UNITED
      STATES




**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**








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





For
      the
      quarterly period ended June
      30, 2007





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





For
      the
      transition period from _________ to _________





Commission
      file number 000-28727


LONG-E
        INTERNATIONAL, INC.
 
 (Exact
        name of small business issuer as specified in its charter)
 
 Utah
              87-0624752
 
 (State
                  or other jurisdiction of incorporation or organization)
              (IRS
                  Employer Identification No.)
 
 C-6F,
        Huhan Chuangxin Block, Keyuan Road, Hi-Tech Industry Zone, Shenzhen, 518000,
        Guangdong, China
 
 (Address
        of principal executive offices)
 
 (86)
        755
        3396 5188
 
 (Issuer’s
        telephone number)
 
 N/A
 
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 Yes
o  No x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes
o  No
x
 
 As
        of
        December 31, 2007, there were 31,259,714 shares issued and outstanding of
        the
        registrant’s common stock.
 
 Transitional
        Small Business Disclosure Format: Yes o  No
x
 
 
  **INDEX**
  **Page**PART I.
              FINANCIAL
                  INFORMATIONItem 1.
              Financial
                  Statements
              3Consolidated
                  Balance Sheet as of June 30, 2007 (unaudited)
              3Consolidated
                  Statements of Operations for the three and six months ended June
                  30, 2007
                  and 2006 (unaudited)
              4Consolidated
                  Statement of Cash Flows for the six months ended June 30, 2007
                  and 2006
                  (unaudited)
              5Notes
                  to Unaudited Financial Statements
              6Item 2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              18Item 3.
              Controls
                  and Procedures
              38PART II.
              OTHER
                  INFORMATIONItem 1.
              Legal
                  Proceedings
              38Item 2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              38Item 3.
              Defaults
                  Upon Senior Securities
              38Item 4.
              Submission
                  of Matters to a Vote of Security Holders
              39Item 5.
              Other
                  Information
              39Item 6.
              Exhibits
              39Signatures
              
              40
   2
 **PART
        I — FINANCIAL INFORMATION**
  **Item
        1.**   **Financial
        Statements.**
 
 **Long-E
                    International, Inc. and Subsidiaries****Consolidated
                    Balance Sheet****June
                    30, 2007****(Unaudited)**
  **ASSETS:**Current
                    Assets:Cash
                    and cash equivalent
                
                $
                5,911,109Trade
                    Receivables, net of allowance for doubtful account
                    $1,004,455
                
                
                5,351,400Value-added
                    taxes (VAT) refundable
                
                
                45,629Due
                    from related parties (Note 10)
                
                
                83,553Inventories,
                    net of allowance for obsolescence $350,439 (Note 4)
                
                
                2,185,873Prepaid
                    expenses
                
                
                816,380Total
                    current assets
                
                
                14,393,944Plant
                    and equipment, net (Note 5)
                
                
                2,118,735Intangibles,
                    net (Note 6)
                
                
                74,240**Total
                    Assets**
                
                $
                16,586,919**LIABILITIES
                    & SHAREHOLDERS' EQUITY:**Current
                    Liabilities:Payables
                    and accrued liabilities
                
                $
                3,035,491Short
                    term loans (Note 7)
                
                
                1,131,455Registration
                    rights penalty payable
                
                
                1,450,600Various
                    taxes payable
                
                
                1,011,448Wages
                    payable
                
                
                593,755Corporate
                    taxes payable
                
                
                113,702Due
                    to related parties (Note 10)
                
                
                250,000Total
                    current liabilities
                
                
                7,586,451Long-term
                    Liabilities:Convertible
                    debt, net of debt discount of $5,129,958 (Note 8)
                
                
                223,042**Total
                    Liabilities**
                
                
                7,809,493**Commitments
                    and Contingencies (Note 12)****Shareholders'
                    Equity:**Common
                    stock, $.001 Par value;50,000,000 shares authorized;31,259,714
                    shares issued and outstanding (Note 9)
                
                
                31,260Additional
                    paid-in capital
                
                
                7,438,929Accumulated
                    other comprehensive income
                
                
                411,594Statutory
                    reserves
                
                
                776,491Retained
                    earnings
                
                
                119,152**Total
                    Shareholders' Equity**
                
                
                8,777,426**Total
                    Liabilities and Shareholders' Equity**
                
                $
                16,586,919
 The
          accompanying notes are an integral part of these consolidated financial
          statements
 3
 **Long-E
                    International, Inc. and Subsidiaries****Consolidated
                    Statements of Operations**
  For
                    the Three Months Ended
                
                For
                    the Six Months EndedJune
                    30,
                
                June
                    30,2007
                
                2006
                
                2007
                
                2006(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)Sales
                    Revenues
                
                $
                6,961,824
                
                $
                5,664,303
                
                $
                13,119,542
                
                $
                9,012,118Assembling
                    / Reprocessing Revenues
                
                
                523,518
                
                
                759,500
                
                
                907,848
                
                
                763,477Total
                    Revenues
                
                
                7,485,342
                
                
                6,423,803
                
                
                14,027,390
                
                
                9,775,595Cost
                    of Sales
                
                
                5,164,914
                
                
                4,675,736
                
                
                9,596,510
                
                
                7,320,076Gross
                    Profit
                
                
                2,320,428
                
                
                1,748,067
                
                
                4,430,880
                
                
                2,455,519Operating
                    ExpensesSelling
                    expenses
                
                
                498,302
                
                
                48,303
                
                
                1,836,568
                
                
                1,122,696General
                    and administrative expenses
                
                
                958,546
                
                
                458,385
                
                
                2,209,962
                
                
                783,063Research
                    and development
                
                
                76,147
                
                
                236,343
                
                
                142,332
                
                
                313,954Loss
                    on disposal of assets
                
                
                -
                
                
                1,008
                
                
                -
                
                
                154,286Total
                    Operating Expenses
                
                
                1,532,995
                
                
                744,039
                
                
                4,188,862
                
                
                2,373,999Income
                    from Operations
                
                
                787,433
                
                
                1,004,028
                
                
                242,018
                
                
                81,520Other
                    Income (Expense):Other
                    income (expense)
                
                
                (912
                )
                
                614
                
                
                10,588
                
                
                1,213Interest
                    incomes
                
                
                16,611
                
                
                7,215
                
                
                18,548
                
                
                7,215Interest
                    expense
                
                
                (142,784
                )
                
                (19,061
                )
                
                (238,137
                )
                
                (30,029
                )Registration
                    rights penalty
                
                
                (1,450,600
                )
                
                -
                
                
                (1,450,600
                )
                
                -Gain
                    on extinguistment of debts
                
                
                -
                
                
                -
                
                
                15,715
                
                
                -Total
                    Other Income (Expense)
                
                
                (1,577,685
                )
                
                (11,232
                )
                
                (1,643,886
                )
                
                (21,601
                )Income
                    (Loss) before Income Taxes
                
                
                (790,252
                )
                
                992,796
                
                
                (1,401,868
                )
                
                59,919Provision
                    for (benefit from) income taxes
                
                
                (7,225
                )
                
                142,119
                
                
                77,390
                
                
                2,187Net
                    Income (Loss)
                
                
                (783,027
                )
                
                850,677
                
                
                (1,479,258
                )
                
                57,732Foreign
                    currency translation adjustment
                
                
                420,553
                
                
                19,083
                
                
                206,609
                
                
                57,927Comprehensive
                    Income (Loss)
                
                $
                (362,474
                )
                $
                869,760
                
                $
                (1,272,649
                )
                $
                115,659Net
                    earnings (loss) per share, basic and diluted
                
                $
                (0.03
                )
                $
                0.04
                
                $
                (0.05
                )
                $
                0.00Weighted
                    average number of shares outstanding, basic and diluted
                
                
                31,259,714
                
                
                20,606,200
                
                
                31,259,714
                
                
                20,606,200
 The
          accompanying notes are an integral part of these consolidated financial
          statements
  4
 **Long-E
                    International, Inc. and Subsidiaries****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS**
  For
                    the Six Months EndedJune
                    30,2007
                
                2006(Unaudited)
                
                (Unaudited)Cash
                    flows from operating activitiesNet
                    (loss) income
                
                $
                (1,479,258
                )
                $
                57,732Adjustments
                    to reconcile net (loss) income to cashprovided
                    by (used in) operating activities:Depreciation
                    and amortization
                
                
                309,982
                
                
                237,571Loss
                    on disposal of fixed asset
                
                
                -
                
                
                154,286Amortization
                    of debt discount
                
                
                223,042
                
                
                -Stock-based
                    compensation
                
                
                19,060
                
                
                -Chang
                    in operating assets and liabilities:(Increase)
                    decrease in assets:Due
                    from related parties
                
                
                (82,505
                )
                
                6,398VAT
                    tax recoverable
                
                
                10,963
                
                
                4,944Receivable,
                    net
                
                
                (822,607
                )
                
                (1,026,719
                )Prepaid
                    expenses
                
                
                (626,332
                )
                
                (103,955
                )Inventories,
                    net
                
                
                (13,623
                )
                
                (1,087,533
                )(Decrease)
                    increase in liabilities:Payables
                    and accrued liabilities
                
                
                663,815
                
                
                1,720,594Registration
                    rights penalty payable
                
                
                1,450,600
                
                
                -Various
                    tax payable
                
                
                (9,032
                )
                
                310,269Corporate
                    tax payable
                
                
                (11,183
                )
                
                85,238Net
                    cash (used in )provided by operating activities
                
                
                (367,078
                )
                
                358,825Cash
                    flows from investing activities:Purchase
                    of plant and equipment
                
                
                (1,273,011
                )
                
                (120,894
                )Purchase
                    of intangible assets
                
                
                (1,635
                )
                
                -Net
                    cash used in investing activities
                
                
                (1,274,646
                )
                
                (120,894
                )Cash
                    flows from financing activities:Proceeds
                    from bank loans
                
                
                361,015
                
                
                -Proceeds
                    from loans from individuals
                
                
                -
                
                
                277,547Repayment
                    of bank loans
                
                
                (413,775
                )
                
                (300,710
                )Repayment
                    of loans from individuals
                
                
                (178,365
                )
                
                -Proceeds
                    from related party advances
                
                
                -
                
                
                149,015Issuance
                    of convertible promissory notes
                
                
                5,353,000
                
                
                -Net
                    cash provided by financing activities
                
                
                5,121,875
                
                
                125,852Effect
                    of exchange rate changes on cash
                
                
                117,878
                
                
                27,275Net
                    increase in cash
                
                
                3,598,029
                
                
                391,058Cash,
                    beginning of period
                
                
                2,313,080
                
                
                409,437Cash,
                    end of period
                
                $
                5,911,109
                
                $
                800,495**Supplemental
                    disclosure information:**Interest
                    expense paid
                
                $
                238,137
                
                $
                30,029Income
                    taxes paid
                
                $
                77,390
                
                $
                2,187
  The
            accompanying notes are an integral part of these consolidated financial
            statements
 5
  **Long-E
        International, Inc. and Subsidiaries**
 **Notes
        to Unaudited Consolidated Financial Statements**
 **June
        30 2007**
 
  **1.**
              **DESCRIPTION
                  OF BUSINESS AND ORGANIZATION**
 
 Long-e
        International, Inc. (formerly known as Inncardio, Inc.) (the “Company”) is a
        holding company of Long-e International Group Co., Ltd. (“LIG”), which, through
        its variable interest entity (“VIE”), Long-e Technology (Shenzhen) Co., Ltd.
        (formerly known as Shenzhen Agilon Science And Technology Co., Ltd prior
        to
        March 16, 2007) (“LTS”), engages in research, development, production, marketing
        and sales of automotive electronic products, including automotive safety
        and
        security systems. All current operations and assets of LTS are located in
        the
        PRC.
 
 On
        November 30, 2006, Inncardio, Inc. (renamed Long-e International, Inc. on
        December 21, 2006 and hereinafter referred to as “Inncardio”) entered into a
        Share Exchange Agreement (the “Exchange Agreement”) with LIG and its
        shareholders. The Share Exchange was closed effective as of December 29,
        2006.
        Pursuant to the Exchange Agreement, Inncardio issued 20,661,879 shares of
        its
        common stock to LIG’s shareholders and/or their designees in exchange for 100%
        of the outstanding equity interests of LIG (the “Share Exchange”).
 
 The
        Share
        Exchange resulted in a change-in-control of Inncardio by prior LIG shareholders
        and/or their designees and the assumption of LIG’s operations and liabilities,
        including those of LTS (see below). In connection with the change-in-control,
        the Board of Directors and management of LIG became the Board of Directors
        and
        management of Inncardio.
 
 In
        accordance with the Accounting and Financial Reporting Interpretations and
        Guidance prepared by the staff of the U.S. Securities and Exchange Commission
        (SEC), upon closing of the Share Exchange, Inncardio (the legal acquirer)
        has
        been considered the accounting acquiree and LIG (the legal acquiree) has
        been
        considered the accounting acquirer. The consolidated financial statements
        of the
        combined entity are in substance those of LIG, with the assets and liabilities,
        and revenues and expenses, of Inncardio being included effective from the
        date
        of consummation of the Share Exchange. Long-e has been deemed to be a
        continuation of the business of LIG. The outstanding stock of Inncardio prior
        to
        the Share Exchange has been accounted for at their net book value and no
        goodwill has been recognized.
 
 LIG
        was
        incorporated in the British Virgin Islands on May 23, 2006. On June 22, 2006,
        LIG entered into an agreement to acquire 100% of the equity of LTS for a
        total
        cash consideration of $578,000 (RMB 4,800,000) from the former majority
        shareholders of LTS. To fund LIG’s acquisition of LTS, these former majority
        shareholders agreed to provide an interest-free loan to LIG of the same amount
        of $578,000 (RMB 4,800,000). For the purpose of this transaction, these former
        shareholders had established a majority ownership in the Company in May 2006.
        On
        May 23, 2006, they acquired new shares issued by the Company, and collectively
        established a 100% ownership in the Company . On June
        29, 2006, the Company received approval from the Economic and Trade Bureau
        of
        Shenzhen, the People’s Republic of China (the “PRC”), on the acquisition of LTS.
        This transaction has been accounted for as recapitalization of LTS with no
        adjustment to the historical basis of the assets and liabilities of LTS and
        the
        operations were consolidated as though the transaction occurred as of the
        beginning of the first accounting period presented in these financial
        statements. For the purpose of presenting the financial statements on a
        consistent basis, the consolidated financial statements have been prepared
        as if
        LIG had been in existence since the beginning of the earliest period presented
        and throughout the whole periods covered by these financial
        statements.
 
 LTS
        was
        established as a domestic limited liability company on December 21, 2000
        upon
        the issuing of a license by the Administration for Industry and Commerce
        in
        Shenzhen, the PRC with an operating period of 10 years to December 21, 2010.
        Upon LIG’s acquisition of 100% of the equity of LTS in June 2006, approval was
        granted by the Economic and Trade Bureau of Shenzhen for LTS to become a
        Wholly
        Foreign Owned Enterprise.
 
 LIG
        is an
        investment holding company and has not carried on any substantive operations
        of
        its own, except for the acquisition of LTS.
 
 6
 
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 **a.**
              **Basis
                  of preparation**
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and with the
        instructions to Form 10-QSB and Item 310 of Regulation S-B. In the opinion
        of
        management, the condensed consolidated financial statements reflect all
        adjustments (consisting of normal recurring adjustments) considered necessary
        for a fair presentation of the results Long-E International Inc. and its
        subsidiaries for the periods presented. Operating results for interim periods
        are not necessarily indicative of results that may be expected for the fiscal
        year as a whole. The preparation of the financial statements in conformity
        with
        accounting principles generally accepted in the U.S. requires management
        to make
        estimates and assumptions that affect the reported amounts of assets,
        liabilities, revenues, expenses, and the related disclosures at the date
        of the
        financial statements and during the reporting period. Actual results could
        materially differ from these estimates. For further information, refer to
        the
        consolidated financial statements and notes of Long-e International, Inc.
        for
        December 31, 2006 and the two years in the period ended December 31, 2006,
        which
        appear in the Company’s Report on Form 10-KSB/A which was filed on December 26,
        2007.
 
 **b.**
              **Basis
                  of consolidation**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries (collectively referenced throughout as the “Company”). Significant
        intercompany transactions have been eliminated on consolidation.
 
 **c.**
              **Use
                  of estimates**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities, disclosure of contingent
        assets and liabilities at the date of the financial statements, and the reported
        amounts of revenues and expenses during the reporting year. Because of the
        use
        of estimates inherent in the financial reporting process, actual results
        could
        differ from those estimates.
 
 **d.**
              **Fair
                  values of financial
                  instruments**
 
 The
        Company values its financial instruments as required by Statement of Financial
        Accounting Standard (SFAS) No. 107, “Disclosures about Fair Value of Financial
        Instruments”. The estimated fair value amounts have been determined by the
        Company, using available market information and appropriate valuation
        methodologies. The estimates presented herein are not necessarily indicative
        of
        amounts that the Company could realize in a current market
        exchange.
 
 The
        Company’s financial instruments primarily consist of cash, accounts receivable,
        other receivables, accounts payable, receipt in advance, accrued expenses,
        other
        payables, short term loans, and short-term related party advances. As of
        the
        balance sheet date, the estimated fair values of the financial instruments
        were
        not materially different from their carrying values as presented due to the
        short maturities of these instruments and that the interest rates on the
        borrowings approximate those that would have been available for loans of
        similar
        remaining maturity and risk profile at respective year ends.
 
 **e.**
              **Cash
                  and cash equivalents**
 
 Cash
        and
        cash equivalents include cash on hand, demand deposits with banks and liquid
        investments with an original maturity of three months or less.
 
 **f.**
              **Accounts
                  Receivable**
 
 Accounts
        receivables are recognized and carried at original invoiced amount less an
        allowance for uncollectible accounts, as needed.
 
 7
  The
        Company uses the aging method to estimate the valuation allowance for
        anticipated uncollectible receivable balances. Under the aging method, bad
        debts
        percentages determined by management based on historical experience as well
        as
        current economic climate are applied to customers’ balances categorized by the
        number of months the underlying invoices have remained outstanding. The
        valuation allowance balance is adjusted to the amount computed as a result
        of
        the aging method. When facts subsequently become available to indicate that
        the
        amount provided as the allowance was incorrect, an adjustment which classified
        as a change in estimate is made.
 
 **g.**
              **Inventories**
 
 Inventories
        are stated at the lower of cost, as determined on a weighted average basis,
        or
        market. Costs of inventories include purchase and related costs incurred
        in
        bringing the products to their present location and condition. Market value
        is
        determined by reference to selling prices after the balance sheet date or
        to
        management’s estimates based on prevailing market conditions. The management
        writes down the inventories to market value if it is below cost. The management
        also regularly evaluates the composition of its inventories to identify
        slow-moving and obsolete inventories to determine if valuation allowance
        is
        required.
 
 **h.**
              **Property
                  and Equipment**
 
 Plant
        and
        equipment are initially recognized recorded at cost. Gains or losses on
        disposals are reflected as gain or loss in the period of disposal. The cost
        of
        improvements that extend the life of plant and equipment are capitalized.
        These
        capitalized costs may include structural improvements, equipment and fixtures.
        All ordinary repairs and maintenance costs are expensed as
        incurred.
 
 Depreciation
        for financial reporting purposes is provided using the straight-line method
        over
        the estimated useful lives of the assets:
 
 Production
                  Machinery and Equipment
              8
                  yearsLeasehold
                  Improvements
              10
                  yearsOffice
                  and Other Equipment
              5
                  yearsAutomobiles
              5
                  years
 
 **i.**
              **Impairment
                  of Long-Lived Assets**
 
 The
        Company accounts for impairment of plant and equipment and amortizable
        intangible assets in accordance with SFAS No. 144, “Accounting for Impairment of
        Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the
        Company to evaluate a long-lived asset for recoverability when there is event
        or
        circumstance that indicate the carrying value of the asset may not be
        recoverable. An impairment loss is recognized when the carrying amount of
        a
        long-lived asset or asset group is not recoverable (when carrying amount
        exceeds
        the gross, undiscounted cash flows from use and disposition) and is measured
        as
        the excess of the carrying amount over the asset’s (or asset group’s) fair
        value.
 
 **j.**
              **Comprehensive
                  income**
 
 SFAS
        No.130, “Reporting Comprehensive Income”, requires disclosure of all components
        of comprehensive income and loss on an annual and interim basis. Comprehensive
        income and loss is defined as the change in equity of a business enterprise
        during a period from transactions and other events and circumstances from
        non-owner sources. The Company had comprehensive income (loss) of ($1,272,649)
        and $115,659 for the six months ended June 30, 2007 and 2006, respectively.
 
 **k.**
              **Segment
                  information**
 
 SFAS
        No.131, “Disclosures about Segments of an Enterprise and Related Information”,
        requires certain financial and supplementary information to be disclosed
        on an
        annual and interim basis for each reportable segment of an enterprise. The
        Company believes that it operates in one business segment (research,
        development, production, marketing and sales of auto electronic products)
        and in
        one geographical segment (China), as all of the Company’s current operations are
        carried out in China.
  8
  **l.**
              **Revenue
                  recognition**
 
 The
        Company generates revenues from the sales of auto electronic products and
        subcontracting activities. Sales are recognized when the following four revenue
        criteria are met: persuasive evidence of an arrangement exists, delivery
        has
        occurred, the selling price is fixed or determinable, and collectability
        is
        reasonably assured. Sales are presented net of value added tax (VAT). No
        return
        allowance is made as products returns are insignificant based on historical
        experience. Subcontracting revenue is recognized upon delivery of
        goods.
 
 **m.**
              **Government
                  grants**
 
 Grants
        from the PRC government are recognized at their fair value where there is
        a
        reasonable assurance that the grant will be received and the Company will
        comply
        with all attached conditions.
 
 Government
        grants are recognized as revenues or gains in the period received and as
        assets,
        decreases of liabilities, or expenses depending on the form of the grants
        received.
 
 **n.**
              **Research
                  and development costs**
 
 Research
                  and development costs are expensed to operations as incurred.
 
 **o.**
              **Income
                  taxes**
 
 The
        Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
        for Income Taxes". SFAS No. 109 requires an asset and liability approach
        for
        financial accounting and reporting for income taxes and allows recognition
        and
        measurement of deferred tax assets based upon the likelihood of realization
        of
        tax benefits in future years. Under the asset and liability approach, deferred
        taxes are provided for the net tax effects of temporary differences between
        the
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amounts used for income tax purposes. A valuation allowance is provided
        for
        deferred tax assets if it is more likely than not these items will either
        expire
        before the Company is able to realize their benefits, or that future
        deductibility is uncertain.
 
 **p.**
              **Foreign
                  currency translation**
 
 The
        Company uses the United States dollars (“U.S. dollars” or “US$”) for financial
        reporting purposes. LTS maintains its books and records in its functional
        currency, Chinese Renminbi (“RMB”), being the primary currency of the economic
        environment in which their operations are conducted. In general, in accordance
        with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign
        Currency Translation”, the Company translates its assets and liabilities into
        U.S. dollars using the applicable exchange rates prevailing at the balance
        sheet
        date, and the statement of income is translated at average exchange rates
        during
        the reporting period. Adjustments resulting from the translation of the
        Company’s financial statements are recorded as accumulated other comprehensive
        income.
 Until
        July 21, 2005, RMB had been pegged to US$ at the rate of RMB8.30: US$1.00.
        On
        July 21, 2005, the PRC government reformed the exchange rate system into
        a
        managed floating exchange rate system based on market supply and demand with
        reference to a basket of currencies. In addition, the exchange rate of RMB
        to
        US$ was adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People’s Bank of
        China announces the closing price of a foreign currency such as US$ traded
        against RMB in the inter-bank foreign exchange market after the closing of
        the
        market on each working day, which will become the unified exchange rate for
        the
        trading against RMB on the following working day. The daily trading price
        of US$
        against RMB in the inter-bank foreign exchange market is allowed to float
        within
        a band of ± 0.3%
        around the unified exchange rate published by the People’s Bank of China.
 
 This
        quotation of exchange rates does not imply free convertibility of RMB to
        other
        foreign currencies. All foreign exchange transactions continue to take place
        either through the Bank of China or other banks authorized to buy and sell
        foreign currencies at the exchange rates quoted by the People’s Bank of China.
        Approval of foreign currency payments by the Bank of China or other institutions
        requires submitting a payment application form together with invoices, shipping
        documents and signed contracts.
 
 9
  The
        exchange rates used to translate amounts in RMB into U.S. Dollars for the
        purposes of preparing the consolidated financial statements were as follows:
 
 June
                  30, 2007Balance
                  sheet items, except for the registered and paid-up capital, as
                  of year
                  end
              US$0.13150:RMB1Amounts
                  included in the statements of operations, statements of changes
                  in
                  stockholders’ equity and statements of cash flows for the year
              US$0.12971:RMB1
 
 No
        representation is made that RMB amounts have been, or would be, converted
        into
        US$ at the above rates.
 
 **q.**
              **Related
                  parties**
 
 A
        party
        is considered to be related to the Company if the party directly or indirectly
        or through one or more intermediaries, controls, is controlled by, or is
        under
        common control with the Company. Related parties also include principal owners
        of the Company, its management, members of the immediate families of principal
        owners of the Company and its management and other parties with which the
        Company may deal if one party controls or can significantly influence the
        management or operating policies of the other to an extent that one of the
        transacting parties might be prevented from fully pursuing its own separate
        interests. A party which can significantly influence the management or operating
        policies of the transacting parties or if it has an ownership interest in
        one of
        the transacting parties and can significantly influence the other to an extent
        that one or more of the transacting parties might be prevented from fully
        pursuing its own separate interests is also a related party.
 
 **r.**
              **Recently
                  issued accounting
                  pronouncements**
 
 In
        February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company’s first fiscal year that begins
        after September 15, 2006. The adoption of this statement did not have a material
        impact on the Company’s financial position or results of
        operations.
 
 In
        March
        2006 FASB issued SFAS 156 “Accounting for Servicing of Financial Assets” this
        Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
        of Financial Assets and Extinguishments of Liabilities, with respect to the
        accounting for separately recognized servicing assets and servicing liabilities.
        This Statement:
 
 ·
              Requires
                  an entity to recognize a servicing asset or servicing liability
                  each time
                  it undertakes an obligation to service a financial asset by entering
                  into
                  a servicing contract.
 ·
              Requires
                  all separately recognized servicing assets and servicing liabilities
                  to be
                  initially measured at fair value, if
                  practicable.
 ·
              Permits
                  an entity to choose 'Amortization method' or ‘Fair value measurement
                  method’ for each class of separately recognized servicing assets and
                  servicing liabilities.
 ·
              At
                  its initial adoption, permits a one-time reclassification of
                  available-for-sale securities to trading securities by entities
                  with
                  recognized servicing rights, without calling into question the
                  treatment
                  of other available-for-sale securities under Statement 115, provided
                  that
                  the available-for-sale securities are identified in some manner
                  as
                  offsetting the entity's exposure to changes in fair value of servicing
                  assets or servicing liabilities that a servicer elects to subsequently
                  measure at fair value.
  10
  ·
              Requires
                  separate presentation of servicing assets and servicing liabilities
                  subsequently measured at fair value in the statement of financial
                  position
                  and additional disclosures for all separately recognized servicing
                  assets
                  and servicing liabilities. An entity should adopt this Statement
                  as of the
                  beginning of its first fiscal year that begins after September
                  15,
                  2006.
 
 The
        adoption of this statement did not have a material impact on the Company’s
        financial position or results of operations.
 
 In
        June
        2006, the Financial Accounting Standards Board (“FASB”) ratified the provisions
        of Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from
        Customers and Remitted to Governmental Authorities Should Be Presented in
        the
        Income Statement (That Is, Gross versus Net Presentation).” EITF Issue No. 06-3
        requires that the presentation of taxes within revenue-producing transactions
        between a seller and a customer, including but not limited to sales, use,
        value
        added, and some excise taxes, should be on either a gross (included in revenue
        and cost) or a net (excluded from revenue) basis. In addition, for any such
        taxes that are reported on a gross basis, a company should disclose the amounts
        of those taxes in interim and annual financial statements for each period
        for
        which an income statement is presented if those amounts are significant.
        The
        disclosure of those taxes can be done on an aggregate basis. EITF Issue No.
        06-3
        is effective for fiscal years beginning after December 15, 2006, which will
        be
        the Company’s fiscal 2008. The adoption of EITF Issue No. 06-3 did not have a
        material impact on the Company’s consolidated results of operations or financial
        position.
 
 In
        July
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
        Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
        company should recognize, measure, present and disclose in its financial
        statements uncertain tax positions that the company has taken or expects
        to take
        on a tax return (including a decision whether to file or not to file a return
        in
        a particular jurisdiction). The accounting provisions of FIN No.48 are effective
        for fiscal years beginning after December 15, 2006. The adoption of this
        Interpretation had no impact on the Company’s financial position or results of
        operations.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        (“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for
        reporting fair value and expands disclosures about fair value measurements.
        SFAS
        No. 157 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007 and interim periods within those fiscal years. The
        adoption of this standard will have no impact on the Company’s financial
        statements.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No. 159, “The Fair Value Option for Financial Assets and Financial
        Liabilities-Including an amendment of FASB Statement No. 115,
        (“SFAS No. 159”). SFAS No. 159 permits entities to choose to
        measure many financial instruments and certain other items at fair value.
        Most
        of the provisions of this Statement apply only to entities that elect the
        fair
        value option. However, the amendment to FASB Statement No. 115, “Accounting
        for Certain Investments in Debt and Equity Securities,”
(“SFAS No. 115”), applies to all entities with available-for-sale and
        trading securities. SFAS No. 159 is effective for the Company’s
        consolidated financial statements for the annual reporting period beginning
        after November 15, 2007. The Company is currently evaluating the impact of
        this new pronouncement on its consolidated financial statements.
 
 **3.**
              **CONCENTRATIONS
                  OF CREDIT RISK**
 
 Financial
        instruments which potentially expose the Company to concentrations of credit
        risk consist of cash, accounts and other receivables as of June 30, 2007.
        The
        Company performs ongoing evaluations of its cash position and credit evaluations
        to ensure collections and minimize losses.
 
 As
        of
        June 30, 2007, substantially all of the Company’s bank deposits were placed with
        banks in the PRC where there is currently no rule or regulation in place
        for
        obligatory insurance to cover bank deposits in the event of bank failure.
        The
        Company has not suffered any losses on its cash balances.
 
 For
        the
        six months period ended June 30, 2007, approximately 75% of the ** Company’s
        sales were made to customers located in the PRC. ** In
        addition, approximately 90% ** of
        accounts receivables as of June 30, 2007 also arose from customers located
        in
        the PRC.
 
 11
 Other
        than the largest customer who accounted for approximately 13% of the Company’s
        total revenue for the six months period ended June 30, 2007, no single external
        customer exceeded 10% of the Company’s total revenue for the six months period
        ended June 30, 2007.
 
 **4.**
              **INVENTORIES**
 
 At
        June
        30, 2007, inventories consist of the following:
  Raw
                  materials and packing materials
              
              $
              894,820Raw
                  materials on consignment at subcontractors
              
              
              104,364Finished
                  goods
              
              
              514,308Work-in-progress
              
              
              1,020,553Consumables
              
              
              2,2672,536,312Less:
                  Allowance for obsolescence
              
              
              (350,439
              )Total
              
              $
              2,185,873
 
 **5.**
              **PLANT
                  AND EQUIPMENT**
 
 At
        June
        30, 2007, plant and equipment consist of the following:
 
 Production
                  machinery and equipment
              
              $
              2,564,246Leasehold
                  improvements
              
              
              292,411Office
                  and other equipment
              
              
              194,447Automobiles
              
              
              156,3063,207,410Less:
                  Accumulated depreciation
              
              
              (1,088,675
              )$
              2,118,735
 
 All
        automobiles are pledged to a bank as security against a bank loan. See Note
        7.
        Accumulated depreciation of such motor vehicles amounted  to
        $60,461 as of June 30, 2007.
  The
        depreciation expense was $284,620 and $237,571 for the six months ended June
        30,
        2007 and 2006, and is broken down as follows:
 June
                  30, 2007
              
              June
                  30, 2006Cost
                  of sales
              
              
              210,795
              
              
              56,631Operating
                  expense
              
              
              73,825
              
              
              180,940Total
              
              $
              284,620
              
              $
              237,571
 
 12
  **6.**
              **INTANGIBLE
                  ASSETS**
 
 Intangible
        assets consist of the following, which is to be amortized over 2 years starting
        2006:
 June
                  30, 2007Computerized
                  ERP System
              
              
              109,246CorelDraw
                  13 Chinese software
              
              
              1,657Less:
                  Accumulated amortization
              
              
              (36,663
              )$
              74,240
 
 Amortization
        expenses amounted to $25,362 and
        $nil for
        the
        six months ended June 30, 2007 and 2006, respectively.
  **7.**
              **SHORT-TERM
                  BANK LOANS**
 
 Short-term
        bank loans consist of the following:
 June
                  30, 20073.49%
                  Bank loan, due by installments up to October 7, 2008
              
              $
              228,9563.49%
                  Bank loan, due by installments up to February 12, 2009
              
              
              188,168Interest-free,
                  unsecured loans, no fixed terms of repayment
              
              
              714,331Total
                  short-term bank loans
              
              $
              1,131,455
 
 Interest
        expenses rising from these loans for the six months period ended June 30,
        2007
        and 2006 amounted to $15,095 and $30,029, respectively.
 
 **8.**
              **CONVERTIBLE
                  DEBT**
 
 On
        January 25, 2007, the Company effected a second private placement transaction
        (the “Second Private Placement”). Pursuant to a Securities Purchase Agreement
        entered into with the investors, the Company sold and the investors
        purchased:
 
 ·
              Convertible
                  Promissory Notes (the “Notes”) in the aggregate principal amount of
                  $5,353,000 convertible into a total of 13,382,500 shares of the
                  Company’s
                  common stock at a price of $0.40 per share. Upon filing of a Certificate
                  of Designations of Preferences, Rights and Limitations of the Company’s
                  class of preferred stock with the Secretary of State of Utah, the
                  Notes
                  shall be convertible only into 13,382,500 shares of preferred stock,
                  at a
                  price of $0.40 per share. The Notes are payable on January 25,
                  2017,
                  subject to automatic extension on a month by month basis. The Notes
                  do not
                  bear any interest.
 
 ·
              Common
                  Stock Purchase Warrants (the "Series A Warrant") entitling the
                  investors
                  to purchase up to an aggregate of 6,691,250 shares of the Company's
                  common
                  stock at a price of $0.48 per share. The Series A Warrant is exercisable
                  until January 25, 2012. The Series A Warrant has a "cashless exercise"
                  feature, and the exercise price per share may be adjusted in response
                  to
                  the occurrence of certain triggering events. The Company may call
                  the
                  Series A Warrant if the closing market price of its common stock
                  equals or
                  exceeds $1.00 per share for 30 consecutive trading days and there
                  is an
                  effective registration statement covering the shares of common
                  stock
                  underlying the Series A Warrant during such period.
  ·
              Common
                  Stock Purchase Warrants (the "Series B Warrant") to purchase up
                  to an
                  aggregate of 6,691,250 shares of the Company's common stock at
                  a price of
                  $0.60 per share. The period of exercisability of the Series B Warrant,
                  and
                  the other material terms thereof, are the same as for the Series
                  A
                  Warrant, with the exception that the call feature is triggered
                  if the
                  closing market price of the Company's common stock equals or exceeds
                  $1.20
                  per share for 30 consecutive trading days and there is an effective
                  registration statement covering the shares of common stock underlying
                  the
                  Series B Warrant during such period.
 
 13
 As
        of the
        date of this report, none of the Notes had been converted and none of the
        Series
        A or B Warrants from the Second Private Placement had been exercised, in
        whole
        or in part. After commissions and expenses, we received net cash proceeds
        approximately $4.79 million in the Second Private Placement after paying
        professional fees.
 
 In
        accordance with Emerging Issues Task Force (‘‘EITF’’) 98-5 and EITF 00-27, the
        convertible debt was considered to have an embedded beneficial conversion
        feature (BCF) because the effective conversion price was less than the fair
        value of the Company’s common stock. This convertible notes were fully
        convertible at the issuance date, therefore the portion of proceeds allocated
        to
        the convertible debt of $896,002 was determined to be the value of the
        beneficial conversion feature and was recorded as a debt discount and is
        being
        amortized over the 120-month convertible debt term.
 
 The
        investors also received Series A and Series B Warrants. The Series A and
        Series
        B Warrants have a term of 5 years after the issue date of January 25, 2007.
        These warrants were treated as a discount on the secured debt and were valued
        at
        $4,456,998 to be amortized over the 120-month convertible debt term. The
        fair
        market value of each stock warrant was estimated on the date of grant using
        the
        Black-Scholes option-pricing model in accordance with SFAS No. 123R using
        the
        following weighted-average assumptions: expected dividend yield 0%; risk-free
        interest rate of 4.63%; volatility of 79% and an expected term of five
        years.
 
 For
        the
        six months ended June 30, 2007, amortization of debt discount amounted to
        $223,042 and is included in interest expense on the accompanying consolidated
        statement of operations.
 
 The
        Company evaluated whether or not the secured convertible debentures contain
        embedded conversion options, which meet the definition of derivatives under
        SFAS
        133 “Accounting for Derivative Instruments and Hedging Activities” and related
        interpretations. The Company concluded that since the secured convertible
        debentures had a fixed conversion rate of $1.00, the secured convertible
        debt
        was not a derivative instrument.
 
 Pursuant
        to the terms of the Amended and Restated Registration Right Agreement in
        the
        Second Private Placement, the Company agreed to file, not later than 120
        days
        after the closing date of the Securities Purchase Agreement, a registration
        statement registering a portion of the shares issuable upon conversion of
        the
        Notes and the Series A and Series B Warrants, and a portion of the shares
        issued
        in the Private Placement closed December 29, 2006. The Company failed to
        satisfy
        certain agreed deadlines during the registration process. The Company is
        obligated to pay the investors liquidated damages in cash equal to 2% of
        the
        investor’s initial investment in the company, up to 20% of such investment in
        the aggregate. For the six months ended June 30, 2007, the Company accrued
        registration rights penalties of $1,450,600 (See Note 13).
 
 The
        convertible debenture liability is as follows at June 30, 2007:
  Convertible
                  debentures payable
              
              $
              5,353,000Less:
                  unamortized discount on debentures
              
              
              (5,129,958
              )Convertible
                  debentures, net
              
              $
              223,042
  **9.**
              **SHAREHOLDERS’
                  EQUITY**
 
 Warrants
 
 In
        connection with the Second Private Placement transaction, the Company granted
        Series A Warrants entitling the investors to purchase up to an aggregate
        of
        6,691,250 shares of the Company's common stock at a price of $0.48 per share
        and
        Series B Warrants to purchase up to an aggregate of 6,691,250 shares of the
        Company's common stock at a price of $0.60 per share (See Note 8).
  14
 On
        March
        31, 2007 the Company entered into an engagement letter for investor relations
        services with CCG Investor Relations Partners, LLC (“CCG”) and issued to CCG,
        pursuant to that agreement, a warrant to purchase up to 125,000 shares of
        the
        Company’s common stock at an exercise price of $1.20 per share, vesting in four
        parts through early 2008. The
        fair
        market value of these stock warrants was $76,242 and was estimated on the
        date
        of grant using the Black-Scholes option-pricing model in accordance with
        SFAS
        No. 123R using the following weighted-average assumptions: expected dividend
        yield 0%; risk-free interest rate of 4.63%; volatility of 79% and an expected
        term of five years. The Company will amortize the fair value of these warrants
        over the vesting period beginning on April 1, 2007. For the six months ended
        June 30, 2007, amortization of CCG warrants amounted to $19,060 and is included
        in general and administrative expense on the accompanying consolidated statement
        of operations.
 
 A
        summary
        of the status of the Company's outstanding stock warrants as of June 30,
        2007
        and changes during the periods then ended is as follows:
 
 Number
                  of
                Warrants
              
              Weighted
                  Average
                Exercise
                  PriceBalance
                  at December 31, 2006
              
              
              6,807,141
              
              $
              0.49Granted
              
              
              13,507,500
              
              
              0.55Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Balance
                  at June 30, 2007
              
              
              20,314,641
              
              $
              0.53Options
                  exercisable at end of period
              
              
              20,314,641
              
              $
              0.53
 
 The
        following information applies to all warrants outstanding at June 30,
        2007:
  Warrants
                  Outstanding
              
              Warrants
                  ExercisableRange
                  of Exercise Prices
              
              Shares
              
              Weighted
                  Average Remaining Contractual Life (Years)
              
              Weighted
                  Average
                Exercise
                  Price
              
              Shares
              
              Weighted
                  Average
                Exercise
                  Price$0.28
              
              
              1,000,000
              
              
              4.25
              
              $
              0.28
              
              
              1,000,000
              
              $
              0.280.40-048
              
              
              9,859,106
              
              
              4.50
              
              
              0.48
              
              
              9,330,535
              
              
              0.480.60
              
              
              9,330,535
              
              
              4.50
              
              
              0.60
              
              
              9,330,535
              
              
              0.60$1.20
              
              
              125,000
              
              
              4.75
              
              $
              1.20
              
              
              31,250
              
              
              1.2020,314,641
              
              
              
              
              $
              0.53
              
              
              20,220,891
              
              $
              0.52
 
 As
        of
        June 30, 2007 and 2006, the Company did not have a shareholder-approved equity
        incentive plan and had no options outstanding.
 
 **10.**
              **RELATED
                  PARTY TRANSACTIONS AND
                  ARRANGEMENTS**
 
 (a)
              *Balances
                  with related parties*
 
 In
        addition to the transactions detailed elsewhere in these financial statements,
        At June 30, 2007, the Company had the following balances with related
        parties.
 
 Due
                  from related parties:Ms.
                  Li Xiangdong, VP, Finance of Agilon
              
              
              1,354Mr.
                  Chen Linshen, Executive VP
              
              
              2,035Mr.
                  Xu Rujiang, COO & GM of Agilon
              
              
              15,492Mr.
                  Chen Dong, a director
              
              
              7,109Mr.
                  Liangzhu,CFO
              
              
              6,145Shenzhen
                  Xugang Electronics Co., Ltd
              
              
              51,418Due
                  from related parties
              
              $
              83,553
  15
  Due
                  to related parties:Mr.
                  Bu Shengfu, CEO
              
              $
              190,626Mr.
                  Li Huamin, a stockholder
              
              
              31,120Mr.
                  Xu Jiafa, VP, Production of Agilon
              
              
              28,254Due
                  to related parties
              
              $
              250,000
 
 The
        balances with the related parties represent advances to or loans from the
        respective related parties. These balances are interest-free, unsecured and
        have
        no fixed repayment date. It is expected that the balances will be received
        or
        repaid within one year.
  **11.**
              **CURRENT
                  VULNERABILITY DUE TO CERTAIN
                  CONCENTRATIONS**
 
 The
        Company’s operations are all carried out in the PRC. Accordingly, the Company’s
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, and by the general
        state
        of the PRC’s economy.
 
 The
        Company’s operations in the PRC are subject to specific considerations and
        significant risks not typically associated with companies in the North America
        and Western Europe. These include risks associated with, among others, the
        political, economic and legal environments and foreign currency exchange.
        The
        Company’s results may be adversely affected by changes in governmental policies
        with respect to laws and regulations, anti-inflationary measures, currency
        conversion and remittance abroad, and rates and methods of taxation, among
        other
        things.
 
 **12.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 (a)
              *Operating
                  lease commitments*
 
 The
        Company has entered into tenancy agreements for the lease of factory premises
        and staff dorms. The Company’s commitments for minimum lease payments under
        these non-cancelable operating leases for the next five years and thereafter
        are
        as follows *:*
 
 Year
                  ending December 31,2007
              
              $
              297,7582008
              
              
              533,8712009
              
              
              539,1032010
              
              
              369,8672011
                  and thereafter
              
              
              431,512Total
              
              $
              2,172,111
  Total
        rental expenses for the six months period ended June 30, 2007 and 2006 amounted
        to  $144,375
        and $10,716, respectively.
 
 (b)
              *Social
                  insurances of LTS’s
                  employees*
 
 According
        to the prevailing laws and regulations of the PRC, LTS is required to cover
        its
        employees with medical, retirement and unemployment insurance programs.
        Management believes that due to the transient nature of its employees, LTS
        does
        not need to provide all employees with such social insurances, and has paid
        the
        social insurances for its employees who have completed three months’ continuous
        employment with LTS.
 
 In
        the
        event that any current or former employee files a complaint with the PRC
        government, LTS may be subject to making up the social insurances as well
        as
        administrative fines. As the Company believes that these fines would not
        be
        material, no provision has been made in this regard.
  (c)
              *Statutory
                  Reserves*
 
 Based
        on
        the legal formation of the entities, LTS is required to set aside 10% of
        its net
        income as reported in its statutory accounts on an annual basis to the Statutory
        Surplus Reserve Fund Once the total Statutory Surplus Reserve reaches 50%
        of the
        registered capital of LTS, further appropriations are discretionary. The
        Statutory Surplus Reserve can be used to increase the registered capital
        and
        eliminate future losses of the respective companies under PRC GAAP. The
        Statutory Surplus Reserve is not distributable to shareholders except in
        the
        event of liquidation.
 
 16
 Before
        January 1, 2006, LTS was also required on an annual basis to set aside at
        least
        5% of after-tax profit, calculated in accordance with PRC accounting standards
        and regulations, to the Statutory Surplus Welfare Fund, which can be used
        for
        staff welfare.
 
 Effective
        from January 1, 2006, the appropriation to the Statutory Surplus Welfare
        Fund is
        no longer required. If LTS provide the Statutory Surplus Welfare Fund, such
        amount shall be determined at the discretion of its board of
        directors.
 
 The
        Reserve Fund can be used to increase the registered capital upon approval
        by
        relevant government authorities and eliminate future losses of the respective
        companies upon a resolution by the board of directors.
 
 Appropriations
        to the above statutory reserves are accounted for as a transfer from retained
        earnings to statutory reserves and are performed once a year at the financial
        year end.
 
 There
        are
        no legal requirements in the PRC to fund these statutory reserves by transfer
        of
        cash to any restricted accounts, and the Company does not do so. These reserves
        are not distributable as cash dividends.
 
 **13.**
              **SUBSEQUENT
                  EVENTS**
 
 In
        connection with the Company’s Private Placement, which is more fully described
        in Note 8, and pursuant to the Securities Purchase Agreement dated December
        29,
        2006, the Company and certain investors entered into an Amended and Restated
        Registration Rights Agreement on January 25, 2007 (the “2007 Registration Rights
        Agreement”), whereby the Company was required to file a Registration Statement
        registering a portion of the securities issued or underlying notes and warrants
        issued in the Company’s Private Placement as closed on January 25, 2007 and in a
        prior placement closed on December 29, 2006, within an agreed period. If
        the
        Company fails to satisfy certain agreed deadlines during the registration
        process, the Company is obligated to pay the investors liquidated damages
        in
        cash equal to two percent (2%) of the investors’ initial investment in the
        Company, up to 20% of such investment in aggregate. As of June 30, 2007,
        the
        registration had yet to be completed. In view of the penalty clause noted
        above,
        and the fact that it is highly probable that the Company would have to pay
        the
        penalty in full, the Company has recognized approximately $1.45 million as
        of
        June 30, 2007, as a liability for such penalty payments.
 
 Effective
        December 31, 2007, the Company converted approximately $1.127 million of
        liquidated damages owing to certain investors through December 31, 2007,
        into
        ten-year, no interest notes convertible into shares of the Company’s common
        stock, par value $0.001 per share, at $0.17 per share (the “Notes”). The Notes
        were issued pursuant to a Securities Purchase, Settlement and Release Agreement
        (the “Agreement”). Pursuant to the Agreement, the participating investors, who
        constituted a majority of the holders of the Company’s outstanding convertible
        notes and warrants issued in the prior Placements, also waived any anti-dilution
        adjustments to such securities arising from the Conversion. The Company and
        the
        participating investors also entered into a Registration Rights Agreement
        pursuant to which the Company agreed to file a registration statement
        registering the shares of common stock issuable upon conversion of the Notes,
        upon the ninetieth (90 th )
        day
        following the earlier of (i) the date upon which the Company satisfies all
        obligations to file registration statements pursuant to the 2007 Registration
        Rights Agreement, or (ii) the date upon which all of the securities registrable
        pursuant to the 2007 Registration Rights Agreement are eligible for resale
        pursuant to Rule 144. There are no liquidated damages or penalties associated
        with these registration rights.
  Those
        investors who chose not to initially participate in the Conversion retained
        their right to cash payment for the liquidated damages owed to them by the
        Company through December 31, 2007, and all investors in the Placements retained
        their right to cash payment on any additional liquidated damages accruing
        and
        owed from January 1, 2008 forward pursuant to the 2007 Registration Rights
        Agreement.
 17
  **Item
        2.**   **Management’s
        Discussion and Analysis or Plan of Operation.**
 
 *This
        Form 10−QSB contains forward-looking statements. Our actual results could differ
        materially from those set forth as a result of general economic conditions
        and
        changes in the assumptions used in making such forward-looking
        statements*  *The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with our interim financial statements
        and notes thereto appearing elsewhere herein. The analysis set forth below
        is
        provided pursuant to applicable Securities and Exchange Commission regulations
        and is not intended to serve as a basis for projections of future events. Refer
        also to “Certain Factors That Could Affect Our Future Results”
below.*
  *Unless
        the context otherwise requires, the terms “Company,” “we,” “us,” and “our” as
        used throughout this report refer to Long-e International, Inc., or “Long-e,” a
        Utah corporation, and its wholly-owned subsidiaries, Long-e International
        Group
        Co., Ltd., or “LIG,” and Long-e Technology (Shenzhen) Co., Ltd. or
“LTS.”*
  **Overview**
  We
        operate through our wholly-owned subsidiary LIG, which was incorporated in
        May
        2006 for the purpose of acquiring LTS. Such acquisition received final approval
        on June 29, 2006, and LTS became a wholly-owned subsidiary of LIG, now held
        by
        Long-e International, Inc. Through LTS, we engage in the research, development,
        manufacture, marketing and servicing of auto electronic products, with an
        emphasis on automotive safety and security systems. Our current products
        are
        related to automotive security and operational safety, including a variety
        of
        electronic vehicle alarm systems, tire pressure monitoring systems, and reverse
        sensor systems, which we sell to automotive manufacturers and to after-market
        parts wholesalers and retailers.
  In
        response to the market opportunities in China and the global automotive
        components industry trends, our primary goal is to continue developing leading
        edge technology, focus that technology to produce distinctive market-leading
        products with sustainable margins that appeal to both Chinese and foreign
        automotive manufacturers and to purchasers in the aftermarket, while maintaining
        efficient production and a low cost structure. Our research and development
        strategy relies primarily on internal innovation and development, supplemented
        with collaboration with academic and research institutions and acquisition
        of
        targeted technical solutions. We actively track research developmental trends
        in
        automotive electronic products and government regulations regarding vehicle
        safety and environmental standards, and continually seek to both improve
        and
        perfect existing products and develop new ones in accelerated product
        development cycles. In addition, we seek to recruit and retain highly qualified
        Chinese and foreign technical personnel, by maintaining positive working
        conditions, providing competitive benefits and a relaxed corporate culture.
        We
        promote our internal philosophy of mutual growth to our technical staff and
        award various incentives for positive research and development results.
  **Critical
        Accounting Policies and Estimates**
  The
        discussion and analysis of our financial condition and results of operations
        are
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with generally accepted accounting principles in the United States.
        We believe the following are the critical accounting policies that impact
        our
        financial statements, some of which are based on management’s best estimates
        available at the time of preparation. Actual experience may differ from these
        estimates.
  Our
        consolidated financial statements and accompanying notes are prepared in
        accordance with generally accepted accounting principles in the United States.
        Preparing financial statements requires management to make estimates and
        assumptions that affect the reported amounts of assets, liabilities, revenue,
        and expenses. These estimates and assumptions are affected by management’s
        application of accounting policies. We believe an understanding of the basis
        and
        nature of the estimates and assumptions involved with the following aspects
        of
        our consolidated financial statements is critical to an understanding of
        our
        financial condition.
  ***Revenue
        Recognition*** *.* We
        recognize revenue from the sales of auto electronic products. Sales are
        recognized when the following four revenue criteria are met: persuasive evidence
        of an arrangement exists, delivery has occurred, the selling price is fixed
        or
        determinable, and collectivity is reasonably assured. Sales revenue is presented
        net of value added tax (VAT), sales rebates and returns. No
        return
        allowance is made as product returns are insignificant based on historical
        experience. Subcontracting revenue is recognized upon delivery of
        goods.
  18
  ***Inventory*** .
        Inventory is carried at the lower of cost or market, determined on a weighted
        average cost method and based on net realizable value. The determination
        of net
        realizable value is based on several assumptions and estimates. We provide
        an
        allowance that we consider to be reasonable for non-moving or slow moving
        inventory items and for items with expected future realizable values lower
        than
        cost. These assumptions and estimates may be revised from time to time, based
        on
        changes in market demand. The markets in which we compete are rapidly changing
        due to technological developments and an increasing worldwide focus on
        automotive safety. Other companies offer products similar to those offered
        by
        us, and target the same customers. Some of these companies have substantially
        greater financial, marketing and technical resources. It is also possible
        that
        new competitors or alliances among existing competitors may emerge and such
        competitors may rapidly acquire significant market share, making it increasingly
        difficult for us to sell our current inventory. These market factors could
        reduce the net realizable value of our inventory.
  ***Income
        Taxes*** .  We,
        through our wholly-owned operating subsidiary LTS, enjoy preferential tax
        concessions as a high-tech enterprise. Pursuant to the Regulation of Tax
        Policy
        of Enterprises of Shenzhen Municipal Special Administrative Economy District
        as
        issued by the Shenzhen municipal government, the Shenzhen Regional Tax Bureau
        recognized and approved LTS’s status as a new high technology enterprise and
        granted LTS a 100% reduction in our income tax liability for our first two
        profitable years after 2003 and a 50% reduction in our income tax liability
        for
        three years from our third profitable year. As the corporate income tax rate
        in
        Shenzhen, China is 15%, LTS’s effective income tax rate for the 2005 through
        2007 fiscal years is 7.5%. Under
        recent changes in applicable PRC tax law, LTS’s corporate tax rate is
        anticipated to increase as some of its current preferential tax concessions
        transition to termination, but we are not yet certain what the applicable
        tax
        rate(s) will be in 2008 and subsequent years.
  ***Warranty
        Obligations*** *.* On an
        ongoing basis, we estimate and record a warranty obligation and an allowance
        for
        product returns. These estimates are made based on documented contractual
        warranty obligations and historical experience. Unforeseen events, including
        increased technological difficulties with products, could occur that have
        not
        been anticipated in estimating the warranty provision. These recorded estimates
        are adjusted from time to time to reflect any additional recurring
        costs.
  ***Impairment
        of Long-Lived and Amortized Intangible Assets*** .
        We
        account for impairment of plant and equipment and amortizable intangible
        assets
        in accordance with SFAS No. 144, “Accounting for Impairment of Long-Lived Assets
        and Long-Lived Assets to be Disposed Of,” which requires us to evaluate a
        long-lived asset for recoverability when there is event or circumstance that
        indicates the carrying value of the asset may not be recoverable. An impairment
        loss is recognized when the carrying amount of a long-lived asset or asset
        group
        is not recoverable (when the carrying amount exceeds the gross, undiscounted
        cash flows from use and disposition) and is measured as the excess of the
        carrying amount over the asset’s fair value.
  ***Employee
        Benefits*** .
        Pursuant to the regulations of the Shenzhen Social Insurance Bureau, we,
        via
        LTS, pay for various forms of required social insurance for our workforce,
        including endowment insurance, medical insurance, employment injury insurance,
        unemployment insurance and birth insurance for female employees as well.
        As
        stipulated by the PRC’s Company Law and as provided in LTS’s Articles of
        Association, we allocate 5% of our income after tax, as determined under
        PRC
        accounting rules and regulations, to LTS’s “Statutory common welfare reserve,”
which is restricted for capital expenditure for the collective benefits of
        LTS’s
        employees.
  **Results
        of Operations**
  ***Six
        months ended June 30, 2007 as compared to the six months ended June 30,
        2006***
  The
        following table sets forth information from our statements of operations
        for the
        six months ended June 30, 2007 and 2006, in dollars and as a percentage of
        revenue (dollars in thousands):
  19
  Six
                  Months Ended June 30,2007
              
              2006Sales
              
              $
              13,119
              
              
              93.5
              %
              $
              9,012
              
              
              92.2
              %Assembling/
                  Reprocessing revenue
              
              
              908
              
              
              6.5
              %
              
              763
              
              
              7.8
              %Total
                  revenues
              
              
              14,027
              
              
              100.0
              %
              
              9,775
              
              
              100.0
              %Cost
                  of sales
              
              
              9,597
              
              
              68.4
              %
              
              7,320
              
              
              74.9
              %Gross
                  profit
              
              
              4,430
              
              
              31.6
              %
              
              2,455
              
              
              25.1
              %Selling
              
              
              1,837
              
              
              13.1
              %
              
              1,123
              
              
              11.5
              %General
                  and administrative
              
              
              2,210
              
              
              15.8
              %
              
              783
              
              
              8.0
              %Research
                  and development
              
              
              142
              
              
              1.0
              %
              
              313
              
              
              3.2
              %Loss
                  on disposal of fixed assets
              
              
              0
              
              
              0.0
              %
              
              154
              
              
              1.6
              %Income
                  from operations
              
              
              242
              
              
              1.7
              %
              
              82
              
              
              0.8
              %Registration
                  rights penalty
              
              
              (1,451
              )
              
              10.3
              %
              
              0
              
              
              0.0
              %Interest
                  income
              
              
              19
              
              
              0.1
              %
              
              7
              
              
              0.1
              %Interest
                  expense
              
              
              (238
              )
              
              1.7
              %
              
              (30
              )
              
              0.3
              %(Loss)
                  income before income taxes
              
              
              (1,402
              )
              
              (10
              )%
              
              60
              
              
              0.6
              %Provision
                  for income taxes
              
              
              77
              
              
              0.5
              %
              
              2
              
              
              0.0
              %Net
                  (loss) income
              
              
              (1,479
              )
              
              (10.5
              )%
              
              58
              
              
              0.6
              %
 
  ***Revenue*** .
        Our
        sales revenue for the six months ended June 30, 2007 totaled $14 million,
        an
        increase of 43.5% compared with our sales revenue of $9.8 million for the
        six
        months ended June 30, 2006 and consisted of the following:
  ·
              Sales
                  of two-way interactive visual car alarm system sales accounted
                  for $7.5
                  million, or 57% of our total revenue from product sales for the
                  six months
                  ended June 30, 2007, an increase of $0.4 million or 6.5% from $7.1
                  million
                  for the six months ended June 30, 2006, while sales of all other
                  car alarm
                  systems accounted for $3.1 million, or 24% of our total revenue
                  from
                  product sales, an increase of $1.1 million or 58% from $2.0 million
                  for
                  the six months ended June 30, 2006. During the six months ended
                  June 30,
                  2007, the sales of our tire pressure monitoring system (“TPMS”) accounted
                  for $2.0 million or 15% of our total revenue from products sales
                  and the
                  sales of parking sensor systems accounted for $498,000 or 4% of
                  our total
                  revenue from products sales for the six months ended June 30,
                  2007.
  ·
              Sales
                  to distributors for export totaled $3.3 million for the six months
                  ended
                  June 30, 2007, or 25% of our revenue from product sales during
                  the period,
                  representing an increase of $2.7 million from $582,000 generated
                  by such
                  sales during the six months ended June 30, 2006. Sales within the
                  Chinese
                  aftermarket and to OEMs totaled $9.8 million, or 75%, of our total
                  product
                  sales for the six months ended June 30, 2007, an increase of $1.4
                  million,
                  or 17%, from $8.4 million for the six months ended June 30,
                  2006.
  During
        the six months ended June 30, 2007, we generated $908,000 in revenue from
        subcontracting activities, an increase of $145,000 or 19% from $763,000
        generated from subcontracting activities generated during the six months
        ended
        June 30, 2006. The subcontracting revenue generated during the six months
        ended
        June 30, 2007 was comprised of $430,000 related to our two-way interactive
        visual car alarm system and $478,000 related to all of our other car alarm
        systems. The increase in subcontracting revenue was due to a customer who
        prefers such subcontracting arrangements for our ODM two-way interactive
        visual
        car alarm systems. Although we do not actively solicit such subcontracting
        arrangements, we will enter into such arrangements upon a customer’s request,
        and thus such revenues will fluctuate based on our customers’ demand for such
        services.
  During
        the six months ended June 30, 2007, our cost of goods sold totaled $9.6 million,
        an increase of 31.1% compared with our cost of goods sold of $7.3 million
        for
        the six months ended June 30, 2006. The increase was attributable to changes
        in
        our products offerings, in particular from the expanded focus on the production
        and marketing of our higher margin two-way interactive visual car alarm systems
        and our TPMS.
  ***Gross
        Margin*** **.** Our
        gross
        margin on product sales and
        subcontracting activities increased
        from 25.1% for the six months ended June 30, 2006 to 31.6% for the six months
        ended June 30, 2007. These increases have primarily resulted from certain
        changes in our products offerings and marketing, in particular from the expanded
        focus on the production and marketing of our higher margin two-way interactive
        visual car alarm systems and TPMS as well.
  20
 ***Operating
        Expenses*** **.** During
        the six months ended June 30, 2007, operating expenses totaled $4.2 million,
        as
        compared to $2.4 million during the six months ended June 30, 2006, an increase
        of 76.4% ,and consisted of the following:
  Selling
        expenses were $1.8 million for the six months ended June 30, 2007, an increase
        of $0.7 million, or 64%, compared with $1.1 million for the six months ended
        June 30, 2006. The increase was primarily attributed to our heightened efforts
        to expand our market share and promote our products.
  General
        and administrative expenses were $2.2 million for the six months ended June
        30,
        2007, an increase of $1.4 million, or 180%, compared with $783,000 for the
        six
        months ended June 30, 2006. The increase was primarily attributed to the
        expenses incurred in the capacity of a US listed enterprise as compared to
        a
        private corporation in 2006. Additionally, administrative salaries amounted to $480,000 for the six months
        ended June 30, 2007, as compared to $285,000 for the six months ended June
        30,
        2006, an increase of $195,000 or 68%.
  Research
        and development expenses were $142,000 for the six months ended June 30,
        2007, a
        decrease of $172,000, or 55%, from $314,000 for the six months ended June
        30,
        2006.
  Income
        from operations was $242,000 for the six months ended June 30, 2007, compared
        with income from operations of $82,000 for the six months ended June 30,
        2006.
  For
        the
        six months ended June 30, 2007, other expenses amounted to $1.6 million as
        compared to $21,600 for the six months ended June 30, 2006. For the six months
        ended June 30, 2007, we recorded a registration rights penalty expense of
        $1.45
        million as compared to $0 for the six months ended June 30, 2006. Additionally,
        for the six months ended June 30, 2007, we recorded interest expense of $238,000
        as compared to $30,000 for the six months ended June 30, 2006, an increase
        of
        $208,000 relating to the amortization of debt discount pursuant to our
        convertible debt.
  Income
        tax provision for the six months ended June 30, 2007 was $77,000 compared
        to
        $2,000 for the six months ended June 30, 2006.
 
 Net
        loss
        for the six months ended June 30, 2007 was $1.48 million or $(.05) per common
        share compared to net income of $58,000 or $.00 per common share for the
        six
        months ended June 30, 2006.
 
 **Liquidity
        and Capital Resources**
  At
        June
        30, 2007, we had $5.9 million in cash located in financial institutions in
        China.
  Our
        working capital position increased $3.3 million to $6.8 million at June 30,
        2007
        from working capital of $3.5 million at December 31, 2006. This increase
        in
        working capital is primarily attributable to a second
        private placement transaction in
        January 2007 pursuant to which we borrowed $5.3 million. Our first private
        placement was completed in December 2006 concurrent with our Share Exchange,
        as
        previously disclosed.
 
 On
        January 25, 2007, we effected a second private placement transaction. Pursuant
        to the Securities Purchase Agreement entered into with the investors, we
        sold
        and the investors purchased:
 
 ·
              Convertible
                  Promissory Notes (the “Notes”) in the aggregate principal amount of
                  $5,353,000, convertible into a total of 13,382,500 shares of the
                  Company’s
                  common stock at a price of $0.40 per share. Upon filing of a Certificate
                  of Designations of Preferences, Rights and Limitations of the Company’s
                  class of preferred stock with the Secretary of State of Utah, the
                  Note
                  shall be convertible only into 13,382,500 shares of preferred stock,
                  at a
                  price of $0.40 per share. To date, the Company has not filed any
                  Certificate of Designations. Each Note is payable on January 25,
                  2017,
                  subject to automatic extension on a month by month basis, and does
                  not
                  bear any interest.
  ·
              Common
                  Stock Purchase Warrants (the “Series A Warrant”) entitling the investors
                  to purchase up to an aggregate of 6,691,250 shares of the Company’s common
                  stock at a price of $0.48 per share. The Series A Warrant is exercisable
                  until January 25, 2012. The Series A Warrant has a “cashless exercise”
                  feature, and the exercise price per share may be adjusted in response
                  to
                  the occurrence of certain triggering events. The Company may call
                  the
                  Series A Warrant if the closing market price of its common stock
                  equals or
                  exceeds $1.00 per share for 30 consecutive trading days and there
                  is an
                  effective registration statement covering the shares of common
                  stock
                  underlying the Series A Warrant during such
                  period.
  21
  ·
              Common
                  Stock Purchase Warrants (the “Series B Warrant”) to purchase up to an
                  aggregate of 6,691,250 shares of the Company’s common stock at a price of
                  $0.60 per share. The period of exercisability of the Series B Warrant,
                  and
                  the other material terms thereof, are the same as for the Series
                  A
                  Warrant, with the exception that the call feature is triggered
                  if the
                  closing market price of the Company’s common stock equals or exceeds $1.20
                  per share for 30 consecutive trading days and there is an effective
                  registration statement covering the shares of common stock underlying
                  the
                  Series B Warrant during such
                  period.
 
 As
        of the
        date of this report, none of the Notes had been converted and none of the
        Series
        A or B Warrants from the Second Private Placement had been exercised, in
        whole
        or in part. After commissions and expenses, we received net cash proceeds
        of
        $4.79 million in the Second Private Placement.
 
 Pursuant
        to the terms of the Amended and Restated Registration Rights Agreement in
        the
        Second Private Placement, we agreed to file, not later than 120 days after
        the
        closing date of the original December 2006 Securities Purchase Agreement,
        a
        registration statement registering a portion of the shares issuable upon
        conversion of the Notes and the Series A and Series B Warrants, and a
        portion of the shares issued in the Private Placement closed December 29,
        2006.
        We failed to file the registration statement in accordance with the 120-day
        filing period, which constituted a default under the Amended and Restated
        Registration Rights Agreement in relation to the Notes and Warrants. As a
        result, we are obligated to pay the investors liquidated damages in cash
        equal
        to 2% of the investors’ initial investment in the Company for each 30-day delay
        in filing, up to 20% of such investment in the aggregate. We have recognized
        a
        liability of $1,450,600 on our books in June 2007 to provide for maximum
        liquidated damages pursuant to the Agreement, since at that time it was unlikely
        that the registration statement required would be filed prior to the date
        when
        the maximum penalty would accrue. Effective December 31, 2007, we converted
        approximately $1.127 million of liquidated damages owing to certain investors
        through December 31, 2007, into ten-year, no interest notes convertible into
        shares of the Company’s common stock, par value $0.001 per share, at $0.17 per
        share (the Notes”). The Notes were issued pursuant to a Securities Purchase,
        Settlement and Release Agreement (the “Agreement”). Pursuant to the Agreement,
        the participating investors, who constituted a majority of the holders of
        the
        Company’s outstanding convertible notes and warrants issued in the prior
        Placements, also waived any anti-dilution adjustments to such securities
        arising
        from the Conversion. The Company and the participating investors also entered
        into a Registration Rights Agreement pursuant to which the Company agreed
        to
        file a registration statement registering the shares of common stock issuable
        upon conversion of the Notes, upon the ninetieth (90 th )
        day
        following the earlier of (i) the date upon which the Company satisfies all
        obligations to file registration statements pursuant to the 2007 Registration
        Rights Agreement, or (ii) the date upon which all of the securities registrable
        pursuant to the 2007 Registration Rights Agreement are eligible for resale
        pursuant to Rule 144. There are no liquidated damages or penalties associated
        with these additional registration rights. The cash payment of any remaining
        liquidated damages owed in relation to the First and Second Private Placements
        to investors who did not participate in the issuance of the Notes will have
        an
        adverse effect on our cash position.
 
 Our
        net
        loss of $1.5 million for the six months ended June 30, 2007 includes non-cash
        charges of $310,000 for depreciation and amortization and also non-cash discount
        on financial instruments of $223,000. Net cash used in our operating activities
        totaled $367,078 for the six months ended June 30, 2007, as compared to net
        cash
        provided by operating activities of $358,825 for the six months ended June
        30,
        2006, reflecting decreased cash flow from operating activities due to the
        expansion of our production and sales capacities, notwithstanding an increase
        in
        accounts receivables and inventories an prepaid expenses. During the six
        months
        ended June 30, 2007, our accounts receivable turned over approximately 2.5
        times, and our inventories turned over approximately 3.8 times. Management
        feels
        that these turn rates reflect a reasonable amount of time during which our
        liquid assets are tied up from the purchase of raw materials, through production
        to product sales and payment on accounts receivable.
 
 For
        the
        six months ended June 30, 2007, our net cash used in investing activities
        totaled $1,274,646 as compared to $120,894 for the six months ended June
        30,
        2006, due to an increase in the purchase of plant and equipment.
 
 For
        the
        six months ended June 30, 2007, net cash provided by financial activities
        amounted to $5,121,875 as compared to net cash provided by financing activities
        of $125,852 for the six months ended June 30, 2006. The increase was primarily
        attributable to the receipt of cash from convertible debt of
        $5,353,000.
 
 In
        fiscal
        2008, we are seeking to achieve further growth by increasing our ongoing
        investment in research and development, launching the commercial sales of
        our
        TPMSs and digital parking reverse sensor systems, continuing to develop our
        marketing network, implementing stricter and more efficient quality controls,
        and increasing investment in our production management system. We expect
        our
        future capital requirements to be approximately $15 million during the 2008
        fiscal year. We plan to meet our funding needs through a combination of debt
        and
        equity financing, including, but not limited to, our previously completed
        and
        announced private placements, the proceeds of which are being used as working
        capital.
  22
 **Off-Balance
        Sheet Arrangements**
  None.
  **Recent
        Accounting Pronouncements**
  In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”. This Statement amends FASB Statements No. 133,
        Accounting for Derivative Instruments and Hedging Activities, and No. 140,
        Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities. This Statement resolves issues addressed in Statement 133
        Implementation Issue No. D1, “Application of Statement 133 to Beneficial
        Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value
        remeasurement for any hybrid financial instrument that contains an embedded
        derivative that otherwise would require bifurcation, clarifies which
        interest-only strips and principal-only strips are not subject to the
        requirements of Statement 133, and establishes a requirement to evaluate
        interests in securitized financial assets to identify interests that are
        freestanding derivatives or that are hybrid financial instruments that contain
        an embedded derivative requiring bifurcation. It also clarifies that
        concentrations of credit risk in the form of subordination are not embedded
        derivatives and amends Statement 140 to eliminate the prohibition on a
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This Statement is effective for all financial instruments acquired
        or issued after the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The Company does not expect that the adoption of this
        statement will have a material impact on its financial statements.
  In
        2006,
        the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”.
        This Statement amends FASB Statement No. 140, Accounting for Transfers and
        Servicing of Financial Assets and Extinguishments of Liabilities, with respect
        to the accounting for separately recognized servicing assets and servicing
        liabilities. This Statement requires an entity to recognize a servicing asset
        or
        servicing liability each time it undertakes an obligation to service a financial
        asset by entering into a servicing contract in indicated situations; requires
        all separately recognized servicing assets and servicing liabilities to be
        initially measured at fair value, if practicable; permits an entity to choose
        relevant subsequent measurement methods for each class of separately recognized
        servicing assets and servicing liabilities; at its initial adoption, permits
        a
        one-time reclassification of available-for-sale securities to trading securities
        by entities with recognized servicing rights, without calling into question
        the
        treatment of other available-for-sale securities under Statement 115, provided
        that the available-for-sale securities are identified in some manner as
        offsetting the entity’s exposure to changes in fair value of servicing assets or
        servicing liabilities that a servicer elects to subsequently measure at fair
        value; and requires separate presentation of servicing assets and servicing
        liabilities subsequently measured at fair value in the statement of financial
        position and additional disclosures for all separately recognized servicing
        assets and servicing liabilities. The Company is required to adopt this
        Statement as of the beginning of its first fiscal year that begins after
        September 15, 2006, i.e. fiscal 2007. The
        Company does not expect that the adoption of this statement will have a material
        impact on its financial statements.
  In
        July
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
        Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
        company should recognize, measure, present and disclose in its financial
        statements uncertain tax positions that the company has taken or expects
        to take
        on a tax return (including a decision whether to file or not to file a return
        in
        a particular jurisdiction). The accounting provisions of FIN No.48 are effective
        for fiscal years beginning after December 15, 2006. The adoption of this
        Interpretation will have no impact on our financial position or results of
        operations.
  In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS
        157”), to define fair value, establish a framework for measuring fair value in
        accordance with generally accepted accounting principles and expand disclosures
        about fair value measurements. SFAS 157 requires quantitative disclosures
        using
        a tabular format in all periods (interim and annual) and qualitative disclosures
        about the valuation techniques used to measure fair value in all annual periods.
        The provisions of this Statement shall be effective for financial statements
        issued for fiscal years beginning after November 15, 2007 and interim periods
        within those fiscal years. The Company will be required to adopt the provisions
        of this statement as of January 1, 2008. The Company does not expect that
        the
        adoption of this Statement will have a material impact on its financial
        statements.
  23
  In
        September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans - An amendment of
        FASB
        Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement enhances
        disclosure regarding the funded status of an employers’ defined benefit
        postretirement plan by (a) requiring companies to include the funding status
        in
        comprehensive income and (b) recognize transactions and events that affect
        the
        funded status in the financial statements in the year in which they occur
        (c) at
        a measurement date of the employer’s fiscal year-end. The Company does not
        expect that the adoption of this statement will have a material impact on
        its
        financial statements.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS 159 permits
        entities to choose to measure many financial instruments and certain other
        items
        at fair value. The provisions of SFAS 159 are effective as of January 1,
        2008.
        We are currently reviewing SFAS 159 to determine its impact, if any, on our
        financial position or results of operations.
 
 **Interest
        Rate Risk**
 
 We
        do not
        have significant risk from potential fluctuations in interest rates, as our
        debt
        obligations are primarily short-term in nature, and all of our debt obligations
        carry fixed interest rates.
  **Foreign
        Currency Risk**
  Substantially
        all of our operations are conducted in the PRC, and substantially all of
        our
        sales and purchases are conducted within the PRC in Chinese Renminbi. As
        a
        result, the effect of the fluctuations of exchange rates only minimally impacts
        our business operations currently, but will be increasingly material as we
        introduce our products directly within new international markets.
  Substantially
        all of our revenues and expenses are denominated in Renminbi. However, we
        use
        the United States dollar for financial reporting purposes. Conversion of
        Renminbi into foreign currencies is regulated by the People’s Bank of China
        through a unified floating exchange rate system. Although the PRC government
        has
        stated our intention to support the value of the Renminbi, there can be no
        assurance that such exchange rate will not again become volatile or that
        the
        Renminbi will not devalue significantly against the U.S. dollar. Exchange
        rate
        fluctuations may adversely affect the value, in U.S. dollar terms, of our
        net
        assets and income derived from our operations in the PRC.
  **Certain
        Factors That Could Affect Our Future Results**
  All
        of
        the information in this Form 10-QSB, including the factors listed below,
        should
        be carefully considered and evaluated. These factors are not the only concerns
        or uncertainties facing our company. Additional matters not now known to
        us or
        that we may currently deem immaterial could also impair our ability to conduct
        business in the future.
  If
        any of
        the circumstances among the following or others factors actually occur or
        occur
        again, our business, financial condition or results of operations could be
        materially adversely affected by these risks if any of them actually occur.
        Some
        of these factors have affected our financial condition and operating results
        in
        the past or are currently affecting us. We operate in a market environment
        that
        is difficult to predict and that involves significant risks and uncertainties,
        many of which are beyond our control. **
  *With
        respect to this discussion, the terms, “we,” “us,” or “our” refer to Long-e
        International, Inc., our wholly-owned subsidiary Long-e International Group
        Co.,
        Ltd. (“LIG”), and our wholly-owned subsidiary Long-e Technology (Shenzhen) Co.,
        Ltd. (“LTS”).*
  24
  **Risks
        Related to Our Operations**
  ***The
        cyclical nature of automotive sales and production could adversely affect
        our
        business and results of operations.*** Demand
        for our auto electronic products is related in large part to automotive sales
        and vehicle production by our automotive manufacturer customers. Automotive
        sales and production are highly cyclical and depend on general economic
        conditions and other factors, including consumer spending and preferences,
        as
        well as changes in interest rate levels, consumer confidence, fuel prices,
        labor
        relations issues, regulatory requirements, trade agreements and other factors.
        A
        decrease in consumer demand for specific types of vehicles in which our products
        have traditionally been included or significant economic decline that results
        in
        a reduction in automotive sales and production by our OEM customers could
        have a
        significant adverse effect on our business and financial condition.
  ***The
        automotive industry is subject to intense competition and our current products
        may be rendered obsolete by future technological developments in the industry.*** The
        automotive component supply industry, including the auto electronic products
        market, is highly competitive, both within China and internationally. There
        can
        be no assurance that our products will be able to compete successfully with
        the
        products of our competitors. Competition is based primarily on price,
        technology, quality, delivery and overall customer service. Many of our
        competitors are substantially larger in size, have substantially greater
        financial, marketing and other resources, and have more extensive experience
        and
        records of successful operations than we do. While we currently offer TPMSs
        and
        all-digital reverse sensor systems, competitors are introducing similar products
        which provide some of the same attributes and are very price competitive
        with
        our products. Additionally, mechanical tire pressure monitors and non-digital
        reverse sensor systems are readily available from our competitors. Competitive
        pressures extend to attracting and retaining qualified technical and marketing
        personnel. There can be no assurance that we will successfully differentiate
        our
        products from those of our competitors, that the marketplace will consider
        our
        current or proposed products to be superior or even comparable to those of
        our
        competitors, or that we can succeed in establishing necessary relationships
        with
        automobile manufacturers or the wholesalers and retailers of aftermarket
        auto
        electronics products. Furthermore, no assurance can be given that competitive
        pressures we face will not adversely affect our financial performance. In
        addition, the rapidly evolving nature of the markets in which we compete
        may
        attract new entrants, and as a result, our sales levels and margins could
        be
        adversely affected by pricing pressures caused by such new
        entrants.
  ***Our
        success is highly dependent on continually developing new and advanced products,
        technologies, and processes, and failure to do so may cause us to lose our
        competitiveness in the auto electronics industry and may cause our profits
        to
        decline.*** To
        remain
        competitive in the auto electronics industry, it is important to continually
        develop new and advanced products, technologies, and processes. There is
        no
        assurance that competitors’ new products, technologies, and processes will not
        render our existing products obsolete or non-competitive. Alternately, changes
        in legislative, regulatory or industry requirements or in competitive
        technologies may render certain of our products obsolete or less attractive.
        Our
        competitiveness in the auto electronic products market therefore relies upon
        our
        ability to enhance our current products, introduce new products, and develop
        and
        implement new technologies and processes. The research and development of
        new
        products and technologies is costly and time consuming, and there are no
        assurances that our research and development of new products will either
        be
        successful or completed within anticipated timeframes, if at all our failure
        to
        technologically evolve and/or develop new or enhanced products may cause
        us to
        lose our competitiveness in the auto electronics industry and may cause our
        profits to decline. In addition, in order to effectively compete in the
        automotive supply industry, we must be able to launch new products to meet
        our
        customers’ demand in a timely manner. However, we cannot provide assurance that
        we will be able to install and certify any equipment needed to produce new
        products in a timely manner, or that the transitioning of our manufacturing
        facility and resources to full production under new product programs will
        not
        impact production rates or other operational efficiency measures at our
        manufacturing facility. In addition, new product introductions and applications
        are risky, and may suffer from a lack of market acceptance, delays in related
        product development and failure of new products to operate properly. Any
        failure
        by us to successfully launch new products, or a failure by our customers
        accept
        such products, could adversely affect our results.
 
 ***The
        sales cycle for our products is lengthy, which may impede our
        growth.*** The
        sales cycle in the automotive components industry is lengthy. Automotive
        manufacturers must develop a high degree of assurance that the products they
        buy
        from us will meet customer needs, interface as easily as possible with the
        other
        parts of a vehicle and with the manufacturer’s production and assembly process,
        and have minimal warranty, safety and service problems. As a result, from
        the
        time that a manufacturer develops a strong interest in one of our products,
        it
        normally will take several years before the automotive manufacturer purchases
        a
        significant volume of such product and such product becomes available in
        a
        particular manufacturer’s vehicles.
 
 25
 
 In
        addition, automobile component products typically proceed through five stages
        of
        research and development. We first conduct initial research on the product
        concept to assess our technical feasibility and economic costs and benefits,
        which may include development of an internal prototype for evaluation. If
        the
        product appears feasible, we then manufacture a functioning prototype to
        demonstrate and test the product’s features. We then market this prototype and
        sell it to automotive vehicle manufacturers or other systems manufacturers
        for
        further testing and evaluation. If a vehicle manufacturer shows interest
        in the
        product, we then typically work to refine the product with that manufacturer,
        selling the manufacturer second and subsequent generation engineering prototypes
        for further evaluation. Finally, the automotive manufacturer either decides
        to
        purchase the product for a production vehicle or terminates the
        program.
 
 The
        time
        required to progress through these five stages to commercialization varies
        widely. Generally, the more one of our products must be integrated with other
        vehicle systems, the longer the process takes. Further, products that are
        installed by the factory usually require extra time for evaluation because
        other
        vehicle systems are affected, and a decision to introduce the product into
        the
        vehicle is not easily reversed. These factors directly influence the sales
        cycle
        for our integrated car alarm systems, TPMSs and reverse parking sensor
        systems ** to
        automotive manufacturers. ** Because
        our products rely on new and evolving technology, and because OEM customers
        will
        likely require any new product we develop to pass certain feasibility and
        economic viability tests before committing to purchase it, we expect it to
        take
        several years before each newly developed product generates significant enough
        sales to grow our overall product line and sales revenues. As a result of
        this
        lengthy process, we also may not be able to adapt product offerings to meet
        changing consumer preferences and our customers’ supply requirements on a
        timely, cost effective basis, which may materially adversely affect our results
        of operations.
  ***Escalating
        pricing pressures from our customers may adversely affect our business and
        results of operations.*** Downward
        pricing pressures by automotive manufacturers have been a characteristic
        of the
        automotive industry in recent years. Virtually all automakers have aggressive
        price reduction initiatives and objectives each year with their suppliers,
        and
        such actions are expected to continue in the future. Automotive manufacturers
        historically have had significant leverage over their outside suppliers because
        the automotive component supply industry, including the market in auto
        electronics products, is fragmented and serves a limited number of automotive
        manufacturers, and as such, suppliers are subject to substantial continuing
        pressure from their OEM consumers to reduce the price of their products.
        Accordingly, suppliers must be able to reduce their operating costs in order
        to
        maintain profitability. We have taken steps to minimize our operating costs
        to
        offset customer price pressures, however, future price reductions could impact
        our sales and profit margins. If we are unable to offset customer price
        reductions in the future through improved operating efficiencies, new
        manufacturing processes, sourcing alternatives and other cost reduction
        initiatives, our results of operations and financial condition could be
        adversely affected.
  ***Our
        customers typically reserve the right unilaterally to cancel contracts or
        reduce
        prices, and the exercise of such rights could reduce or eliminate any financial
        benefit to us anticipated from such contracts.*** Automotive customers, both vehicle manufacturers and aftermarket auto
        electronics purchasers, typically reserve the right unilaterally to cancel
        contracts completely or to require price reductions. Although they generally
        reimburse companies for actual out-of-pocket costs incurred with respect
        to the
        particular contract up to the point of cancellation, these reimbursements
        typically do not cover costs associated with acquiring general purpose assets
        such as facilities and capital equipment, and may be subject to negotiation
        and
        substantial delays in receipt by us. Any unilateral cancellation of, or price
        reduction with respect to, any contract that we may obtain could reduce or
        eliminate any financial benefits anticipated from such contract and could
        have a
        material adverse effect on our financial condition and results of
        operations.
 
 ***Because
        a significant portion of the accounts receivable are generated by a small
        number
        of customers, the failure of one or more of these customers could impair
        our
        financial condition.*** ** Because
        a
        substantial portion of our sales are made to a small number of customers,
        our
        accounts receivable from a small number of customers may represent a large
        percentage of our accounts receivable and assets. Our largest account receivable
        at June 30, 2007 was approximately $886,000, representing approximately 6%
        of
        our total current assets and approximately 13% of our working capital, and
        our
        three largest accounts receivable totaled approximately $2.2 million,
        representing approximately 15% of our total current assets and approximately
        32%
        of our working capital. This concentration of accounts receivable represents
        a
        significant credit risk, and the failure of any of these customers to pay
        their
        obligations to us in a timely manner could have a material adverse effect
        upon
        our financial condition.
  26
 ***Certain
        disruptions in supply of and changes in the competitive environment for raw
        materials integral to our products may adversely affect our profitability.*** We
        use a
        broad range of materials and supplies, including metals, castings, chemicals
        and
        other electronic components in our products. A significant disruption in
        the
        supply of these materials could decrease production and shipping levels,
        materially increase our operating costs and materially adversely affect our
        profit margins. Shortages of materials or interruptions in transportation
        systems, labor strikes, work stoppages, war, acts of terrorism or other
        interruptions to or difficulties in the employment of labor or transportation
        in
        the markets in which we purchase material, components and supplies for the
        production of our products, in each case may adversely affect our ability
        to
        maintain production of our products and sustain profitability. If we were
        to
        experience a significant or prolonged shortage of critical components from
        any
        of our suppliers and could not procure the components from other sources,
        we
        would be unable to meet our production schedules for some of our key products
        and to ship such products to our customers in timely fashion, which would
        adversely affect our sales, margins and customer relations.
  In
        recent
        periods there have been significant increases in the global prices of steel,
        resins, and copper, which have had and may again in the future have an
        unfavorable impact on our business. These inflationary pressures have placed
        significant operational and financial burdens on automotive suppliers at
        all
        levels, and are expected to continue for the foreseeable future. We anticipate
        that these inflationary pressures and related price increases will continue
        to
        affect our business in the future, either directly or by disrupting the business
        and financial condition of one or more of our suppliers. Any continued
        fluctuations in the price or availability of steel, resins or copper may
        have a
        material adverse effect on our business, results of operations or financial
        condition. To address increased costs associated with these market forces,
        a
        number of our suppliers have implemented surcharges on existing fixed price
        contracts. Without the surcharge, some suppliers claim they will be unable
        to
        provide adequate supply. As cost pressures associated with the resin raw
        material market related continue, we expect to see increasing costs in resin
        as
        well as plastic component supplier value streams, as well as potential delivery
        delays and less readily available supply inventories. We will continue efforts
        to pass some of the supply and raw material cost increases onto our customers,
        although competitive and marketing pressures may limit our ability to do
        so.
        This inability to pass on price increases to our customers when raw material
        prices increase rapidly or to significantly higher than historic levels could
        adversely affect our operating margins and cash flow, possibly resulting
        in
        lower operating income and profitability.
  ***The
        failure to manage growth or diversification effectively could have an adverse
        effect on our business, financial condition, and results of
        operations.*** **** Any
        significant growth in the market for our auto electronic products, entry
        into
        new markets by us or diversification of our products and services may require
        us
        to expand our employee base for managerial, operational, financial, and other
        purposes. As of June 30, 2007, we had 359 full time employees. Continued
        future
        growth will impose significant added responsibilities upon the members of
        management to identify, recruit, maintain, integrate, and motivate new
        employees. Aside from increased difficulties in the management of human
        resources, we may also encounter working capital issues, as we will need
        increased liquidity to finance the purchases of raw materials and supplies,
        research and development of new products, acquisition of new businesses and
        technologies, and the hiring of additional employees. For effective growth
        management, we will be required to continue improving our operations,
        management, and financial systems and control. Our failure to manage growth
        or
        diversification effectively may lead to operational and financial inefficiencies
        that will have a negative effect on our profitability.
  ***We
        are dependent on certain key personnel and loss of these key personnel could
        have a material adverse effect on our business, financial condition and results
        of operations.*** Our
        success is, to a certain extent, attributable to the management, sales and
        marketing, and operational and technical expertise of certain key personnel.
        Each of the named executive officers performs key functions in the operation
        of
        our business. Although we have employment agreements with such key personnel,
        there can be no assurance that we will be able to retain these officers after
        the term of their employment contracts expire or that such personnel may
        not
        receive and/or accept competing offers of employment. The loss of a significant
        number of these employees could have a material adverse effect upon our
        business, financial condition, and results of operations.
  ***We
        are dependent on a technically trained workforce and an inability to retain
        or
        effectively recruit such employees could have a material adverse effect on
        our
        business, financial condition and results of
        operations.*** **** We
        must
        attract, recruit and retain a sizeable workforce of technically competent
        employees to develop and manufacture our auto electronics products and provide
        service support. Our ability to effectively implement our business strategy
        will
        depend upon, among other factors, the successful recruitment and retention
        of
        additional highly skilled and experienced engineering and other technical
        and
        marketing personnel. There is significant competition for technologically
        qualified personnel in our business and we may not be successful in recruiting
        or retaining sufficient qualified personnel consistent with our operational
        needs.
  27
 ***We
        cannot guarantee the protection of our intellectual property rights and if
        infringement of our intellectual property rights occurs, including
        counterfeiting of our products, our reputation and business may be adversely
        affected.*** To
        protect the reputation of our products, we have sought to file or register
        our
        intellectual property, as appropriate, in the PRC where we have our primary
        business presence. As of June 30, 2007, we, via LTS, had registered 5 trademarks
        as used on our automotive safety and security systems and had applied for
        registration of an additional trademark relating to the use of “Long-e Auto
        Electronics Products.” Our products are currently sold under these trademarks in
        the PRC, and we plan to expand our products to other international markets.
        There is no assurance that there will not be any infringement of our brand
        name
        or other registered trademarks or counterfeiting of our products in the future,
        in China or elsewhere. Should any such infringement and/or counterfeiting
        occur,
        our reputation and business may be adversely affected. We may also incur
        significant expenses and substantial amounts of time and effort to enforce
        our
        trademark rights in the future. Such diversion of our resources may adversely
        affect our existing business and future expansion plans.
  As
        of
        June 30, 2007, we, via LTS, held four Chinese patents relating to the technology
        in our FSK interactive visual car alarm system. We believe that obtaining
        patents and enforcing other proprietary protections for our technologies
        and
        products have been and will continue to be very important in enabling us
        to
        compete effectively. However, there can be no assurance that our pending
        patent
        applications will issue, or that we will be able to obtain any new patents,
        in
        China or elsewhere, or that our or our licensors’ patents and proprietary rights
        will not be challenged or circumvented, or that these patents will provide
        us
        with any meaningful competitive advantages. Furthermore, there can be no
        assurance that others will not independently develop similar products or
        will
        not design around any patents that have been or may be issued to us or our
        licensors. We currently do not have any patent applications pending in, or
        any
        patents from, jurisdictions outside of China and may not seek such foreign
        patents. Failure to obtain patents in certain foreign countries may materially
        adversely affect our ability to compete effectively in those international
        markets. If a sufficiently broad patent were to be issued from a competing
        application in China or elsewhere, it could have a material adverse effect
        upon
        our intellectual property position in that particular market.
  In
        addition, our rights to use the licensed proprietary technologies of our
        licensors depends on the timely and complete payment for such rights pursuant
        to
        license agreements between the parties; failure to adhere to the terms of
        these
        agreements could result in the loss of such rights and could materially and
        adversely affect our business.
  ***If
        our products are alleged to or found to conflict with patents that have been
        or
        may be granted to competitors or others, our reputation and business may
        be
        adversely affected.*** Rapid
        technological developments in the automotive component industry and the
        competitive nature of the auto electronic products market make the patent
        position of any component manufacturer subject to numerous uncertainties
        related
        to complex legal and factual issues. Consequently, although we either own
        or
        hold licenses to certain patents in the PRC, and are currently processing
        several additional patent applications in the PRC via our wholly-owned
        subsidiary, LTS, it is possible that no patents will issue from any pending
        applications or that claims allowed in any existing or future patents issued
        or
        licensed to us will be challenged, invalidated, or circumvented, or that
        any
        rights granted there under will not provide us adequate protection. As a
        result,
        we may be required to participate in interference or infringement proceedings
        to
        determine the priority of certain inventions or may be required to commence
        litigation to protect our rights, which could result in substantial costs.
        Further, other parties could bring legal actions against us claiming damages
        and
        seeking to enjoin manufacturing and marketing of our products for allegedly
        conflicting with patents held by them. Any such litigation could result in
        substantial cost to us and diversion of effort by our management and technical
        personnel. If any such actions are successful, in addition to any potential
        liability for damages, we could be required to obtain a license in order
        to
        continue to manufacture or market the affected products. There can be no
        assurance that we would prevail in any such action or that any license required
        under any such patent would be made available on acceptable terms, if at
        all.
        Failure to obtain needed patents, licenses or proprietary information held
        by
        others may have a material adverse effect on our business. In addition, if
        we
        were to become involved in such litigation, it could consume a substantial
        portion of our time and resources. Also, with respect to licensed technology,
        there can be no assurance that the licensor of the technology will have the
        resources, financial or otherwise, or desire to defend against any challenges
        to
        the rights of such licensor to our patents.
  28
  ***We
        rely on trade secret protections through confidentiality agreements with
        our
        employees, customers and other parties; the breach of such agreements could
        adversely affect our business and results of operations.*** We
        also
        rely on trade secrets, which we seek to protect, in part, through
        confidentiality and non-disclosure agreements with employees, customers and
        other parties. There can be no assurance that these agreements will not be
        breached, that we would have adequate remedies for any such breach or that
        our
        trade secrets will not otherwise become known to or independently developed
        by
        competitors. To the extent that consultants, key employees or other third
        parties apply technological information independently developed by them or
        by
        others to our proposed projects, disputes may arise as to the proprietary
        rights
        to such information that may not be resolved in our favor. We may be involved
        from time to time in litigation to determine the enforceability, scope and
        validity of our proprietary rights. Any such litigation could result in
        substantial cost and diversion of effort by our management and technical
        personnel.
  ***Warranty
        claims, product liability claims and product recalls could harm our business,
        results of operations and financial condition.*** Our
        business inherently exposes us to potential warranty and product liability
        claims, in the event that our products fail to perform as expected or such
        failure of our products results, or is alleged to result, in bodily injury
        or
        property damage (or both). Such claims may arise despite our quality controls,
        proper testing and instruction for use of our products, either due to a defect
        during manufacturing or due to the individual’s improper use of the product. In
        addition, if any of our designed products are or are alleged to be defective,
        then we may be required to participate in a recall of them. As suppliers
        become
        more integrally involved in the vehicle design process, automakers are
        increasingly expecting them to warrant their products and are increasingly
        looking to them for contributions when faced with product liability claims
        or
        recalls. Depending on the terms under which we supply our products to a vehicle
        manufacturer, the vehicle manufacturer may attempt to hold us responsible
        for
        some or all of the repair or replacement costs of defective products under
        new
        vehicle warranties, in the event a vehicle manufacturer asserts that one
        of our
        products did not perform as warranted.
  Existing
        PRC laws and regulations do not require us to maintain third party liability
        insurance to cover product liability claims. Although we, through LTS, have
        obtained products liability insurance, if a warranty or product liability
        claim
        is brought against us and/or LTS, regardless of merit or eventual outcome,
        or a
        recall of one of our products is required, such claim or recall may result
        in
        damages in excess of such coverage, in damage to our reputation, breach of
        contracts with our customers, decreased demand for our products, costly
        litigation, additional product recalls, loss of revenue, and the inability
        to
        commercialize some products.
  ***Our
        planned expansion into new international markets poses additional risks and
        could fail, which could cost us valuable resources and affect our results
        of
        operations.*** We
        plan
        to expand sales of products into overseas markets including developing and
        developed countries, such as Russia and the United States. These markets
        are
        untested for our products and we face risks in expanding the business overseas,
        which include differences in regulatory product testing requirements,
        intellectual property protection (including patents and trademarks), taxation
        policy, legal systems and rules, marketing costs, fluctuations in currency
        exchange rates and changes in political and economic conditions.
  ***Our
        products are made at our production facility located in Shenzhen, China;
        however, our insurance may not adequately cover any losses at that facility
        due
        to fire, casualty or theft.*** We
        have
        obtained property insurance aggregating approximately $3.0 million, covering
        our
        raw materials, goods and merchandise, furniture and equipment and production
        facility in Shenzhen, China. However, the proceeds of such insurance may
        not be
        sufficient to cover material damage to, or the loss of, our production facility
        due to fire, severe weather, flood or other cause, and such damage or loss
        would
        have a material adverse effect on our financial condition, business and
        prospects.
  ***Our
        quarterly results may fluctuate significantly, which could adversely affect
        the
        market price of our stock.*** Our
        quarterly operating results may fluctuate significantly in the future due
        to
        such factors as acceptance of our products by automotive manufacturers and
        other
        consumers, timing of introductions for new and updated products, availability
        and pricing of components from third parties, competition, timing of orders,
        foreign currency exchange rates, technological changes and economic conditions
        generally. Broad market fluctuations in the stock markets could adversely
        affect
        the market price of our common stock, if and when we become listed or quoted
        on
        a national stock exchange. In addition, failure to meet or exceed analysts’
expectations of financial performance may result in immediate and significant
        price and volume fluctuations in our common stock, if and when we becomes
        listed
        or quoted on a national stock exchange. ****
  29
  **Risks
        Related to us Doing Business in China**
  ***All
        of our assets are located in China and all of our revenues are derived from
        our
        operations in China, and changes in the political and economic policies of
        the
        PRC government could have a significant impact upon the business we may be
        able
        to conduct in the PRC and our results of operations and financial condition.*** Our
        business operations may be adversely affected by the current and future
        political environment in the PRC. The PRC has operated as a socialist state
        since the mid-1900s and is controlled by the Communist Party of China. The
        Chinese government exerts substantial influence and control over the manner
        in
        which we must conduct our business operations in the PRC. Over the past decade,
        the PRC has increasingly permitted provincial and local economic autonomy
        and
        private economic activities. However, the government of the PRC has exercised
        and continues to exercise substantial control over virtually every sector
        of the
        Chinese economy, including the auto electronics industry, through regulation
        and
        state ownership. Our ability to operate in China may be adversely affected
        by
        changes in Chinese laws and regulations, including those relating to taxation,
        import and export tariffs, raw materials, environmental regulations, land
        use
        rights, property and other matters. Under our current leadership, the government
        of the PRC has been pursuing economic reform policies that encourage private
        economic activity and greater economic decentralization. There is no assurance,
        however, that the government of the PRC will continue to pursue these policies,
        or that it will not significantly alter these policies from time to time
        without
        notice.
  ***The
        PRC laws and regulations governing our current business operations in the
        PRC
        are sometimes vague and uncertain; any changes in such PRC laws and regulations
        may have a material and adverse effect on our business and financial condition.*** The
        PRC’s
        legal system is a civil law system based on written statutes, in which decided
        legal cases have little value as precedents unlike the common law system
        prevalent in the United States. There are substantial uncertainties regarding
        the interpretation and application of PRC laws and regulations, including
        but
        not limited to the laws and regulations governing our business, or the
        enforcement and performance of our arrangements with customers in the event
        of
        the imposition of statutory liens, death, bankruptcy and criminal proceedings.
        The Chinese government has been developing a comprehensive system of commercial
        laws, and considerable progress has been made in introducing laws and
        regulations dealing with economic matters such as foreign investment, corporate
        organization and governance, commerce, taxation and trade. However, because
        these laws and regulations are relatively new, and because of the limited
        volume
        of published cases and judicial interpretation and their lack of force as
        precedents, interpretation and enforcement of these laws and regulations
        involve
        significant uncertainties. New laws and regulations that affect existing
        and
        proposed future businesses may also be applied retroactively. We are considered
        a foreign person or foreign funded enterprise under PRC laws, and as a result,
        we are required to comply with PRC laws and regulations. We cannot predict
        what
        effect the interpretation of existing or new PRC laws or regulations may
        have on
        our businesses. If the relevant authorities find us in violation of PRC laws
        or
        regulations, they would have broad discretion in dealing with such a violation,
        including, without limitation:
  **•**
              levying
                  fines;
  •
              revoking
                  our business and other licenses;
  •
              requiring
                  that we restructure our ownership or operations;
                  and
  •
              requiring
                  that we discontinue any portion or all of our
                  business.
  ***The
        foreign currency exchange rate between U.S. Dollars and Renminbi could adversely
        affect our financial condition.*** To
        the
        extent that we need to convert dollars into Renminbi (RMB) for our operational
        needs, our financial position and the price of our common stock may be adversely
        affected should the Renminbi appreciate against the U.S. dollar at that time.
        Conversely, if we decide to convert our Renminbi into dollars for the
        operational needs or paying dividends on our common stock, the dollar equivalent
        of our earnings from our subsidiary in China would be reduced should the
        dollar
        appreciate against the Renminbi. Further, our operational results are reported
        in U.S. dollars, and thus fluctuations in the exchange rate applied for purposes
        of consistent presentation may appear to exacerbate or minimize trends in
        our
        reported results.
  30
  Until
        1994, the Renminbi experienced a gradual but significant devaluation against
        most major currencies, including dollars, and there was a significant
        devaluation of the Renminbi on January 1, 1994 in connection with the
        replacement of the dual exchange rate system with a unified managed floating
        rate foreign exchange system. Since 1994, the value of the Renminbi relative
        to
        the U.S. Dollar has remained stable and has appreciated slightly against
        the
        U.S. dollar. Countries, including the United States, have argued that the
        Renminbi is artificially undervalued due to China’s current monetary policies
        and have pressured China to allow the Renminbi to float freely in world markets.
        In July 2005, the PRC government changed its policy of pegging the value
        of the
        Renminbi to the dollar. Under the new policy the Renminbi is permitted to
        fluctuate within a narrow and managed band against a basket of designated
        foreign currencies. While the international reaction to the Renminbi revaluation
        has generally been positive, there remains significant international pressure
        on
        the PRC government to adopt an even more flexible currency policy, which
        could
        result in further and more significant appreciation of the Renminbi against
        the
        dollar.
  ***Inflation
        in the PRC could negatively affect our profitability and growth.*** While
        the
        PRC economy has experienced rapid growth, such growth has been uneven among
        various sectors of the economy and in different geographical areas of the
        country. Rapid economic growth can lead to growth in the money supply and
        rising
        inflation. During the past decade, the rate of inflation in China has been
        as
        high as approximately 20% and China has experienced deflation as low as
        approximately minus 2%. If prices for our products rise at a rate that is
        insufficient to compensate for the rise in the costs of supplies such as
        raw
        materials, it may have an adverse effect on our profitability. In order to
        control inflation in the past, the PRC government has imposed controls on
        bank
        credits, limits on loans for fixed assets and restrictions on state bank
        lending. The implementation of such policies may impede economic growth.
        In
        October 2004, the People’s Bank of China, the PRC’s central bank, raised
        interest rates for the first time in nearly a decade and indicated in a
        statement that the measure was prompted by inflationary concerns in the Chinese
        economy. In April and August 2006, the People’s Bank of China raised the
        interest rate again. Repeated rises in interest rates by the central bank
        would
        likely slow economic activity in China which could, in turn, materially increase
        our costs and also reduce demand for our products.
  ***We
        enjoy certain preferential tax concessions in the PRC and loss of these
        preferential tax concessions will cause our tax liabilities to increase and
        our
        profitability to decline.*** **** We,
        through our wholly-owned operating subsidiary LTS, enjoy preferential tax
        concessions as a high-tech enterprise. Pursuant to the Regulation of Tax
        Policy
        of Enterprises of Shenzhen Municipal Special Administrative Economy District
        as
        issued by the Shenzhen municipal government, the Shenzhen Regional Tax Bureau
        recognized and approved our status as a high and new technology enterprise
        and
        thus we were granted a 100% reduction in our income tax liability for our
        first
        two profitable years after 2003 and a 50% reduction in our income tax liability
        for three years from our third profitable year. As the historical corporate
        income tax rate in Shenzhen, China is 15%, LTS’s effective income tax rate for
        the 2005 through 2007 fiscal years is 7.5%.
  However,
        the PRC Enterprise Income Tax Law (the “EIT Law”) was enacted on March 16, 2007.
        Under the EIT Law, effective January 1, 2008, China will adopt a uniform
        tax
        rate of 25.0% for all enterprises (including foreign-invested enterprises)
        and
        cancel several tax incentives enjoyed by foreign-invested enterprises. However,
        for foreign-invested enterprises established before the promulgation of the
        EIT
        Law, a five-year transition period is provided during which reduced rates
        will
        apply but gradually be phased out. Although the 15% corporate income tax
        rate
        for qualified high and new technology enterprises appears to survive the
        enactment of the EIT Law, and our preferential rate should survive during
        the
        first year of the transitional period, because the PRC government has not
        fully
        announced implementation measures for the transitional policy with regards
        to
        such preferential tax rates, we cannot reasonably estimate the financial
        impact
        of the new tax law to us at this time. Further, any future increase in the
        enterprise income tax rate applicable to us or other adverse tax treatments,
        such as the discontinuation of preferential tax treatments for high and new
        technology enterprises altogether, would have a material adverse effect on
        our
        results of operations and financial condition.
 
 ***Recent
        PRC regulations relating to acquisitions of PRC companies by foreign entities
        may create regulatory uncertainties that could restrict or limit our ability
        to
        operate, including our ability to pay dividends.*** The
        PRC
        State Administration of Foreign Exchange, or SAFE, issued a public notice
        in
        January 2005 concerning foreign exchange regulations on mergers and acquisitions
        in China. The public notice states that if an offshore company controlled
        by PRC
        residents intends to acquire a PRC company, such acquisition will be subject
        to
        strict examination by the relevant foreign exchange authorities. The public
        notice also states that the approval of the relevant foreign exchange
        authorities is required for any sale or transfer by the PRC residents of
        a PRC
        company’s assets or equity interests to foreign entities for equity interests or
        assets of the foreign entities.
  31
 In
        April
        2005, SAFE issued another public notice further explaining the January notice.
        In accordance with the April notice, if an acquisition of a PRC company by
        an
        offshore company controlled by PRC residents has been confirmed by a Foreign
        Investment Enterprise Certificate prior to the promulgation of the January
        notice, the PRC residents must each submit a registration form to the local
        SAFE
        branch with respect to their respective ownership interests in the offshore
        company, and must also file an amendment to such registration if the offshore
        company experiences material events, such as changes in the share capital, share
        transfer, mergers and acquisitions, spin-off transaction or use of assets
        in
        China to guarantee offshore obligations. The April notice also provides that
        failure to comply with the registration procedures set forth therein may
        result
        in restrictions on our PRC resident shareholders and LTS, LIG and us. Pending
        the promulgation of detailed implementation rules, the relevant government
        authorities are reluctant to commence processing any registration or application
        for approval required under the SAFE notices.
 
 In
        October 2005, SAFE issued its “Notice on Relevant Issues in the Foreign Exchange
        Control over Financing and Return Investment Through Special Purpose Companies
        by Residents Inside China,” generally referred to as Circular 75, requiring PRC
        residents to register with the competent local SAFE branch before establishing
        or acquiring control over an offshore special purpose company, or SPV, for
        the
        purpose of engaging in an equity financing outside of China on the strength
        of
        domestic PRC assets originally held by those residents.
 
 In
        addition, on August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by
        the State-owned Assets Supervision and Administration Commission of the State
        Council, State Administration of Taxation, State Administration for Industry
        and
        Commerce, China Securities Regulatory Commission and SAFE, amended and released
        the *Provisions for Foreign Investors to Merge and Acquire Domestic
        Enterprises* ,
        new
        foreign-investment rules which took effect September 8, 2006, superseding
        much, but not all, of the guidance in the prior SAFE circulars. These new
        rules
        significantly revise China’s regulatory framework governing onshore-offshore
        restructurings and how foreign investors can acquire domestic enterprises.
        These
        new rules signify greater PRC government attention to cross-border merger,
        acquisition and other investment activities, by confirming MOFCOM as a key
        regulator for issues related to mergers and acquisitions in China and requiring
        MOFCOM approval of a broad range of merger, acquisition and investment
        transactions. Further, the new rules establish reporting requirements for
        acquisition of control by foreigners of companies in key industries, and
        reinforce the ability of the Chinese government to monitor and prohibit foreign
        control transactions in key industries.
 
 In
        May
        2007, SAFE issued internal implementing guidelines (which became public in
        June
        2007, and became known as Notice 106), which expanded the reach of Circular
        75
        by (i) purporting to cover the establishment or acquisition of control by
        PRC
        residents of offshore entities which merely acquire “control” over domestic
        companies or assets, even in the absence of legal ownership; (ii) adding
        requirements relating to the source of the PRC resident’s funds used to
        establish or acquire the offshore entity; (iii) covering the use of existing
        offshore entities for offshore financings; (iv) purporting to cover situations
        in which an offshore SPV establishes a new subsidiary in China or acquires
        an
        unrelated company or unrelated assets in China; and (v) making the domestic
        affiliate of the SPV responsible for the accuracy of certain documents which
        must be filed in connection with any such registration, notably, the business
        plan which describes the overseas financing and the use of proceeds. Amendments
        to registrations made under Circular 75 are required in connection with any
        increase or decrease of capital, transfer of shares, mergers and acquisitions,
        equity investment or creation of any security interest in any assets located
        in
        China to guarantee offshore obligations, and Notice 106 makes the offshore
        SPV
        jointly responsible for these filings. Failure to comply with the requirements
        of Circular 75, as applied by SAFE in accordance with Notice 106, may result
        in
        fines and other penalties under PRC laws for evasion of applicable foreign
        exchange restrictions. Any such failure could also result in the SPV’s
        affiliates being impeded or prevented from distributing their profits and
        the
        proceeds from any reduction in capital, share transfer or liquidation to
        the
        SPV, or from engaging in other transfers of funds into or out of
        China.
 
 We
        believe our stockholders who are PRC residents as defined in Circular 75
        have
        registered with the relevant branch of SAFE, as currently required, in
        connection with their equity interests in us and our acquisitions of equity
        interests in our PRC subsidiaries. However, we cannot provide any assurances
        that their existing registrations have fully complied with, and they have
        made
        all necessary amendments to their registration to fully comply with, all
        applicable registrations or approvals required by Circular 75. Moreover,
        because
        of uncertainty over how Circular 75 will be interpreted and implemented,
        and how
        or whether SAFE will apply it to us, we cannot predict how it will affect
        our
        business operations or future strategies. For example, our present and
        prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
        such as the remittance of dividends and foreign currency-denominated borrowings,
        may be subject to compliance with Circular 75 by our PRC resident beneficial
        holder.
 
 These
        new
        rules may significantly affect the means by which offshore-onshore
        restructurings are undertaken in China in connection with offshore private
        equity and venture capital financings, mergers and acquisitions, as well
        as the
        ability of current offshore-onshore structured companies to effectively seek
        further financing. It is expected that such transactional activity in China
        in
        the near future will require significant case-by-case guidance from MOFCOM
        and
        other government authorities as appropriate. It is anticipated that application
        of the new rules will be subject to significant administrative interpretation,
        and we will need to closely monitor how MOFCOM and other ministries apply
        the
        rules to ensure our domestic and offshore activities continue to comply with
        PRC
        law. Given the uncertainties regarding interpretation and application of
        the new
        rules, we may need to expend significant time and resources to maintain
        compliance, including educating or assisting our PRC-based shareholders with
        their SAFE registration requirements.
 
 32
 Our
        business operations or future strategy could be adversely affected by the
        interpretations and implementation of the SAFE notices and the new rules.
        For
        example, we may be subject to more stringent review and approval process
        with
        respect to our foreign exchange activities.
 
 ***Recent
        negative publicity regarding the quality and reliability of products
        manufactured in China, and a perceived lack of quality control in Chinese
        operations may adversely affect demand for our products and our ability to
        internationally expand our customer base.*** ** In
        recent
        months there has been a significant amount of publicity about quality control
        issues in various industries in China, as well as a number of product recalls
        or
        safety warnings issued in relation to Chinese-manufactured products. Although
        we
        have received numerous quality control certifications and, to our knowledge,
        none of the incidents receiving international attention arose in the China-based
        auto electronics industry, this negative publicity could have an adverse
        impact
        on customer demand for items made in China. Although we currently do business
        solely with China-based customers, a portion of our sales are to export agents
        who rely on demand in the broader international market for auto electronic
        products, which could be impacted by negative reports on the quality or safety
        of Chinese products. Further, we are strategically evaluating expansion into
        other international markets, and our ability to do so could be substantially
        reduced by such negative publicity for China-produced goods. If such negative
        publicity continues or increases, or the product recalls and safety warnings
        extend to the China-based auto electronics industry, even if we maintain
        our
        high standards of quality control, our operations may be adversely affected
        by
        association and our financial condition may suffer.
 
 ***Failure
        to comply with the United States Foreign Corrupt Practices Act could subject
        us
        to penalties and other adverse consequences.*** We
        are
        subject to the United States Foreign Corrupt Practices Act, which generally
        prohibits United States companies from engaging in bribery or other prohibited
        payments to foreign officials for the purpose of obtaining or retaining
        business. Foreign companies, including some that may compete with us, are
        not
        subject to these prohibitions. Corruption, extortion, bribery, pay-offs,
        theft
        and other fraudulent practices may occur from time-to-time in the PRC. Although
        we have adopted a Code of Ethics and Business Conduct, we can make no assurance,
        however, that our employees or other agents will not engage in such conduct
        for
        which we might be held responsible. If our employees or other agents are
        found
        to have engaged in such practices, we could suffer severe penalties and other
        consequences that may have a material adverse effect on our business, financial
        condition and results of operations.
 
 ***Any
        recurrence of severe acute respiratory syndrome, or SARS, or occurrence of
        any
        other widespread public health problem, in the PRC could adversely affect
        our
        operations.*** A
        renewed
        outbreak of SARS, or the occurrence of another widespread public health problem
        in China, where all of our manufacturing facilities are located and where
        all of
        our sales currently occur, could have a negative effect on our operations.
        Such
        an outbreak could have an impact on our operations as a result of:
  **•**
              quarantines
                  or closures of some of our manufacturing facilities, which would
                  severely
                  disrupt our operations,
  •
              the
                  sickness or death of our key officers and employees,
                  and
  •
              a
                  general slowdown in the Chinese
                  economy.
  Any
        of
        the foregoing events or other unforeseen consequences of public health problems
        could adversely affect our operations.
  ***A
        downturn in the economy of the PRC may slow our growth and
        profitability*** **.** The
        growth of the Chinese economy has been uneven across geographic regions and
        economic sectors. There can be no assurance that growth of the Chinese economy
        will be steady or that any downturn will not have a negative effect on our
        business, especially if it results in either a decreased use of our products
        or
        in pressure on us to lower our prices.
  33
 ***We
        may have difficulty establishing adequate management, legal and financial
        controls in the PRC*** **.** PRC
        companies have historically not adopted a Western style of management and
        financial reporting concepts and practices, which includes strong corporate
        governance, internal controls and, computer, financial and other control
        systems. In addition, we may have difficulty in hiring and retaining a
        sufficient number of qualified employees to work in the PRC. As a result
        of
        these factors, we may experience difficulty in establishing management, legal
        and financial controls, collecting financial data and preparing financial
        statements, books of account and corporate records and instituting business
        practices that meet Western standards. Therefore, we may, in turn, experience
        difficulties in implementing and maintaining adequate internal controls as
        required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result
        in
        significant deficiencies or material weaknesses in our internal controls
        which
        could impact the reliability of our financial statements and prevent us from
        complying with SEC rules and regulations and the requirements of the
        Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
        compliance could have a materially adverse effect on our business.
  ***You
        may experience difficulties in effecting service of legal process, enforcing
        foreign judgments or bringing original actions in China based upon U.S. laws,
        including the federal securities laws or other foreign laws against us or
        our
        management.*** **** All
        of
        our current operations are conducted in China. Moreover, all but one of our
        directors and officers are nationals and residents of China, and the remaining
        director is a citizen of Canada. All or substantially all of the assets of
        these
        persons are located outside the United States and in the PRC. As a result,
        it
        may not be possible to effect service of process within the United States
        or
        elsewhere outside China upon these persons. In addition, uncertainty exists
        as
        to whether the courts of China would recognize or enforce judgments of U.S.
        courts obtained against us or such officers and/or directors predicated upon
        the
        civil liability provisions of the securities law of the United States or
        any
        state thereof, or be competent to hear original actions brought in China
        against
        us or such persons predicated upon the securities laws of the United States
        or
        any state thereof.
  **Risks
        Related to our Corporate Structure and Capitalization**
  ***There
        is currently a limited trading market for our common stock, and there is
        no
        assurance a more established public trading market will develop, the absence
        of
        which would adversely affect the ability of our investors to sell their
        securities in the public market.*** ** As of
        December 31, 2006, our common stock was listed on the OTC Bulletin Board
        (the
“OTCBB”), however our common stock was subsequently removed from quotation on
        the OTCBB and is now quoted on the Electronic Quotation Service known as
        the
        Pink Sheets. Quotes for stocks traded via the Pink Sheets are not listed
        in the
        financial sections of newspapers, and bid and ask prices for securities traded
        solely on the Pink Sheets may be difficult to obtain. In addition, stocks
        traded
        solely on the Pink Sheets tend to have a limited number of market makers
        and a
        larger spread between bid and ask prices than those listed on the NYSE, AMEX,
        or
        Nasdaq exchanges, or even the OTCBB. As a result, holders of our common stock
        may be unable to resell their securities at or near their original offering
        price or at any price.
 
 Market
        prices for our common stock may be influenced by a number of factors,
        including:
 
 •
              Our
                  ability to obtain additional financing and, if available, the terms
                  and
                  conditions of the financing;
 •
              Our
                  financial position and results of
                  operations;
 •
              Concern
                  as to, or other evidence of, the reliability and safety of our
                  products
                  and services or our competitors’ products and
                  services;
 •
              Announcements
                  of innovations or new products or services by us or our
                  competitors;
 •
              U.S.
                  federal and state governmental regulatory actions and the impact
                  of such
                  requirements on our business;
 •
              Chinese
                  governmental regulatory actions and the impact of such requirements
                  on our
                  business;
 •
              The
                  development of litigation against
                  us;
 •
              Period-to-period
                  fluctuations in our operating
                  results;
 •
              Changes
                  in estimates of our performance by any securities
                  analysts;
 •
              The
                  issuance of new equity securities pursuant to a future offering
                  or
                  acquisition;
 •
              Changes
                  in interest rates and/or foreign currency exchange
                  rates;
 •
              Competitive
                  developments, including announcements by competitors of new products
                  or
                  services or significant contracts, acquisitions, strategic partnerships,
                  joint ventures or capital
                  commitments;
 •
              Investor
                  perceptions of us; and
 •
              General
                  economic and other national and international
                  conditions.
  There
        is
        currently no active trading market in our common stock. Even if such a market
        were to become established, we would need to become current in our SEC filings
        and maintain compliance for a certain period before our common stock could
        potentially be quoted again on the OTCBB.
  34
 ***Certain
        commitments into which we entered in connection with our most recent equity
        financing arrangement could lead to further dilution of our common stock
        and
        reduce the price of our common stock*** **.** In
        connection with our most recent equity financing arrangement, we entered
        into
        certain commitments with investors, including commitments to reincorporate
        in
        the state of Delaware, to issue a certain amount of preferred stock, and
        to
        incur obligations under certain convertible promissory notes. If holders
        of our
        convertible notes or warrants to purchase common stock exercise their rights
        under such instruments, our common stock will be further diluted and this
        could
        contribute to a reduction and/or greater volatility in the price of our common
        stock. Additionally, failure to carry out any of our commitments could have
        a
        negative impact on our financing arrangements .
  ***Shares
        eligible for future sale may adversely affect the market price of our common
        stock, as the future sale of a substantial amount of outstanding stock in
        the
        public marketplace could reduce the price of our common stock.*** During
        2006, in conjunction with our previously reported share exchange and private
        placement of shares of common stock and warrants, we agreed to file registration
        statements with the Securities and Exchange Commission to register a total
        of
        5,285,714 shares of common stock and an aggregate of 5,278,570 shares of
        common
        stock underlying warrants issued in an equity financing, as well as up to
        45,000
        shares held by pre-existing shareholders of Inncardio and shares underlying
        other outstanding warrants to purchase up to 1,528,571 shares of our common
        stock.
  Effective
        as of January 25, 2007, we effected a second private placement transaction.
        Pursuant to a Securities Purchase Agreement entered into with the investors,
        we
        sold and the investors purchased: (1) Convertible Promissory Notes (the “Notes”)
        in the aggregate principal amount of $5,353,000, convertible into a total
        of
        13,382,500 shares of the Company’s common stock at a price of $0.40 per share,
        (2) Common Stock Purchase Warrants (the “Series A Warrants”) entitling the
        investors to purchase up to an aggregate of 6,691,250 shares of the Company’s
        common stock at a price of $0.48 per share, and (3) Common Stock Purchase
        Warrants (the “Series B Warrants”) to purchase up to an aggregate of 6,691,250
        shares of the Company’s common stock at a price of $0.60 per share (the “Second
        Private Placement”). As of December 31, 2007, the Notes had not been converted
        and none of the Series A or B Warrants had been exercised, in whole or in
        part.
 
 Pursuant
        to the terms of the Securities Purchase Agreement, we agreed to file, not
        later
        than 120 days after the closing date of the Securities Purchase Agreement
        and an
        Amended and Restated Registration Rights Agreement, a registration statement
        registering a portion of the shares issuable upon conversion of the Notes
        and
        the Series A and Series B Warrants, and a portion of the shares issued
        in the Private Placement closed December 29, 2006. We failed to satisfy certain
        agreed deadlines during the registration process, and are now obligated to
        pay
        the investors liquidated damages in cash equal to 2% of the investors’ initial
        investment in the Company, up to 20% of such investment in the
        aggregate. As of June 30, 2007, the required registration filing has not
        been completed. We have recognized a liability of $1,450,600 on our books
        as of
        June 30, 2007 to provide for the maximum liquidated damages accruable, as
        we
        believe it is unlikely that we will file the registration statement prior
        to the
        date upon which the maximum penalty would be owed.
 
 Effective
        December 31, 2007, we converted approximately $1.127 million of liquidated
        damages owing to certain investors through December 31, 2007, into ten-year,
        no
        interest notes convertible into shares of the Company’s common stock, par value
        $0.001 per share, at $0.17 per share (the Notes”). The Notes were issued
        pursuant to a Securities Purchase, Settlement and Release Agreement (the
        “Agreement”). Pursuant to the Agreement, the participating investors, who
        constituted a majority of the holders of the Company’s outstanding convertible
        notes and warrants issued in the prior Placements, also waived any anti-dilution
        adjustments to such securities arising from the Conversion. The Company and
        the
        participating investors also entered into a Registration Rights Agreement
        pursuant to which the Company agreed to file a registration statement
        registering the shares of common stock issuable upon conversion of the Notes,
        upon the ninetieth (90 th )
        day
        following the earlier of (i) the date upon which the Company satisfies all
        obligations to file registration statements pursuant to the 2007 Registration
        Rights Agreement, or (ii) the date upon which all of the securities registrable
        pursuant to the 2007 Registration Rights Agreement are eligible for resale
        pursuant to Rule 144. There are no liquidated damages or penalties associated
        with these registration rights.
 
 Additionally,
        some of our shareholders may be eligible to sell all or some of their shares
        of
        common stock by means of ordinary brokerage transactions in the open market
        pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), subject
        to certain limitations. In general, pursuant to Rule 144, a shareholder (or
        shareholders whose shares are aggregated) who has satisfied a one-year holding
        period may, under certain circumstances, sell within any three-month period
        a
        number of securities which does not exceed the greater of 1% of the then
        outstanding shares of common stock or the average weekly trading volume of
        the
        class during the four calendar weeks prior to such sale. As of June 30, 2007,
        1%
        of our issued and outstanding shares of common stock was approximately 312,597
        shares. Rule 144 also permits, under certain circumstances, the sale of
        securities, without any limitations, by a non-affiliate that has satisfied
        a
        two-year holding period. In addition, effective February 15, 2008, revisions
        to
        Rule 144 become effective, which may have the effect of shortening the holding
        period or other resale restrictions on some of our investors, easing their
        ability to resell their shares of our common stock. Any substantial sale
        of
        common stock pursuant to any resale prospectus or Rule 144 may have an adverse
        effect on the market price of our common stock by creating an excessive
        supply.
 
 35
 ***We
        are in breach of our obligations pursuant to our Amended and Restated
        Registration Rights Agreement, subjecting us to liquidated
        damages.*** In
        conjunction with the Private Placement and the Second Private Placement,
        we
        entered into an Amended and Restated Registration Rights Agreement dated
        January
        25, 2007, which required that we file a registration statement registering
        certain of our recently issued securities for resale no later than 120 days
        from
        the closing date of the sale of the securities in the Second Private Placement.
        We failed to satisfy the agreed deadline for filing of the initial registration
        statement, and subsequently also breached our obligation to remain timely
        in our
        required filings with the SEC and to maintain quotation of our common stock
        on
        the OTCBB. As a result, we have triggered the liquidated damages provision
        of
        the Amended and Restated Registration Rights Agreement and are contractually
        obligated to pay the investors who are signatories to that agreement liquidated
        damages in cash equal to 2% of each investor’s initial investment in the
        Company, up to 20% of such investment in the aggregate (approximately $1.45
        million). We have recognized a liability of $1,450,600 on our books as of
        June
        30, 2007 to provide for the maximum liquidated damages accruable, as we believe
        it is unlikely that we will file the registration statement prior to the
        date
        upon which the maximum penalty would be owed. Although we have received some
        requests for partial payment of the liquidated damages accrued, we have not
        made
        any cash payments of liquidated damages. Effective December 31, 2007, we
        converted approximately $1.127 million of liquidated damages owing to certain
        investors through December 31, 2007, into ten-year, no interest notes
        convertible into shares of the Company’s common stock, par value $0.001 per
        share, at $0.17 per share; however, not all investors owed liquidated damages
        chose to participate in the conversion transaction and thus we are still
        liable
        for certain damages through December 31, 2007, and liable for any liquidated
        damages accrued after that date until the cap is reached. If we were to pay
        these liquidated damages with shares of our common stock or other equity
        securities, this would have a dilutive effect and may have an adverse effect
        on
        the market price of our common stock by creating an excessive supply. If
        we were
        to pay these liquidated damages in cash, this would limit the amount of cash
        available to fund and potentially grow our operations and could have an adverse
        effect on our operations and financial condition.
 
 ***The
        ability of our Chinese operating subsidiary to pay dividends may be restricted
        due to our corporate structure.*** Substantially
        all of our operations are conducted in China and substantially all of our
        revenues are generated in China. As a wholly foreign-owned enterprise, LTS
        is
        required to establish reserve funds and staff and workers’ bonus and welfare
        funds, each of which is appropriated from net profit after taxation but before
        dividend distributions in accordance with Chinese law. LTS is required to
        allocate at least 10% of our net profits to the reserve fund until the balance
        of this fund has reached 50% of LTS’s registered capital; as of June 30, 2007,
        LTS’s registered capital was approximately $1.2 million.
  In
        addition, the profit available for distribution from LTS is determined in
        accordance with generally accepted accounting principles in China. This
        calculation may differ from the one performed under generally accepted
        accounting principles in the United States, or GAAP. As a result, we may
        not
        receive sufficient distributions from our Chinese subsidiaries to enable
        us to
        make dividend distributions to our stockholders in the future and limitations
        on
        distributions of the profits of LTS could negatively affect our financial
        condition and assets, even if our GAAP financial statements indicate that
        our
        operations have been profitable.
  ***Our
        common stock is considered a “penny stock,” and thereby is subject to additional
        sale and trading regulations that may make it more difficult to sell.*** Our
        common stock is currently considered to be a “penny stock” because it does not
        qualify for one of the exemptions from the definition of “penny stock” under
        Section 3a51-1 of the Securities Exchange Act for 1934, as amended (the
“Exchange Act”). Our common stock may be a “penny stock” if it meets one or more
        of the following conditions (i) the stock trades at a price less than $5.00
        per
        share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is
        NOT quoted on the Nasdaq Stock Market, or even if so, has a price less than
        $5.00 per share; or (iv) is issued by a company that has been in business
        less
        than three years with net tangible assets less than $5 million.
  The
        principal result or effect of being designated a “penny stock” is that
        securities broker-dealers participating in sales of our common stock will
        be
        subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9
        promulgated under the Exchange Act. For example, Rule 15g-2 requires
        broker-dealers dealing in penny stocks to provide potential investors with
        a
        document disclosing the risks of penny stocks and to obtain a manually signed
        and dated written receipt of the document at least two business days before
        effecting any transaction in a penny stock for the investor’s account. Moreover,
        Rule 15g-9 requires broker-dealers in penny stocks to approve the account
        of any
        investor for transactions in such stocks before selling any penny stock to
        that
        investor. This procedure requires the broker-dealer to (i) obtain from the
        investor information concerning his or her financial situation, investment
        experience and investment objectives; (ii) reasonably determine, based on
        that
        information, that transactions in penny stocks are suitable for the investor
        and
        that the investor has sufficient knowledge and experience as to be reasonably
        capable of evaluating the risks of penny stock transactions; (iii) provide
        the
        investor with a written statement setting forth the basis on which the
        broker-dealer made the determination in (ii) above; and (iv) receive a signed
        and dated copy of such statement from the investor, confirming that it
        accurately reflects the investor’s financial situation, investment experience
        and investment objectives. Compliance with these requirements may make it
        more
        difficult and time consuming for holders of our common stock to resell their
        shares to third parties or to otherwise dispose of them in the market or
        otherwise.
  36
 ***We
        do not foresee paying cash dividends in the foreseeable
        future*** **.** We
        have
        not declared or paid any cash dividends on our shares of common stock in
        the
        past and we currently intend to retain any future earnings for funding growth.
        We do not anticipate paying any dividends in the foreseeable future. As a
        result, you should not rely on an investment in our securities if you require
        dividend income. Capital appreciation, if any, of our shares may be your
        sole
        source of gain for the foreseeable future. Moreover, you may not be able
        to
        resell your shares in us at or above the price you paid for them.
  **Risks
        Related to U.S. Regulatory Requirements**
  ***Our
        officers and directors have no experience in public company reporting and
        limited experience in financial accounting, which could impair our ability
        to
        satisfy public company filing requirements and increase our securities
        compliance costs.*** **** Our
        officers and directors do not have any prior experience as officers and
        directors of a publicly traded company, or in complying with the regulatory
        requirements applicable to a public company. As a result, we could have
        difficulty satisfying the regulatory requirements applicable to public
        companies, which could adversely affect the market for our common stock.
        At
        present, we rely upon outside experts to advise us on matters relating to
        financial accounting and public company reporting. For example, our 2006
        audit
        and annual reporting process has taken significant longer and been more
        expensive than originally anticipated due to the learning curve of our key
        personnel, and as a result we are no longer current in our SEC filings and
        have
        been removed from quotation on the OTCBB. While we continue to believe that
        it
        will be possible to satisfy our public company reporting requirements through
        the use of third party experts, our general and administrative costs will
        remain
        higher to the extent our officers alone are not able to satisfy our public
        company reporting requirements
  ***If
        we fail to maintain effective internal controls over financial reporting,
        the
        price of our common stock may be adversely affected.*** **** Our
        internal control over financial reporting may have weaknesses and conditions
        that need to be addressed, the disclosure of which may have an adverse impact
        on
        the price of our common stock. We are required to establish and maintain
        appropriate internal controls over financial reporting. Failure to establish
        those controls, or any failure of those controls once established, could
        adversely impact our public disclosures regarding our business, financial
        condition or results of operations. In addition, management’s assessment of
        internal controls over financial reporting may identify weaknesses and
        conditions that need to be addressed in our internal controls over financial
        reporting or other matters that may raise concerns for investors. As management
        has not completed and reported on a formal assessment of our internal control
        over financial reporting to date, we are not certain if these are currently
        any
        material weaknesses or significant deficiencies in our internal control over
        financial reporting at this time. Any actual or perceived weaknesses and
        conditions that need to be addressed in our internal control over financial
        reporting, disclosure of management’s assessment of our internal controls over
        financial reporting or disclosure of our public accounting firm’s attestation to
        or report on management’s assessment of our internal controls over financial
        reporting may have an adverse impact on the price of our common
        stock.
  ***Compliance
        with changing regulation of corporate governance and public disclosure will
        result in additional expenses.*** Changing
        laws, regulations and standards relating to corporate governance and public
        disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
        regulations, have created uncertainty for public companies and significantly
        increased the costs and risks associated with accessing the United States
        public
        markets and related public reporting obligations. Our management team will
        need
        to invest significant management time and financial resources to comply with
        both existing and evolving standards for public companies, which will lead
        to
        increased general and administrative expenses and a diversion of management
        time
        and attention from revenue generating activities to compliance
        activities.
 
 ***Standards
        for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
        and if we fail to comply in a timely manner, our business could be harmed
        and
        our stock price could decline.***  Rules
        adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
        require annual assessment of our internal control over financial reporting,
        and
        attestation of this assessment by our company’s independent registered public
        accountants. The SEC extended the compliance dates for non-accelerated filers,
        as defined by the SEC. Accordingly, we believe that this requirement will
        first
        apply to our annual report for fiscal 2008. The standards that must be met
        for
        management to assess the internal control over financial reporting as effective
        are new and complex, and require significant documentation, testing and possible
        remediation to meet the detailed standards. We may encounter problems or
        delays
        in completing activities necessary to make an assessment of our internal
        control
        over financial reporting. In addition, the attestation process by our
        independent registered public accountants is new and it may encounter problems
        or delays in completing the implementation of any requested improvements
        and
        receiving an attestation of our assessment by our independent registered
        public
        accountants. If we cannot assess our internal control over financial reporting
        as effective, or our independent registered public accountants are unable
        to
        provide an unqualified attestation report on such assessment, investor
        confidence and share value may be negatively impacted.
  37
 **Item
                  3.**
              **Controls
                  and Procedures.**
  As
        of the
        end of the period covered by this report on Form 10-QSB, our Chief Executive
        Officer and our Chief Financial Officer performed an evaluation of the
        effectiveness of and the operation of our disclosure controls and procedures
        as
        defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based
        on
        that evaluation, our Chief Executive Officer and Chief Financial Officer
        could
        not conclude that as of June 30, 2007, our disclosure controls and procedures
        were effective in timely alerting them to material information relating to
        Long-e International, Inc. required to be included in our Exchange Act filings
        and ensuring such information is recorded, processed, summarized and reported
        within the time periods specified in Securities and Exchange Commission rules
        and forms. Further, since the closing of the previously reported share exchange
        marked a change in the operations of the business, our Chief Executive Officer
        and Chief Financial Officer concluded that there was a further need to evaluate
        and implement appropriate disclosure controls and procedures to ensure the
        timely, accurate and comprehensive flow of material information, especially
        in
        relation to LIG and LTS, required to be disclosed in our Exchange Act filings
        and to ensure that all such information is recorded, processed, summarized
        and
        reported within the time periods required. Since June 30, 2007, our Chief
        Executive Officer and other members of the management team have been working
        to
        design and implement such effective disclosure controls and procedures.
 
 There
        have been no changes in our internal control over financial reporting identified
        in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15(d)
        under the Exchange Act that occurred during the quarter ended June 30, 2007
        that
        has materially affected, or is reasonably likely to materially affect, our
        internal control over financial reporting.
 
 **PART
        II — OTHER INFORMATION**
  **Item
                1.**
              **Legal
                  Proceedings.**
  None.
  **Item
                2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds.**
  None
  **Item
                3.**
              **Defaults
                  Upon Senior Securities**
  Pursuant
        to the terms of the Securities Purchase Agreement, we agreed to file, not
        later
        than 120 days after the closing date of the Securities Purchase Agreement
        and an
        Amended and Restated Registration Rights Agreement, a registration statement
        registering a portion of the shares issuable upon conversion of the Notes
        and
        the Series A and Series B Warrants, and a portion of the shares issued
        in the Private Placement closed December 29, 2006. We failed to satisfy certain
        agreed deadlines during the registration process, and are now obligated to
        pay
        the investors liquidated damages in cash equal to 2% of the investors’ initial
        investment in the Company, up to 20% of such investment in the
        aggregate. As of June 30, 2007, the required registration filing has not
        been completed. We have recognized a liability of $1,450,600 on our books
        as of
        June 30, 2007 to provide for the maximum liquidated damages accruable, as
        we
        believe it is unlikely that we will file the registration statement prior
        to the
        date upon which the maximum penalty would be owed.
  Effective
        December 31, 2007, we converted approximately $1.127 million of liquidated
        damages owing to certain investors through December 31, 2007, into ten-year,
        no
        interest notes convertible into shares of the Company’s common stock, par value
        $0.001 per share, at $0.17 per share (the Notes”). The Notes were issued
        pursuant to a Securities Purchase, Settlement and Release Agreement (the
        “Agreement”). Pursuant to the Agreement, the participating investors, who
        constituted a majority of the holders of the Company’s outstanding convertible
        notes and warrants issued in the prior Placements, also waived any anti-dilution
        adjustments to such securities arising from the Conversion. The Company and
        the
        participating investors also entered into a Registration Rights Agreement
        pursuant to which the Company agreed to file a registration statement
        registering the shares of common stock issuable upon conversion of the Notes,
        upon the ninetieth (90 th )
        day
        following the earlier of (i) the date upon which the Company satisfies all
        obligations to file registration statements pursuant to the 2007 Registration
        Rights Agreement, or (ii) the date upon which all of the securities registrable
        pursuant to the 2007 Registration Rights Agreement are eligible for resale
        pursuant to Rule 144. There are no liquidated damages or penalties associated
        with these registration rights.
 
 38
  **Item
                4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 On
        March
        31, 2007, our board of directors unanimously: approved an amendment and
        restatement of our Articles of Incorporation to authorize the issuance of
        preferred stock and an increase in the number of authorized shares of common
        stock (the “Articles Amendment”); approved the conversion of the Company from a
        State of Utah corporation to a State of Delaware corporation (the “Jurisdiction
        Conversion”); affirmed the continuation of Bu Shengfu, Xu Rujiang, Liang Zhu,
        Jin Yushan, and Chen Dong as directors of the converted entity and recommended
        seeking shareholder ratification of such continuing appointments (the “Director
        Ratification”); and adopted the Long-e 2007 Equity Incentive Plan (the “Equity
        Incentive Plan”). By action by written consent, dated April 4, 2007, the
        holders of 17,678,404 shares (56.55%) of our outstanding common stock approved
        the Articles Amendment, the Jurisdiction Conversion, the Director Ratification
        and the Equity Incentive Plan. As a result, adoption of the Articles Amendment,
        Jurisdiction, Director Ratification and the Equity Incentive Plan were approved
        and no further votes will be needed; however, these actions will not become
        effective until at least 20 days after we file a definitive information
        statement on Schedule 14C, promulgated under the Securities Exchange Act
        of 1934
        and mail such information statement to our shareholders, plus we must make
        certain state filings. We filed a preliminary information statement on Schedule
        14C with the SEC on April 5, 2007, and intend to file a revised preliminary
        information statement on Schedule 14C in the near future. Thus, at this time,
        none of the actions described in this Item 4 are yet effective.
  **Item
                5.**
              **Other
                  Information.**
  Not
        applicable.
  **Item
                6.**
              **Exhibits.**
  (a)
        Exhibits.
  **Exhibit**
              **Item**31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302(a) of the
                  Sarbanes-Oxley Act of 200231.2
              Certification
                  of Chief Financial Officer pursuant to Section 302(a) of the
                  Sarbanes-Oxley Act of 200232.1
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of
                  2002*
 
 *
        This
        exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
        Exchange Act of 1934 or otherwise subject to the liabilities of that section,
        nor shall it be deemed incorporated by reference in any filing under the
        Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
        before or after the date hereof and irrespective of any general incorporation
        language in any filings.
  39
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 LONG-E
                  INTERNATIONAL, INC.DateJanuary
                  23 , 2008
              
              /s/
                  Bu ShengfuBu
                  Shengfu, President
                (Principal
                  Executive Officer)DateJanuary
                  23, 2008
              
              /s/
                  Liang ZhuLiang
                  Zhu, Chief Financial Officer (Principal Financial and Accounting
                  Officer)
 
 40