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. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the "Risk Factors" section of our Form 10-K for the year ended December 31, 2008. We assume no obligation and does not intend to update any forward-looking statements, except as required by law.

Certain Terms

Except as otherwise indicated by the context, references in this report to "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:

o "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;
o "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;
o "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;
o "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;
o "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;
o "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;
o "Wonder Auto Limited" are references to Wonder Auto Limited, a British Virgin Islands company and a direct, wholly owned subsidiary of the Company;
o "China" and "PRC" are references to People's Republic of China;
o "RMB" are to Renminbi, the legal currency of China; and
o "$" 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, Jinzhou Halla, Jinzhou Dongwoo, Jinzhou Wanyou, Jinzhou Hanhua , Jinzhou Karham and Jinan Worldwide are primarily engaged in business of designing, developing, manufacturing and selling automotive electrical parts, specifically alternators and starters, engine valves, tappets, rods and shafts in China. We have been producing alternators and starters in China since 1997 and our newly acquired subsidiary Jinan Worldwide has been producing engine valves and tappets for over 50 years. According to a report issued by the China Association of Automobile Manufacturers (CAAM), we ranked second in sales revenue in China in the market for automobile alternators and starters in 2008, 2007 and 2006.

Our products are mainly used in passenger cars and commercial vehicles and sold to original equipment manufacturers in China. We offer over 230 different models of alternators and approximately 150 different models of starters. In addition, we 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. We sell our products to automakers, engine manufacturers and, increasingly, auto parts suppliers, based primarily in China, and we are increasingly exporting our products to the international market.

Recent Developments

On July 3, 2009, our subsidiary, Jingzhou Halla closed the acquisition of 100% ownership of Yearcity Limited, or Yearcity, a BVI company, upon the approval of the acquisition by the Department of Foreign Trade and Economic Cooperation, Liaoning Province of China. Yearcity does not have any asset except for its 100% equity ownership of Jinan Worldwide. Jinan Worldwide is a Chinese company engaged in the manufacturing of engine valves and tappets. As a result of our acquisition of Jinan Worldwide, we have become one of the largest engine valves and tappets manufacturers in China.

Second Quarter Financial Performance Highlights

Despite the overall economic slowdown in the global economy, we continued to experience strong demand for our products during the second quarter of 2009, which resulted in continued growth in our sales revenue and net income. Chinese auto sales rose in June at their fastest monthly rate this year, keeping the country on track to overtake the U.S. as the world's biggest auto market this year. Car sales in China have benefited from favorable tax policies on small cars and subsidies for purchases in rural areas. The automobile market in China, especially the market for small engine automobiles, continued to expand in the second quarter of 2009 due, in part, to the implementation of new PRC consumption tax regulations and the promulgation of new regulations which urge government agencies to use tax breaks and preferential oil-pricing policies to encourage consumers to buy low-emission automobiles. We were able to capitalize on this growth trend during the second quarter of 2009.

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

· Sales revenue increased 35.4% year-over-year to $49.7 million.

· Export increased 26.6% year-over-year to $6.5 million.

· Net income increased 2.1% year-over-year to $5.4 million.

· EPS: Non-GAAP earnings per share was $0.22 for the second quarter of 2009, regardless the non-cash foreign exchange loss/gain, an increase of $0.03 for the second quarter of 2008. The fully diluted earnings per share was $0.20, the same as the second quarter of 2008.

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                               Six months ended
                                                June 30                                         June 30
                                              (unaudited)                                     (unaudited)
                                     2009                    2008                    2009                    2008
Sales revenue                 $ 49,651        100 %   $ 36,659        100 %   $ 89,627        100 %   $ 67,776        100 %
Cost of sales                   37,432       75.4 %     27,155       74.1 %     67,314       75.1 %     50,099       73.9 %
Gross profit                    12,219       24.6 %      9,504       25.9 %     22,314       24.9 %     17,677       26.1 %
Expenses
Administrative expenses          2,752        5.5 %      1,429        3.9 %      5,068        5.7 %      2,767        4.1 %
Selling expenses                 1,519        3.1 %        995        2.7 %      2,731        3.0 %      1,703        2.5 %
Research and development
costs                              465        0.9 %        291        0.8 %        921        1.0 %        668        1.0 %
Total expenses                   4,735        9.5 %      2,715        7.4 %      8,720        9.7 %      5,138        7.6 %
Government grants                  177        0.4 %          -          - %        353        0.4 %          -          - %
Financial Costs                  1,946        3.9 %        567        1.5 %      2,030        2.3 %      1,520        2.2 %
Income before income taxes
and noncontrolling
interests                        6,279       12.6 %      6,756       18.4 %     12,594       14.1 %     11,656       17.2 %
Income taxes                       633        1.3 %        796        2.2        1,553        1.7 %      1,227        1.8 %
Net income attributable to
noncontrolling interests           270        0.5 %        694        1.9 %        494        0.6 %      1,177        1.8 %

Net income                    $  5,376       10.8 %   $  5,266       14.4 %   $ 10,547       11.8 %   $  9,252       13.7 %

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

Sales Revenue. Our sales revenue was mainly generated from sales of products of alternators and starters, rods and shafts, and engine valves and tappets. Sales revenue increased by approximately $13.0 million, or 35.4%, to approximately $49.7 million for the three months ended June 30, 2009, compared with $36.7 million of the same period last year. This increase was mainly attributable to the increased sales volume of alternators and starters, and the inclusion of engine valves and tappets.

Sales revenue from alternators and starters was approximately $32.4 million, decreased $632,099 or 1.9% from $33.1 million of the same quarter in 2008. Such decrease was mainly due to the decreased average selling prices resulted by the fact that a large portion of our revenue was generated from alternators and starters for mid-to-small displacement vehicles, the decreased raw material prices during this quarter, as well as the higher percentage of starters in the mix, which had lower average selling prices. Sales revenue from rods and shafts was approximately $4.7 million, up $1.1 million, or 30.1% from $3.6 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 $10.3 million, or 37.8%, to approximately $37.4 million for the three months ended June 30, 2009 from approximately $27.2 million during the same period in 2008. This increase was mainly due to the increase in our raw materials and labor costs, which were generally in line with the increase in our sales volume. As a percentage of sales revenue, the cost of sales increased approximately 1.3% to 75.4 % from 74.1% for the same period of 2008. The percentage increase was due to the fact that a large portion of our sales revenue was generated from alternators and starters with mid-to-small displacement as compared to the same period of 2008. Our alternators and starters with small displacement generally have a lower margin than our alternators and starters with large displacement.

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 $2.7 million, or 28.6%, to approximately $12.2 million for the three months ended June 30, 2009, compared with approximately $9.5 million for the same period in 2008 as a result of increased demand for and sales of our starters, rods and shafts and valve and tappet products. Gross margin was 24.6% for the three-month period ended June 30, 2009, as compared to 25.9% of the same period in 2008. Such decrease was mainly due to the increase of cost of sales on a percentage basis as discussed above.

Total Operating Expenses. Our total operating expenses increased by approximately $2.0 million, or 74.4%, to approximately $4.7 million for the three months ended June 30, 2009, compared with approximately $2.7 million for the same period in 2008. As a percentage of sales revenue, our total expenses increased to 9.5% for the three months ended June 31, 2009, compared from 7.4% for the same period in 2008. The dollar 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 $1.3 million, or 92.6%, to approximately $2.8 million for the three months ended June 30, 2009, from approximately $1.4 million for the same period in 2008. As a percentage of sales revenue, administrative expenses increased to 5.5% for the three months ended June 30, 2009, as compared to 3.9% for the same period in 2008. The increase in the amount and percentage of administrative expenses was primarily due to the consolidation of the financial results of Yearcity. We acquired 100% equity interest in Yearcity, the addition of Yearcity increased our administrative expenses.

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 $174,010, or 59.9%, to $464,675 for the three months ended June 30, 2009 from $290,665 for the same period in 2008. As a percentage of sales revenue, research and development costs increased to 0.9% from 0.8% for the three months ended June 30, 2008. The Company expects to increase the amount of investments in research and development as revenues increase and will maintain the ratio of research and development costs to total sales revenue at approximately 1.0 %.

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 $523,511, or 52.6% to approximately $1.5 million for the three months ended June 30, 2009 from $994,993 for the same period in 2008. As a percentage of sales revenue, our selling expenses were 3.1% for the three months ended June 30, 2009, which was 2.7% in the second quarter last year. The increase in the amount and percentage of selling expenses was mainly due to the consolidation of Yearcity. Yearcity increased our selling expenses.

Net finance cost. Net finance cost includes interest income, interest expenses, bill discounting charges and net exchange loss/gain. Our net finance cost increased $1.4 million, or 243.5% to $1.9 million for the three months ended on June 30, 2009 from $566,630for the same period last year. The increase was mainly due to the non-cash exchange loss of $709,991 for the three months ended June 30, 2009, as compared to the non-cash exchange gain of $299,429 for the same period of 2008, resulting from the EUR8.3 million loan from DEG Bank.

Income before Income Taxes and Noncontrolling Interests. Income before income taxes and noncontrolling interests decreased by approximately $477,300 or 7.1%, to approximately $6.3 million during the three months ended June 30, 2009 from approximately $6.8 million during the same period in 2008. Income before income taxes as a percentage of sales revenue decreased to 12.6% during the three months ended June 30, 2009, as compared to 18.4% for the same period last year due to the factors described above.

Income Taxes.

Our income taxes decreased $163,042 to $633,024 during the three months ended June 30, 2009 from $796,426 during the same period in 2008.

Net Income attributable to Noncontrolling Interests. Our net income attributable to noncontrolling interests decreased $423,636, or 61.1% to $270,098 for the second quarter in 2009 from $693,734 for the same period in 2008. The net income attributable to noncontrolling interests were held by third parties in Jinzhou Dong Woo, Jinzhou Hanhua and Jinzhou Karham.

Net Income attributable to Wonder Auto Technology, Inc. common stockholders. Our net income attributable to Wonder Auto Technology, Inc. common stockholders increased by $109,738, or 2.1%, to approximately $5.4 million during the three months ended June 30, 2009 from approximately $5.3 million during the same period in 2008, as a result of the factors described above.

Regardless of the non-cash exchange loss/gain of the Euro 8.3 million from DEG Bank, our net income attributable to Wonder Auto Technology, Inc. common stockholders increased $975,231, or 19.5% to approximately $6.0 million for the three months ended June 30, 2009, as compared to $5.0 million for the same quarter of 2008.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Sales Revenue. Sales revenue increased by approximately $21.9 million, or 32.2%, to approximately $89.6 million, compared with $67.8 million of the same period last year. This increase was mainly attributable to the sales volume of our alternators and starters, and the inclusion of engine valves and tappets manufactured by Jinan Worldwide, which contributed approximately $19.9 million.

Sales revenue from alternators and starters was approximately $60.1 million, increased $394, 362 or 0.7% from $59.7 million of the same quarter in 2008. Such moderate increase was mainly due to the decreased average selling prices resulted by the fact that a large portion of our revenue was generated from alternators and starters for mid-to-small displacement vehicles, the decreased raw material prices during this quarter, as well as the higher percentage of starters in the mix, which had lower average selling prices.

Sales from China increased by approximately $22.5 million, or 39.2%, to $80.1 million for the six months ended June 30, 2009, as compared with $57.6million for the last same period.

Cost of Sales. Our cost of sales increased by approximately $17.2 million, or 34.4%, to approximately $67.3 million for the six months ended June 30, 2009 from approximately $50.1 million during the same period in 2008. This increase was mainly due to the increase in our raw materials and labor costs, which were generally in line with the increase in our sales volume. As a percentage of sales revenue, the cost of sales increased approximately 1.2% to 75.1 % during the six months ended June 30, 2009 from 73.9% for the same period of 2008. The percentage increase was due to the fact that a large portion of our sales revenue was generated from alternators and starters with mid-to-small displacement as compared to the same period of 2008. Our alternators and starters with small displacement generally have a lower margin than our alternators and starters with large displacement.

Gross Profit. Our gross profit increased by approximately $4.6 million, or 26.2%, to approximately $ 22.3 million for the six months ended June 30, 2009, compared with approximately $17.7 million for the same period in 2008 as a result of increased demand for and sales of our starters, rods and shafts and valve and tappet products. Gross margin was 24.9% for the six-month period ended June 30, 2009, as compared to 26.1% of the same period in 2008. Such decrease was mainly due to the increase of cost of sales on a percentage basis as discussed above.

Total Operating Expenses. Our total operating expenses increased by approximately $3.6 million, or 69.7%, to approximately $8.7 million for the six months ended June 30, 2009, compared with approximately $5.1 million for the same period in 2008. As a percentage of sales revenue, our total expenses increased to 9.7% for the six months ended June 31, 2009, compared from 7.6% for the same period in 2008. The dollar 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 $2.3 million, or 83.1%, to approximately $5.1 million for the six months ended June 30, 2009, from approximately $2.8 million for the same period in 2008. As a percentage of sales revenue, administrative expenses increased/decreased to 5.7% for the six months ended June 30, 2009, as compared to 4.1% for the same period in 2008. The dollar and percentage increase were primarily due to the consolidation of the financial results of Yearcity and the increased professional expenses related to the acquisition of Yearcity. We acquired 100% equity interest in Yearcity, the addition of Yearcity increased our administrative expenses.

Research and Development Expenses. Our research and development costs increased $252,685, or 37.8%, to $920,907 for the six months ended June 30, 2009 from $668,222 for the same period in 2008. As a percentage of sales revenue, research and development expenses remained 1.0% for the six months ended June 30.

Selling Expenses. Our selling expenses increased $1.0 million, or 60.4% to approximately $2.7 million for the six months ended June 30, 2009 from $1.7 million for the same period in 2008. As a percentage of sales revenue, our selling expenses was 3.0% for the six months ended June 30, 2009, which was 2.5% for the same period in 2008. The increase in the amount and percentage of selling expenses was mainly attributable to the addition of our new subsidiary. Yearcity increased our selling expenses .

Net finance cost. Our net finance cost increased $509,754, or 33.5% to $2.0 million for the six months ended on June 30, 2009 from $1.5 million for the same period last year due to increase of bank loans.

Income before Income Taxes and Noncontrolling Interests. Income before income taxes and noncontrolling interests increased by approximately $937,419 or 8.0%, to approximately $12.6 million during the six months ended June 30, 2009 from approximately $11.7 million during the same period in 2008. Income before income taxes and noncontrolling interests as a percentage of sales revenue decreased to 14.1% during the six months ended June 30, 2009, as compared to 17.2% for the same period last year due to the factors described above.

Income Taxes.

Our income taxes increased $325,786 to $1.6 million during the six months ended June 30, 2009 from $1.2 million during the same period in 2008. As a percentage of sales revenue, our income taxes increased/decreased to 1.7% for the six months ended June 30, 2009 from 1.8% for the same period of last year. The decreased percentage was mainly because of government grant received by the Jinan Worldwide, free of income tax. Our effective income tax rate was 12.3% for the six months ended June 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 $683,946, or 58.1% to $493,533 for the six months ended June 30, 2009 from $1.2 million for the same period in 2008, reflecting the net income attributable to noncontrolling interests held by third parties in Jinzhou Dong Woo, Jinzhou Hanhua and Jinzhou Karham.

Net Income attributable to the Wonder Auto Technology, Inc. common stockholders. Our net income attributable to Wonder Auto Technology, Inc. common stockholders increased by approximately $1.3 million, or 14.0%, to approximately $10.5 million during the six months ended June 30, 2009 from approximately $9.3 million during the same period in 2008, as a result of 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.

In the second quarter of 2009, our sales revenue from our alternator products was approximately $31.8 million, our sales revenue from our starter products was approximately $28.3 million, our sales revenue from our rod and shaft products was approximately $9.7 million, and our sales revenue from our engine valves and tappets was approximately $19.9 million.

We manufacture and sell both 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 14 in our unaudited consolidated financial statements contained under Part I, Item I "FINANCIAL STATEMENTS" above.

Liquidity and Capital Resources

General

As of June 30, 2009, the company had approximately $ 56.8 million of bank deposits. Our total assets was $283.1 million, and the total equity was $116.9 million. The following table provides detailed information about our net cash flow for the periods indicated.