	20,450,757		$	19,250,633

	September30,		December 31,
	2009		2008
	(Unaudited)		(Audited)
Assets
Total assets for reportable segments	$	273,194,202	$	253,376,909
Cash and cash equivalents		2,146,935		259,630
Inventories		130,758		-
Other receivables		157,078		69,463
Receivable from disposal of an non-consolidated affiliate		-		5,950,000
Deposit for acquisition of property, plant and equipment		480,482		448,161
Intangible assets		1,012		1,096
Land use right		1,014,739		1,030,377
Property, plant and equipment		2,287,209		1,894,128
	$	279,412,415	$	263,029,764

- 23 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12. Segment information (Cont’d)

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)
	2009		2008		2009		2008
PRC	$	52,654,205	$	33,044,035	$	132,783,338	$	90,628,025
South Korea		1,997,778		2,048,163		4,403,311		7,163,748
Brazil		1,509,202		1,375,947		4,873,493		3,169,297
Mexico		-		-		10,725		1,768,600
United States		524,373		1,689,614		2,347,994		1,892,715
Germany		-		-		-		829,543
Others		2,276,046		1,108,062		4,169,977		1,589,496
Total	$	58,961,604	$	39,265,821	$	148,588,838	$	107,041,424

13. Reclassification of certain items in the Condensed Consolidated Financial Statements

The change of the bills payable of $4,819,593 for the nine months ended September 30, 2008, which were originally reflected in the movement of bills payable under “Cash flows from operating activities”, was reclassified to reflect in the movement of bills payable under “Cash flows from financing activities” to Condensed Consolidated Statements of Cash Flows.

In additions, the change of the restricted cash of $4,011,467 for the nine months ended September 30, 2008, which were originally reflected in the movement of restricted cash under “Cash flows from investing activities”, was reclassified to reflect in the movement of restricted cash under “Cash flows from financing activities” to Condensed Consolidated Statements of Cash Flows.

The reclassification has no impact on the sales revenue, income from operations and net income attributable to Wonder Auto Technology, Inc. for the nine months ended September 30, 2008 and the total assets and total liabilities of the Company as of December 31, 2008 except the net cash flows (used in) provided by operating activities was changed from $(1,720,748) to $3,098,845, the net cash flow used in investing activities was changed from $16,558,596 to $20,570,063 and the net cash flow provided by financing activities was changed from $6,050,052 to $5,241,926.

- 24 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

14.  Subsequent events

(i) On September 22, 2009, Jinzhou Wanyou entered a Share Purchase Agreement (“Purchase Agreement”) with Winning International Development Limited (“Winning”), a British Virgin Islands corporation, pursuant to which Jinzhou Wanyou agreed to purchase Winning’s 100% equity interest in Friend Birch Limited (“Friend Birch”), a Hong Kong corporation, representing all the equity interest in Friend Birch held by Winning at a cash consideration of $12 million. Upon the completion of the transaction, Friend Birch will become a subsidiary of the Company and thereby indirectly acquiring Friend Birch’s wholly owned PRC subsidiaries, Jinzhou Jiade Machinery Co., Ltd. (“Jinzhou Jiade”) and Jinzhou Lida Auto Parts Co., Ltd. (“Jinzhou Lida”).  Jinzhou Jiade and Jinzhou Lida are companies engaged in designing, manufacturing and selling gas spring shafts and other thin mechanical shafts products, automotive springs and gas springs.  As part of the transaction, Jinzhou Wanyou will also acquire all proprietary technology of Friend Birch’s rods and shafts technology center in Brazil which worth $6 million of the total consideration. The Company has to carry out inspection and acceptance of abovementioned technology within two months of the signing date of this agreement.

According to the Purchase Agreement and supplementary agreement (“Supplementary Agreement”) entered into between Jinzhou Wanyou and Winning, the consideration of $12 million should be settled by three installment. The first installment of $1.8 million was settled on October 19, 2009. The second installment of 6.2 million will be settled on December 22, 2009. The final installment of $4 million will be settled within ten days after signing of the acceptance agreement of abovementioned technology.

Disclosure of certain information for the acquisition of Friend Birch in accordance with SFAS No.141 (Revised) “Business Combinations” has not been included in this condensed consolidated financial statements as this acquisition is conditional on the inspection and acceptance of the aforementioned intangible assets which is incomplete and certain financial information required for such disclosure is not yet available at the date of this Form 10-Q.

(ii) On October 28, 2009, the Company filed a prospectus supplement with the SEC for an underwritten public offering of its common stock up to 6,000,000 shares.  The per share price for the offering has not yet been determined.  Please refer to the prospectus supplement dated October 28, 2009 filed with SEC for the details of this offering.

(iii) On October 29, 2009, the Company’s subsidiaries, Wonder Motor and Jinzhou Halla, entered into two separate framework purchase agreements (“Framework Purchase Agreements”) with Jinzhou Wonder Alternative Energy Vehicle Technology Co., Ltd (“Jinzhou AEV”) to sell certain models of electric motors and related drive assembly (“Motor Products”) to Jinzhou AEV. Mr. Zhao, the Company’s chief executive officer and director, is a 60% owner and serves as the chairman of Jinzhou AEV.

- 25 - -

Wonder Auto Technology, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

14.  Subsequent events (cont'd)

According to the Framework Purchase Agreements, Jinzhou AEV will purchase total number of expected units of Motor Products from Wonder Motor amounting to 1200 units in 2009 and 15,000 units in 2010 and from Jinzhou Halla amounting to 250 units in 2009 and 6500 units in 2010 with expected profit margin of 20%-25% and 25%-30% respectively.

On October 29, 2009, the Audit Committee approved these related-party transactions and recommended approval of the Framework Purchase Agreements to the Board of Directors. The Board of Directors approved the Framework Purchase Agreements on October 29, 2009, with Mr. Zhao abstaining.

The Company implemented SFAS No. 165. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of SFAS 165 did not impact our financial position, results of operations or cash flows. The Company’s financial statements for the quarter ended September 30, 2009 were issued on November 2, 2009. The Company has determined that no other events or transactions have occurred through the date of issuance that would require recognition or disclosure within the financial statements.

- 26 - -

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.  Also, when we use any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, we are making forward-looking statements. These forward-looking statements are not guaranteed and are based on our present intentions and on our present expectations and assumptions. These statements, intentions, expectations and assumptions involve risks and uncertainties, some of which are beyond our control, that could cause actual results or events to differ materially from those we anticipate or project. These statements include, among other things, statements relating to:

• our expectations regarding the market for our automotive products;

• our expectations regarding the continued growth of the automotive industry;

• our beliefs regarding the competitiveness of our automotive products;

• our expectations regarding the expansion of our manufacturing capacity;

• our expectations with respect to increased revenue and earnings growth and our ability to increase our production volumes;

• our future business development, results of operations and financial condition;

• competition from other manufacturers of automotive electrical products;

• the loss of any member of our management team;

• our ability to integrate acquired subsidiaries and operations into existing operations;

• market conditions affecting our equity capital;

• our ability to successfully implement our selective acquisition strategy;

• changes in general economic conditions; and

• changes in accounting rules or the application of such rules.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should not place undue reliance on these forward-looking statements, as events described or implied in such statements may not occur.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Certain Terms

Except as otherwise indicated by the context, references in this report to “Company,” “WATG,” “we,” “us” and “our” are references to the combined business of Wonder Auto Technology, Inc., a Nevada corporation, and its subsidiaries on a consolidated basis.  Unless the context otherwise requires, all references to:

· “Jinan Worldwide” are references to Jinan Worldwide Auto Accessories Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Jinzhou Dongwoo” are references to Jinzhou Dongwoo Precision Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, 50% owned subsidiary of the Company;

· “Jinzhou Halla” are references to Jinzhou Halla Electrical Equipment Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Jinzhou Hanhua” are references to Jinzhou Hanhua Electrical System Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, 50% owned subsidiary of the Company;

- 27 - -

· “Jinzhou Karham” are references to Jinzhou Karham Electrical Equipment Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, 65% owned subsidiary of the Company;

· “Jinzhou Wanyou” are references to Jinzhou Wanyou Mechanical Parts Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Wonder Motor” are references to Jinzhou Wonder Motor Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Jinzhou Equipment” are references to Jinzhou Wonder Electrical Equipment Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Fuxin Huirui” are references to Jinzhou Huirui Mechanical Parts Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;

· “Yearcity” are references to Yearcity Limited, a British Virgin Islands company and an  indirect, wholly owned subsidiary of the Company;

· “Wonder Auto Limited” are references to Wonder Auto Limited, a British Virgin Islands company and a direct, wholly owned subsidiary of the Company;

· “China” and “PRC” are references to People’s Republic of China;

· “RMB” are to Renminbi, the legal currency of China; and

· “$” are to the legal currency of the United States.

Overview of Our Business

Wonder Auto Technology, Inc. is a Nevada holding company whose China-based operating subsidiaries are primarily engaged in business of designing, developing, manufacturing and selling automotive electric parts, suspension products and engine components. Our products include alternators, starters, engine valves and tappets, and rods and shafts for use in shock absorber systems. We have been producing alternators and starters in China since 1997, and according to the China Association of Automobile Manufacturers, or CAAM, in 2008 we ranked second and third in sales revenue in the Chinese market for automobile alternators and starters, respectively. Our subsidiary Jinan Worldwide, which we acquired in October 2008, has been producing engine valves and tappets for over 50 years, and we believe we are now one of the largest manufacturers of engine valves and tappets in China in terms of sales volume as a result of the acquisition.

Our products are used in a wide range of passenger and commercial automobiles, and we are especially focused on the fast-growing small- to medium-engine passenger vehicle market. We sell our products primarily within China to well-known domestic and international automobile original equipment manufacturers, or OEMs, engine manufacturers and automotive parts suppliers. We are increasingly exporting our products to international markets.

Recent Developments

On October 29, 2009, the Company’s subsidiary Wonder Motor entered into a framework purchase agreement (the “Wonder Motor Agreement”) with Jinzhou Wonder Alternative Energy Vehicle Technology Co., Ltd. (“Jinzhou AEV”). On the same date, the Company’s subsidiary Jinzhou Halla entered into a separate framework purchase agreement (“Jinzhou Halla Agreement,” together with the Wonder Motor Agreement, the “Agreements”) with Jinzhou AEV.  Mr. Qingjie Zhao, the Company’s chief executive officer and director, is a 60% owner and serves as the chairman of Jinzhou AEV.

Under the Agreements, Wonder Motor and Jinzhou Halla will sell several models of electric motors to Jinzhou AEV.  The parties established a price range for each model of motor that will fluctuate based on the volume of units sold. Upon the submission of a purchase order by Jinzhou AEV, the per unit pricing will be set. The pricing of the electric motors to be sold under the Wonder Motor Agreement targets an expect profit margin of between 20-25% depending on order size.  The pricing of the electric motors to be sold under the Jinzhou Halla Agreement targets an expect profit margin of between 25-30% depending on order size.

On October 29, 2009, the Audit Committee of the Board approved the related-party transactions and recommended approval of the Agreements to the Board. The Board approved the Agreements on October 29, 2009, with Mr. Zhao abstaining. Please see our current report on Form 8-K filed on October 30, 2009 for more details.

- 28 - -

We recently filed a prospectus supplement, subject to completion, dated October 28, 2009, with the U.S. Securities and Exchange Commission (the “SEC”) for an underwritten public offering of our common stock.  We are offering up to 6,000,000 shares in the offering.  The per share price for the offering has not yet been determined.  Piper Jaffray & Co., Jefferies & Company, Inc. and Oppenheimer & Co. Inc. are acting as joint book running, lead managers for the offering and Roth Capital Partners is acting as co-manager.  The common stock to be sold in the offering may not be sold, nor may any offers to buy be accepted, except pursuant to the prospectus supplement, We intend to use the net proceeds from the offering for general corporate purposes, including expanding capacity at our existing facilities and investing in new businesses, products and technologies, both through acquisitions and capital programs, and funding our ongoing operating and working capital requirements..  Copies of the prospectus supplement relating to the offering can be obtained by contacting the prospectus department at any of the joint book running, lead managers and on the SEC’s EDGAR website at www.sec.gov.

Third Quarter Financial Performance Highlights

Despite the overall economic slowdown in the global economy, we continued to experience strong demand for our products during the third quarter of 2009 and growth in our sales revenue. The automobile market in China, especially the market for small to medium engine automobiles, continued to expand in the third quarter of 2009 albeit at a slower pace than in recent years. This growth was due, in part, to several programs and regulatory drives initiated by the Chinese government, including the reduction of consumption tax rates assessed on low-emission vehicles, a new fuel tax with favorable tax treatment to low-emission vehicles, reduced sales tax on sales of small engine vehicles and the “Cars to the Countryside” program which provides subsidy for purchase of certain small engine minibuses. We were able to capitalize on this growth trend during the third quarter of 2009. Our third fiscal quarter financial results also benefitted from the consolidation of Jinan Worldwide which we acquired 65% interest in October 2008 and the remaining 35% in January 2009.  Jinan Worldwide contributed approximately $12.9 million in the third quarter of 2009, accounting for approximately 21.9% of the total sales revenue of such period. In this quarter, we also entered into agreement to acquire Friend Birch Limited, thereby indirectly acquiring its wholly owned Chinese subsidiaries, Jinzhou Jiade Machinery Co., Ltd. and Jinzhou Lida Auto Parts Co., Ltd., which are engaged in designing, manufacturing and selling gas spring shafts and other thin mechanical shafts products, automotive springs and gas spring.  As part of the transaction, we also acquired all proprietary technologies of Friend Birch Limited’s rods and shafts technology center in Brazil. We believe the acquisition of Friend Birch Limited and its subsidiaries will help us to cost-effectively manage growth in production capacity and increase profitability in the future.

The following are some financial highlights for the third quarter of 2009:

· Sales Revenue: Our sales revenue was approximately $59.0 million for the third quarter of 2009, an increase of 50.2% from the same quarter of last year.

· Net Income: Net income was approximately $6.5 million for the third quarter of 2009, an increase of 2.4% from the same period of last year.

· Basic and Diluted Earnings per Share:$0.24 for the third quarter of 2009, while non-GAAP earnings per share was $0.26 for the third quarter of 2009.

Our net income was materially impacted by non-cash exchange loss/gain resulted from an outstanding loan of EUR8.3 million from DEG - Deutsche Investitions - und Entwicklungsgesellschaft mbH (the “DEG Loan”). In the table below, we have presented a non-GAAP financial disclosure to provide a quantitative analysis of the impact of the non-cash exchange loss/gain on our net income. Because these items do not require the use of current assets, management does not include these items in its analysis of our financial results or how we allocate our resources. Because of this, we deemed it meaningful to provide this non-GAAP disclosure of the impact of such items on our financial results.

(All amounts, other than share and per share numbers, in millions of U.S. dollars)

	Three Months Ended September 30,
	2009			2008
Calculation of non-GAAP net income:
GAAP net income	$	6.5		$	6.4
Foreign exchange (loss) gain:	$	(0.4	)	$	1.0
Non-GAAP net income	$	6.9		$	5.5
Basic and diluted non-GAAP net income per share	$	0.26		$	0.20
Shares used in the calculation of non-GAAP net income per share – basic and diluted		26,959,994			26,959,994

- 29 - -

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 U.S. dollars)

	Three months ended								Nine months ended
	September 30								September 30
	(unaudited)								(unaudited)
	2009				2008				2009				2008
Sales revenue	$	58,962	100	%	$	39,266	100	%	$	148,589	100	%	$	107,041		100	%
Cost of sales		45,007	76.3	%		29,140	74.2	%		112,321	75.6	%		79,239		74.0	%
Gross profit		13,954	23.7	%		10,126	25.8	%		36,268	24.4	%		27,803	$	26.0	%
Expenses
Administrative expenses		2,594	4.4	%		1,677	4.3	%		7,662	5.2	%		4,444		4.2	%
Selling expenses		2,080	3.5	%		1,209	3.1	%		4,812	3.2	%		2,912		2.7	%
Research and development costs		488	0.8	%		460	1.2	%		1,408	0.9	%		1,128		1.1	%
Total expenses		5,162	8.8	%		3,346	8.5	%		13,882	9.3	%		8,484		7.9	%
Net Finance Costs (Income)		1,482	2.5	%		-139	-0.4	%		3,512	2.4	%		1,381		1.3	%
Income before income taxes and noncontrolling interests		7,857	13.3	%		7,594	19.3	%		20,451	13.8	%		19,251		18.0	%
Income taxes		940	1.6	%		633	1.6	%		2,493	1.7	%		1,860		1.7	%
Net income attributable to noncontrolling interests		410	0.7	%		608	1.5	%		904	0.6	%		1,786		1.7	%
Net income	$	6,507	11.0	%	$	6,354	16.2	%	$	17,054	11.5	%	$	15,605		14.6	%

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Sales Revenue.Our sales revenue is mainly generated from sales of alternators, starters, rods and shafts, and engine valves and tappets. During the third quarter of 2009, we experienced solid growth in revenues. Sales revenue increased by approximately $19.7 million, or 50.2%, to approximately $59.0 million for the three months ended September 30, 2009, compared with $39.3 million of the same period last year. This increase was mainly attributable to the $12.9 million in additional revenues generated in the third quarter of 2009 by our recently acquired subsidiary, Jinan Worldwide, which is included in our consolidated operating results.  In October 2008, we acquired 65% interest in Jinan Worldwide, which manufactures and sells engine valves and tappets, and we acquired the remaining 35% interest in January 2009.  We also benefited from the increased sales volume of starter and alternator products in the third quarter of 2009 due to the high market demand. The automobile market in China, especially the market for small- to medium engine automobiles which is the primary market for our products, continued to expand in the third quarter of 2009 due, in part, to several programs and regulatory drives initiated by the Chinese government. We capitalized on this growth trend during the third quarter of 2009.

The following table shows the different segments comprising our total revenues for the three months ended September 30, 2009 and 2008.

All amounts, except percentage of revenues, in thousands of U.S. dollars

	2009					2008
			Percent of					Percent of
Sales Revenue	Amount		Sales Revenue			Amount		Sales Revenue
Alternators	$	21,202		36.0	%	$	19,167		48.8	%
Starters		20,071		34.0	%		15,275		38.9	%
Rods and shafts		4,756		8.1	%		4,823		12.3	%
Valves and Tappets		12,933		21.9	%		-		-
Total	$	58,962		100	%	$	39,266		100	%

- 30 - -

Sales revenue from alternators and starters was $41.3 million in the three months ended September 30, 2009, as compared to $34.4 million in the same quarter last year. Domestic sales in China continue to be our major source of sales revenue. Sales revenue from sales of alternators and starter in China increased by approximately $7.2 million or 22.8% to approximately $38.6 million in the three months ended September 30, 2009 from $31.4 million of the same quarter in 2008. The increase mainly resulted from the increased market demand as discussed above.

Sales revenue from rods and shafts was $4.8 million in the three months ended September 30, 2009, a slight decrease of $67,170 from the same period last year. The decrease was mainly due to less exports of our rods and shafts products. The global economic downturn has had a severe adverse impact on the international automobile industry which, in turn, negatively affected the gross margin we could make on export sales. We made a strategic decision in this quarter to reduce exports of our rods and shaft products to maintain our profitability targets. Sales of rods and shafts in China were approximately $2.5 million in the third quarter of 2009, up $810,866, or 49.5% from $1.6 million of the same period in 2008.

Cost of Sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor and overhead.  Our cost of sales increased by approximately $15.9 million, or 54.5%, to approximately $45.0 million for the three months ended September 30, 2009 from approximately $29.1 million during the same period in 2008.  This increase was mainly due to the increase in our raw materials and labor costs, which we believe were generally in line with the increase in our sales volume.  As a percentage of sales revenue, the cost of sales increased to 76.3 % from 74.2% for the same period of 2008.  The percentage increase was mainly due to the fact that in the third quarter of 2009, a larger portion of our sales revenue was generated from alternators and starters for small-to-mid displacement engine vehicles which generally have a lower margin than our alternators and starters for large displacement engine vehicle.

Gross Profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales.  Our gross profit increased by approximately $3.8 million, or 37.8%, to approximately $14.0 million for the three months ended September 30, 2009, compared with approximately $10.1 million for the same period in 2008 as a result of increased demand for and sales of our alternator and starter products and the consolidation of the operating results of Jinan Worldwide which contributed $3.7 million to our gross profit. Gross margin was 23.7% for the three-month period ended September 30, 2009, as compared to 25.8% of the same period in 2008.  Such decrease was mainly due to greater sales of lower margin alternators and starters for small-to-mid displacement engine vehicles as discussed above.

Total Operating Expenses. Our total operating expenses increased by approximately $1.8 million, or 54.3%, to approximately $5.2 million for the three months ended September 30, 2009, compared with approximately $3.3 million for the same period in 2008.  As a percentage of sales revenue, our total expenses increased to 8.8% for the three months ended September 30, 2009, compared from 8.5% for the same period in 2008.  The amount and percentage increases were primarily due to the increase of administrative expenses, selling expenses and research and development expenses as discussed below.

Administrative Expenses.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 $917,427, or 54.7%, to approximately $2.6 million for the three months ended September 30, 2009, from approximately $1.7 million for the same period in 2008.  As a percentage of sales revenue, administrative expenses increased to 4.4% for the three months ended September 30, 2009, as compared to 4.3% for the same period in 2008. The amount and percentage increase of administrative expenses was primarily due to the consolidation of the operating results of Jinan Worldwide and third party professional fees associated with such acquisition.

Research and Development Expenses. Research and development expenses consist of amounts spent on developing new products and enhancing our existing products.  Our research and development expenses increased $27,768, or 6.0%, to $487,572 for the three months ended September 30, 2009 from $459,803 for the same period in 2008.  As a percentage of sales revenue, research and development costs decreased to 0.8% from 1.2% for the three months ended September 30, 2008. In connection with our recent acquisition of Friend Birch Limited, we have acquired Friend Birch Limited’s rods and shafts technology center in Brazil. The Company expects to maintain the ratio of research and development expenses to total sales revenue at approximately 1.0 %.

- 31 - -

Selling Expenses. 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 increased $871,269, or 72.1% to approximately $2.1 million for the three months ended September 30, 2009 from $1.2 million for the same period in 2008.  As a percentage of sales revenue, our selling expenses were 3.5% for the three months ended September 30, 2009, which was 3.1% in the third quarter last year.  The amount and percentage increase of selling expenses was mainly due to the consolidation of the financial results of Jinan Worldwide which incurred a higher percentage of selling and marketing expenses in the sales of its valve and tappet products.

Net finance cost (Income). Net finance cost includes interest income, interest expenses, bill discounting charges and net exchange loss/gain.  We incurred a net finance cost of $1.5 million for the three months ended on September 30, 2009 as compared to a net finance income of ($139,381) for the same period last year. Since the DEG Loan is denominated in Euro, with the depreciation of RMB against Euro, we incurred a $439,746 non-cash exchange loss during the three months ended September 30, 2009. In contrast, we had a non-cash exchange gain of approximately $1.0 million for the same period of 2008.

Income before Income Taxes and Noncontrolling Interests. Income before income taxes and noncontrolling interests increased by approximately $262,706 or 3.5%, to approximately $7.9 million during the three months ended September 30, 2009 from approximately $7.6 million during the same period in 2008.  Income before income taxes as a percentage of sales revenue decreased to 13.3% during the three months ended September 30, 2009, as compared to 19.3% for the same period last year due to the factors described above.

Income Taxes.Our income taxes increased $307,052 to $939,622 during the three months ended September 30, 2009 from $632,570 during the same period in 2008. The income taxes increase is mainly due to the increase in income and the change in tax rate for our subsidiary Jinzhou Wanyou. Jinzhou Wanyou was exempted from the PRC enterprise income tax (“EIT”) in 2008, its EIT rate increased to 12.5% in 2009.

Net Income attributable to Noncontrolling Interests. Our net income attributable to noncontrolling interests decreased $197,830, or 32.5%, to $410,290 for the third quarter in 2009 from $608,120 for the same period in 2008. The net income attributable to noncontrolling interests were held by third parties in Jinzhou Dongwoo, Jinzhou Hanhua and Jinzhou Karham.

Net Income attributable to Wonder Auto Technology, Inc. common stockholders. Our net income increased by $153,483, or2.4%, to approximately $6.5 million during the three months ended September 30, 2009 from approximately $6.4 million during the same period in 2008, as a result of the factors described above. 

Nine Months Ended September30, 2009 Compared to Nine Months Ended September 30, 2008

Sales Revenue.Sales revenue increased by approximately $41.5 million, or 38.8%, to approximately $148.6 million, compared with $107.0 million of the same period last year.  This increase was mainly attributable to the increase of sales volume of alternators and starters due to strong market demand and approximately $32.8 million in  additional revenues generated by our recently acquired subsidiary, Jinan Worldwide, which have been included in our in our consolidated operating results for the first nine months of 2009.

The following table shows the different segments comprising our total revenues for the nine months ended September 30, 2009 and 2008.

- 32 - -

All amounts, except percentage of revenues, in thousands of U.S. dollars

	2009					2008
			Percent of					Percent of
Sales Revenue	Amount		Sales Revenue			Amount		Sales Revenue
Alternators	$	53,010		35.7	%	$	51,355		48.0	%
Starters		48,357		32.5	%		42,788		40.0	%
Rods and shafts		14,433		9.7	%		12,898		12.0	%
Valves and Tappets		32,788		22.1	%		-		-
Total	$	148,589		100	%	$	107,041		100	%

Sales in China continue to be our main source of sales revenue. Sales revenue from China increased by approximately $42.2 million, or 46.5%, to $132.8 million for the nine months ended September 30, 2009, as compared with $90.6 million for the last same period. While our main geographic focus is the Chinese market, we also plan to expand product sales into selected international markets.

Sales revenue from alternators and starters was $101.4 million in the nine months ended September 30, 2009, as compared to $94.1 million in the same period last year. Domestic sales in China continue to be our major source of sales revenue. Sales revenue from sales of alternators and starter in China increased by approximately $10.8 million or 12.8% to approximately $95.5 million in the nine months ended September 30, 2009 from $84.7 million of the same period in 2008. The increase mainly resulted from the increased market demand as discussed above.

Sales revenue from rods and shafts was $14.4 million in the nine months ended September 30, 2009, an increase of $1.5 million from approximately $12.9 million for the same period last year. The increase was mainly attributable to domestic sales of our rods and shafts products in China. Sales of rods and shafts in China were approximately $7.0 million in the first nine months of 2009, up $1.1 million, or 19.2% from $5.9 million of the same period in 2008.

Cost of Sales. Our cost of sales increased by approximately $33.1 million, or 41.7%, to approximately $112.3 million for the nine months ended September 30, 2009 from approximately $79.2 million during the same period in 2008.  This increase was mainly due to the increase in our raw materials and labor costs, which we believe were generally in line with the increase in our sales volume.  As a percentage of sales revenue, the cost of sales increased approximately 1.6% to 75.6% during the nine months ended September 30, 2009 from 74.0% for the same period of 2008.  The percentage increase was mainly due to the change in product mix. In the nine months ended September 30, 2009, a large portion of our sales revenue was generated from alternators and starters for small-to-mid displacement engine vehicles as compared to the same period of 2008. Our alternators and starters for small-to-mid displacement engine vehicles generally have a lower margin than our alternators and starters for large displacement engine vehicles, and starter products generally have a lower average sales price.

Gross Profit. Our gross profit increased by approximately $8.5 million, or 30.4%, to approximately $36.3 million for the nine months ended September 30, 2009, compared with approximately $27.8 million for the same period in 2008 as a result of increased demand for and sales of our products.  Gross margin was 24.4% for the nine-month period ended September 30, 2009, as compared to 26.0% of the same period in 2008.  Such decrease was mainly due to the change in product mix as discussed above.

Total Operating Expenses. Our total operating expenses increased by approximately $5.4 million, or 63.6%, to approximately $13.9 million for the nine months ended September 30, 2009, as compared to approximately $8.5 million for the same period in 2008.  As a percentage of sales revenue, our total expenses increased to 9.3% for the nine months ended September 30, 2009, compared with 7.9% for the same period in 2008.  The amount and percentage increases were primarily attributable to the increase of administrative expenses, selling expenses and research and development expenses as discussed below.

Administrative Expenses. Our administrative expenses increased $3.2 million, or 72.4%, to approximately $7.7 million for the nine months ended September 30, 2009, from approximately $4.4 million for the same period in 2008.  As a percentage of sales revenue, administrative expenses increased to 5.2% for the nine months ended September 30, 2009, as compared to 4.2% for the same period in 2008. The amount and percentage increase were primarily due to the consolidation of the operating results of Jinan Worldwide and the increased professional expenses related to such acquisition.

- 33 - -

Research and Development Expenses. Our research and development costs increased $280,453, or 24.9%, to approximately $1.4 million for the nine months ended September 30, 2009 from approximately $1.1 million for the same period in 2008.  As a percentage of sales revenue, research and development expenses decreased to 0.9% for the nine months ended September 30, 2009, as compared to 1.1% for the same period of last year. The company plan to maintain the ratio of research and development costs to total sales revenue at approximately 1.0%.

Selling Expenses. Our selling expenses increased approximately $1.9 million, or 65.2% to approximately $4.8 million for the nine months ended September 30, 2009 from $2.9 million for the same period in 2008.  As a percentage of sales revenue, our selling expenses was 3.2% for the nine months ended September 30, 2009, which was 2.7% for the same period in 2008.  The amount and percentage increase of selling expenses was mainly due to the consolidation of the operating results of Jinan Worldwide, which incurred a higher percentage of selling and marketing expenses in the sales of its valve and tappet products.

Net finance cost (Income).  Our net finance cost increased approximately $2.1 million, or 154.3% to approximately $3.5 million for the nine months ended on September 30, 2009 from approximately $1.4 million for the same period last year. Such increase was mainly due to an approximately $12.5 million increase in the outstanding balances of our secured borrowings. We borrowed $9.4 million from Bank of China, which were used for the acquisition of Yearcity Limited. In addition, as a result of the depreciation of RMB against Euro, we incurred a non-cash exchange loss of $387,701 in connection with the DEG Loan for the nine months ended September 30, 2009, as compared to an $828,205 non-cash exchange gain the same period of 2008.

Income before Income Taxes and Noncontrolling Interests. Income before income taxes and noncontrolling interests increased by approximately $1.2 million or 6.2%, to approximately $20.5 million during the nine months ended September 30, 2009 from approximately $19.3 million during the same period in 2008.  Income before income taxes and noncontrolling interests as a percentage of sales revenue decreased to 13.8% during the nine months ended September 30, 2009, as compared to 18.0% for the same period last year due to the factors described above.

Income Taxes. Our income taxes increased $632,838 to approximately $2.5 million during the nine months ended September 30, 2009 from approximately $1.9 million during the same period in 2008. The income taxes increase is mainly due to the increase in income and the change in tax rate for our subsidiary Jinzhou Wanyou. Jinzhou Wanyou was exempted from the PRC enterprise income tax (“EIT”) in 2008, its EIT rate increased to 12.5% in 2009. As a percentage of sales revenue, our income taxes remained same at 1.7% for the nine months ended September 30, 2009.  Our effective income tax rate was 12.2% for the nine months ended September 30, 2009.

Net Income attributable to Noncontrolling Interests. Our financial statements reflect an adjustment to our consolidated group net income, and our net income attributable to noncontrolling interests decreased $881,775, or 49.4%, to $903,823 for the nine months ended September 30, 2009 from approximately $1.8 million for the same period in 2008, reflecting the net income attributable to noncontrolling interests held by third parties in Jinzhou Dongwoo, Jinzhou Hanhua and Jinzhou Karham.

Net Income attributable to Wonder Auto Technology, Inc. common stockholders.  Our net income increased by approximately $1.5 million, or9.3%, to approximately $17.1 million during the nine months ended September 30, 2009 from approximately $15.6 million during the same period in 2008. The change was mainly due to the factors described above. 

Business Segment Information

Our business operations can be categorized into four segments based on the type of products we manufacture and sell, specifically (i) alternators, (ii) starters, (iii) rods and shafts, and (iv) engine valves and tappets.

We manufacture and sell our alternators and starters using largely the same facilities, personnel and other resources in our subsidiary Jinzhou Halla. Rods and shafts are mainly manufactured by our subsidiary Jinzhou Wanyou.  Engine valves and tappets are manufactured by our newly acquired subsidiary Jinan Worldwide.

Additional information regarding our products can be found at Note 12 in our unaudited consolidated condensed financial statements contained under Part I, Item I “FINANCIAL STATEMENTS” above.

- 34 - -

Liquidity and Capital Resources

General

We relied primarily on cash flow from operating activities and our bank loans for our capital requirements in the three months ended September 30, 2009. As of September 30, 2009, we had cash and cash equivalents of $21.4 million.  The following table provides detailed information about our net cash flow for the periods indicated.

Cash Flow

(All amounts in thousands of U.S. dollars)

	Nine Months Ended September 30,
	2009			2008
Net cash provided by operating activities	$	11,113		$	3,099
Net cash (used in) investing activities		(12,272	)		(20,570	)
Net cash provided by financing activities		14,357			5,242
Effect of foreign currency translation on cash and cash equivalents		63			980
Net increase (decrease) in cash and cash equivalent		13,261			(11,249	)

Operating Activities

Net cash provided by operating activities was approximately $11.1 million for the nine-month period ended September 30, 2009, which represents an increase of approximately $8.0 million from approximately $3.1 million of net cash provided by operating activities for the same period of 2008. Such increase was mainly due to a $1.4 million increase in net income, a $2.7 million increase in aggregate in trade and other payables and an approximately $3.4 million decrease in inventories, which more than offset an approximately $3.5 million increase in trade receivables, bill receivables and other receivables.

Investing Activities

Our primary uses of cash for investing activities are payments for the acquisition of property, plant and equipment, and payments for investment in subsidiaries and acquisition of Yearcity Limited and its subsidiary Jinan Worldwide.

Net cash used in investing activities for the nine-month period ended September 30, 2009 was approximately $12.3 million, which is a decrease of approximately $8.3 million from net cash used in investing activities of approximately $20.6 million for the same period of 2008. The decrease in net cash used in investing activities was mainly because we received $5.95 million proceeds from sales of our equity interest in Money Victory Limited in 2009, whereas, in 2008, we spent $5.0 million in the acquisition of equity interest in Money Victory Limited. In addition, payments to acquire fixed assets decreased approximately $5.3 million during the first nine months of 2009.

Financing Activities

Net cashprovided by financing activities for the nine-month period ended September 30, 2009 increased by approximately $9.1 million to $14.4 million as compared to $5.2 million net cash provided by financing activities for the same period of 2008.  We borrowed $9.4 million from Bank of China, which were used for the acquisition of Yearcity Limited.

As of September 30, 2009, we had approximately $42.7 million of bank deposits, our total assets were $279.4 million, and total equity was $124.0 million. Our debt-to-equity ratio was 58.5% as of September 30, 2009. We plan to maintain our debt-to-equity ratio below 65%.

As of September 30, 2009, the amount, maturity date and term of each of our secured borrowings are as follows.

- 35 - -

(All amounts in millions of U.S. dollars)

Short Term Loans

Banks	Amounts*		Maturity Date	Term
China construction Bank	$	2.6	October 28, 2009	1 months
China construction Bank	$	1.5	February 24, 2010	58 months
China construction Bank	$	5.9	April 12, 2010	6 months
Bank of China	$	4.4	November 26, 2009	2 months
Huaxia Bank	$	2.9	June 30, 2010	9 months
China CITIC Bank	$	8.8	April 26, 2010	7 months
China CITIC Bank	$	5.9	June 28, 2010	9 months
Evergrowing Bank	$	2.9	June 22, 2010	9 months
Bank of China	$	0.6	December 29, 2009	3 months
Bank of Jinzhou	$	0.4	March 30, 2010	6 months
Bank of Jinzhou	$	0.2	August 20, 2009	11 months
Bank of Jinzhou	$	0.4	September 24, 2009	12 months
Bank of China	$	2.9	August 19, 2009	11 months
Bank of China	$	0.4	August 26, 2009	3 months
Bank of China	$	2.9	April 28, 2010	7 months
Bank of China	$	1.5	May 19, 2010	8 months
Huaxia Bank	$	2.9	September 04, 2009	2 months
SZD Bank	$	2.9	February 28, 2010	5 months
Total	$	50.0

Installment  Loans

	Within  1 year		After 1year  but within 2  years		After 2 years but within 3  years		After 3 years  but within 4  years		After 4 years  but within 5  years		After 5  years		Total
Bank of China*	$	0.7	$	2.2	$	2.2	$	2.2	$	2.1		-	$	9.4
DEG**		3.3		3.3		3.3		2.3		-		-		12.2
Changqing*		-		-		-		-		-		1.0		1.0
Total		4.0		5.5		5.5		4.5		2.1		1.0		22.6

*The loans are denominated in RMB, we used the exchange rate of $1 = RMB6.8166

**The loan is denominated in Euro, we used the exchange rate of 1 Euro = RMB9.9772

During the three months ended September 30, 2009, we repaid bank loans in the total amount of approximately $3.7 million.  Approximately $54.0 million bank loans will mature within the next twelve months.  We plan to either repay these loans as they mature or refinance them using other existing credit lines.

We believe that we maintain good relationships with the banks providing credits and loans to us, and our current available working capital should be adequate to sustain our operations at our current levels through at least the next twelve months.

Off-Balance Sheet Arrangements  

We do not have any off-balance sheet arrangements.

- 36 - -

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. 

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the condensed consolidated financial statements. We believe that our critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the condensed consolidated financial statements.

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2008 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting estimates since December 31, 2008.

Recently issued accounting pronouncements

Noncontrolling Interests (Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted SFAS 160 on January 1, 2009. As a result, we have reclassified financial statement line items within our Condensed Consolidated Balance Sheets and Statements of Income and Comprehensive Income for the prior period to conform to this standard.

Business Combinations(Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R)). This ASC guidance revised SFAS No. 141, “Business Combinations” and addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. The adoption of this standard has no material impact on the Company’s financial statements.

Intangibles-Goodwill and Other (Included in ASC 350”, previously FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of this standard has no material effect on the Company's financial statements.

- 37 - -

Business Combinations (Included in ASC 805, previously FSP No. 141R-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”). FSP 141R-1 amends the provisions in FASB Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in Statement 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in evaluating the impact of SFAS 141(R). The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Fair Value Measurements and Disclosures (Included in ASC 820, previously FSP No. 157-4, “Determining Whether a Market is Not Active and a Transaction Is Not Distressed”.) FSP No. 157-4 clarifies when markets are illiquid or that market pricing may not actually reflect the “real” value of an asset. If a market is determined to be inactive and market price is reflective of a distressed price then an alternative method of pricing can be used, such as a present value technique to estimate fair value. FSP No. 157-4 identifies factors to be considered when determining whether or not a market is inactive. FSP No. 157-4 would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. The adoption of this standard has no material effect on the Company's financial statements.

“Investments - Debt and Equity Securities - Overall - Transition and Open Effective Date Information” (Included in ASC 320-10-65, previously FASB Staff Position No. 115-2 and Statement of Financial Accounting Standards No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”). ASC 320-10-65 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and securities with unrealized losses. The adoption of this statement has no material impact on the Company’s financial statements.

Interim Disclosures about Fair Value of Financial Instruments (Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1). This guidance requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This guidance also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP 107-1 has no material impact on the Company’s financial statements.

Subsequent Events (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165). SFAS No.165, “Subsequent Events” establishes accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the balance sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. We adopted this statement effective June 1, 2009 and have evaluated all subsequent events through the filing date with the SEC.

Accounting for Transfers of Financial Assets (To be included in ASC 860 “Transfers and Servicing”, SFAS No. 166, “Accounting for Transfers of Financial Assets—an Amendment of FASB Statement No. 140.”).SFAS 166 addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Also, SFAS 166 removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. SFAS 166 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

- 38 - -

Consolidation of Variable Interest Entities – Amended (To be included in ASC 810 “Consolidation”, SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). SFAS 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” to require an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. SFAS 167 also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

FASB Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1).In June 2009, the FASB approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of our financial statements or disclosures as a result of implementing the Codification.

As a result of our implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, we will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update 2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. ASC Update 2009-05 will become effective for the Company’s annual financial statements for the year ended December 31, 2009. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

- 39 - -

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans and long-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal.  There were no material changes in interest rates for short-term bank loans renewed during the three months ended September 30, 2009.

A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities under which we had outstanding borrowings as of September 30, 2009, would decrease net income before provision for income taxes by approximately $0.2 million for the three months ended September 30, 2009.  Management monitors the banks’ prime 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.

Foreign Exchange Risk

While our reporting currency is the U.S. Dollar, all of our consolidated revenues and consolidated costs and expenses are denominated in Renminbi.  All of our assets are denominated in RMB except for cash.  As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB.  If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. In addition, we also have bank loan denominated in Euro and our payment obligation may be affected by fluctuations in the exchange rate between the Euro and RMB.  Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and shareholders’ equity is translated at historical exchange rates.  Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of shareholders’ equity.  We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

The value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has not 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 or Euro 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.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect 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 net revenues if the selling prices of our products do not increase with these increased costs.

- 40 - -

 ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, Mr. Qingjie Zhao and Mr. Meirong Yuan, respectively, evaluated the effectiveness of our disclosure controls and procedures.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on that evaluation, Mr. Qingjie Zhao and Mr. Meirong Yuan concluded that as of September 30, 2009, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.

Changes in Internal Control over Financial Reporting.

During the fiscal quarter ended September 30, 2009, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 41 - -

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.  We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K.  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.

ITEM 1A. RISK FACTORS.

In connection with our proposed public offering of common stock, we updated risk factors related to our business and an investment in our common stock in the preliminary prospectus supplement that we filed with the SEC on October 28, 2009.

RISKS RELATED TO OUR BUSINESS

The global economic crisis could further impair the automotive industry thereby limiting demand for our products and affecting the overall availability and cost of external financing for our operations.

The continuation or intensification of the global economic crisis and turmoil in the global financial markets may adversely impact our business, the businesses of our customers and our potential sources of capital financing. Our automotive parts are primarily sold to automakers, engine manufacturers and auto parts suppliers. The global economic crisis harmed most industries and has been particularly detrimental to the automotive industry. Since virtually all of our sales are made to auto industry participants, our sales and business operations are dependent on the financial health of the automotive industry and could suffer if our customers experience, or continue to experience, a downturn in their business. In addition, the lack of availability of credit could lead to a further weakening of the Chinese and global economies and make capital financing of our operations more expensive for us or impossible altogether. Presently, it is unclear whether and to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese government and other governments throughout the world will mitigate the effects of the crisis on the automotive industry and other industries that affect our business. These conditions have not presently impaired our ability to access credit markets and finance our operations. However, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of the financing, is unclear. Furthermore, deteriorating economic conditions including business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers could have further negative consequences for the automotive industry and result in lower sales, price reductions in our products and declining profit margins. The economic situation also could harm our current or future lenders or customers, causing them to fail to meet their obligations to us. No assurances can be given that the effects of the current crisis will not damage on our business, financial condition and results of operations.

A contraction in automotive sales and production could have a material adverse affect on our results of operations and liquidity and on the viability of our supply base.

Automotive sales and production are highly cyclical and depend, among other things, on general economic conditions and consumer spending and preferences (which can be affected by a number of issues including fuel costs and the availability of consumer financing). As the volume of automotive production fluctuates, the demand for our products also fluctuates. Global automotive sales and production deteriorated substantially in the second half of 2008 and are not expected to rebound significantly in the near term. While the China automotive sales and production maintained modest growth momentum in 2008 and continued to grow in 2009, the growth rate was down from previous years. A contraction in automotive sales and production could harm our results of operations and liquidity. In addition, our suppliers would also be subject to many of the same consequences which could pressure their results of operations and liquidity. Depending on an individual supplier’s financial condition and access to capital, its viability could be challenged which could affect its ability to perform as we expect and consequently our ability to meet our own commitments.

- 42 - -

Escalating pricing pressures from our customers may adversely affect our business.

Pricing pressure in the automotive supply industry has been substantial and is likely to continue. Many vehicle manufacturers seek price reductions in both the initial bidding process and during the term of the contract. Price reductions have affected our sales and profit margins and are expected to do so in the future. If we are not able to offset continued price reductions through improved operating efficiencies and reduced expenditures, those price reductions may have a material adverse effect on our results of operations.

If we fail to accurately project market demand for our products, our business expansion plan could be jeopardized and our financial condition and results of operations will suffer.

If actual customer orders are less than our projected market demand, we will likely suffer overcapacity problems and may have to leave capacity idle, which may reduce our overall profitability and hurt our financial condition and results of operations. Even though our business increasingly has included more international sales, we derive most of our sales revenue from sales of our products in China. The continued development of our business depends, in large part, on continued growth in the automotive industry, especially in China. Although China’s automotive industry has grown rapidly in the past, it may not continue to grow at the same growth rate in the future or at all. However, the developments in our industry are, to a large extent, outside of our control and any reduced demand for automotive parts products and services, any other downturn or other adverse changes in China’s automotive industry could severely harm our business.

Our business is capital intensive and our growth strategy may require additional capital which may not be available on favorable terms or at all.

We believe that our current cash and cash flow from operations and the anticipated offering are sufficient to meet our present and reasonably anticipated cash needs. We may require, however, additional cash resources due to changed business conditions, implementation of our strategy to expand our manufacturing capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Given the current global economic crisis, financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Due to our rapid growth in recent years, our past results may not be indicative of our future performance so evaluating our business and prospects may be difficult.

Our business has grown and evolved rapidly in recent years as demonstrated by our growth in annual sales revenue from approximately $48.1 million in 2005 to $141.2 million in 2008. We may not be able to achieve similar growth in future periods, and our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Moreover, our ability to achieve satisfactory manufacturing results at higher volumes is unproven. Therefore, you should not rely on our past results or our historical rate of growth as an indication of our future performance.

We face risks associated with future investments or acquisitions.

An important element of our growth strategy is to invest in or acquire businesses that will enable us, among other things, to expand the products we offer to our existing target customer base, lower our costs for raw materials and components and capitalize on opportunities to expand into new markets. We recently acquired controlling interests in several complementary businesses, including Jinzhou Hanhua Electrical System Co., Ltd., Jinzhou Karham Electrical Equipment Co., Ltd., Fuxin Huirui Mechanical Co., Ltd., Jinan Worldwide Auto Accessories Co., Ltd., and Friend Birch Limited and its subsidiaries which we expect to contribute to our future growth. In the future, we may be unable to identify other suitable investment or acquisition candidates or may be unable to make these investments or acquisitions on commercially reasonable terms, if at all.

If we complete an investment or acquisition, we may not realize the anticipated benefits from the transaction. Integrating an acquired business is distracting and time consuming, as well as a potentially expensive process. We are currently in the process of integrating our operations with the operations of recently acquired companies. The successful integration of these companies and any other acquired businesses require us to:

• integrate and retain key management, sales, research and development, production and other personnel;

• incorporate the acquired products or capabilities into our offerings from an engineering, sales and marketing perspective;

- 43 - -

• coordinate research and development efforts;

• integrate and support pre-existing supplier, distribution and customer relationships; and

• consolidate duplicate facilities and functions and combine back office accounting, order processing and support functions.

Acquisitions involve a number of risks and present financial, managerial and operational challenges, including:

• increased expenses, including travel, legal, administrative and compensation expenses resulting from newly hired employees;

• increased costs to integrate personnel, customer base and business practices of the acquired company with our own;

• adverse effects on our reported operating results due to possible write-down of goodwill associated with acquisitions;

• potential disputes with sellers of acquired businesses, technologies, services, products and potential liabilities;

• potential liabilities as a result of assumption of liabilities of acquired companies; and

• dilution to our earnings per share if we issue common stock in any acquisition.

Moreover, geographic distance between business operations, the compatibility of the technologies and operations being integrated and the disparate corporate cultures being combined also present significant challenges. Acquired businesses are likely to have different standards, controls, contracts, procedures and policies, making it more difficult to implement and harmonize company-wide financial, accounting, billing, information and other systems. Our focus on integrating operations may also distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts. Performance problems with an acquired business, technology, product or service could also have a material adverse impact on our reputation as a whole. Any acquired business, technology, product or service could significantly under-perform relative to our expectations. In addition, although we have conducted due diligence with respect to our recently acquired companies, there may still be unidentified issues and hidden liabilities, which could have a material adverse effect on our business, liquidity, financial condition and results of operations. For instance, in connection with our recent acquisition of Jinan Worldwide, a previously state-owned enterprise, the local Chinese government may, among other things, require us fulfill obligations of the prior owner of Jinan Worldwide to contribute additional capital of approximately RMB 330 million into Jinan Worldwide by May 2010 and achieve certain performance targets with respect to Jinan Worldwide. If we cannot overcome these challenges, we may not realize actual benefits from past and future acquisitions, which will impair our overall business results.

Our acquisition strategy also depends on our ability to obtain necessary government approvals. See “—Risks Related to Doing Business in China—We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.”

- 44 - -

If we fail to comply with covenants in our loan agreements, our lenders may allege a breach of a covenant and seek to accelerate the loan or exercise other remedies, which could strain our cash flow and harm our business, liquidity and financial condition.

In connection with loans made to us by several commercial lenders, we have entered into loan agreements which impose upon us certain financial and operating covenants. The financial covenants require us to satisfy certain financial metrics and maintain financial ratios deemed appropriate by our lenders. The operating covenants often require us to take certain actions, such as keeping current on our debt payments, delivering reports to our lenders and so forth, or refraining from taking actions without the lender’s consent or at all, such as incurring additional debt, making capital expenditures, paying dividends or distributions or acquiring other business or assets. Even though we strive to comply with our covenants, we have failed in the past, and may fail in the future, to do so and our lenders may notify us of such non-compliance and seek to accelerate a loan or exercise other remedies. For instance, under our loan agreement with DEG - Deutsche Investitions - und Entwicklungsgesellschaft mbH, or DEG, dated November 24, 2006, we agreed not to make certain acquisitions without prior consent of DEG. For some of our recent acquisitions, we did not obtain prior approval from DEG, but instead have subsequently informed DEG about the acquisitions. We have not received from DEG any written notice of non-compliance or breach as we believe our subsequent notice has remedied any problems. However, we cannot assure you that DEG will not, in the future, send a notice of breach to us and require acceleration of the loan, in which case we currently believe we have adequate cash to meet the payment obligation. If, in the future, we fail to comply with our loan agreement covenants, and we receive a notice of non-compliance or default, we will attempt to cure any non-compliance and/or negotiate appropriate waivers with our lenders. If we cannot cure any non-compliance or obtain a waiver, our lenders may declare us to be in default, which would give them the right to accelerate our outstanding indebtedness. If any larger amounts of our indebtedness is accelerated as a result of a default, we may be forced to repay our loans earlier than expected, which would have a material adverse effect on our business, liquidity and financial condition.

Any interruption in our production processes could impair our financial performance and negatively affect our brand.

We manufacture or assemble our products primarily at our facilities in Jinzhou and Jinan, China. Our manufacturing operations are complicated and integrated, involving the coordination of raw material and component sourcing from third parties, internal production processes and external distribution processes. While these operations are modified on a regular basis in an effort to improve manufacturing and distribution efficiency and flexibility, we may experience difficulties in coordinating the various aspects of our manufacturing processes, thereby causing downtime and delays. We have also been steadily increasing our production capacity and have limited experience operating at these higher production volume levels. In addition, we may encounter interruption in our manufacturing processes due to a catastrophic loss or events beyond our control, such as fires, explosions, labor disturbances or violent weather conditions. Any interruptions in our production or capabilities at our facilities could result in our inability to produce our products, which would reduce our sales revenue and earnings for the affected period. If there is a stoppage in production at any of our facilities, even if only temporary, or delays in delivery times to our customers, our business and reputation could be severely affected. Any significant delays in deliveries to our customers could lead to increased returns or cancellations and cause us to lose future sales. We currently do not have business interruption insurance to offset these potential losses, delays and risks so a material interruption of our business operations could severely damage our business.

Part of our strategy involves the development of new products, and if we fail to timely develop new products or we incorrectly gauge the potential market for new products, our financial results will be adversely affected.

We plan to utilize our in-house research and development capabilities to develop new products that could become new sources of sales revenue for us in the future and help us to diversify our revenue base. For example, we acquired the research and development center owned by Friend Birch Limited which is focused on developing new technology for rods and shafts. Our future research and development efforts will continue to be focused on expanding our product offering beyond our current products into other similar products and components for different applications, such as hub motors for electric bicycles and electric vehicles. If we fail to timely develop new products or if we miscalculate market demand for new products that we develop, we may not be able to grow our sales revenue at expected growth rates and may incur expenses relating to the development of new products that are not offset by sufficient sales revenue generated by these new products.

Exporting our products outside of China is an important component of our overall growth strategy, which could subject us to various economic, political, regulatory, legal and foreign exchange risks.

We currently sell most of our products in China. Our overseas sales accounted for 4.8%, 9.6% and 16.2% of our total sales revenue in 2006, 2007 and 2008, respectively. We plan to selectively enter international markets in which an opportunity to sell our products has been identified. The marketing, distribution and sale of our products overseas expose us to a number of risks, including:

• fluctuations in currency exchange rates;

• difficulty in designing products that are compatible with product standards in foreign countries;

• greater difficulty in accounts receivable collection;

- 45 - -

• increased marketing and sales costs;

• difficulty and costs of compliance with foreign regulatory requirements and different commercial and legal requirements;

• an inability to obtain, maintain or enforce intellectual property rights in foreign countries;

• changes to import and export regulations, including quotas, tariffs and other trade barriers, delays or difficulties in obtaining export and import licenses, repatriation controls on foreign earnings and currency conversion restrictions; and

• difficulty in engaging and retaining distributors and agents who are knowledgeable about, and can function effectively in, overseas markets.

If we cannot effectively manage these risks, our ability to conduct or expand our business abroad would be impaired, which may in turn hamper our business, financial condition and prospects.

If we cannot keep pace with market changes and produce automotive parts with new technologies in a timely and cost-efficient manner to meet our customers’ requirements and preferences, the growth and success of our business will be hindered.

The automotive parts market in China is characterized by increasing demand for new and advanced technologies, evolving industry standards, intense competition and wide fluctuations in product supply and demand. If we cannot keep pace with market changes and produce automotive parts incorporating new technologies in a timely and cost-efficient manner to meet our customers’ requirements and preferences, the growth and success of our business will suffer.

From time to time, new products, product enhancements or technologies may replace or shorten the life cycles of our products or cause our customers to defer purchases of our existing products. Shorter product life cycles may require us to invest more in developing and designing new products and to introduce new products more rapidly, which may increase our costs of product development and decrease our profitability. In addition, we may not be able to make such additional investments and any additional investments we make in new product development and introductions may not be successful.

Even if we develop and introduce new products, their market acceptance is not assured and depends on:

• the perceived advantages of our new products over existing competing products;

• our ability to attract vehicle manufacturers who are currently using our competitors’ products;

• product cost relative to performance; and

• the level of customer service available to support new products.

Therefore, commercial acceptance by customers of our products may not occur at our expected rate or level, and we may not be able to successfully adapt existing products to effectively and economically meet customer demand, thus impairing the return from our investments. We may also be required under applicable accounting standards to recognize a charge for the impairment of assets to the extent our existing products become uncompetitive or obsolete or if any new products fail to achieve commercial acceptance. Any such charge may jeopardize our ability to operate profitably.

Failure to adequately protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.

We strive to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As a result, we believe that the protection of our intellectual property will become increasingly important to our business. Implementation and enforcement of intellectual property-related laws in China has historically been lacking due primarily to ambiguities in PRC intellectual property law. Accordingly, protection of intellectual property and proprietary rights in China may not be as effective as in the United States or other countries. Currently, we hold 64 PRC patents that relate to various product configurations and product components. We will continue to rely on a combination of patents, trade secrets, trademarks and copyrights to provide protection in this regard, but this protection may be inadequate. For example, our pending or future patent applications may not be approved or, if allowed, they may not be of sufficient strength or scope. As a result, third parties may use the technologies and proprietary processes that we have developed and compete with us, which could negatively affect any competitive advantage we enjoy, dilute our brand and harm our operating results.

- 46 - -

In addition, policing the unauthorized use of our proprietary technology can be difficult and expensive. Litigation may be necessary to enforce our intellectual property rights and given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee litigation would result in an outcome favorable to us. Furthermore, any such litigation may be costly and may divert management attention away from our core business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects and reputation. We have no insurance coverage against litigation costs so we would be forced to bear all litigation costs if we cannot recover them from other parties. All of the foregoing factors could harm our business and financial condition.

We may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely against us, could disrupt our business and subject us to significant liability to third parties.

Our success largely depends on our ability to use and develop our technology, know-how and product designs without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. The holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us or may otherwise make it difficult for us to acquire a license on commercially acceptable terms.

We have not registered and do not own the logo . Wonder Auto Group Limited, a Hong Kong company controlled by Mr. Qingjie Zhao, our chairman, chief executive officer and president and is now dormant, has registered the “ ” trademark in Hong Kong. Jinzhou Wonder Auto Suspension System Co., Ltd. has registered the trademarks “ ” and “ ” in China. We have not been able to register the logo in China because it is similar to the trademarks registered by Jinzhou Wonder Auto Suspension System Co., Ltd. An independent third party entity has registered the “Jinzhou Halla” trademark in China. We currently do not sell any products or services using the marks similar to the trademarks registered by Jinzhou Wonder Auto Suspension System Co., Ltd. or “Jinzhou Halla” trademarks. We have entered into an agreement with Jinzhou Wonder Auto Suspension System Co., Ltd. Under this agreement, Jinzhou Wonder Auto Suspension System Co., Ltd. has agreed not to bring any legal action against us for using the mark “ ” in China. However, we cannot assure you that no action will be brought against us based on our use of “ ”.

There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by others which could damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components used in our products or by companies with which we work in cooperative research and development activities.

Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products in China or other countries. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming, and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceeding to which we may become a party could cause us to:

• pay damage awards;

• seek licenses from third parties;

• pay additional ongoing royalties, which could decrease our profit margins;

• redesign our products; or

• be restricted by injunctions.

- 47 - -

These factors could effectively prevent us from pursuing some or all of our business objectives and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which could have a material adverse effect on our financial condition and results of operations.

We rely on certain technologies licensed to us from third parties and the loss of these licenses or failure to renew such licenses on a timely basis could interrupt our production and have a material adverse impact on our business.

We rely on certain technologies licensed to us from third parties for manufacturing our products. Through our licensing arrangements, we are able to integrate third party technologies into our alternators and starters. We can also produce and sell products that are more suitable for specific types of vehicles utilizing these licensed technologies. If certain licenses are terminated, or not timely renewed, the production of our products using the licensed technologies would be disrupted and our business and financial condition could be damaged. If any of our licensors is alleged to have infringed on any other party’s proprietary right, we may be prevented from using the technology in question, thus disrupting our production.

We may be subject to contractual obligations that limit our ability to sell our automotive parts in certain markets.

When we enter into commercial arrangements, we strive to negotiate the most favorable contractual provisions for our company with respect to both pricing and other terms. In some commercial arrangements, we have negotiated exclusivity, preferred vendor and non-competition arrangements that are favorable to our company. In other instances, counterparties to some of our commercial arrangements have imposed such provisions upon us. For instance, in one of our commercial arrangements, we are restricted from selling certain products using intellectual property licensed from the other party to some foreign companies, joint ventures with foreign companies and companies in countries where the licensor has business. While we believe that our commercial arrangements, when considered in their entirety, are favorable to our business, certain commercial arrangements may restrict our ability to freely sell our products on terms favorable to us or at all, which could have a negative impact on our sales revenue and our ability to grow and expand our business.

If we fail to maintain or improve our market position or respond successfully to changes in the competitive landscape, our business and results of operations will suffer.

Our competition includes a number of global and PRC-based manufacturers and distributors that produce and sell products similar to ours. We compete primarily on the basis of quality, technological innovation and price. Our main competitors include Shanghai Valeo Automotive Electrical Systems Co., Ltd., a joint venture of Shanghai Auto Industrial Group and Valeo Group, Hubei Shendian Auto Motor Co., Ltd., a joint venture of Hubei Shendian Auto Electrical Equipment Co., Ltd. and Remy International, Inc., Bosch Group, Mitsubishi Motors Corporation and Denso Corporation. Many of our competitors have longer operating histories, greater name recognition, larger global market share, access to larger customer bases and significantly greater economies of scale, as well as greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do. As a result of these competitive pressures and expected increases in competition, we may price our products lower than our competitors in order to maintain market share. Any lower pricing may negatively affect our profit margins. If we fail to maintain or improve our market position and respond successfully to changes in the competitive landscape, our business and results of operations may suffer.

A large percentage of our sales revenue is derived from sales to a limited number of customers, and our business will suffer if sales to these customers decline.

A significant portion of our sales revenue historically has been derived from a limited number of customers. Our top five customers accounted for approximately 60.1% of our sales in 2007 and 35.6% in 2008. Any significant reduction in demand for vehicles manufactured by any of these major customers and any decrease in their demand for our products could harm our sales and business operations. The loss of one or more of these customers could damage our business, financial condition and results of operations.

- 48 - -

If we cannot obtain sufficient raw materials and components at a reasonable cost, our ability to produce and market our products, and thus our business, could suffer.

We purchase raw materials and component parts for our products from various suppliers located primarily in Asia, most of which are located in China and a few of which are located in South Korea. The raw materials we use to produce our starters and alternators fall into four general categories: metal parts, semiconductors, chemicals, and packaging materials. The main raw materials we use to produce our rods, shafts, engine valves and tappets are iron and steel rods. The majority of our raw materials and components are purchased from suppliers in China, including our subsidiaries Jinzhou Dongwoo Precision Co., Ltd., Jinzhou Hanhua Electrical System Co., Ltd. and Jinzhou Karham Electrical Equipment Co., Ltd. as well as third parties such as Tianjin Jingda Rea Special Enamelled Wire Co., Ltd., Yingkou Die-Casting Products Co., Ltd. and foreign manufacturers based in South Korea, such as SW-Tech Corporation. Purchases from our top five raw materials and component parts suppliers accounted for approximately 59% of our total cost of sales in 2008. We may experience a shortage in the supply of certain raw materials and components in the future, and if any such shortage occurs, our manufacturing capabilities and operating results of operations could be negatively affected. If any supplier is unwilling or unable to provide us with high-quality raw materials and components in required quantities and at acceptable costs, we may not be able to find alternative sources on satisfactory terms in a timely manner, or at all. In addition, some of our suppliers may fail to meet qualifications and standards required by our customers now or in the future, which could impact our ability to source raw materials and components. Our inability to find or develop alternative supply sources could result in delays or reductions in manufacturing and product shipments. Moreover, these suppliers may delay shipments or supply us with inferior quality raw materials and components that may adversely impact the performance of our products. The prices of raw materials and components needed for our products could also increase, and we may not be able to pass these price increases on to our customers. If any of these events occur, our competitive position, reputation and business could suffer.

If our customers and/or the ultimate consumers of the vehicles that use our products successfully assert product liability claims against us due to defects in our products, our operating results may suffer and our reputation may be harmed.

Our products are used primarily in low emission passenger vehicles. Significant property damage, personal injuries and even death can result from malfunctioning vehicles. If our products are not properly designed, built or installed or if people are injured because of our products, we could be subject to claims for damages based on theories of product liability and other legal theories. The costs and resources to defend such claims could be substantial and, if such claims are successful, we could be responsible for paying some or all of the damages. We have maintained product liability insurance only for products manufactured by Jinzhou Wanyou, which are sold in the United States and Canada. Negative publicity from such claims may also damage our reputation, regardless of whether such claims are successful. Any of these consequences resulting from defects in our products would hurt our operating results and, in turn, the value of our common stock.

Our products may become subject to recall in the event of defects or other performance related issues.

Like many other participants in the automotive industry, we are at risk for product recall costs which are costs incurred when, either voluntarily or involuntarily, a product is recalled through a formal campaign to solicit the return of specific products due to a known or suspected performance defect. Costs typically include the cost of the product, part or component being replaced, the cost of the recall borne by our customers and labor to remove and replace the defective part or component. Our products have not been the subject of an open recall. If a recall decision is made, we will need to estimate the cost of the recall and record a charge to earnings in that period. In making this estimate, judgment is required as to the quantity or volume to be recalled, the total cost of the recall campaign, the ultimate negotiated sharing of the cost between us and the customer and, in some cases, the extent to which the supplier of the part or component will share in the recall cost. As a result, these estimates are subject to change. Excessive recall costs or our failure to adequately estimate these costs may negatively affect our operating results.

We depend heavily on key personnel, and loss of key employees and senior management could harm our business.

Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including Qingjie Zhao, our chairman, chief executive officer and president, Meirong Yuan, our director, chief financial officer and treasurer, Yuncong Ma, our chief operating officer, Seuk Jun Kim, our vice president of new product development, Yuguo Zhao, our vice president of sales and marketing and Yongdong Liu, our vice president of production. They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. If we lose a key employee, if a key employee fails to perform in his or her current position or if we are not able to attract and retain skilled employees as needed, our business could suffer. Turnover in our senior management could significantly deplete institutional knowledge held by our existing senior management team and impair our operations.

In addition, if any of these key personnel joins a competitor or forms a competing company, we may lose some of our customers. We have entered into confidentiality and non-competition agreements with all of these key personnel. However, if any disputes arise between these key personnel and us, it is not clear, in light of uncertainties associated with the PRC legal system, what the court decisions will be and the extent to which these court decisions could be enforced in China, where all of these key personnel reside and hold some of their assets. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.”

- 49 - -

Certain of our existing stockholders have substantial influence over our company, and their interests may not be aligned with the interests of our other stockholders.

Mr. Qingjie Zhao, our chairman, chief executive officer and president, is the beneficial owner of approximately 24.3% of our common stock. As a result, he has significant influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may also have the effect of discouraging, delaying or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares.

Mr. Qingjie Zhao’s association with other businesses could impede his ability to devote ample time to our business and could pose conflicts of interest.

Mr. Qingjie Zhao, our chairman, chief executive officer and president, owns 10.4% of China Wonder Limited, a company listed on the Alternative Investment Market of the London Stock Exchange, which is principally engaged in the manufacture and sale of specialty packaging machinery to the PRC pharmaceutical market. He also serves as an executive director and is a 10.4% owner of Jinzhou Jinheng Automotive Safety System Co., Ltd., a company listed on the Hong Kong Stock Exchange, which is principally engaged in the manufacture and sale of automotive airbag safety systems in China. In addition, Mr. Zhao serves as the chairman of Jinzhou Wonder Alternative Energy Automobile Technology Co., Ltd., which is principally engaged in the research and manufacture of electrical vehicles, Jinzhou Qingjie Electrical Power Technology Co., Ltd., which has no current operations but will engage in the battery business, and Jinzhou Wonder Packing Machinery Co., Ltd., which is principally engaged in pharmaceutical packaging. Mr. Zhao devotes most of his business time to our affairs and the remainder of his business time to the affairs of other companies. Mr. Zhao’s decision-making responsibilities for these companies are similar in the areas of public relations, management of human resources, risk management and strategic planning. Also, we may enter into agreement with these parties to sell or buy goods and services to or from them. As a result, conflicts of interest may arise from time to time. We will attempt to resolve any such conflicts of interest in our favor. Additionally, even though Mr. Zhao is accountable to us and our stockholders as a fiduciary, which requires that he exercise good faith and due care in handling our affairs, his existing responsibilities to other entities may limit the amount of time he can spend on our affairs.

Problems with product quality or product performance could result in a decrease in customers and revenue, unexpected expenses and loss of market share.

Our operating results depend, in part, on our ability to deliver quality products on a timely and cost-effective basis. As our products become more advanced, it may become more difficult to maintain our quality standards. If we experience deterioration in the performance or quality of any of our products, it could result in delays in shipments, cancellations of orders or customer returns and complaints, loss of goodwill and harm to our brand and reputation. Furthermore, our products are used together with components and in motor vehicles that have been developed and maintained by third parties, and when a problem occurs, it may be difficult to identify the source of the problem. In addition, some automobile parts and components may not be fully compatible with our products and may not meet our or our customers’ quality, safety, security or other standards. The use by customers of our products with incompatible or otherwise substandard components is largely outside of our control and could result in malfunctions or defects in our products and result in harm to our brand. These problems may lead to a decrease in customers and revenue, harm to our brand, unexpected expenses, loss of market share, the incurrence of significant warranty and repair costs, diversion of the attention of our engineering personnel from our product development efforts, customer relation problems or loss of customers, any one of which could materially adversely affect our business.

Environmental claims or failure to comply with any present or future environmental regulations may require us to spend additional funds and may harm our results of operations.

We are subject to environmental, health and safety laws and regulations that affect our operations, facilities and products in each of the jurisdictions in which we operate. Some of our newly incorporated Chinese subsidies have not obtained pollutant discharge permits required by Chinese laws. Other than the foregoing, we believe that we are in material compliance with all material environmental, health and safety laws and regulations related to our products, operations and business activities. Although we have not suffered material environmental claims in the past, the failure to comply with any present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production, cessation of our operations or even criminal sanctions. New regulations could also require us to acquire costly equipment or to incur other significant expenses. Our failure to control the use of, or adequately restrict the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspension of our business operations, which could cause damage to our business.

- 50 - -

We have limited insurance coverage and do not carry any business interruption insurance, third-party liability insurance for our manufacturing facilities or insurance that covers the risk of loss of our products in shipment.

Operation of our facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances and other business interruptions. Furthermore, if any of our products are faulty, then we may become subject to product liability claims or we may have to engage in a product recall. We do not carry any business interruption insurance, product recall or third-party liability insurance for our manufacturing facilities or with respect to our products to cover claims pertaining to personal injury or property or environmental damage arising from defaults with our products, product recalls, accidents on our property or damage relating to our operations. We have obtained product liability insurance only for products manufactured by Jinzhou Wanyou which are sold to customers in the United States and Canada. Therefore, our existing insurance coverage may not be sufficient to cover all risks associated with our business. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, under the shipping terms of some of our customer contracts, we bear the risk of loss in shipment of our products. We do not insure this risk. While we believe that the shipping companies that we use carry adequate insurance or are sufficiently solvent to cover any loss in shipment, there can be no assurance that we will be adequately reimbursed upon the loss of a significant shipment of our products.

The discontinuation and uncertainty of the preferential tax treatment currently available to our PRC subsidiaries could materially adversely affect our results of operations.

Before the implementation of the new enterprise income tax law (as discussed below), Foreign Invested Enterprises, or FIEs, established in the PRC, unless granted by Chinese government to enjoy preferential tax treatments, such as “two-year exemption and three-year half reduction”, were generally subject to an EIT rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. On March 16, 2007, the Tenth National People’s Congress of China passed the new Enterprise Income Tax Law, or the EIT Law, and on November 28, 2007, the State Council of China passed the Implementing Rules for the EIT Law, or the Implementing Rules which took effect on January 1, 2008. The EIT Law and Implementing Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions.

Despite these changes, the EIT Law gives the FIEs established before March 16, 2007, or Old FIEs, a five-year grandfather period during which they can continue to enjoy their existing preferential tax treatments. During this five-year grandfather period, the Old FIEs which enjoyed tax rates lower than 25% under the original EIT Law shall gradually increase their EIT rate within 5 years starting from 2008 until the tax rate reaches 25%. In addition, the Old FIEs that are eligible for the “two-year exemption and three-year half reduction” or “five-year exemption and five-year half-reduction” under the original EIT Law, are allowed to remain to enjoy their preference until these holidays expire. The discontinuation and uncertainty of any such special or preferential tax treatment or other incentives would have an adverse effect on the Company’s business, fiscal condition and current operations in China.

The newly enacted Chinese enterprise income tax law will affect tax exemptions on the dividends we receive and increase the enterprise income tax rate applicable to us.

We are a holding company incorporated under the laws of Nevada. We conduct substantially all of our business through our wholly- and majority-owned Chinese subsidiaries and we derive all of our income from these subsidiaries. Prior to January 1, 2008, dividends derived by foreign enterprises from business operations in China were not subject to the Chinese enterprise income tax. However, such tax exemption ceased as of January 1, 2008 and thereafter with the effectiveness of the EIT Law.

- 51 - -

Under the EIT Law, if we are not deemed to be a “resident enterprise” for Chinese tax purposes, a withholding tax at the rate of 10% would be applicable to any dividends paid by our Chinese subsidiaries to us. However, if we are deemed to be a “resident enterprise” established outside of China whose “de facto management body” is located in China, we would be classified as a resident enterprise for Chinese tax purposes and thus would be subject to an enterprise income tax rate of 25% on all of our income. At the present time, the Chinese tax authority has not issued any guidance on the application of the EIT Law and its implementing rules on non-Chinese enterprise or group enterprise controlled entities. As a result, it is unclear what factors will be used by the Chinese tax authorities to determine whether we have a “de facto management body” in China. However, as substantially all members of our management team are located in China, we may be deemed to be a “resident enterprise” and therefore subject to an enterprise income tax rate of 25% on our worldwide income, with the possible exclusion of dividends received directly from another Chinese tax resident. In addition, although under the EIT Law and the Implementing Rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempted income,” we can not assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. As a result of such changes, our historical operating results will not be indicative of our operating results for future periods and the value of our shares of common stock may be adversely affected. We are actively monitoring the possibility of “resident enterprise” treatment and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have the operating effectiveness of our internal controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal controls over financial reporting in their annual reports and the independent registered public accounting firm auditing a company’s financial statements to attest to and report on the operating effectiveness of such company’s internal controls. Although our independent auditor has provided a positive attestation for the year ended December 31, 2008, we can provide no assurance that we will comply with all of the requirements imposed thereby and we will receive a positive attestation from our independent auditors in the future. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.

Our holding company structure may hinder the payment of dividends.

Wonder Auto Technology, Inc. has no direct business operations, other than its ownership of our subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us due to restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in Renminbi, fluctuations in the exchange rate for the conversion of Renminbi into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.

PRC regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after tax profits according to PRC accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of sales revenue or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under PRC accounting standards and regulations to first fund certain reserve funds as required by PRC accounting standards, we will be unable to pay any dividends.

The EIT Law and its Implementation Rules provide that dividends sourced from China payable to “non-resident enterprises” shall be subject to Chinese enterprise income tax at a rate of 10%. Such dividend tax rate may be reduced by applicable tax treaties or arrangements.

Under the EIT Law and its Implementation Rules, dividend payments between qualified Chinese resident enterprises are exempted from enterprise income tax. However, due to the short history of the EIT Law and its Implementation Rules, it remains unclear as to the detailed qualification requirements for such exemption and whether dividend payments from our Chinese subsidiaries to us will be exempted from enterprise income tax if we are considered as a Chinese resident enterprise for tax purposes.

- 52 - -

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.

We conduct substantially all of our operations and generate most of our revenue in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

• the higher level of government involvement;

• the early stage of development of the market-oriented sector of the economy;

• the rapid growth rate;

• the higher level of control over foreign exchange; and

• the allocation of resources.

As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.

Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of automotive investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our business and prospects.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiaries in China. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference, but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and all but one of our directors are residents of China and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to effect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese officers, directors and subsidiaries.

The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its policies, laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

- 53 - -

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively.

Most of our sales revenue and expenses are denominated in Renminbi. Under PRC law, the Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies.

Foreign exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiaries borrow foreign currency through loans from us or foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or their respective local counterparts. These limitations could affect our PRC operating subsidiaries’ ability to obtain foreign exchange through debt or equity financing.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

The SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies in October 2005, which became effective in November 2005, and an implementing rule in May 2007, collectively the SAFE Rules. The SAFE Rules require Chinese residents, including both legal persons and natural persons, who reside in China, to register with the SAFE or its local branch before establishing or controlling any company outside China, referred to in the SAFE Rules as an “offshore special purpose company,” for the purpose of financing that offshore company with their ownership interests in the assets of or their interests in any Chinese enterprise. In addition, a Chinese resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with the injection of equity interests or assets of a Chinese enterprise in the offshore company or overseas fund raising by the offshore company, or any other material change in the capital of the offshore company, including any increase or decrease of capital, transfer or swap of share, merger, division, long-term equity or debt investment or creation of any security interest. The registration and filing procedures under SAFE Rules are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholder loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction. The SAFE Rules required retroactive registration by March 31, 2006 of direct or indirect investments previously made by Chinese residents in offshore companies. If a Chinese shareholder with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the Chinese subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the Chinese subsidiaries. Further, failure to comply with the various SAFE registration requirements described above could result in liability under Chinese law for violation of the relevant rules relating to foreign exchange.

- 54 - -

We recently acquired Yearcity Limited and its subsidiary Jinan Worldwide, as well as Fuxin Huirui Mechanical Co., Ltd. and have not registered these companies with the relevant branch of SAFE, as currently required. We plan to make the proper registration in the next few months. Because of uncertainty over how the SAFE Notice will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how the failure of our subsidiaries to be properly registered will affect our business operations or future strategies. Our ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be restricted. In addition, in the future, additional registrations may be required. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. Any further failures by our current or future Chinese resident beneficial holders to comply with the SAFE Notice, if SAFE requires it, could subject us or these Chinese resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.

On August 8, 2006, six Chinese regulatory agencies promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006, or the M&A Regulations. This regulation, among other things, governs the approval process by which a Chinese company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the regulation will require the Chinese parties to make a series of applications and supplemental applications to the government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to this regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.

The regulation allows Chinese government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

In addition to the above risks, in many instances, we will seek to structure transactions in a manner that avoids the need to make applications or a series of applications with Chinese regulatory authorities under these M&A regulations. If we fail to effectively structure an acquisition in a manner that avoids the need for such applications or if the Chinese government interprets the requirements of the M&A regulations in a manner different from our understanding of such regulations, then acquisitions that we have effected may be unwound or subject to rescission. Also, if the Chinese government determines that our structure of any of our acquisitions does not comply with these regulations, then we may also be subject to fines and penalties.

Failure to comply with Chinese regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In December 2006, the People’s Bank of China promulgated the Administrative Measures for Individual Foreign Exchange, which set forth the respective requirements for foreign exchange transactions by Chinese individuals under either the current account or the capital account. In January 2007, the SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, which, among other things, specified approval requirements for certain capital account transactions such as a Chinese citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On March 28, 2007, the SAFE promulgated the Processing Guidance on Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plans or Stock Option Plans of Overseas-Listed Companies. Under this rule, PRC citizens who are granted stock options by an overseas publicly-listed company are required, through a qualified PRC domestic agent or PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures. We and our Chinese employees who receive stock option grants will be subject to this rule. Our board of directors has adopted the Wonder Auto Technology, Inc. 2008 Equity Incentive Plan and no grant is outstanding under the plan as of the date of this report. If we or the Chinese optionees fail to comply with these regulations, we or these optionees may be subject to fines and other legal or administrative sanctions.

- 55 - -

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.

As an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to approval by relevant governmental authorities in China and other requirements under relevant PRC regulations.

We may also decide to finance our PRC subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, depending on the amount of total investment and the type of business in which a foreign-invested enterprise is engaged, capital contributions to foreign-invested enterprises in China are subject to approval by the Ministry of Commerce or its local branches. We may not obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, our ability to capitalize our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and the Renminbi and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in Renminbi and our financial results are reported in U.S. dollars, 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 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.

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 the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.

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.

Currently, some of our raw materials, components and major equipment are imported. In the event that the U.S. dollars appreciate against Renminbi, our costs will increase. If we cannot pass the resulting cost increases on to our customers, our profitability and operating results will suffer. In addition, since our sales to international customers are growing rapidly, we are increasingly subject to the risk of foreign currency depreciation.

Risks Related to Our Securities

The price of our common stock may fluctuate significantly, which could negatively affect us and holders of our common stock.

The trading price of our common stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. For instance, if our financial results are below the expectations of securities analysts and investors, the market price of our common stock could decrease, perhaps significantly. Other factors that may affect the market price of our common stock include announcements relating to significant corporate transactions; fluctuations in our quarterly and annual financial results; operating and stock price performance of companies that investors deem comparable to us; and changes in government regulation or proposals relating to us. In addition, since the middle of 2008, the U.S. securities markets have experienced significant price and volume fluctuations. These fluctuations often have been unrelated to the operating performance of companies in these markets. Market fluctuations and broad market, economic and industry factors may negatively affect the price of our common stock, regardless of our operating performance. You may not be able to sell your shares of our common stock at the desired price, or at all. Any volatility of or a significant decrease in the market price of our common stock could also negatively affect our ability to make acquisitions using common stock. Further, if we were to be the object of securities class action litigation as a result of volatility in our common stock price or for other reasons, it could result in substantial costs and diversion of our management’s attention and resources, which could negatively affect our financial results.

- 56 - -

There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.

We have filed a preliminary prospectus supplement for the issuance of common stock. We may issue additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of any additional shares of common stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to holders of our common stock. Holders of shares of our common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series. The market price of our common stock could decline as a result of sales of shares of our common stock made after this report or the perception that such sales could occur. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their interests in us.

The market price of our stock may be affected by low volume.

Our common stock has a relatively low average daily volume. The average daily trading volume during the period from July 28, 2009 to October 27, 2009 was approximately 378,000 shares. Without a significantly larger average trading volume, our common stock will be less liquid than the common stock of companies with higher trading volume, as a result, the trading prices for our common stock may be more volatile.

We do not intend to pay dividends on shares of our common stock for the foreseeable future.

We have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.

Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change-of-control.

Our Articles of Incorporation authorizes the board of directors to issue up to 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

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

- 57 - -

None.

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS.

EXHIBITS.

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.

* Filed herewith.

- 58 - -

SIGNATURES

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

DATED:  November 2, 2009

WONDER AUTO TECHNOLOGY, INC.

By: /s/ Meirong Yuan

Meirong Yuan

Chief Financial Officer

(On behalf of the Registrant and as Principal Financial

Officer)

- 59 - -

EXHIBIT INDEX

Exhibit Number	Description
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 adoptedpursuant 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 adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

- 60 - -

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Qingjie Zhao, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Wonder Auto Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2009

/s/ Qingjie Zhao

Qingjie Zhao

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Meirong Yuan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Wonder Auto Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 2, 2009

/s/ Meirong Yuan

Meirong Yuan

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Qingjie Zhao, Chief Executive Officer of WONDER AUTO TECHNOLOGY, INC. (the “Company”), DOES HEREBY CERTIFY that:

1.      The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.      Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 2nd day of November 2009.

/s/ Qingjie Zhao

Qingjie Zhao

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Wonder Auto Technology, Inc. and will be retained by Wonder Auto Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Meirong Yuan, Chief Financial Officer of WONDER AUTO TECHNOLOGY, INC. (the “Company”), DOES HEREBY CERTIFY that:

1.      The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.      Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 2ndday of November 2009.

/s/ Meirong Yuan

Meirong Yuan

Chief Financial Officer

(Principal Financial Officer and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to Wonder Auto Technology, Inc. and will be retained by Wonder Auto Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.