UNITED
      STATES




**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**




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





For
      the
      quarterly period ended June 3 0 ,
      200 8





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,
      Huahan 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)





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 x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company:





Large
                accelerated filer
            o
            Accelerated
                filer
            oNon-accelerated
                filer
            o
            Smaller
                reporting company
            þ







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 August
      14, 200 8 ,
      there
      were 31,259,714 shares issued and outstanding of the registrant’s common
      stock.









**INDEX**




**Page**PART
                I.     FINANCIAL INFORMATIONItem
                1.        Financial
                Statements
            
            3Consolidated
                Balance Sheets as of June 30, 2008 (unaudited) and December 31,
                2007
            
            3Consolidated
                Statements of Operations for the three and six months ended June
                30, 2008
                and 2007 (unaudited)
            
            4Consolidated
                Statements of Cash Flows for the six months ended June 30, 2008 and
                2007
                (unaudited)
            
            5Notes
                to Unaudited Financial Statements
            
            6Item
                2.        Management’s Discussion and
                Analysis of Financial Condition and Results of Operations
            
            21Item
                3.        Quantitative and Qualitative
                Disclosures About Market Risk
            
            28Item
                4.        Controls and
                Procedures
            
            28PART
                II.    OTHER INFORMATIONItem
                5.        Other Information
            
            30Item
                6.        Exhibits
            
            31Signatures
            
            32




2




**PART
      I — FINANCIAL INFORMATION**




**Item
      1.**   **Financial
      Statements.**




**Long-E
        International, Inc. and Subsidiaries**
 **Consolidated
        Balance Sheets**
 
 June 30,
              
              December 31,2008
              
              2007(Unaudited)**ASSETS:**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              5,109,842
              
              $
              3,715,010Trade
                  receivables, net (Note 4)
              
              
              7,729,571
              
              
              6,768,947Short-term
                  loans receivable (Note 5)
              
              
              2,484,151
              
              
              2,333,656Inventories,
                  net (Note 6)
              
              
              3,110,787
              
              
              2,763,930Value-added
                  taxes (VAT) refundable
              
              
              11,226
              
              
              22,370Due
                  from related parties (Note 13)
              
              
              6,730
              
              
              23,587Advance
                  and other receivables
              
              
              1,050,519
              
              
              810,668Total
                  current assets
              
              
              19,502,826
              
              
              16,438,168Plant
                  and equipment, net (Note 7)
              
              
              2,034,631
              
              
              2,146,924Land
                  use right deposit (Note 15)
              
              
              1,256,176
              
              
              1,179,980Prepaid
                  R&D expense (Note 16)
              
              
              1,167,600
              
              
              -Intangibles,
                  net (Note 8)
              
              
              27,296
              
              
              53,835**Total
                  Assets**
              
              $
              23,988,529
              
              $
              19,818,907**LIABILITIES
                  AND SHAREHOLDERS' EQUITY:**Current
                  Liabilities:Accounts
                  payable - Trade
              
              $
              2,766,213
              
              $
              2,670,458Accrued
                  liabilities and other payables
              
              
              762,277
              
              
              717,661Short
                  term loans (Notes 9 )
              
              
              2,707,665
              
              
              1,545,829Current
                  portion of bank loans payable (Note 10)
              
              
              139,268
              
              
              261,435Registration
                  rights liquidated damages payable (Note 17)
              
              
              323,600
              
              
              323,600Other
                  taxes payable
              
              
              1,302,001
              
              
              1,212,896Wages
                  payable
              
              
              764,202
              
              
              810,274Corporate
                  income taxes payable
              
              
              679,959
              
              
              239,361Due
                  to related parties (Note 13)
              
              
              310,812
              
              
              175,718Total
                  current liabilities
              
              
              9,755,997
              
              
              7,957,232Long-term
                  Liabilities:Bank
                  loans payable (Note 10)
              
              
              -
              
              
              20,278Convertible
                  debt, net of debt discount of $4,594,658 and $4,862,208, respectively
                  (Note 11)
              
              
              758,342
              
              
              490,692Convertible
                  debt, issued for settlement of liquidated damage,Net
                  of debt discount of $1,070,650 and $1,127,000, respectively (Note
                  11)
              
              
              56,350
              
              
              -**Total
                  Liabilities**
              
              
              10,570,689
              
              
              8,468,202**Commitments
                  and Contingencies (Note 15)****Shareholders'
                  Equity:**Common
                  stock, $0.001 Par value; 50,000,000 shares authorized;issued
                  and outstanding 31,259,714 and 31,259,714 respectively (Note
                  12)
              
              
              31,260
              
              
              31,260Additional
                  paid-in capital
              
              
              8,623,111
              
              
              8,623,111Deferred
                  warrant expense
              
              
              -
              
              
              (19,060
              )Accumulated
                  other comprehensive income
              
              
              1,888,579
              
              
              983,362Statutory
                  reserves
              
              
              1,252,323
              
              
              1,252,323Retained
                  earnings
              
              
              1,622,567
              
              
              479,709**Total
                  Shareholders' Equity**
              
              
              13,417,840
              
              
              11,350,705**Total
                  Liabilities and Shareholders' Equity**
              
              $
              23,988,529
              
              $
              19,818,907
  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
                  30,2008
              
              2007
              
              2008
              
              2007(Unaudited)
              
              (Unaudited)
              
              (Unaudited)
              
              (Unaudited)Sales
                  Revenues
              
              $
              10,094,104
              
              $
              6,961,824
              
              $
              19,080,096
              
              $
              13,119,542Assembling
                  / Reprocessing Revenues
              
              
              155,134
              
              
              523,518
              
              
              338,880
              
              
              907,848Total
                  Revenues
              
              
              10,249,238
              
              
              7,485,342
              
              
              19,418,976
              
              
              14,027,390Cost
                  of Sales
              
              
              7,550,144
              
              
              5,164,914
              
              
              14,249,977
              
              
              9,596,510Gross
                  Profit
              
              
              2,699,094
              
              
              2,320,428
              
              
              5,168,999
              
              
              4,430,880Operating
                  ExpensesSelling
                  expenses
              
              
              661,706
              
              
              498,302
              
              
              1,204,043
              
              
              1,836,568General
                  and Administrative expenses
              
              
              557,269
              
              
              958,546
              
              
              1,308,446
              
              
              2,209,962Research
                  and development
              
              
              566,383
              
              
              76,147
              
              
              758,077
              
              
              142,332Total
                  Operating Expenses
              
              
              1,785,358
              
              
              1,532,995
              
              
              3,270,566
              
              
              4,188,862Income
                  from Operations
              
              
              913,736
              
              
              787,433
              
              
              1,898,433
              
              
              242,018Other
                  Income (Loss):Other
                  income
              
              
              7,265
              
              
              (912
              )
              
              24,619
              
              
              10,588Interest
                  incomes
              
              
              7,634
              
              
              16,611
              
              
              13,866
              
              
              18,548Interest
                  expenses
              
              
              (198,129
              )
              
              (142,784
              )
              
              (380,892
              )
              
              (238,137
              )Registration
                  rights liquidated damages
              
              
              -
              
              
              (1,450,600
              )
              
              -
              
              
              (1,450,600
              )Gain
                  on extinguishment of debts
              
              
              
              
              
              -
              
              
              -
              
              
              15,715Total
                  Other Income (Loss)
              
              
              (183,230
              )
              
              (1,577,685
              )
              
              (342,407
              )
              
              (1,643,886
              )Income
                  (Loss) before income taxes
              
              
              730,506
              
              
              (790,252
              )
              
              1,556,026
              
              
              (1,401,868
              )Income
                  taxes
              
              
              (214,546
              )
              
              7,225
              
              
              (413,168
              )
              
              (77,390
              )Net
                  Income (Loss)
              
              
              515,960
              
              
              (783,027
              )
              
              1,142,858
              
              
              (1,479,258
              )Foreign
                  currency translation adjustment
              
              
              367,739
              
              
              420,553
              
              
              905,217
              
              
              206,609Comprehensive
                  income (loss)
              
              $
              883,699
              
              $
              (362,474
              )
              $
              2,048,075
              
              $
              (1,272,649
              )Net
                  earnings per share, basic
              
              $
              0.02
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.05
              )Weighted
                  average number of shares outstanding, basic
              
              
              31,259,714
              
              
              31,259,714
              
              
              31,259,714
              
              
              31,259,714Net
                  earnings per share, diluted
              
              $
              0.02
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.05
              )Weighted
                  average number of shares outstanding, diluted
              
              
              31,259,714
              
              
              31,259,714
              
              
              31,259,714
              
              
              31,259,714
 
 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
                  30,2008
              
              2007(Unaudited)
              
              (Unaudited)**Cash
                flows from operating activities**Net
                  Income (loss)
              
              $
              1,142,858
              
              $
              (1,479,258
              )Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Depreciation
                  and amortization
              
              
              396,324
              
              
              309,982Amortization
                  of debt discount
              
              
              324,000
              
              
              223,042Amortization
                  of CCG warrants
              
              
              19,060
              
              
              19,060Changs
                  in operating assets and liabilities:(Increase)
                  decrease in assets:Receivables,
                  net
              
              
              (508,783
              )
              
              (822,607
              )VAT
                  tax recoverable
              
              
              12,235
              
              
              10,963Due
                  from related parties
              
              
              181,280
              
              
              (82,505
              )Inventories,
                  net
              
              
              (163,638
              )
              
              (13,623
              )Advance
                  and other receivables
              
              
              (182,813
              )
              
              (626,332
              )Prepaid
                  R&D expense
              
              
              (1,134,720
              )
              
              -(Decrease)
                  increase in liabilities:Accounts
                  payable and accrued liabilities
              
              
              (154,277
              )
              
              663,815Registration
                  rights liquidated damages payable
              
              
              -
              
              
              1,450,600Other
                  tax payable
              
              
              10,480
              
              
              (9,032
              )Corporate
                  income tax payable
              
              
              413,168
              
              
              (11,183
              )Net
                  cash provided by (used in) operating activities
              
              
              355,174
              
              
              (367,078
              )Cash
                  flows from investing activities:Purchase
                  of plant and equipment
              
              
              (123,294
              )
              
              (1,273,011
              )Purchase
                  of intangibles
              
              
              -
              
              
              (1,635
              )Net
                  cash used in investing activities
              
              
              (123,294
              )
              
              (1,274,646
              )Cash
                  flows from financing activities:Proceeds
                  from bank loans
              
              
              1,418,400
              
              
              361,015Repayment
                  of bank loans
              
              
              (497,045
              )
              
              (413,775
              )Repayment
                  of loans from individuals
              
              
              -
              
              
              (178,365
              )Repayment
                  from related party advances
              
              
              (24,641
              )
              
              -Issuance
                  of convertible promissory notes
              
              
              -
              
              
              5,353,000Net
                  cash provided by financing activities
              
              
              896,714
              
              
              5,121,875Effect
                  of exchange rate changes on cash
              
              
              266,238
              
              
              117,878Net
                  increase in cash
              
              
              1,394,832
              
              
              3,598,029Cash,
                  beginning of period
              
              
              3,715,010
              
              
              2,313,080Cash,
                  end of period
              
              $
              5,109,842
              
              $
              5,911,109**Supplemental
                  disclosure information:**Interest
                  expense paid
              
              $
              56,892
              
              $
              15,095Income
                  taxes paid
              
              $
              413,168
              
              $
              77,390**Non-cash
                  interest expenses:**Amortization
                  of debt discount
              
              $
              324,000
              
              $
              223,042Amortization
                  of CCG warrants
              
              $
              19,060
              
              $
              19,060
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements


5




**Long-E
      International, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**For
      the six months ended June 30, 2008 and 2007 (unaudited)**







**1.**
            **DESCRIPTION
                OF BUSINESS AND ORGANIZATION**





Long-e
      International, Inc. (the “Company”) is a Utah corporation organized on October
      5, 1998 under the name Softwall Equipment Corporation. In February 2005, in
      a
      transaction accounted for as a reverse acquisition, the Company acquired all
      of
      the outstanding capital stock of Inncardio, Inc. and the name of the Company
      was
      changed to Inncardio, Inc. In connection with the acquisition of Long-e
      International Group Co., Inc. (“LIG”), which is described below, on December 21,
      2006, the Company’s corporate name was changed to Long-e International, Inc.





The
      Company is a holding company and owns the stock of LIG. LIG is a British Virgin
      Islands corporation organized on May 23, 2006. LIG’s sole business is the
      ownership of Long-e Technology (Shenzhen) Co., Ltd. (“LTS”), a wholly foreign
      owned enterprises organized as a limited liability company under the law of
      the
      People’s Republic of China under the name Shenzhen Agilon Science And Technology
      Co., Inc. LTS’ name was changed to Long-e International Group Co., Inc. on March
      16, 2007. LIG was organized on December 21, 2001 by the holders of a majority
      of
      the equity of LTS on December 21, 2001 who became the majority stockholders
      of
      LIG.





On
      June
      22, 2006, LIG entered into an agreement to acquire all of the equity of LTS
      for
      RMB 4,800,000, which was then equivalent to $578,000. The consideration was
      provided by LIG’s stockholders who made interest-free loans to LIG. As of June
      30, 2008, such loans were still outstanding.





On
      June
      29, 2007, LIG received government approval to acquire LTS and its classification
      was changed from a domestic corporation to a wholly-foreign owned enterprise,
      known as a WFOE. LTS has a business license which expires December 21,
      2010.





On
      November 30, 2006, the Company, then known as Inncardio, Inc., entered into
      a
      Share Exchange Agreement (the “Exchange Agreement”) with LIG and its
      shareholders. Pursuant to the Exchange Agreement, the Company issued 20,661,879
      shares of its common stock to LIG’s shareholders and their designees in exchange
      for 100% of the outstanding equity interests of LIG. The share exchange, which
      was completed effective December 29, 2006, resulted in a change of control
      of
      the Company. As part of the share exchange, the directors and officers of LIG
      became the directors and officers of the Company.





Under
      generally accepted accounting principles, both the acquisition by the Company
      of
      LIG and the acquisition of LTS by LIG are considered to be capital transactions
      in substance, rather than business combinations. That is, the acquisition is
      equivalent, to the acquisition first of LTS of LIG and then by LIG of the
      Company, then known as Inncardio, Inc., with, in the case of the Company, the
      issuance of stock by LIG for the net monetary assets of the Company. This
      transaction is reflected as recapitalizations, and is accounted for as a change
      in capital structure. Accordingly, the accounting for the acquisition is
      identical to that resulting from a reverse acquisition. Under reverse takeover
      accounting, the comparative historical financial statements of the Company,
      as
      the legal acquirer, are those of the accounting acquirer. As a result of both
      the acquisition of LTS and the subsequent acquisition of LIG being treated
      as
      reverse acquisitions, the Company’s historical financial statements for periods
      prior to December 29, 2006 are those of LTS, The accompanying financial
      statements reflect the recapitalization of the stockholders’ equity as if the
      transactions occurred as of the beginning of the first period presented. Thus,
      the 20,661,879 shares of common stock issued to the former LIG stockholders
      are
      deemed to be outstanding for all periods reported prior to the date of the
      reverse acquisition.





As
      a
      result of the reverse acquisition of LIS, the Company’s sole business became the
      business of LTS. LTS is engaged 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.




6




**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





**a.**
            **Basis
                of preparation**





Management
      acknowledges its responsibility for the preparation of the accompanying interim
      consolidated financial statements which reflect all adjustments, consisting
      of
      normal recurring adjustments, considered necessary in its opinion for a fair
      statement of its consolidated financial position and the results of its
      operations for the interim period presented. These consolidated financial
      statements should be read in conjunction with the summary of significant
      accounting policies and notes to consolidated financial statements included
      in
      the Company’s Form 10-KSB annual report for the year ended December 31, 2007,
      which was filed on March 24, 2008.





The
      accompanying unaudited condensed consolidated financial statements for the
      Company and its subsidiaries 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-Q and Article
      8-03 of Regulation S-X .
      In the
      opinion of management, the consolidated financial statements reflect all
      adjustments (consisting of normal recurring adjustments) considered necessary
      for a fair presentation of the results the Company 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.





**b.**
            **Basis
                of consolidation**





The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries (collectively referred to 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**





Effective
      January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements (SFAS
      157). SFAS 157 clarifies the definition of fair value, prescribes methods for
      measuring fair value, and establishes a fair value hierarchy to classify the
      inputs used in measuring fair value as follows:





Level
      1-Inputs are unadjusted quoted prices in active markets for identical assets
      or
      liabilities available at the measurement date.




Level
      2-Inputs are unadjusted quoted prices for similar assets and liabilities in
      active markets, quoted prices for identical or similar assets and liabilities
      in
      markets that are not active, inputs other then quoted prices that are
      observable, and inputs derived from or corroborated by observable market
      data.




Level
      3-Inputs are unobservable inputs which reflect the reporting entity’s own
      assumptions on what assumptions the market participants would use in pricing
      the
      asset or liability based on the best available information.





The
      adoption of SFAS No. 157 did not have a material impact on the Company’s fair
      value measurements. The
      carrying amounts reported in the Balance sheet for cash and cash equivalents,
      trade receivable, short-term loans receivable, inventories, value-added taxes
      (VAT) refundable, due from related parties, prepaid expenses and other
      receivables, accounts payable-trade, accrued liabilities and other payables,
      short term loans, current portion of bank loans payable, registration rights
      penalty payable, other taxes payable, wages payable, corporate income taxes
      payable, and amounts due to related parties approximately their fair market
      value based on the short-term maturity of these instruments.




7




**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.





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.**
            **Plant
                and Equipment**





Plant
      and
      equipment are initially recognized recorded at cost. The cost of repairs and
      maintenance is expensed as incurred; major replacements and improvements are
      capitalized. When assets are retired or disposed of, the cost and accumulated
      depreciation are removed from the accounts, and any resulting gains or losses
      are included in income in the year of disposition. The Company examines the
      possibility of decreases in the value of fixed assets when events or changes
      in
      circumstances reflect the fact that their recorded value may not be
      recoverable.





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, land use rights 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.


8




**j.**
            **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.





**k.**
            **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 $2,048,075
      and
      $(1,272,649) for the six months ended June 30, 2008 and 2007,
      respectively.





**l.**
            **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
      predominately in one geographical area (China), as all of the Company’s current
      operations are carried out in China, and 79% of its revenues are derived from
      customers in China, with 21% exported to customers abroad **.**





**m.**
            **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.




**n.**
            **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.





**o.**
            **Research
                and development costs**





Research
                and development costs are expensed to operations as incurred.





**p.**
            **Foreign
                currency translation**





The
      Company uses the United States dollars (“U.S. dollars” or “US$”) for financial
      reporting purposes. LTS, as the Company’s operating subsidiary, 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, and equity
      accounts at the historical rates. Adjustments resulting from the translation
      of
      the Company’s financial statements are recorded as accumulated other
      comprehensive income.




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, 2008
            
            December
                31, 2007Balance
                sheet items, except for the registered and paid-up capital, as of
                period
                end
            
            US$
            0.14595:RMB1
            
            $
            US0.13710:RMB1Amounts
                included in the statements of operations, statements of changes in
                stockholders’ equity and statements of cash flows for the period
            
            US$
            0.14184:RMB1
            
            $
            US0.13167:RMB1





Equity
      accounts are valued using the exchange rate on the date of the
      transaction.





No
      representation is made that RMB amounts have been, or would be, converted into
      US$ at the above rates.





In
      accordance with Statement of Financial Accounting Standards No. 95, "Statement
      of Cash Flows," cash flows from the Company's operations is calculated based
      upon the local currencies using the average translation rate. As a result,
      amounts related to assets and liabilities reported on the statement of cash
      flows will not necessarily agree with changes in the corresponding balances
      on
      the balance sheet.





**q.**
            **Earnings
                (loss) per common share**




The
      Company reports earnings (loss) per share in accordance with Statement of
      Financial Accounting Standard (SFAS) No.128. This statement requires dual
      presentation of basic and diluted earnings (loss) with a reconciliation of
      the
      numerator and denominator of the loss per share computations. Basic earnings
      per
      share amounts are based on the weighted average shares of common outstanding.
      If
      applicable, diluted earnings per share assume the conversion, exercise or
      issuance of all common stock instruments such as options, warrants and
      convertible securities, unless the effect is to reduce a loss or increase
      earnings per share. Accordingly, this presentation has been adopted for the
      periods presented. There were no adjustments required to net income or loss
      for
      the period presented in the computation of diluted earnings per share since
      such
      securities were anti-dilutive.





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted earnings per share computations:





**Three Months Ended**
              **June 30,**
            
            **Six Months Ended**
              **June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Numerator:-Net
                income (loss) available to common shareholders for basic and diluted
                earnings per share
            
            $
            515,960.00
            
            $
            (783,027.00
            )
            $
            1,142,858.00
            
            $
            (1,479,258.00
            )Denominator:-Weighted
                average shares - denominator for basic
            
            
            31,259,714
            
            
            31,259,714
            
            
            31,259,714
            
            
            31,259,714-Weighted
                average shares - denominator for diluted
            
            
            31,259,714
            
            
            31,259,714
            
            
            31,259,714
            
            
            31,259,714Earnings
                (loss) per share:-Basic
            
            $
            0.02
            
            $
            (0.03
            )
            $
            0.04
            
            $
            (0.05
            )-Diluted
            
            $
            0.02
            
            $
            (0.03
            )
            $
            0.04
            
            $
            (0.05
            )





Weighted-average
      shares outstanding used for both basic and diluted earnings per share are the
      same at June 30, 2008 as all the potentially convertible instruments were then
      anti-dilutive.


The
      Company's common stock equivalents at June 30, 2008 include the
      following:





Warrants
            
            
            20,314,641Convertible
                common stock- I
            
            
            13,382,500Convertible
                common stock -II
            
            
            6,629,408Total
            
            
            40,326,549




10




**r.**
            **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.





**s.**
            **Recently
                issued accounting
                pronouncements**








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 had no impact on the Company’s financial position or
      results of operations.





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 adoption of this standard had no impact on the
      company’s financial position or results of operations.





In
      June
      2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, *Accounting
      for Nonrefundable Advance Payments for Goods or Services to be Used in Future
      Research and Development Activities* ,
      (“EITF
      07-3”) which is effective for fiscal years beginning after December 15, 2007.
      EITF 07-3 requires that nonrefundable advance payments for future research
      and
      development activities be deferred and capitalized. Such amounts will be
      recognized as an expense as the goods are delivered or the related services
      are
      performed. It is expected that adoption of EITF 07-3 will not have a material
      impact on the Company’s results of operations, financial position or
      liquidity.





In
      December 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS No.
      141R). SFAS No. 141R requires the acquiring entity in a business combination
      to
      recognize all the assets acquired and liabilities assumed, establishes the
      acquisition date fair value as the measurement objective for all assets acquired
      and liabilities assumed, and requires the acquirer to expand disclosures about
      the nature and financial effect of the business combination. SFAS No. 141R
      is
      effective for business combinations for which the acquisition date is on or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. We have not yet determined the impact of the adoption of
      SFAS
      No. 141R on our consolidated financial statements and footnote
      disclosures.





In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
      Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all
      entities to report noncontrolling (minority) interests in subsidiaries as equity
      in the consolidated financial statements. The statement establishes a single
      method of accounting for changes in a parent’s ownership interest in a
      subsidiary that do not result in deconsolidation and expands disclosures in
      the
      consolidated financial statements. SFAS No. 160 is effective for fiscal years
      beginning after December 15, 2008 and interim periods within those fiscal years.
      We have not yet determined the impact of the adoption of SFAS No. 160 on our
      consolidated financial statements and footnote disclosures.




11




In
      March 2008, the FASB issued SFAS 161, “ *Disclosures
      about Derivative Instruments and Hedging Activities* ” *.* The new
      standard is intended to improve financial reporting about derivative instruments
      and hedging activities by requiring enhanced disclosures to enable investors
      to
      better understand their effects on an entity’s financial position, financial
      performance, and cash flows. It is effective for financial statements issued
      for
      fiscal years and interim periods beginning after November 15, 2008, with
      early application encouraged. The Company is currently evaluating the impact
      of
      adopting SFAS 161 on its consolidated financial statements.





In
      May
      2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles.* SFAS No. 162 identifies the sources of accounting principles and the
      framework for selecting the principles used in the preparation of financial
      statements of nongovernmental entities that are presented in conformity with
      GAAP in the United States. This Statement shall be effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      (PCAOB) amendments to AU Section 411, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles.* The
      Company does not expect the adoption of SFAS No. 162 to have a
      material impact on its interim consolidated financial statements.




**3.**
            **CONCENTRATIONS
                OF CREDIT RISK**





Financial
      instruments which potentially expose the Company to concentrations of credit
      risk consist of cash, trade accounts receivable and other receivables as of
      June
      30, 2008 and December 31, 2007. The Company performs ongoing evaluations of
      its
      cash position and credit evaluations to ensure collections and minimize
      losses.





As
      of
      June 30, 2008, 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 ended June 30, 2008, approximately 79% of the ** Company’s
      sales were made to customers located in the PRC and 21% was made to customers
      outside of the PRC. In addition, approximately 99.7% ** of
      accounts receivables as of June 30, 2008 also arose from customers located
      in
      the PRC.





Other
      than one customer who accounted for approximately 12% and 13% of the Company’s
      total revenue for the six months ended June 30, 2008 and 2007, respectively,
      and
      12% and 12% of the Company’s total revenue for the three months ended June 30,
      2008 and 2007; no single external customer exceeded 10% of the Company’s total
      revenue for the three or six months period ended June 30, 2008 and
      2007. ****





**4.**
            **T****RADE
                RECEIVABLES**





At
      June
      30, 2008 and December 31, 2007, trade receivables consist of the
      following:





June
                30,
            
            December
                31,2008
            
            2007Trade
                receivables
            
            $
            8,209,270
            
            $
            7,243,994Less:
                Provision for doubtful accounts
            
            
            (479,699
            )
            
            (475,047
            )Trade
                receivables, net
            
            $
            7,729,571
            
            $
            6,768,947




12




**5.**
            **SHORT-TERM
                LOANS RECEIVABLE**





At
      June
      30, 2008 and December 31, 2007, short-term loans receivable consist of the
      following:





June
                30,
            
            December
                31,2008
            
            2007No
                fixed terms of repayment
            
            $
            732,751
            
            $
            688,49212%
                loans receivable, due on April 30, 2008
            
            
            291,900
            
            
            274,19412%
                loans receivable, due on May 25, 2008
            
            
            729,750
            
            
            685.48512%
                loans receivable, due on June 16, 2008
            
            
            729,750
            
            
            685,485Total
            
            $
            2,484,151
            
            $
            2,333,656





The
      above
      unsecured loans were made to an electronics company in support of a non-binding
      letter of intent pursuant to which the Company is in negotiations to acquire
      that company. If a material definitive agreement is reached, the Company may
      apply towards the acquisition purchase price the principal and interest due to
      the Company from the outstanding loans .





**6.**
              **INVENTORIES**





At
      June
      30, 2008 and December 31, 2007, inventories consist of the
      following:





June
                30, 2008
            
            December
                31, 2007Raw
                materials and packing materials
            
            $
            1,365,770
            
            $
            1,196,275Raw
                materials on consignment at subcontractors
            
            
            16,182
            
            
            13,848Finished
                goods
            
            
            986,120
            
            
            678,169Work-in-progress
            
            
            1,176,725
            
            
            1,303,715Consumables
            
            
            10,238
            
            
            -3,555,035
            
            
            3,192,007Less:
                Allowance for obsolescence
            
            
            (444,248
            )
            
            (428,077
            )Total
            
            $
            3,110,787
            
            $
            2,763,930





**7.**
            **PLANT
                AND EQUIPMENT**





At
      June
      30, 2008 and December 31, 2007, plant and equipment consist of the
      following:





June
                30, 2008
            
            December
                31, 2007Production
                machinery and equipment
            
            $
            3,031,095
            
            $
            2,854,944Leasehold
                improvements
            
            
            528,795
            
            
            373,233Office
                and other equipment
            
            
            233,397
            
            
            215,850Automobiles
            
            
            192,885
            
            
            181,1853,986,172
            
            
            3,625,212Less:
                Accumulated depreciation
            
            
            (1,951,541
            )
            
            (1,478,288
            )$
            2,034,631
            
            $
            2,146,924





The
      depreciation expense was $367,155 and $284,620 for the six months ended June
      30,
      2008 and 2007, respectively; the depreciation expense was $166,673 and $155,225
      for the three months ended June 30, 2008 and 2007, respectively, and is broken
      down as follows: [we need a table for the three months as well.]




13




Six
                months ending June 30
            
            Three
                months ended June 302008
            
            2007
            
            2008
            
            2007Cost
                of sales
            
            $
            298,073
            
            $
            210,795
            
            $
            127,057
            
            $
            115,415Operating
                expense
            
            
            69,082
            
            
            73,825
            
            
            39,616
            
            
            39,810Total
            
            $
            367,155
            
            $
            284,620
            
            $
            166,673
            
            $
            155,225





**8.**
            **INTANGIBLE
                ASSETS**





Intangible
      assets consist of the following, which is to be amortized over two years
      starting 2006:





June
                30,
            
            December
                31,2008
            
            2007Computerized
                ERP System
            
            $
            113,841
            
            $
            109,246Other
                software
            
            
            6,217
            
            
            5,840Less:
                Accumulated amortization
            
            
            (92,762
            )
            
            (61,251
            )$
            27,296
            
            $
            53,835





For
      the
      six months ended June 30, 2008 and 2007, the amortization expenses were $29,169
      and $25,362, respectively.


For
      the
      three months ended June 30, 2008 and 2007, the amortization expenses were
      $14,839 and $12, 816, respectively.





**9.**
            **SHORT-TERM
                LOANS**





Short-term
      loans consist of the following:





June
                30,
            
            December
                31,2008
            
            20076.57%
                Bank loan, due by installments up to August 2, 2008(a)
            
            $
            510,825
            
            $
            822,5838.217%
                Bank loan, due to March 20, 2009(b)
            
            
            1,459,500
            
            
            -Interest-free,
                unsecured loans from individuals, no fixed terms of
                repayment
            
            
            737,340
            
            
            723,246Total
                short-term bank loans
            
            $
            2,707,665
            
            $
            1,545,829





(a)
      The
      6.57% bank loan in the initial principal amount of $1,167,600, of which $510,825
      was outstanding at June 30, 2008. This loan matures on August 2, 2008. The
      loan
      is secured by a personal guarantee and mortgage given by the Company’s chief
      executive officer and his wife and by a mortgage given by a stockholder. The
      bank, Shenzhen City Commercial Bank-HuangGang Branch, has repayment priority
      over LTS’s other subordinated creditors and its sole shareholder for
      disbursement of funds during the term of the loan.





**** (b)
      The
      8.217% Bank loan in the initial principal amount of $1,459,500(at June 30,
      2008
      exchanged rate). This loan matures on March 20, 2009. (See item 5)


For
      the
      six months ended June 30, 2008 and 2007, interest expense from these loans
      amounted to $45,545 and $4,555, respectively.


For
      the
      three months ended June 30, 2008 and 2007, interest expense from these loans
      amounted to 31,353 and $6,573, respectively.




14




**10.**
            **BANK
                LOANS PAYABLE**





Bank
      loans payable consist of the following:





June
                30,
            
            December
                31,2008
            
            20073.49%
                Bank loan, due by installments up to October 7, 2008
            
            $
            60,169
            
            $
            146,6993.49%
                Bank loan, due by installments up to February 12, 2009
            
            
            79,099
            
            
            135,014Total
                Long term bank loans payable
            
            
            139,268
            
            
            281,713Less:
                current portion due within one year
            
            
            139,268
            
            
            261,435Long-term
                loans payable due after one year
            
            $
            -
            
            $
            20,278







For
      the
      six months ended June 30, 2008 and 2007, interest expenses from these loans
      amounted to $11,347 and $10,540, respectively. For the three months ended June
      30, 2008 and 2007, interest expenses from these loans amounted to $4,776 and
      $2,386, respectively.





**11.**
            **CONVERTIBLE
                DEBT**





On
      January 25, 2007, the Company completed a second private placement transaction
      (the “Second Private Placement”). Pursuant to a Securities Purchase Agreement
      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 into 13,382,500 shares of preferred stock, with
                each
                share being convertible into one share of common stock. 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 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. The Series A Warrants are 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 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 period of exercisability of the Series B Warrant,
                and
                the other material terms are the same as for the Series A Warrants,
                except
                that the price of the common stock must by $1.20 per share in order
                for us
                to exercise our call right.





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.





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 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 December 2006 and January 2007 private
      placements. 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 year ended December
      31,
      2007, the Company accrued liquidated damages for failure to comply with its
      obligations under the registration rights agreement in the amount of $1,450,600
      (See Note 17).




15




Effective
      December 31, 2007, the Company issued ten-year, non- interest bearing notes
      convertible into shares of the Company’s common stock, par value $0.001 per
      share, at $0.17 per share (the “Conversion Notes”) in exchange for the
      cancellation of approximately $1.127 million of liquidated damages due to
      certain investors through December 31, 2007. The Conversion Notes were issued
      pursuant to a Securities Purchase, Settlement and Release Agreement (the
“Settlement Agreement”). Pursuant to the Settlement 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
      issuance or conversion of the Conversion Notes.





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. 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 because the effective conversion price
      was less than the fair value of the Company’s common stock. The convertible
      notes were fully convertible at the issuance date, therefore the portion of
      proceeds allocated to the original Notes 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. Upon conversion
      of the Conversion Note, whether upon automatic conversion when the Company
      amends its articles of incorporation to create a series of preferred stock
      or
      upon voluntary conversions, the unamortized debt discount allocable to the
      converted notes will be expensed as additional interest.





The
      investors in the Second Private Placement 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
      term of the Notes. 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, 2008, amortization of debt discount was $267,650,
      which is included in interest expense on the accompanying consolidated statement
      of operations. The amortization of debt discounts amounted to $758,342, the
      balance of the debt discount is $4,594,658 at June 30, 2008 which will be
      amortized over the term of the debenture, and, upon conversion of the
      debentures, and the unamortized portion will be expensed as additional
      interest.





The
      computation of the amount of Notes reflected on the balance sheet at June 30,
      2008 is determined as follows:





Principal
                amount of Notes due January 25,2017
            
            $
            5,353,000Less:
                unamortized discount on Notes
            
            
            (4,594,658
            )Notes,
                net
            
            $
            758,342





For
      the
      six months ended June 30, 2008, amortization of debt discount was $56,350,
      which
      is included in interest expense on the accompanying consolidated statement
      of
      operations. The amortization of debt discounts amounted to $56,350, the balance
      of the debt discount is $1,070,650 at June 30, 2008 which will be amortized
      over
      the term of the debenture.





The
      computation of the amount of Conversion Notes reflected on the balance sheet
      at
      June 30, 2008 is determined as follows:





Conversion
                Notes December 31, 2017
            
            $
            1,127,000Less:
                unamortized discount on Conversion Notes
            
            
            (1,070,650
            )Conversion
                Notes, net
            
            $
            56,350




16




**12.**
            **SHAREHOLDERS’
                EQUITY**





Warrants





In
      connection with the Second Private Placement transaction, the Company issued
      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 11).





On
      March
      31, 2007 the Company entered into an engagement letter for investor relations
      services and agreed to issue to CCG Investor Relations Partners, LLC (“CCG”) 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, 2008, amortization of warrants was $19,060 which is included in general
      and administrative expense on the accompanying consolidated statement of
      operations. At June 30, 2008, the warrants had been fully
      amortized.





A
      summary
      of the status of the Company's outstanding stock warrants as of June 30, 2008
      and changes during the periods then ended is as follows:





Number of
              Warrants
            
            Weighted Average
              Exercise PriceBalance
                at December 31, 2007
            
            
            6,807,141
            
            $
            0.49Granted
            
            
            13,507,500
            
            $
            0.55Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Balance
                at June 30, 2008
            
            
            20,314,641
            
            $
            0.53Warrants
                exercisable at end of period
            
            
            20,314,641
            
            $
            0.53





The
      following information applies to all warrants outstanding at March
      31,
      2008:




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
              
              
              3.25
              
              $
              0.28
              
              
              1,000,000
              
              $
              0.28$
              0.40-048
              
              
              9,859,106
              
              
              3.50
              
              $
              0.48
              
              
              9,859,106
              
              $
              0.48$
              0.60
              
              
              9,330,535
              
              
              3.50
              
              $
              0.60
              
              
              9,330,535
              
              $
              0.60$
              1.20
              
              
              125,000
              
              
              3.75
              
              $
              1.20
              
              
              125,000
              
              $
              1.2020,314,641
              
              
              
              
              $
              0.53
              
              
              20,314,641
              
              $
              0.52





As
      of
      June 30, 2008 and 2007, the Company did not have an approved equity incentive
      plan and had no options outstanding.




17




**13.**
            **RELATED
                PARTY TRANSACTIONS AND
                ARRANGEMENTS**





(a)
            *Balances
                with related parties*




In
      addition to the transactions detailed elsewhere in these financial statements,
      the Company had the following balances with related parties.





June
                30,
            
            December
                31,2008
            
            2007Due
                from related parties:Ms.
                Li Xiangdong, VP, Finance of LTS
            
            $
            -
            
            $
            2,599Mr.
                Chen Linshen, Executive VP
            
            
            2,923
            
            
            2,530Mr.
                Xu Rujiang, COO & GM of LTS
            
            
            2,063
            
            
            9,102Mr.
                Wang Songtao, VP, Int’l Business of LTS
            
            
            1,744
            
            
            4,305Mr.
                Liangzhu, CFO
            
            
            -
            
            
            5,051Due
                from related parties
            
            $
            6,730
            
            $
            23,587




These
      amounts due from the various related parties, represent cash advances made
      to
      cover anticipated business-related expenses, including business travel. When
      the
      employee submits proof of the expenditures made in the conduct of the Company’s
      business from such advances, the business expenses are recognized by the Company
      and the amount due back to the Company is reduced accordingly. Where additional
      business expenses are anticipated in the short-term, the Company allows these
      employees to retain the advances pending use towards subsequent business
      expenses. These balances are held interest-free, unsecured and have no fixed
      repayment date. It is expected that the amounts provided will be applied towards
      business expenses within one year of advance.





June
                30,
            
            December
                31,2008
            
            2007Due
                to related parties:Mr.
                Bu Shengfu, CEO
            
            $
            197,206
            
            $
            33,145Mr.
                Li Huamin, a stockholder
            
            
            31,120
            
            
            31,120Mr.
                Xu Jiafa, VP, Production of LTS
            
            
            28,995
            
            
            27,963Mr.
                Chen Dong, a stockholder
            
            
            45,075
            
            
            79,756Mr.
                Yin Zhongjun, Chief Engineer
            
            
            1,410
            
            
            3,011Mr.
                Bu Zhiheng, VP, Internal Business of LTS
            
            
            876
            
            
            723Mr.
                Liangzhu, CFO
            
            
            6,130
            
            
            -Due
                to related parties
            
            $
            310,812
            
            $
            175,718





The
      balances due to related parties represent loans to the Company from the
      respective related parties. These balances are interest-free, unsecured and
      have
      no fixed repayment date. It is expected that the Company will repay such amounts
      within one year.





Other:





See
      Note
      9 for information relating to the personal guarantee and mortgage given by
      the
      Company’s chief executive officer, Bu Shengfu, and his wife as security for one
      bank line, and the mortgage given by a stockholder of the Company.




**14.**
                **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.




18




**15.**
            **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 four years and thereafter
      are
      as follows *:*





Year
                ending December 31,2008
            
            $
            330,4862009
            
            
            598,3592010
            
            
            410,5212011
                and thereafter
            
            
            478,941Total
            
            $
            1,818,307





Total
      rental expenses for the six months period ended June 30, 2008 and 2007 amounted
      to  $188,543
      and $144,375, respectively. Total rental expenses for the three months period
      ended June 30, 2008 and 2007 amounted to  $71,893
      and $98,626, 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.





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.




19




(d)
              *Capital
                  Commitments*





The
      Company had entered into an agreement to purchase a land use right in Guangdong
      Province, China at a consideration of US$2,512,353. As at June 30, 2008, the
      Company had paid an initial deposit of US$1,256,176 and was shown in land use
      right deposit on the accompanying consolidated balance sheets. The capital
      commitment at June 30, 2008 was US$1,256,177.





(e)
                *Exchange
                    risk*





The
      Company cannot guarantee that the current exchange rate will remain steady,
      therefore there is a possibility that the Company could post the same amount
      of
      profit for two comparable periods and because of a fluctuating exchange rate
      actually post higher or lower profit depending on exchange rate of Chinese
      Renminbi (RMB) converted to U.S. dollars on that date. The exchange rate could
      fluctuate depending on changes in the political and economic environments
      without notice.




**16.**
            **PREPAID
                RESEARCH AND DEVELOPMENT
                EXPENSE**





On
      April
      20, 2008, the Company entered into a research and development project agreement
      with Shenzhen Technical Institute (the “Institute”) to develop CAN-BUS car alarm
      technology. On June 3, 2008, the Company prepaid RMB10 million (equal to
      approximately $1,459,500 at June 30, 2008 exchange rate) to the Institute.
      Pursuant to the agreement, the project is scheduled to be completed on June
      16,
      2009. The prepaid RMB10 million RMB will be expensed on a 15-month amortization
      schedule. If the completed developed product project fails to pass the
      inspection for acceptance, the advance paid would be partly refundable after
      deduction of testing expense.





**17.**
            **REGISTRATION
                RIGHTS; LIQUIDATED DAMAGES**





In
      connection with the Company’s December 2006 private placement, 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 December 2006 and January 2007 private placements within an agreed
      period. If the Company fails to satisfy these deadlines, 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 December 31, 2007, the registration statement
      had
      not been filed. In view of the provision for liquidated damages, and the
      likelihood that the Company would have to pay the liquidated damages in full,
      the Company has recognized approximately $1.45 million as of December 31, 2007,
      as a liability for such liquidated damage payments.





Effective
      December 31, 2007, the Company issued Conversion Notes (see Note 11) in the
      principal amount of $1.127 million. The Conversion Notes were issued pursuant
      to
      a settlement agreement. Pursuant to the settlement agreement, the participating
      investors, who constituted a majority of the holders of the Company’s
      outstanding convertible notes and warrants issued in the December 2006 private
      placement, also waived any anti-dilution adjustments to such securities arising
      from the issuance of the Conversion Note. 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 Conversion Notes, by 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. As of June 30, 2008, the Company had not filed the
      registration statement. There are no liquidated damages or penalties associated
      with these registration rights.




Those
      investors who are not parties to the Settlement Agreement 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. As of June
      30, 2008, out of the US$1,450,600 liquidated damages due, the investors received
      $1,127,000 in convertible notes, and retain the right to an aggregate cash
      payment of $323,600.




20




**Item
      2.**   **Management’s
      Discussion and Analysis or Plan of Operations.**




*This
      Form 10−Q 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**




Through
      our subsidiary 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. Our
      ability to grow is dependent upon our ability to develop products that are
      based
      on the state-of-the-art technology and sell them at a reasonable cost. If we
      are
      not able to have access to the latest available technology, we may be unable
      to
      develop our business.




Most
      of
      our products are sold into the Chinese market. The Chinese government has broad
      powers to impose price controls on the sales of goods and services within China.
      Although neither our prices nor the prices of our suppliers are subject to
      price
      controls, it is possible that, in view of rising costs in China, that the
      government may impose price controls on our products. To the extent that price
      controls affect both the cost of raw materials and the prices at which we can
      sell our products, our margin will be largely subject to price we pay and the
      amount that we charge. If price controls are imposed on the prices we can
      charge, but not on the amounts our suppliers may charge, our margins may suffer
      to the extent that we are not legally able to increase our prices to reflect
      our
      increased costs. Additionally, our business license for LTE expires on December
      21, 2010, and if the license is not extended, we will not be able to remain
      in
      business.




We
      have
      no long-term contracts with suppliers. The price at which we purchase raw
      materials is affected by the international market for these materials. We may
      incur costs in purchasing raw materials that we may not be able to recover
      from
      our customers, which would have a negative impact on our margins.




**Recent
      Events**




Since
      July 2008, we have been affected by both a decline in the market for our main,
      car alarm products resulting is significant decline in the prices of our
      products. The market for our product has been affected by the appreciation
      of
      the RMB against the US dollar. Further, our costs of both labor and raw
      materials are increasing. Our ability to obtain financing is impaired as a
      result of government control on the Chinese banking industry. These factors
      have
      severely affected our business. If we are unable to adjust to the new market
      conditions, we may be unable to continue in business.




21




We
      are
      seeking to address these problems and achieve further growth by increasing
      our
      ongoing investment in research and development, increasing the 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, and also to
      tighten controls on operating expenditures and cut out non- necessary expenses.
      We expect our future capital requirements to be approximately $3 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. However,
      we have no agreements, either formal or informal, with respect to any private
      placement financings. The price of our stock, our failure to register securities
      which we sold in prior private placements and the large number of outstanding
      warrants may influence our ability to obtain financing now. In the event that
      we
      are not able to obtain bank or private equity financing, it will have impair
      our
      ability to grow, and, if we are unable to expand our business we may be unable
      to continue in business.




**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.




***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*** .  LTS
      has
      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%, reflecting a 50%
      reduction. The
      effective corporate income tax rate for 2008 is 15%.




22




***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, 2008 and 2007**




The
      following table sets forth information from our statements of operations for
      the
      six months ended June 30, 2008 and 2007, in dollars and as a percentage of
      revenue (dollars in thousands):




Six
                Months Ended June 30,2008
            
            2007Sales
            
            $
            19,080
            
            
            98.0
            %
            $
            13,119
            
            
            93.5
            %Assembling
                and reprocessing revenue
            
            
            339
            
            
            2.0
            %
            
            908
            
            
            6.5
            %Total
                revenues
            
            
            19,419
            
            
            100.0
            %
            
            14,027
            
            
            100.0
            %Cost
                of sales
            
            
            14,250
            
            
            73.4
            %
            
            9,597
            
            
            68.4
            %Gross
                profit
            
            
            5,169
            
            
            26.6
            %
            
            4,430
            
            
            31.6
            %Selling
            
            
            1,204
            
            
            6.2
            %
            
            1,837
            
            
            13.1
            %General
                and administrative
            
            
            1,309
            
            
            6.7
            %
            
            2,210
            
            
            15.8
            %Research
                and development
            
            
            758
            
            
            3.9
            %
            
            142
            
            
            1.0
            %Income
                (loss) from operations
            
            
            1,898
            
            
            9.8
            %
            
            242
            
            
            1.7
            %Other
                income
            
            
            25
            
            
            0.1
            %
            
            -
            
            
            -Interest
                income
            
            
            14
            
            
            0.1
            %
            
            19
            
            
            0.1
            %Interest
                expense
            
            
            (381
            )
            
            (0.2
            )%
            
            (238
            )
            
            (1.7
            )%Registration
                rights penalty
            
            
            -
            
            
            -
            
            
            (1,451
            )
            
            (10.3
            )%Income
                (loss) before income taxes
            
            
            1,556
            
            
            8.0
            %
            
            (1,402
            )
            
            (10
            )%Provision
                for income taxes
            
            
            413
            
            
            2.1
            %
            
            77
            
            
            0.5
            %Net
                income (loss)
            
            
            1,143
            
            
            5.9
            %
            
            (1,479
            )
            
            (10.5
            )%Other
              comprehensive incomeForeign
                currency translation adjustment
            
            
            905
            
            
            4.7
            %
            
            207
            
            
            1.5
            %Comprehensive
                income (loss)
            
            
            2,048
            
            
            10.5
            %
            
            (1,272
            )
            
            (9.0
            )%




***Revenue*** .
      Our
      sales for the six months ended June 30, 2008 totaled $19.1 million, an increase
      of 46% compared with our sales revenue of $13.1 million for the six months
      ended
      June 30, 2007.




The
      following table sets forth information of sales revenue analyses for the six
      months ended June 30, 2008 and 2007, in
      dollars and as a percentage of revenue (dollars in thousands)




23




Six
                Months Ended June 30,2008
            
            2007Dollars
            
            Percent
            
            Dollars
            
            PercentTwo-
                way interactive visual car alarm System
            
            $
            13,435
            
            
            70.4
            %
            $
            7,516
            
            
            57.3
            %Other
                car alarm system
            
            
            2,381
            
            
            12.5
            %
            
            3,097
            
            
            23.6
            %Tire
                Pressure Monitoring System
            
            
            2,395
            
            
            12.5
            %
            
            2,008
            
            
            15.3
            %Parking
                sensor systems
            
            
            869
            
            
            4.6
            %
            
            498
            
            
            3.8
            %Total
                sales revenue
            
            $
            19,080
            
            
            100.0
            %
            $
            13,119
            
            
            100.0
            %




Sales
      of
      two-way interactive visual car alarm system increased as the product became
      more
      popular within the Chinese and external aftermarket. Sales to distributors
      for
      export totaled $4.0 million for the six months ended June 30, 2008, or 21%
      of
      our revenue from product sales during the period, representing an increase
      of
      $0.7 million or 21.2% from $3.3 million generated by such sales for the six
      months ended June 30, 2007. Sales within the Chinese aftermarket and to OEMs
      totaled $15.1million, or 79%, of our total product sales for the six months
      ended June 30, 2008, an increase of $5.3 million, or 54%, from $9.8 million
      in
      the six months ended June 30, 2007.




During
      the six months ended June 30, 2008, we generated $339,000 in revenue from
      subcontracting activities, a decrease of $569,000 or 62.7% from $908,000
      generated from subcontracting activities generated during the six months ended
      June 30, 2007. The subcontracting revenue generated during the six months ended
      June 30, 2008 related to semi-manufactured goods.




***Gross
      Margin*** **.** During
      the six months ended June 30, 2008, our cost of goods sold totaled $14.2
      million, an increase of 48% compared with our cost of goods sold of $9.6 million
      for the six months ended June 30, 2007. The percentage increase was higher
      than
      the percentage increase in our revenue. Our gross margin on product sales and
      subcontracting activities decreased
      from 31.6% for the six months ended June 30, 2007 to 26.6% for the six months
      ended June 30, 2008. These decreases have primarily resulted from certain
      changes in our materials purchase marketing and products offerings, in
      particular from the rising in price on raw materials as well, which we were
      not
      able to recover through higher prices.




***Operating
      Expenses*** **.** During
      the six months ended June 30, 2008, operating expenses totaled $3.3 million,
      as
      compared to $4.2 million during the six months ended June 30, 2007, a decrease
      of 21.4%. Our general and administrative expenses for the six months ended
      June
      30, 2008 were $1.3million, a decrease of 41% from $2.2 million for the six
      months ended June 30, 2007. The decrease was mainly caused by a decrease in
      professional fees and the results of our efforts to controls our general and
      administrative expenses. Selling expenses decreased from $1.8 million for the
      six months ended June 30, 2007 to $1.2 million for the six months ended June
      30,
      2008. This decrease, which is reflected in the first quarter, was primarily
      caused by our efforts to tighten controls on our operating costs and cut out
      non-necessary expenses. During the six months ended June 30, 2008, our research
      and development expenses for the six months ended June 30, 2008 totaled
      $758,000, an increase of $332,000 or 4.3 times the research and development
      expenses of $142,000 in the six months ended June 30, 2007. We spent
      approximately $681,000 for the six months ended June 30, 2008 on GPRS mobile
      and
      CAN-BUS car alarm application technologies.




***Interest
      Expense*** **.** For
      the
      six months ended June 30, 2008, our interest expense totaled $381,000, as
      compared to interest expense of $238,000 in the six months ended June 30, 2007. For
      the
      six months ended June 30, 2008 and 2007, we recorded amortization of debt
      discount of approximately $324,000 and $223,000 related to our convertible
      notes.




***Income
      Tax Provision.*** For
      the
      six months ended June 30, 2008, we recorded $413,000 as compared to $77,000
      for
      the six months ended June 30, 2007. Income tax expense increased $336,000 or
      4.4
      times as a result of our income tax rates from 7.5% last year up to 15% this
      year and an increase of our income before income tax. In 2007 we have a 50%
      tax
      holiday which reduced our tax rate from 15% to 7.5%. This tax holiday expired
      December 31, 2007. LTS enjoy preferential tax concessions as a high-tech
      enterprise, as a result we are currently paying taxes at 15%.




24




***Net
      Income(loss)*** **.** For
      the
      six months ended June 30, 2008, net income was $1,143,000, or $.04 per share
      (basic and diluted), as compared to net loss of $1,479,000, or ( $.05) per
      share
      (basic and diluted) for the six months ended June 30, 2007, an increase of
      $2.6
      million or 177%.




***Foreign
      Currency Translation Gain.***  The
      functional currency of our subsidiaries operating in the PRC is the Chinese
      Yuan
      or Renminbi (“RMB”). The financial statements of our subsidiaries are translated
      to U.S. dollars using period end rates of exchange for assets and liabilities,
      and average rates of exchange (for the period) for revenues, costs, and
      expenses. Net gains and losses resulting from foreign exchange transactions
      are
      included in the consolidated statements of operations. As a result of these
      translations, which are a non cash adjustment, we reported a foreign currency
      translation gain of $905,000 for the six months ended June 30, 2008 as compared
      to $207,000 for the six months ended June 30, 2007. This non-cash gain had
      the
      effect of increasing our reported comprehensive income.




***Comprehensive
      Income (Loss).*** For
      the
      six months ended June 30, 2008, comprehensive income of approximately $2,048,000
      is derived from the sum of our net income of approximately $1.143,000 add
      foreign currency translation gains of $905,000. For the six months ended June
      30, 2007, comprehensive loss of approximately $1.272,000 is derived from the
      sum
      of our net loss of approximately $1.479,000 less foreign currency translation
      gains of $207,000.




**Three
      months ended June 30, 2008 and 2007**




The
      following table sets forth information from our statements of operations for
      the
      three months ended June 30, 2008 and 2007, in dollars and as a percentage of
      revenue (dollars in thousands):




Three
                Months Ended June 30,2008
            
            2007Sales
            
            $
            10,094
            
            
            98.5
            %
            $
            6,962
            
            
            93.0
            %Assembling
                and reprocessing revenue
            
            
            155
            
            
            1.5
            %
            
            523
            
            
            7.0
            %Total
                revenues
            
            
            10,249
            
            
            100.0
            %
            
            7,485
            
            
            100.0
            %Cost
                of sales
            
            
            7,550
            
            
            73.7
            %
            
            5,165
            
            
            69.0
            %Gross
                profit
            
            
            2,699
            
            
            26.3
            %
            
            2,320
            
            
            31.0
            %Selling
            
            
            662
            
            
            6.4
            %
            
            498
            
            
            6.7
            %General
                and administrative
            
            
            557
            
            
            5.4
            %
            
            959
            
            
            12.8
            %Research
                and development
            
            
            566
            
            
            5.5
            %
            
            76
            
            
            1.0
            %Income
                (loss) from operations
            
            
            914
            
            
            8.9
            %
            
            787
            
            
            10.5
            %Other
                income
            
            
            7
            
            
            0.1
            %
            
            (1)-
            
            
            (0.0
            )%Interest
                income
            
            
            8
            
            
            0.1
            %
            
            17
            
            
            0.2
            %Interest
                expense
            
            
            (198
            )
            
            (0.2
            )%
            
            (142
            )
            
            (1.9
            )%Registration
                rights penalty
            
            
            -
            
            
            -
            
            
            (1,451
            )
            
            (19.4
            )%Income
                (loss) before income taxes
            
            
            731
            
            
            7.1
            %
            
            (790
            )
            
            (10.6
            )%Provision
                for income taxes
            
            
            215
            
            
            2.1
            %
            
            (7
            )
            
            (0.1
            )%Net
                income (loss)
            
            
            516
            
            
            5.0
            %
            
            (783
            )
            
            (10.5
            )%Other
              comprehensive incomeForeign
                currency translation adjustment
            
            
            368
            
            
            3.6
            %
            
            421
            
            
            5.6
            %Comprehensive
                income (loss)
            
            
            884
            
            
            8.6
            %
            
            (362
            )
            
            (4.8
            )%




***Revenue*** .
      Our
      sales for the three months ended June 30, 2008 totaled $10.1 million, an
      increase of 44% compared with our sales revenue of $7.0 million for the three
      months ended June 30, 2007.




The
      following table sets forth information of sales revenue analyses for the three
      months ended June 30, 2008 and 2007, in
      dollars and as a percentage of revenue (dollars in thousands)




25




Three
                Months Ended June 30,2008
            
            2007Dollars
            
            Percent
            
            Dollars
            
            PercentTwo-
                way interactive visual car alarm System
            
            $
            6,942
            
            
            68.8
            %
            $
            3,965
            
            
            56.9
            %Other
                car alarm system
            
            
            1,240
            
            
            12.3
            %
            
            1,796
            
            
            25.8
            %Tire
                Pressure Monitoring System
            
            
            1,401
            
            
            13.9
            %
            
            945
            
            
            13.6
            %Parking
                sensor systems
            
            
            511
            
            
            5.0
            %
            
            256
            
            
            3.7
            %Total
                sales revenue
            
            $
            10,094
            
            
            100.0
            %
            $
            6,962
            
            
            100.0
            %




Sales
      of
      two-way interactive visual car alarm system increased as the product became
      more
      popular within the Chinese and external aftermarket. Sales to distributors
      for
      export totaled $2.4 million for the three months ended June 30, 2008, or 24%
      of
      our revenue from product sales during the period, representing an increase
      of
      $0.6 million or 33% from $1.8 million generated by such sales for the three
      months ended June 30, 2007. Sales within the Chinese aftermarket and to OEMs
      totaled $7.7million, or 76%, of our total product sales for the three months
      ended June 30, 2008, an increase of $2.5 million, or 48%, from $5.2 million
      for
      the three months ended June 30, 2007.




During
      the three months ended June 30, 2008, we generated $155,000 in revenue from
      subcontracting activities, a decrease of $368,000 or 70.4% from $523,000
      generated from subcontracting activities generated during the three months
      ended
      June 30, 2007. The subcontracting revenue generated during the three months
      ended June 30, 2008 related to semi-manufactured goods.




***Gross
      Margin*** **.** During
      the three months ended June 30, 2008, our cost of goods sold totaled $7.5
      million, an increase of 44% compared with our cost of goods sold of $5.2 million
      for the three months ended June 30, 2007. The percentage increase was higher
      than the percentage increase in our revenue. Our gross margin on product sales and
      subcontracting activities decreased
      from 31.0% for the three months ended June 30, 2007 to 26.3% for the three
      months ended June 30, 2008. These decreases have primarily resulted from certain
      changes in our materials purchase marketing and products offerings, in
      particular from the rising in price on raw materials as well, which we were
      not
      able to recover through higher prices.




***Operating
      Expenses*** **.** During
      the three months ended June 30, 2008, operating expenses totaled $1.8 million,
      as compared to $1.5 million during the three months ended June 30, 2007, an
      increase of 20%. Our general and administrative expenses for the three months
      ended June 30, 2008 were $557,000, a decrease of 42% from $959,000 for the
      three
      months ended June 30, 2007. The decrease was mainly caused by a decrease in
      professional fees and the results of our efforts to tighten controls on our
      operating expenses. Selling expenses increased from $498,000 for the three
      months ended June 30, 2007 to $662,000 for the three months ended June 30,
      2008.
      This increase results from the additional selling effort which generated the
      increase of revenues. During the three months ended June 30, 2008, our research
      and development expenses totaled $566,000, an increase of $490,000 or 6.4 times
      from $76,000 for the three months ended June 30, 2007. We spent approximately
      $542,000 for the three months ended June 30, 2008 on GPRS mobile and CAN-BUS
      car
      alarm application technologies.




***Interest
      Expense*** **.** For
      the
      three months ended June 30, 2008, our interest expense totaled $198,000, as
      compared to interest expense of $143,000 for the three months ended June 30,
      2007. For
      the
      three months ended June 30, 2008 and 2007, we recorded amortization of debt
      discount of approximately $162,000 and $134,000 related to our convertible
      notes.




***Income
      Tax Provision.*** For
      the
      three months ended June 30, 2008, we recorded $215,000 as compared to $(7,000)
      for the three months ended June 30, 2007. Income tax expense increased $222,000
      as a result of an increase in our income tax rates from 7.5% last year to 15%
      this year and an increase of our income before income tax. In 2007 we had a
      50%
      tax holiday which reduced our tax rate from 15% to 7.5%. This tax holiday
      expired December 31, 2007. LTS is taxed as a high-tech enterprise, with a
      current tax rate of 15%.




***Net
      Income (loss)*** **.** For
      the
      three months ended June 30, 2008, net income was $516,000, or $.02 per share
      (basic and diluted), as compared to net loss of $783,000, or ($.03) per share
      (basic and diluted) for the three months ended June 30, 2007, an increase of
      $1.3 million or 166%.




26




***Foreign
      Currency Translation Gain.***  The
      functional currency of our subsidiaries operating in the PRC is the Chinese
      Yuan
      or Renminbi (“RMB”). The financial statements of our subsidiaries are translated
      to U.S. dollars using period end rates of exchange for assets and liabilities,
      and average rates of exchange (for the period) for revenues, costs, and
      expenses. Net gains and losses resulting from foreign exchange transactions
      are
      included in the consolidated statements of operations. As a result of these
      translations, which are a non cash adjustment, we reported a foreign currency
      translation gain of $368,000 for the three months ended June 30, 2008 as
      compared to $421,000 for the three months ended June 30, 2007. This non-cash
      gain had the effect of increasing our reported comprehensive
      income.





***Comprehensive
      Income (Loss).*** For
      the
      three months ended June 30, 2008, comprehensive income of approximately $884,000
      is derived from the sum of our net income of approximately $516,000 add foreign
      currency translation gains of $368,000. For the three months ended June 30,
      2007, comprehensive loss of approximately $362,000 is derived from the sum
      of
      our net loss of approximately $783,000 less foreign currency translation gains
      of $421,000.




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2008, we held $5.1 million in cash and cash equivalents as compared
      to
      $3.7 million at December 31, 2007. These funds are located in financial
      institutions in China. As of June 30, 2008, our current liabilities totaled
      $9.7
      million, an increase from $8.0 million at December 31, 2007. Our working capital
      increased from $8.5 million as of December 31, 2007 to $9.7 million as of June
      30, 2008.




Our
      net
      income of $1,143,000 for the six months ended June 30, 2008 reflects non-cash
      charges of $396,000 for depreciation and amortization and also non-cash discount
      on financial instruments of $343,000. Net cash provided by our operating
      activities totaled $355,000 for the six months ended June 30, 2008, as compared
      to net cash used in $367,000 during six months ended June 30, 2007, reflecting
      increased cash flow from operating activities due to the expansion of our
      production and sales capacities, notwithstanding an increase in accounts
      receivables and inventories. During the six months ended June 30, 2008, our
      accounts receivable turned over approximately 2.5 times, and our inventories
      turned over approximately 4.2 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, 2008, our net cash used in investing activities
      totaled $123,294 as compared to $1,274,646 for the six months ended June 30,
      2007. The investing activities in both periods related to purchase of equipment
      and related machinery.




For
      the
      six months ended June 30, 2008, net cash provided in financial activities
      amounted to $896,714 as compared to net cash provided by financing activities
      of
      $5,121,875 for the six months ended June 30, 2007. The decrease was primarily
      attributable to the receipt of cash from convertible debt of $5,353,000 on
      Jan
      25, 2007 and in 2008 the only back financing was $1,418,000, which was offset
      by
      payments of bank loans in the amount of $497,000.




**Recent
      Accounting Pronouncements**




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 had no impact on the Company’s financial position or
      results of operations.




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 adoption of this standard had no impact on the
      company’s financial position or results of operations.




27




In
      June
      2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, *Accounting
      for Nonrefundable Advance Payments for Goods or Services to be Used in Future
      Research and Development Activities* ,
      (“EITF
      07-3”) which is effective for fiscal years beginning after December 15, 2007.
      EITF 07-3 requires that nonrefundable advance payments for future research
      and
      development activities be deferred and capitalized. Such amounts will be
      recognized as an expense as the goods are delivered or the related services
      are
      performed. It is expected that adoption of EITF 07-3 will not have a material
      impact on the Company’s results of operations, financial position or
      liquidity




In
      December 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS No.
      141R). SFAS No. 141R requires the acquiring entity in a business combination
      to
      recognize all the assets acquired and liabilities assumed, establishes the
      acquisition date fair value as the measurement objective for all assets acquired
      and liabilities assumed, and requires the acquirer to expand disclosures about
      the nature and financial effect of the business combination. SFAS No. 141R
      is
      effective for business combinations for which the acquisition date is on or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. We have not yet determined the impact of the adoption of
      SFAS
      No. 141R on our consolidated financial statements and footnote
      disclosures.





In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
      Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all
      entities to report noncontrolling (minority) interests in subsidiaries as equity
      in the consolidated financial statements. The statement establishes a single
      method of accounting for changes in a parent’s ownership interest in a
      subsidiary that do not result in deconsolidation and expands disclosures in
      the
      consolidated financial statements. SFAS No. 160 is effective for fiscal years
      beginning after December 15, 2008 and interim periods within those fiscal years.
      We have not yet determined the impact of the adoption of SFAS No. 160 on our
      consolidated financial statements and footnote disclosures.




In
      March 2008, the FASB issued SFAS 161, “ *Disclosures
      about Derivative Instruments and Hedging Activities* ” *.* The new
      standard is intended to improve financial reporting about derivative instruments
      and hedging activities by requiring enhanced disclosures to enable investors
      to
      better understand their effects on an entity’s financial position, financial
      performance, and cash flows. It is effective for financial statements issued
      for
      fiscal years and interim periods beginning after November 15, 2008, with
      early application encouraged. The Company is currently evaluating the impact
      of
      adopting SFAS 161 on its consolidated financial statements.





In
      May
      2008, the FASB issued SFAS No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles.* SFAS No. 162 identifies the sources of accounting principles and the
      framework for selecting the principles used in the preparation of financial
      statements of nongovernmental entities that are presented in conformity with
      GAAP in the United States. This Statement shall be effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      (PCAOB) amendments to AU Section 411, *The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles.* The
      Company does not expect the adoption of SFAS No. 162 to have a
      material impact on its consolidated financial statements.





**Item
              3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




***Foreign
      Currency Exchange Rate Risk***





We
      produce and sell approximately 80% our products in China. Thus, most of our
      revenues and operating results may be impacted by exchange rate fluctuations
      between RMB and US dollars. For the six months ended June 30, 2008, we have
      unrealized foreign currency translation gain of $905,000 because of the change
      in the exchange rate.




**Item
              4.**
            **Controls
                and Procedures.**




***Disclosure*** ***Controls
      and*** ***Procedures***





As
      required by Rule 13a-15 under the Exchange Act, our management, including our
      Chief Executive Officer, and our Chief Financial Officer, evaluated the
      effectiveness of the design and operation of our disclosure controls
      and procedures
      as of June 30, 2008.




28




Disclosure controls
      and procedures
      refer to controls
      and other procedures
      designed to ensure that information required to be disclosed in the reports
      we
      file or submit under the Securities Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the SEC and that such information is accumulated and communicated to our
      management, including our chief executive officer and chief financial officer,
      as appropriate, to allow timely decisions regarding required disclosure. In
      designing and evaluating our disclosure controls
      and procedures,
      management recognizes that any controls
      and procedures,
      no matter how well designed and operated, can provide only reasonable assurance
      of achieving the desired control objectives, and management is required to
      apply
      its judgment in evaluating and implementing possible controls
      and procedures.





Management
      conducted its evaluation of disclosure controls
      and procedures
      under the supervision of our chief executive officer and our chief financial
      officer. Based on that evaluation, we concluded that because of the significant
      deficiencies in internal control over financial reporting described below,
      our
      disclosure controls
      and procedures
      were not effective as of June 30, 2008.




***Management’s
      Report on Internal Control over Financial Reporting***




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Securities Exchange Act.  Our management is also required to
      assess and report on the effectiveness of our internal control over financial
      reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
      (“Section 404”).   Management assessed the effectiveness of our
      internal control over financial reporting as of December 31, 2007.  In
      making this assessment, we used the criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO) in Internal
      Control – Integrated Framework.  During our assessment of the
      effectiveness of internal control over financial reporting as of
      December 31, 2007, management identified significant deficiencies related
      to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our
      internal audit functions and, and (iii) a lack of segregation of duties within
      accounting functions.




Although
      we were a blank check shell company with reporting obligations prior to the
      completion of the exchange of shares whereby LIG became a wholly-owned
      subsidiary on December 29, 2006, our present business did not become subject
      to
      the reporting requirements of the Exchange Act until December 29, 2006.
 Prior to December 29, 2006, the Company’s business was conducted as a
      private Chinese company, and its financial statements were prepared in
      accordance with PRC GAAP. Because of the accounting treatment of the reverse
      acquisition, our historical financial statements must be prepared in accordance
      with US GAAP. We began preparing to be in compliance with the internal control
      obligations, the year ending December 31, 2007. During 2006 our internal
      accounting staff was primarily engaged in ensuring compliance with PRC
      accounting and reporting requirements for our operating affiliates and was
      not
      required to meet or apply U.S. GAAP requirements.  We addressed this
      condition by hiring of our chief financial officer who is familiar with U.S.
      GAAP and we engaged a U.S. certified public accountant to act as a consultant
      and help us to prepare our financial statements in accordance with U.S. GAAP
      and
      to and, under his supervision, we are implanting the related internal control
      procedures required of U.S. public companies, including providing training
      and
      assistance of our accounting staff in U.S. GAAP matters.




Due
      to
      our size and nature, segregation of all conflicting duties may not always be
      possible and may not be economically feasible.  However, to the extent
      possible, we will implement procedures to assure that the initiation of
      transactions, the custody of assets and the recording of transactions will
      be
      performed by separate individuals.




We
      believe that the foregoing steps have significantly remediated the deficiencies
      previously reported, and we will continue to monitor the effectiveness of these
      steps and make any changes that our management deems appropriate.




A
      material weakness (within the meaning of PCAOB Auditing Standard No. 5) is
      a
      deficiency, or a combination of deficiencies, in internal control over financial
      reporting, such that there is a reasonable possibility that a material
      misstatement of our annual or interim financial statements will not be prevented
      or detected on a timely basis. A significant deficiency is a deficiency, or
      a
      combination of deficiencies, in internal control over financial reporting that
      is less severe than a material weakness, yet important enough to merit attention
      by those responsible for oversight of the company's financial
      reporting.




29




Our
      management is not aware of any material weaknesses in our internal control
      over
      financial reporting, and we are addressing the significant weaknesses in
      internal controls over financial reporting. Nothing has come to the attention
      of
      management that causes them to believe that any material inaccuracies or errors
      exist in our financial statement as of June 30, 2008.  The reportable
      conditions and other areas of our internal control over financial reporting
      identified by us as needing improvement have not resulted in a material
      restatement of our financial statements. We are not aware of any instance where
      such reportable conditions or other identified areas of weakness have resulted
      in a material misstatement of omission in any report we have filed with or
      submitted to the Commission.




**Changes
      in Internal** **Controls
      over Financial Reporting**





Except
      as
      described above, there were no changes in our internal controls over financial
      reporting during the second quarter of fiscal year 2008 that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.





**PART
      II — OTHER INFORMATION**




**Item
      5.**   **Other
      Information.**





Effective
      January 15, 2008, Long-E Technology (Shenzhen) Co., Ltd. (“LTS”), a wholly-owned
      subsidiary of the Company, entered into a maximum credit volume loan agreement
      with the Bank of Communications, Shenzhen Huafu Branch (the “Bank of
      Communications”) for up to RMB20,000,000 (approximately US$2.9 million). Under
      the terms of the agreement, Borrower received a revolving line of credit from
      the Bank of Communications for a maximum loan amount of RMB20,000,000. Each
      loan
      can be drawn for up to 12 months or through July 15, 2009, whichever is earlier,
      and is subject to an interest rate of 10% plus the prime rate as set by the
      People’s Bank of China (the “Loan Interest Rate”).





As
      of
      June 30, 2008, LTS had drawn an RMB10,000,000 line of credit under the terms
      of
      the agreement. LTS’ receipt of the additional RMB10,000,000 line of credit is
      subject to the Bank of Communication’s approval and LTS’ satisfaction of certain
      conditions, including the achievement of at least US$7,500,000 pipe financing.





Pursuant
      to the agreement, penalty interest rates for the loans are set at 100% of the
      loan interest rate. LTS is also restricted from prepaying any loan under the
      agreement without the Bank of Communication’s written consent.





As
      an
      inducement for the Bank of Communications to enter into the maximum credit
      volume loan agreement, on January 16, 2008, the following individuals entered
      into agreements with the Bank of Communications to serve as guarantors of Long-E
      Shenzhen:





-
            Bu
                Shengfu, Chairman and Chief Executive
                Officer


-
            Chen
                Dong, former Director


-
            Jin
                Yushan, former Director


-
            Li
                Tianfu, Legal Representative of Long-E
                Shenzhen


-
            Liu
                Jingyun, Chief Technical Officer


-
            Xu
                Rujiang, former Director


-
            Yin
                Zhongjun, Chief Engineer





Under
      the
      terms of the guarantee agreements, each guarantor shall timely pay to the Bank
      of Communications up to RMB20,000,000, in the event that LTS fails to timely
      pay
      any portion of the principal, related fees (including legal and litigation
      fees)
      or interest. Under the agreement, the Bank of Communications is also free to
      arrange the priority of any other liens which may influence the maximum credit
      volume loan agreement and demand the guarantor’s immediate
      performance.




30




**Item
      6.****Exhibits.**




(a)
      Exhibits.




**Exhibit**
            
            **Item**10.1
            
            Maximum
                Credit Volume Loan Agreement, dated as of January 16, 2008, by and
                betweenLong-E
                Technology (Shenzhen) Co., Ltd. and the Bank of Communications, Shenzhen
                Huafu Branch.10.2
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Bu Shengfu andthe
                Bank of Communications, Shenzhen Huafu Branch.10.3
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Chen Dong andthe
                Bank of Communications, Shenzhen Huafu Branch.10.4
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Jin Yushan andthe
                Bank of Communications, Shenzhen Huafu Branch.10.5
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Li Tianfu andthe
                Bank of Communications, Shenzhen Huafu Branch.10.6
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Liu Jingyun andthe
                Bank of Communications, Shenzhen Huafu Branch.10.7
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Xu Rujiang andthe
                Bank of Communications, Shenzhen Huafu Branch.10.8
            
            Maximum
                Volume Guarantee Agreement, dated as of January 16, 2008, by and
                between
                Yin Zhongjun andthe
                Bank of Communications, Shenzhen Huafu Branch.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.




31




**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.August
                19, 2008
            
            /s/
                Bu ShengfuBu
                Shengfu, President
              (Principal
                Executive Officer)August
                19, 2008
            
            /s/
                Liang ZhuLiang
                Zhu, Chief Financial Officer (Principal Financial and Accounting
                Officer)




32