UNITED
        STATES
  **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
 
 xQUARTERLY
        REPORT UNDER
        SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        quarterly period ended March
        31, 2007
 
 oTRANSITION
        REPORT UNDER
        SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
 For
        the
        transition period from _________ to _________
 
 Commission
        file number 000-28727
  LONG-E
                    INTERNATIONAL, INC.(Exact
                    name of small business issuer as
                    specified in its charter)
  Utah
              
              87-0624752(State
                  or other jurisdiction of incorporation or
                  organization)
              
              (IRS
                  Employer Identification No.)
  C-6F,
                Huhan Chuangxin Block, Keyuan Road, Hi-Tech Industry Zone, Shenzhen,
                518000, Guangdong, China(Address
                of principal executive offices)
  (86)
                755 3396 5188(Issuer’s
                telephone number)
 N/A(Former
                  name, former address and former fiscal year, if changed since last
                  report)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.  Yes o No x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 YesoNo x
 
 As
        of
        December 31, 2007, there were 31,259,714 shares issued and outstanding of
        the
        registrant’s common stock.
 
 Transitional
        Small Business Disclosure Format: YesoNox


**INDEX**
 **Page**PART
                    I.
                
                FINANCIAL
                    INFORMATIONItem
                    1.
                
                Financial
                    Statements
                
                3Balance
                    Sheet as of March 31, 2007 (unaudited)
                
                3Consolidated
                    Statements of Operations for the three months ended March 31,
                    2007 and2006
                    (unaudited)
                
                4Consolidated
                    Statement of Cash Flows for the three months ended March 31,
                    2007 and2006
                    (unaudited)
                
                5Notes
                    to Unaudited Financial Statements
                
                6Item
                    2.
                
                Management’s
                    Discussion and Analysis or Plan of Operation
                
                18Item
                    3.
                
                Controls
                    and Procedures
                
                36PART
                    II.
                
                OTHER
                    INFORMATIONItem
                    1.
                
                Legal
                    Proceedings
                
                36Item
                    2.
                
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                
                36Item
                    3.
                
                Defaults
                    Upon Senior Securities
                
                37Item
                    4.
                
                Submission
                    of Matters to a Vote of Security Holders
                
                37Item
                    5.
                
                Other
                    Information
                
                37Item
                    6.
                
                Exhibits
                
                37Signatures
                
                
                
                39
  2
  **PART
        I — FINANCIAL INFORMATION**
  **Item
        1.**   **Financial
        Statements.**
  **Long-E
          International Inc and Subsidiaries**
 **Consolidated
          Balance Sheet**
 **March
          31, 2007**
 **(Unaudited)**
 
 **ASSETS:**Current
                    Assets:Cash
                    and cash equivalent
                
                $
                6,268,312Receivables,
                    net of allowance for doubtful account $1,056,875
                
                
                3,905,048Value-added
                    taxes (VAT) refundable
                
                
                46,152Due
                    from related parties (Note 10)
                
                
                8,387Inventories,
                    net of provision $344,274 (Note 4)
                
                
                3,366,083Prepaid
                    expenses
                
                
                639,584Total
                    current assets
                
                
                14,233,566Plant
                    and equipment, net (Note 5)
                
                
                1,469,619Intangibles,
                    net (Note 6)
                
                
                83,969**Total
                    Assets**
                
                $
                15,787,154**LIABILITIES
                    & SHAREHOLDERS' EQUITY:**Current
                    Liabilities:Payables
                    and accrued liabilities
                
                $
                3,532,698Short
                    term loans (Note 7)
                
                
                1,036,036Various
                    taxes payable
                
                
                1,006,813Wages
                    payable
                
                
                438,321Corporate
                    taxes payable
                
                
                119,574Due
                    to related parties (Note 10)
                
                
                443,658Total
                    current liabilities
                
                
                6,577,100Long-term
                    Liabilities:Convertible
                    debt, net of debt discount of $5,263,783 (Note 8)
                
                
                89,217**Total
                    Liabilities**
                
                
                6,666,317**Commitments
                    and Contingencies (Note 12)****Shareholders'
                    Equity:**Common
                    stock, Par $0.001 each, authorized 50,000,000, issued and outstanding
                    31,259,714 (Note 9)
                
                
                31,260Additional
                    paid in capital
                
                
                7,419,869Accumulated
                    other comprehensive income
                
                
                (8,964
                )Statutory
                    reserves
                
                
                776,491Retained
                    earnings
                
                
                902,181**Total
                    Shareholders' Equity**
                
                
                9,120,837**Total
                    Liabilities and Shareholders' Equity**
                
                $
                15,787,154
 
 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 EndedMarch 31,2007
                
                2006(Unaudited)
                
                (Unaudited)Sales
                    Revenues
                
                $
                6,157,718
                
                $
                3,347,815Assembling
                    / Reprocessing Revenues
                
                
                384,330
                
                
                3,977Total
                    Revenues
                
                
                6,542,048
                
                
                3,351,792Cost
                    of Sales
                
                
                4,431,596
                
                
                2,644,340Gross
                    Profit
                
                
                2,110,452
                
                
                707,452Operating
                    ExpensesSelling
                    expenses
                
                
                1,338,266
                
                
                1,074,393General
                    and administrative expenses
                
                
                1,251,416
                
                
                324,678Research
                    and development
                
                
                66,185
                
                
                77,611Loss
                    on disposal of assets
                
                
                -
                
                
                153,278Total
                    Operating Expenses
                
                
                2,655,867
                
                
                1,629,960Loss
                    from Operations
                
                
                (545,415
                )
                
                (922,508
                )Other
                    Income (Loss):Other
                    income
                
                
                11,500
                
                
                599Interest
                    incomes
                
                
                1,937
                
                
                -Interest
                    expenses
                
                
                (95,353
                )
                
                (10,968
                )Gain
                    on extinguistment of debts
                
                
                15,715
                
                
                -Total
                    Other Income (Loss)
                
                
                (66,201
                )
                
                (10,369
                )Loss
                    before income taxes
                
                
                (611,616
                )
                
                (932,877
                )Provision
                    for (benefit from) income taxes
                
                
                84,615
                
                
                (139,932
                )Net
                    Loss
                
                
                (696,231
                )
                
                (792,945
                )Foreign
                    currency translation adjustment
                
                
                (213,944
                )
                
                38,844Comprehensive
                    Loss
                
                $
                (910,175
                )
                $
                (754,101
                )Net
                    earnings (loss) per share, basic and diluted
                
                $
                (0.02
                )
                $
                (0.04
                )Weighted
                    average number of shares outstanding, basic and diluted
                
                
                31,259,714
                
                
                20,606,200
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements
  4
  **Long-E
          International Inc and Subsidiaries**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 
 For the Three Months EndedMarch 31,2007
                
                2006(Unaudited)
                
                (Unaudited)**Cash
                    flows from operating activities**Net
                    loss
                
                $
                (696,231
                )
                $
                (792,946
                )Adjustments
                    to reconcile net income to cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                141,941
                
                
                114,245Loss
                    on disposal of fixed asset
                
                
                -
                
                
                153,278Amortization
                    of debt discount
                
                
                89,217
                
                
                -Chang
                    in operating assets and liabilities:(Increase)
                    decrease in assets:Due
                    from related parties
                
                
                (7,339
                )
                
                (387
                )VAT
                    tax recoverable
                
                
                9,555
                
                
                (3,038
                )Corporate
                    income tax recoverable
                
                
                -
                
                
                (140,290
                )Receivable,
                    net
                
                
                530,852
                
                
                955,612Prepaid
                    expenses
                
                
                (459,320
                )
                
                (128,011
                )Inventories,
                    net
                
                
                (1,227,413
                )
                
                (422,375
                )(Decrease)
                    increase in liabilities:Payables
                    and accrued liabilities
                
                
                1,056,313
                
                
                (48,496
                )Various
                    tax payable
                
                
                4,149
                
                
                146,458Corporate
                    tax payable
                
                
                (3,252
                )
                
                82,537Net
                    cash used in operating activities
                
                
                (561,528
                )
                
                (83,413
                )Cash
                    flows from investing activities:Purchase
                    of plant and equipment
                
                
                (500,473
                )
                
                (20,608
                )Net
                    cash used in investing activities
                
                
                (500,473
                )
                
                (20,608
                )Cash
                    flows from financing activities:Proceeds
                    from bank loans
                
                
                307,098
                
                
                -Proceeds
                    from loans from individuals
                
                
                24,984
                
                
                -Repayment
                    of bank loans
                
                
                (77,305
                )
                
                312,209Repayment
                    of government loans
                
                
                (251,907
                )
                
                (283,225
                )Repayment
                    of loans from individuals
                
                
                (149,768
                )
                
                149,859Proceeds
                    from related party advances
                
                
                55,864
                
                
                -Issuance
                    of convertible promissory notes
                
                
                5,353,000
                
                
                -Net
                    cash provided by financing activities
                
                
                5,261,966
                
                
                178,843Effect
                    of exchange rate changes on cash
                
                
                (244,733
                )
                
                9,513Net
                    increase in cash
                
                
                3,955,232
                
                
                84,335Cash,
                    beginning of period
                
                
                2,313,080
                
                
                409,437Cash,
                    end of period
                
                $
                6,268,312
                
                $
                493,772**Supplemental
                    disclosure information:**Interest
                    expense paid
                
                $
                95,353
                
                $
                (10,968
                )Income
                    taxes paid
                
                $
                84,615
                
                $
                139,932
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements
  5
  **Long-E
        International, Inc. and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**
 **(Amounts
        expressed in U.S. Dollars)**
 
 **1.**
              **DESCRIPTION
                  OF BUSINESS AND ORGANIZATION**
 
 Long-e
        International, Inc. (formerly known as Inncardio, Inc.) (the “Company”) is a
        holding company of Long-e International Group Co., Ltd. (“LIG”), which, through
        its variable interest entity (“VIE”), Long-e Technology (Shenzhen) Co., Ltd.
        (formerly known as Shenzhen Agilon Science And Technology Co., Ltd prior
        to
        March 16, 2007) (“LTS”), engages in research, development, production, marketing
        and sales of automotive electronic products, including automotive safety
        and
        security systems. All current operations and assets of LTS are located in
        the
        PRC.
 
 On
        November 30, 2006, Inncardio, Inc. (renamed Long-e International, Inc. on
        December 21, 2006 and hereinafter referred to as “Inncardio”) entered into a
        Share Exchange Agreement (the “Exchange Agreement”) with LIG and its
        shareholders. The Share Exchange was closed effective as of December 29,
        2006.
        Pursuant to the Exchange Agreement, Inncardio issued 20,661,879 shares of
        its
        common stock to LIG’s shareholders and/or their designees in exchange for 100%
        of the outstanding equity interests of LIG (the “Share Exchange”).
 
 The
        Share
        Exchange resulted in a change-in-control of Inncardio by prior LIG shareholders
        and/or their designees and the assumption of LIG’s operations and liabilities,
        including those of LTS (see below). In connection with the change-in-control,
        the Board of Directors and management of LIG have become the Board of Directors
        and management of Inncardio.
 
 In
        accordance with the Accounting and Financial Reporting Interpretations and
        Guidance prepared by the staff of the U.S. Securities and Exchange Commission
        (SEC), upon closing of the Share Exchange, Inncardio (the legal acquirer)
        has
        been considered the accounting acquiree and LIG (the legal acquiree) has
        been
        considered the accounting acquirer. The consolidated financial statements
        of the
        combined entity are in substance those of LIG, with the assets and liabilities,
        and revenues and expenses, of Inncardio being included effective from the
        date
        of consummation of the Share Exchange. Long-e has been deemed to be a
        continuation of the business of LIG. The outstanding stock of Inncardio prior
        to
        the Share Exchange has been accounted for at their net book value and no
        goodwill has been recognized.
 
 LIG
        was
        incorporated in the British Virgin Islands on May 23, 2006. On June 22, 2006,
        LIG entered into an agreement to acquire 100% of the equity of LTS for a
        total
        cash consideration of $578,000 (RMB 4,800,000) from the former majority
        shareholders of LTS. To fund LIG’s acquisition of LTS, these former majority
        shareholders agreed to provide an interest-free loan to LIG of the same amount
        of $578,000 (RMB 4,800,000). For the purpose of this transaction, these former
        shareholders had established a majority ownership in the Company in May 2006.
        On
        May 23, 2006, they acquired new shares issued by the Company, and collectively
        established a 100% ownership in the Company . On June
        29, 2006, the Company received approval from the Economic and Trade Bureau
        of
        Shenzhen, the People’s Republic of China (the “PRC”), on the acquisition of LTS.
        This transaction has been accounted for as recapitalization of LTS with no
        adjustment to the historical basis of the assets and liabilities of LTS and
        the
        operations were consolidated as though the transaction occurred as of the
        beginning of the first accounting period presented in these financial
        statements. For the purpose of presenting the financial statements on a
        consistent basis, the consolidated financial statements have been prepared
        as if
        LIG had been in existence since the beginning of the earliest period presented
        and throughout the whole periods covered by these financial
        statements.
 
 LTS
        was
        established as a domestic limited liability company on December 21, 2000
        upon
        the issuing of a license by the Administration for Industry and Commerce
        in
        Shenzhen, the PRC with an operating period of 10 years to December 21, 2010.
        Upon LIG’s acquisition of 100% of the equity of LTS in June 2006, approval was
        granted by the Economic and Trade Bureau of Shenzhen for LTS to become a
        Wholly
        Foreign Owned Enterprise.
 
 LIG
        is an
        investment holding company and has not carried on any substantive operations
        of
        its own, except for the acquisition of LTS.
 
 6
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 **a.**
              **Basis
                  of preparation**
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and with the
        instructions to Form 10-QSB and Item 310 of Regulation S-B. In the opinion
        of
        management, the condensed consolidated financial statements reflect all
        adjustments (consisting of normal recurring adjustments) considered necessary
        for a fair presentation of the results Long-E International Inc. and its
        subsidiaries for the periods presented. Operating results for interim periods
        are not necessarily indicative of results that may be expected for the fiscal
        year as a whole. The preparation of the financial statements in conformity
        with
        accounting principles generally accepted in the U.S. requires management
        to make
        estimates and assumptions that affect the reported amounts of assets,
        liabilities, revenues, expenses, and the related disclosures at the date
        of the
        financial statements and during the reporting period. Actual results could
        materially differ from these estimates. For further information, refer to
        the
        consolidated financial statements and notes of Long-e International, Inc.
        for
        December 31, 2006 and the two years in the period ended December 31, 2006,
        which
        appear in the Company’s Report on Form 10-KSB/A which was filed on December 26,
        2007.
 
 **b.**
              **Basis
                  of consolidation**
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries (collectively referenced throughout as the “Company”). Significant
        intercompany transactions have been eliminated on consolidation.
 
 **c.**
              **Use
                  of estimates**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities, disclosure of contingent
        assets and liabilities at the date of the financial statements, and the reported
        amounts of revenues and expenses during the reporting year. Because of the
        use
        of estimates inherent in the financial reporting process, actual results
        could
        differ from those estimates.
 
 **d.**
              **Fair
                  values of financial
                  instruments**
 
 The
        Company values its financial instruments as required by Statement of Financial
        Accounting Standard (SFAS) No. 107, “Disclosures about Fair Value of Financial
        Instruments”. The estimated fair value amounts have been determined by the
        Company, using available market information and appropriate valuation
        methodologies. The estimates presented herein are not necessarily indicative
        of
        amounts that the Company could realize in a current market
        exchange.
 
 The
        Company’s financial instruments primarily consist of cash, accounts receivable,
        other receivables, accounts payable, receipt in advance, accrued expenses,
        other
        payables, short term loans, and short-term related party advances. As of
        the
        balance sheet date, the estimated fair values of the financial instruments
        were
        not materially different from their carrying values as presented due to the
        short maturities of these instruments and that the interest rates on the
        borrowings approximate those that would have been available for loans of
        similar
        remaining maturity and risk profile at respective year ends.
 
 **e.**
              **Cash
                  and cash equivalents**
 
 Cash
        and
        cash equivalents include cash on hand, demand deposits with banks and liquid
        investments with an original maturity of three months or less.
  7




**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.**
            **Property
                and Equipment**





Plant
      and
      equipment are initially recognized recorded at cost. Gains or losses on
      disposals are reflected as gain or loss in the period of disposal. The cost
      of
      improvements that extend the life of plant and equipment are capitalized. These
      capitalized costs may include structural improvements, equipment and fixtures.
      All ordinary repairs and maintenance costs are expensed as
      incurred.





Depreciation
      for financial reporting purposes is provided using the straight-line method
      over
      the estimated useful lives of the assets:


Production
                  Machinery and Equipment
              8
                  yearsLeasehold
                  Improvements
              10
                  yearsOffice
                  and Other Equipment
              5
                  yearsAutomobiles
              5
                  years




**i.**
            **Impairment
                of Long-Lived Assets**





The
      Company accounts for impairment of plant and equipment and amortizable
      intangible assets in accordance with SFAS No. 144, “Accounting for Impairment of
      Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the
      Company to evaluate a long-lived asset for recoverability when there is event
      or
      circumstance that indicate the carrying value of the asset may not be
      recoverable. An impairment loss is recognized when the carrying amount of a
      long-lived asset or asset group is not recoverable (when carrying amount exceeds
      the gross, undiscounted cash flows from use and disposition) and is measured
      as
      the excess of the carrying amount over the asset’s (or asset group’s) fair
      value.





**j.**
            **Comprehensive
                income**





SFAS
      No.130, “Reporting Comprehensive Income”, requires disclosure of all components
      of comprehensive income and loss on an annual and interim basis. Comprehensive
      income and loss is defined as the change in equity of a business enterprise
      during a period from transactions and other events and circumstances from
      non-owner sources. The Company had comprehensive income (loss) of $(213,944)
      and
      $38,844 for the three months ended March 31, 2007 and 2006,
      respectively.





8





**k.**
            **Segment
                information**





SFAS
      No.131, “Disclosures about Segments of an Enterprise and Related Information”,
      requires certain financial and supplementary information to be disclosed on
      an
      annual and interim basis for each reportable segment of an enterprise. The
      Company believes that it operates in one business segment (research,
      development, production, marketing and sales of auto electronic products) and
      in
      one geographical segment (China), as all of the Company’s current operations are
      carried out in China.





**l.**
            **Revenue
                recognition**





The
      Company generates revenues from the sales of auto electronic products and
      subcontracting activities. Sales are recognized when the following four revenue
      criteria are met: persuasive evidence of an arrangement exists, delivery has
      occurred, the selling price is fixed or determinable, and collectibility is
      reasonably assured. Sales are presented net of value added tax (VAT). No return
      allowance is made as products returns are insignificant based on historical
      experience. Subcontracting revenue is recognized upon delivery of
      goods.





**m.**
            **Government
                grants**





Grants
      from the PRC government are recognized at their fair value where there is a
      reasonable assurance that the grant will be received and the Company will comply
      with all attached conditions.





Government
      grants are recognized as revenues or gains in the period received and as assets,
      decreases of liabilities, or expenses depending on the form of the grants
      received.





**n.**
            **Research
                and development costs**





Research
                and development costs are expensed to operations as incurred.





**o.**
            **Income
                taxes**





The
      Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
      for Income Taxes". SFAS No. 109 requires an asset and liability approach for
      financial accounting and reporting for income taxes and allows recognition
      and
      measurement of deferred tax assets based upon the likelihood of realization
      of
      tax benefits in future years. Under the asset and liability approach, deferred
      taxes are provided for the net tax effects of temporary differences between
      the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. A valuation allowance is provided
      for
      deferred tax assets if it is more likely than not these items will either expire
      before the Company is able to realize their benefits, or that future
      deductibility is uncertain.





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





The
      Company uses the United States dollars (“U.S. dollars” or “US$”) for financial
      reporting purposes. LTS maintains its books and records in its functional
      currency, Chinese Renminbi (“RMB”), being the primary currency of the economic
      environment in which their operations are conducted. In general, in accordance
      with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign
      Currency Translation”, the Company translates its assets and liabilities into
      U.S. dollars using the applicable exchange rates prevailing at the balance
      sheet
      date, and the statement of income is translated at average exchange rates during
      the reporting period. Adjustments resulting from the translation of the
      Company’s financial statements are recorded as accumulated other comprehensive
      income.


Until
      July 21, 2005, RMB had been pegged to US$ at the rate of RMB8.30: US$1.00.
      On
      July 21, 2005, the PRC government reformed the exchange rate system into a
      managed floating exchange rate system based on market supply and demand with
      reference to a basket of currencies. In addition, the exchange rate of RMB
      to
      US$ was adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People’s Bank of
      China announces the closing price of a foreign currency such as US$ traded
      against RMB in the inter-bank foreign exchange market after the closing of
      the
      market on each working day, which will become the unified exchange rate for
      the
      trading against RMB on the following working day. The daily trading price of
      US$
      against RMB in the inter-bank foreign exchange market is allowed to float within
      a band of ± 0.3%
      around the unified exchange rate published by the People’s Bank of China.





9




This
      quotation of exchange rates does not imply free convertibility of RMB to other
      foreign currencies. All foreign exchange transactions continue to take place
      either through the Bank of China or other banks authorized to buy and sell
      foreign currencies at the exchange rates quoted by the People’s Bank of China.
      Approval of foreign currency payments by the Bank of China or other institutions
      requires submitting a payment application form together with invoices, shipping
      documents and signed contracts.





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:




March
                  31, 2007Balance
                  sheet items, except for the registered and paid-up capital, as
                  of year
                  end
              US$0.12918:RMB1Amounts
                  included in the statements of operations, statements of changes
                  in
                  stockholders’ equity and statements of cash flows for the year
              US$0.12868:RMB1





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





**q.**
            **Related
                parties**





A
      party
      is considered to be related to the Company if the party directly or indirectly
      or through one or more intermediaries, controls, is controlled by, or is under
      common control with the Company. Related parties also include principal owners
      of the Company, its management, members of the immediate families of principal
      owners of the Company and its management and other parties with which the
      Company may deal if one party controls or can significantly influence the
      management or operating policies of the other to an extent that one of the
      transacting parties might be prevented from fully pursuing its own separate
      interests. A party which can significantly influence the management or operating
      policies of the transacting parties or if it has an ownership interest in one
      of
      the transacting parties and can significantly influence the other to an extent
      that one or more of the transacting parties might be prevented from fully
      pursuing its own separate interests is also a related party.





**r.**
            **Recently
                issued accounting
                pronouncements**





In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company’s first fiscal year that begins
      after September 15, 2006. The adoption of this statement did not have a material
      impact on the Company’s financial position or results of
      operations.





In
      March
      2006 FASB issued SFAS 156 “Accounting for Servicing of Financial Assets” this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:





·
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract.


·
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if
                practicable.


·
            Permits
                an entity to choose 'Amortization method' or ‘Fair value measurement
                method’ for each class of separately recognized servicing assets and
                servicing liabilities.






10




·
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity's exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value.


·
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities. An entity should adopt this Statement
                as of the
                beginning of its first fiscal year that begins after September 15,
                2006.





The
      adoption of this statement did not have a material impact on the Company’s
      financial position or results of operations.





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) ratified the provisions
      of Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Taxes Collected from
      Customers and Remitted to Governmental Authorities Should Be Presented in the
      Income Statement (That Is, Gross versus Net Presentation).” EITF Issue No. 06-3
      requires that the presentation of taxes within revenue-producing transactions
      between a seller and a customer, including but not limited to sales, use, value
      added, and some excise taxes, should be on either a gross (included in revenue
      and cost) or a net (excluded from revenue) basis. In addition, for any such
      taxes that are reported on a gross basis, a company should disclose the amounts
      of those taxes in interim and annual financial statements for each period for
      which an income statement is presented if those amounts are significant. The
      disclosure of those taxes can be done on an aggregate basis. EITF Issue No.
      06-3
      is effective for fiscal years beginning after December 15, 2006, which will
      be
      the Company’s fiscal 2008. The adoption of EITF Issue No. 06-3 did not have a
      material impact on the Company’s consolidated results of operations or financial
      position.





In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
      company should recognize, measure, present and disclose in its financial
      statements uncertain tax positions that the company has taken or expects to
      take
      on a tax return (including a decision whether to file or not to file a return
      in
      a particular jurisdiction). The accounting provisions of FIN No.48 are effective
      for fiscal years beginning after December 15, 2006. The adoption of this
      Interpretation had no impact on the Company’s financial position or results of
      operations.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for
      reporting fair value and expands disclosures about fair value measurements.
      SFAS
      No. 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      adoption of this standard will have no impact on the Company’s financial
      statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities-Including an amendment of FASB Statement No. 115,
      (“SFAS No. 159”). SFAS No. 159 permits entities to choose to
      measure many financial instruments and certain other items at fair value. Most
      of the provisions of this Statement apply only to entities that elect the fair
      value option. However, the amendment to FASB Statement No. 115, “Accounting
      for Certain Investments in Debt and Equity Securities,”
(“SFAS No. 115”), applies to all entities with available-for-sale and
      trading securities. SFAS No. 159 is effective for the Company’s
      consolidated financial statements for the annual reporting period beginning
      after November 15, 2007. The Company is currently evaluating the impact of
      this new pronouncement on its consolidated financial statements.





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





Financial
      instruments which potentially expose the Company to concentrations of credit
      risk consist of cash, accounts and other receivables as of March 31, 2007 and
      December 31, 2006. The Company performs ongoing evaluations of its cash position
      and credit evaluations to ensure collections and minimize losses.





11




As
      of
      March 31, 2007, substantially all of the Company’s bank deposits were placed
      with banks in the PRC where there is currently no rule or regulation in place
      for obligatory insurance to cover bank deposits in the event of bank failure.
      The Company has not suffered any losses on its cash balances.





For
      the
      three months period ended March 31, 2007, approximately 75%, of the ** Company’s
      sales were made to customers located in the PRC. ** In
      addition, approximately 84% ** of
      accounts receivables as of March 31, 2007 also arose from customers located
      in
      the PRC.





Other
      than the largest customer who accounted for approximately 13% of the Company’s
      total revenue for the three months period ended March 31, 2007, no single
      external customer exceeded 10% of the Company’s total revenue for the three
      months period ended March 31, 2007.





**4.**
            **INVENTORIES**





Inventories
      consist of the following:





March
                31,2007Raw
                materials and packing materials
            
            $
            648,769Raw
                materials on consignment at subcontractors
            
            
            825,065Finished
                goods
            
            
            1,321,168Work-in-progress
            
            
            915,3553,710,357Less:
                Allowance for obsolescence
            
            
            (344,274
            )Total
            
            $
            3,366,083





**5.**
            **PLANT
                AND EQUIPMENT**





Plant
      and
      equipment consist of the following:





March
                31, 2007Production
                machinery and equipment
            
            $
            1,503,190Leasehold
                improvements
            
            
            147,287Office
                and other equipment
            
            
            622,640Automobiles
            
            
            112,4632,385,580Less:
                Accumulated depreciation
            
            
            (915,961
            )$
            1,469,619







All
      automobiles are pledged to a bank as security against a bank loan. See Note
      7.
      Accumulated depreciation of such motor vehicles amounted  to
      $52,827 as of March 31, 2007.




The
      depreciation expense was $129,395 and $114,241 for the three months ended March
      31, 2007 and 2006, and is broken down as follows:




March
                31, 2007
            
            March
                31, 2006Cost
                of sales
            
            
            95,380
            
            
            10,962Operating
                expense
            
            
            34,015
            
            
            103,279Total
            
            $
            129,395
            
            $
            114,241




12


**6.**
              **INTANGIBLE
                  ASSETS**
 
 Intangible
        assets consist of the following, which is to be amortized over 2 years starting
        2006:
 
 March
                  31,
                2007Computerized
                  ERP System
              
              
              109,246Less:
                  Accumulated amortization
              
              
              (25,277
              )$
              83,969
 
 The
        amortization expenses were $12,546 and $nil for the three months ended March
        31,
        2007 and 2006, respectively.
 
 **7.**
              **SHORT-TERM
                  BANK LOANS**
 
 Short-term
        bank loans consist of the following:
 
 March 31, 20076.435%
                  Bank loan, due by installments up to June 29, 2007 (a)
              
              
              56,8413.49%
                  Bank loan, due by installments up to October 7, 2008
              
              
              268,548Interest-free,
                  unsecured loans, no fixed terms of repayment
              
              
              710,647Total
                  short-term bank loans
              
              $
              1,036,036
 
 (a)  The
        bank
        loan was secured by the Company’s automobiles. See Note 5.
 
 For
        the
        three months ended March 31, 2007 and 2006, interest expense from these loans
        amounted to $6,136 and $10,968, respectively.
 
 **8.**
              **CONVERTIBLE
                  DEBT**
 
 On
        January 25, 2007, the Company effected a second private placement transaction
        (the “Second Private Placement”). Pursuant to a Securities Purchase Agreement
        entered into with the investors, the Company sold and the investors
        purchased:
 
 ·
              Convertible
                  Promissory Notes (the “Notes”) in the aggregate principal amount of
                  $5,353,000 convertible into a total of 13,382,500 shares of the
                  Company’s
                  common stock at a price of $0.40 per share. Upon filing of a Certificate
                  of Designations of Preferences, Rights and Limitations of the Company’s
                  class of preferred stock with the Secretary of State of Utah, the
                  Notes
                  shall be convertible only into 13,382,500 shares of preferred stock,
                  at a
                  price of $0.40 per share. The Notes are payable on January 25,
                  2017,
                  subject to automatic extension on a month by month basis. The Notes
                  do not
                  bear any interest.
 
 ·
              Common
                  Stock Purchase Warrants (the "Series A Warrant") entitling the
                  investors
                  to purchase up to an aggregate of 6,691,250 shares of the Company's
                  common
                  stock at a price of $0.48 per share. The Series A Warrant is exercisable
                  until January 25, 2012. The Series A Warrant has a "cashless exercise"
                  feature, and the exercise price per share may be adjusted in response
                  to
                  the occurrence of certain triggering events. The Company may call
                  the
                  Series A Warrant if the closing market price of its common stock
                  equals or
                  exceeds $1.00 per share for 30 consecutive trading days and there
                  is an
                  effective registration statement covering the shares of common
                  stock
                  underlying the Series A Warrant during such period.
 
 ·
              Common
                  Stock Purchase Warrants (the "Series B Warrant") to purchase up
                  to an
                  aggregate of 6,691,250 shares of the Company's common stock at
                  a price of
                  $0.60 per share. The period of exercisability of the Series B Warrant,
                  and
                  the other material terms thereof, are the same as for the Series
                  A
                  Warrant, with the exception that the call feature is triggered
                  if the
                  closing market price of the Company's common stock equals or exceeds
                  $1.20
                  per share for 30 consecutive trading days and there is an effective
                  registration statement covering the shares of common stock underlying
                  the
                  Series B Warrant during such period.
  13
  As
        of the
        date of this report, none of the Notes had been converted and none of the
        Series
        A or B Warrants from the Second Private Placement had been exercised, in
        whole
        or in part. After commissions and expenses, we received net cash proceeds
        approximately $4.79 million in the Second Private Placement after paying
        professional fees.
 
 In
        accordance with Emerging Issues Task Force (‘‘EITF’’) 98-5 and EITF 00-27, the
        convertible debt was considered to have an embedded beneficial conversion
        feature (BCF) because the effective conversion price was less than the fair
        value of the Company’s common stock. This convertible notes were fully
        convertible at the issuance date, therefore the portion of proceeds allocated
        to
        the convertible debt of $896,002 was determined to be the value of the
        beneficial conversion feature and was recorded as a debt discount and is
        being
        amortized over the 120-month convertible debt term.
 
 The
        investors also received Series A and Series B Warrants. The Series A and
        Series
        B Warrants have a term of 5 years after the issue date of January 25, 2007.
        These warrants were treated as a discount on the secured debt and were valued
        at
        $4,456,998 to be amortized over the 120-month convertible debt term. The
        fair
        market value of each stock warrant was estimated on the date of grant using
        the
        Black-Scholes option-pricing model in accordance with SFAS No. 123R using
        the
        following weighted-average assumptions: expected dividend yield 0%; risk-free
        interest rate of 4.63%; volatility of 79% and an expected term of five
        years.
 
 For
        the
        three months ended March 31, 2007, amortization of debt discount amounted
        to
        $89,217 and is included in interest expense on the accompanying consolidated
        statement of operations.
 
 The
        Company evaluated whether or not the secured convertible debentures contain
        embedded conversion options, which meet the definition of derivatives under
        SFAS
        133 “Accounting for Derivative Instruments and Hedging Activities” and related
        interpretations. The Company concluded that since the secured convertible
        debentures had a fixed conversion rate of $1.00, the secured convertible
        debt
        was not a derivative instrument.
 
 Pursuant
        to the terms of the Amended and Restated Registration Right Agreement in
        the
        Second Private Placement, the Company agreed to file, not later than 120
        days
        after the closing date of the Securities Purchase Agreement, a registration
        statement registering a portion of the shares issuable upon conversion of
        the
        Notes and the Series A and Series B Warrants, and a portion of the shares
        issued
        in the Private Placement closed December 29, 2006. The Company failed to
        satisfy
        certain agreed deadlines during the registration process. The Company is
        obligated to pay the investors liquidated damages in cash equal to 2% of
        the
        investor’s initial investment in the company, up to 20% of such investment in
        the aggregate (See Note 13).
 
 The
        convertible debenture liability is as follows at March 31, 2007:
  Convertible
                  debentures payable
              
              $
              5,353,000Less:
                  unamortized discount on debentures
              
              
              (5,263,783
              )Convertible
                  debentures, net
              
              $
              89,217
 
 **9.**
              **SHAREHOLDERS’
                  EQUITY**
 
 Warrants
 
 In
        connection with the Second Private Placement transaction, the Company granted
        Series A Warrants entitling the investors to purchase up to an aggregate
        of
        6,691,250 shares of the Company's common stock at a price of $0.48 per share
        and
        Series B Warrants to purchase up to an aggregate of 6,691,250 shares of the
        Company's common stock at a price of $0.60 per share (See Note 8).
 
 On
        March
        31, 2007 the Company entered into an engagement letter for investor relations
        services with CCG Investor Relations Partners, LLC (“CCG”) and issued to CCG,
        pursuant to that agreement, a warrant to purchase up to 125,000 shares of
        the
        Company’s common stock at an exercise price of $1.20 per share, vesting in four
        parts through early 2008. The
        fair
        market value of these stock warrants was $76,242 and was estimated on the
        date
        of grant using the Black-Scholes option-pricing model in accordance with
        SFAS
        No. 123R using the following weighted-average assumptions: expected dividend
        yield 0%; risk-free interest rate of 4.63%; volatility of 79% and an expected
        term of five years. The Company will amortize the fair value of these warrants
        over the vesting period beginning on April 1, 2007.
 
 14
  A
        summary
        of the status of the Company's outstanding stock warrants as of March 31,
        2007
        and changes during the periods then ended is as follows:
 
 Number of
                Warrants
              
              Weighted Average
                Exercise
                  PriceBalance
                  at December 31, 2006
              
              
              6,807,141
              
              $
              0.49Granted
              
              
              13,507,500
              
              
              0.54Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Balance
                  at March 31, 2007
              
              
              20,314,641
              
              $
              0.52Options
                  exercisable at end of period
              
              
              20,314,641
              
              $
              0.52
 
 The
        following information applies to all warrants outstanding at March
        31,
        2007:
  Warrants
                  Outstanding
              
              Warrants
                  ExercisableRange
                  of Exercise Prices
              
              Shares
              
              Weighted
                Average
                Remaining
                Contractual
                Life
                  (Years)
              
              Weighted
                Average
                Exercise
                Price
              
              Shares
              
              Weighted
                Average
                Exercise
                Price$0.28
              
              
              1,000,000
              
              
              4.65
              
              $
              0.28
              
              
              1,000,000
              
              $
              0.280.40-048
              
              
              9,859,106
              
              
              4.75
              
              
              0.48
              
              
              9,330,535
              
              
              0.480.60
              
              
              9,330,535
              
              
              4.75
              
              
              0.60
              
              
              9,330,535
              
              
              0.60$1.20
              
              
              125,000
              
              
              4.75
              
              $
              1.20
              
              
              -
              
              
              -20,314,641
              
              
              
              
              $
              0.52
              
              
              20,189,641
              
              $
              0.52
 
 As
        of
        March 31, 2007 and 2006, the Company did not have an approved equity incentive
        plan and had no options outstanding.
 
 **10.**
              **RELATED
                  PARTY TRANSACTIONS AND
                  ARRANGEMENTS**
 
 (a)
              *Balances
                  with related parties*
 
 In
        addition to the transactions detailed elsewhere in these financial statements,
        The Company had the following balances with related parties.
 
 March 31, 2007Due
                  from related parties:Ms.
                  Li Xiangdong, VP, Finance of LTS
              
              
              748Mr.
                  Xu Rujiang, COO & GM of LTS
              
              
              7,639Due
                  from related parties
              
              $
              8,387Due
                  to related parties:Mr.
                  Bu Shengfu, CEO
              
              $
              221,305Shenzhen
                  Chefu Co., Ltd., a stockholder
              
              
              116,265Mr.
                  Chen Dong, a director
              
              
              42,260Mr.
                  Wang Qing, VP, Administration of LTS
              
              
              89Mr.
                  Li Huamin, a stockholder
              
              
              31,120Mr.
                  Xu Jiafa, VP, Production of LTS
              
              
              28,619Mr.
                  Yin Zhongjun, Chief Engineer of LTS
              
              
              4,000Due
                  to related parties
              
              $
              443,658
 
 The
        balances with the related parties represent advances to or loans from the
        respective related parties. These balances are interest-free, unsecured and
        have
        no fixed repayment date. It is expected that the balances will be received
        or
        repaid within one year.
  15
  **11.**
              **CURRENT
                  VULNERABILITY DUE TO CERTAIN
                  CONCENTRATIONS**
 
 The
        Company’s operations are all carried out in the PRC. Accordingly, the Company’s
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, and by the general
        state
        of the PRC’s economy.
 
 The
        Company’s operations in the PRC are subject to specific considerations and
        significant risks not typically associated with companies in the North America
        and Western Europe. These include risks associated with, among others, the
        political, economic and legal environments and foreign currency exchange.
        The
        Company’s results may be adversely affected by changes in governmental policies
        with respect to laws and regulations, anti-inflationary measures, currency
        conversion and remittance abroad, and rates and methods of taxation, among
        other
        things.
 
 **12.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 (a)
              *Operating
                  lease commitments*
 
 The
        Company has entered into tenancy agreements for the lease of factory premises
        and staff dorms. The Company’s commitments for minimum lease payments under
        these non-cancelable operating leases for the next five years and thereafter
        are
        as follows *:*
 
 Year
                  ending December 31,2007
              
              $
              887,5452008
              
              
              524,4782009
              
              
              529,6192010
              
              
              363,3602011
                  and thereafter
              
              
              423,920Total
              
              $
              2,728,922
  Total
        rental expenses for the three months period ended March 31, 2007 and 2006
        amounted to  $45,749
        and $3,978, 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 is 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.
 
 16
  The
        Reserve Fund can be used to increase the registered capital upon approval
        by
        relevant government authorities and eliminate future losses of the respective
        companies upon a resolution by the board of directors.
 
 Appropriations
        to the above statutory reserves are accounted for as a transfer from retained
        earnings to statutory reserves and are performed once a year at the financial
        year end.
 
 There
        are
        no legal requirements in the PRC to fund these statutory reserves by transfer
        of
        cash to any restricted accounts, and the Company does not do so. These reserves
        are not distributable as cash dividends.
 
 **13.**
                  **SUBSEQUENT
                      EVENTS**
 
 As
        of
        December 31, 2007, the registration has yet to be completed. In view of the
        penalty clause noted above, in June 2007, the Company has recorded registration
        rights penalty expense and a corresponding liability of $918,000 for the
        period
        from May 25, 2007 (the due date of the registration statement) to December
        31,
        2007.
 
 17


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




*This
      Form 10−QSB contains forward-looking statements. Our actual results could differ
      materially from those set forth as a result of general economic conditions
      and
      changes in the assumptions used in making such forward-looking
      statements*  *The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our interim financial statements
      and notes thereto appearing elsewhere herein. The analysis set forth below
      is
      provided pursuant to applicable Securities and Exchange Commission regulations
      and is not intended to serve as a basis for projections of future events. Refer
      also to “Certain Factors That Could Affect Our Future Results”
below.*




*Unless
      the context otherwise requires, the terms “Company,” “we,” “us,” and “our” as
      used throughout this report refer to Long-e International, Inc., or “Long-e,” a
      Utah corporation, and its wholly-owned subsidiaries, Long-e International Group
      Co., Ltd., or “LIG,” and Long-e Technology (Shenzhen) Co., Ltd. or
“LTS.”*




**Overview**




We
      operate through our wholly-owned subsidiary LIG, which was incorporated in
      May
      2006 for the purpose of acquiring LTS. Such acquisition received final approval
      on June 29, 2006, and LTS became a wholly-owned subsidiary of LIG, now held
      by
      Long-e International, Inc. Through LTS, we engage in the research, development,
      manufacture, marketing and servicing of auto electronic products, with an
      emphasis on automotive safety and security systems. Our current products are
      related to automotive security and operational safety, including a variety
      of
      electronic vehicle alarm systems, tire pressure monitoring systems, and reverse
      sensor systems, which we sell to automotive manufacturers and to after-market
      parts wholesalers and retailers.




In
      response to the market opportunities in China and the global automotive
      components industry trends, our primary goal is to continue developing leading
      edge technology, focus that technology to produce distinctive market-leading
      products with sustainable margins that appeal to both Chinese and foreign
      automotive manufacturers and to purchasers in the aftermarket, while maintaining
      efficient production and a low cost structure. Our research and development
      strategy relies primarily on internal innovation and development, supplemented
      with collaboration with academic and research institutions and acquisition
      of
      targeted technical solutions. We actively track research developmental trends
      in
      automotive electronic products and government regulations regarding vehicle
      safety and environmental standards, and continually seek to both improve and
      perfect existing products and develop new ones in accelerated product
      development cycles. In addition, we seek to recruit and retain highly qualified
      Chinese and foreign technical personnel, by maintaining positive working
      conditions, providing competitive benefits and a relaxed corporate culture.
      We
      promote our internal philosophy of mutual growth to our technical staff and
      award various incentives for positive research and development results.




**Critical
      Accounting Policies and Estimates**




The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with generally accepted accounting principles in the United States.
      We believe the following are the critical accounting policies that impact our
      financial statements, some of which are based on management’s best estimates
      available at the time of preparation. Actual experience may differ from these
      estimates.




Our
      consolidated financial statements and accompanying notes are prepared in
      accordance with generally accepted accounting principles in the United States.
      Preparing financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets, liabilities, revenue,
      and expenses. These estimates and assumptions are affected by management’s
      application of accounting policies. We believe an understanding of the basis
      and
      nature of the estimates and assumptions involved with the following aspects
      of
      our consolidated financial statements is critical to an understanding of our
      financial condition.




***Revenue
      Recognition*** *.* We
      recognize revenue from the sales of auto electronic products. Sales are
      recognized when the following four revenue criteria are met: persuasive evidence
      of an arrangement exists, delivery has occurred, the selling price is fixed
      or
      determinable, and collectivity is reasonably assured. Sales revenue is presented
      net of value added tax (VAT), sales rebates and returns. No
      return
      allowance is made as product returns are insignificant based on historical
      experience. Subcontracting revenue is recognized upon delivery of
      goods.




18




***Inventory*** .
      Inventory is carried at the lower of cost or market, determined on a weighted
      average cost method and based on net realizable value. The determination of
      net
      realizable value is based on several assumptions and estimates. We provide
      an
      allowance that we consider to be reasonable for non-moving or slow moving
      inventory items and for items with expected future realizable values lower
      than
      cost. These assumptions and estimates may be revised from time to time, based
      on
      changes in market demand. The markets in which we compete are rapidly changing
      due to technological developments and an increasing worldwide focus on
      automotive safety. Other companies offer products similar to those offered
      by
      us, and target the same customers. Some of these companies have substantially
      greater financial, marketing and technical resources. It is also possible that
      new competitors or alliances among existing competitors may emerge and such
      competitors may rapidly acquire significant market share, making it increasingly
      difficult for us to sell our current inventory. These market factors could
      reduce the net realizable value of our inventory.




***Income
      Taxes*** .  We,
      through our wholly-owned operating subsidiary LTS, enjoy preferential tax
      concessions as a high-tech enterprise. Pursuant to the Regulation of Tax Policy
      of Enterprises of Shenzhen Municipal Special Administrative Economy District
      as
      issued by the Shenzhen municipal government, the Shenzhen Regional Tax Bureau
      recognized and approved LTS’s status as a new high technology enterprise and
      granted LTS a 100% reduction in our income tax liability for our first two
      profitable years after 2003 and a 50% reduction in our income tax liability
      for
      three years from our third profitable year. As the corporate income tax rate
      in
      Shenzhen, China is 15%, LTS’s effective income tax rate for the 2005 through
      2007 fiscal years is 7.5%. Under
      recent changes in applicable PRC tax law, LTS’s corporate tax rate is
      anticipated to increase as some of its current preferential tax concessions
      transition to termination, but we are not yet certain what the applicable tax
      rate(s) will be in 2008 and subsequent years.




***Warranty
      Obligations*** *.* On an
      ongoing basis, we estimate and record a warranty obligation and an allowance
      for
      product returns. These estimates are made based on documented contractual
      warranty obligations and historical experience. Unforeseen events, including
      increased technological difficulties with products, could occur that have not
      been anticipated in estimating the warranty provision. These recorded estimates
      are adjusted from time to time to reflect any additional recurring
      costs.




***Impairment
      of Long-Lived and Amortized Intangible Assets*** .
      We
      account for impairment of plant and equipment and amortizable intangible assets
      in accordance with SFAS No. 144, “Accounting for Impairment of Long-Lived Assets
      and Long-Lived Assets to be Disposed Of,” which requires us to evaluate a
      long-lived asset for recoverability when there is event or circumstance that
      indicates the carrying value of the asset may not be recoverable. An impairment
      loss is recognized when the carrying amount of a long-lived asset or asset
      group
      is not recoverable (when the carrying amount exceeds the gross, undiscounted
      cash flows from use and disposition) and is measured as the excess of the
      carrying amount over the asset’s fair value.




***Employee
      Benefits*** .
      Pursuant to the regulations of the Shenzhen Social Insurance Bureau, we, via
      LTS, pay for various forms of required social insurance for our workforce,
      including endowment insurance, medical insurance, employment injury insurance,
      unemployment insurance and birth insurance for female employees as well. As
      stipulated by the PRC’s Company Law and as provided in LTS’s Articles of
      Association, we allocate 5% of our income after tax, as determined under PRC
      accounting rules and regulations, to LTS’s “Statutory common welfare reserve,”
which is restricted for capital expenditure for the collective benefits of
      LTS’s
      employees.




**Results
      of Operations**




**Three
      months ended March 31, 2007 as compared to the three months ended March 31,
      2006**




***Revenue*** .
      Our
      sales revenue for the three months ended March 31, 2007 totaled $6.2 million,
      an
      increase of 84% compared with our sales revenue of $3.3 million for the three
      months ended March 31, 2006. Sales of two-way interactive visual car alarm
      system sales accounted for $3.6 million, or 58% of our total revenue from
      product sales for the three months ended March 31, 2007, an increase of $3.3
      million or 9.5 times from $344,000 from the three months ended March 31, 2006,
      while sales of all other car alarm systems accounted for $1.3 million, or 21%
      of
      our total revenue from product sales, a decrease of $2.1 million or 162% from
      $3.4 million in the three months ended March 31, 2006. During the three months
      ended March 31, 2007, the sales of TPMS accounted for $1 million or 16% of
      our
      total revenue from products sales, while the sales of parking sensor systems
      accounted for $243,000 or 4% of our total revenue from products sales for the
      three months ended March 31, 2007.




19




Sales
      to
      distributors for export totaled $1.5 million for the three months ended March
      31, 2007, or 24% of our revenue from product sales during the period,
      representing an increase of $1.3 million or 6 times from $212,000 generated
      by
      such sales in the three months ended March 31, 2006. Sales within the Chinese
      aftermarket and to OEMs totaled $4.7 million, or 76%, of our total product
      sales
      for the three months ended March 31, 2007, an increase of $1.5 million, or
      47%,
      from $3.2 million in the three months ended March 31, 2006.




During
      the three months ended March 31, 2007, we generated $384,000 in revenue from
      subcontracting activities, an increase of $380,000 or 95 times from $4,000
      generated from subcontracting activities generated during the three months
      ended
      March 31, 2006. The subcontracting revenue generated during the three months
      ended March 31, 2007 was comprised of $226,000 related to our two-way
      interactive visual car alarm system and $49,000 related to all of our other
      car
      alarm systems. The increase in subcontracting revenue was due to a customer
      who
      prefers such subcontracting arrangements for our ODM two-way interactive visual
      car alarm systems. Although we do not actively solicit such subcontracting
      arrangements, we will enter into such arrangements upon a customer’s request,
      and thus such revenues will fluctuate based on our customers’ demand for such
      services.




During
      the three months ended March 31, 2007, our cost of goods sold totaled $4.4
      million, an increase of 69% compared with our cost of goods sold of $2.6 million
      for the three months ended March 31, 2006. The increase was in line with the
      increase in sales revenue.




***Gross
      Margin*** **.** Our
      gross
      margin on product sales and
      subcontracting activities increased
      from 21.1% for the three months ended March 31, 2006 to 34.3% for the three
      months ended March 31, 2007. These increases have primarily resulted from
      certain changes in our products offerings and marketing, in particular from
      the
      expanded focus on the production and marketing of our higher margin two-way
      interactive visual car alarm systems and TPMS as well.




***Operating
      Expenses*** **.** During
      the three months ended March 31, 2007, operating expenses totaled $2.7 million,
      as compared to $1.6 million during the three months ended March 31, 2006, an
      increase of 69%. Our general and administrative expenses for the three months
      ended March 31, 2007 were $1.3 million, representing a 3.0 times increase from
      $325,000 for the three months ended March 31, 2006. The
      increase in general and administrative expenses and overall operating expenses
      was mainly attributable to increase in professional fees for maintenance of
      the
      group as a US public company organization. Administrative
      salaries constituted $240,000 or 0.8% of the general and administrative expense
      amount for the three months ended March 31, 2007, as compared to $111,000 or
      28%
      in the three months ended March 31, 2006. Selling expenses increased from $1.0
      million for the three months ended March 31, 2006 to $1.3 million for the three
      months ended March 31, 2007.




***Research
      and Development*** **.** During
      the three months ended March 31, 2007, we received no new scientific research
      funds from the Shenzhen local government and repaid all of previously
      outstanding funds, leaving zero outstanding on such governmental research loans
      as of March 31, 2007. In total, our research and development expenses for three
      months ended March 31, 2007 totaled $66,000, a decrease of $12,000 or 15% from
      research and development expenses of $78,000 in the three months ended March
      31,
      2006.




***Interest
      Expense*** **.
      For** the
      three months ended March 31, 2007, our interest expense totaled $95,000 at
      an
      average rate of 2.2%, as compared to interest expense of $11,000 and an average
      rate of 5.0% in the three months ended March 31, 2006. The
      average interest rate applicable to our obligations decreased in the three
      months ended March 31, 2007 in part due to repayment of obligations that bore
      a
      higher interest charge. For the three months ended March 31, 2007, we recorded
      amortization of debt discount of approximately $89,000 related to our recent
      private placement.




***Net
      Loss*** **.
      For** the
      three months ended March 31, 2007, net loss was $696,000 as compared to net
      loss
      of $793,000 for the three months ended March 31, 2006, a decrease of $97,000
      or
      12.1%.




**Liquidity
      and Capital Resources**




We
      finance our activities primarily through the profits from our product sales,
      supplemented by governmental grants and loans. For the three months ended March
      31, 2007, we generated gross profit totaling $2.1 million, which was $1.4
      million or 2.0 times greater than our gross profit of $707,000 for the three
      months ended March 31, 2006.




20




On
      January 25, 2007, we effected a second private placement transaction. Pursuant
      to the Securities Purchase Agreement entered into with the investors, we sold
      and the investors purchased:





·
            Convertible
                Promissory Notes (the “Notes”) in the aggregate principal amount of
                $5,353,000, convertible into a total of 13,382,500 shares of the
                Company’s
                common stock at a price of $0.40 per share. Upon filing of a Certificate
                of Designations of Preferences, Rights and Limitations of the Company’s
                class of preferred stock with the Secretary of State of Utah, the
                Note
                shall be convertible only into 13,382,500 shares of preferred stock,
                at a
                price of $0.40 per share. To date, the Company has not filed any
                Certificate of Designations. Each Note is payable on January 25,
                2017,
                subject to automatic extension on a month by month basis, and does
                not
                bear any interest.




·
            Common
                Stock Purchase Warrants (the “Series A Warrant”) entitling the investors
                to purchase up to an aggregate of 6,691,250 shares of the Company’s common
                stock at a price of $0.48 per share. The Series A Warrant is exercisable
                until January 25, 2012. The Series A Warrant has a “cashless exercise”
                feature, and the exercise price per share may be adjusted in response
                to
                the occurrence of certain triggering events. The Company may call
                the
                Series A Warrant if the closing market price of its common stock
                equals or
                exceeds $1.00 per share for 30 consecutive trading days and there
                is an
                effective registration statement covering the shares of common stock
                underlying the Series A Warrant during such
                period.




·
            Common
                Stock Purchase Warrants (the “Series B Warrant”) to purchase up to an
                aggregate of 6,691,250 shares of the Company’s common stock at a price of
                $0.60 per share. The period of exercisability of the Series B Warrant,
                and
                the other material terms thereof, are the same as for the Series
                A
                Warrant, with the exception that the call feature is triggered if
                the
                closing market price of the Company’s common stock equals or exceeds $1.20
                per share for 30 consecutive trading days and there is an effective
                registration statement covering the shares of common stock underlying
                the
                Series B Warrant during such
                period.





Pursuant
      to the terms of the Amended and Restated Registration Rights Agreement in the
      Second Private Placement, we agreed to file, not later than 120 days after
      the
      closing date of the Securities Purchase Agreement, a registration statement
      registering a portion of the shares issuable upon conversion of the Notes and
      the Series A and Series B Warrants, and a portion of the shares issued
      in the Private Placement closed December 29, 2006. As of December 31, 2007,
      we
      had failed to satisfy certain agreed deadlines during the registration process
      and had become obligated to pay the investors liquidated damages in cash equal
      to 2% of the investors’ initial investment in the Company, up to 20% of such
      investment in the aggregate. We have recognized a liability of $918,000 on
      our
      books as of December 31, 2007 to provide for the liquidated damages accrued
      as
      of such date. Although we have received some requests for partial payment of
      the
      liquidated damages accrued, as of December 31, 2007, we have not made any cash
      payments of liquidated damages. The payment of these liquidated damages in
      cash
      will have an adverse effect on our cash position.





As
      of the
      date of this report, none of the Notes had been converted and none of the Series
      A or B Warrants from the Second Private Placement had been exercised, in whole
      or in part. After commissions and expenses, we received net cash proceeds of
      $4.79 million in the Second Private Placement.




As
      of
      March 31, 2007, we held $6.3 million in cash and cash equivalents as compared
      to
      $494,000 at March 31, 2006. As of March 31, 2007, our current liabilities
      totaled $6.6 million, an increase of 18% from $5.6 million at March 31, 2006.
      Our working capital increased from $3.5 million as of December 31, 2006 to
      $7.6
      million as of March 31, 2007.




Our
      net
      loss of $696,232 for the three months ended March 31, 2007 includes non-cash
      charges of $142,000 for depreciation and amortization and also non-cash discount
      on financial instruments of $89,217. Net cash used in our operating activities
      totaled $561,528 for the three months ended March 31, 2007, as compared to
      $83,000 during three months ended March 31, 2006, reflecting decreased cash
      flow
      from operating activities due to the expansion of our production and sales
      capacities, notwithstanding an increase in accounts receivables and inventories.
      During the three months ended March 31, 2007, our accounts receivable turned
      over approximately 2.5 times, and our inventories turned over approximately
      3.5
      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.




21




For
      the
      three months ended March 31, 2007, our net cash used in investing activities
      totaled $500,473 as compared to $20,608 for the three months ended March 31,
      2006, due to an increase in the purchase of plant and equipment.




For
      the
      three months ended March 31, 2007, net cash provided by financial activities
      amounted to $5,261,966 as compared to net cash provided by financing activities
      of $178,843 for the three months ended March 31, 2006. The increase was
      primarily attributable to the receipt of cash from convertible debt of
      $5,353,000.




Over
      the
      remainder of fiscal 2007, we are seeking to achieve further growth by increasing
      our ongoing investment in research and development, launching the commercial
      sales of our TPMSs and digital parking reverse sensor systems, continuing to
      develop our marketing network, implementing stricter and more efficient quality
      controls, and increasing investment in our production management system. We
      expect our future capital requirements to be approximately $15 million during
      the 2007 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.




**Off-Balance
      Sheet Arrangements**




None.




**Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. This Statement amends FASB Statements No. 133,
      Accounting for Derivative Instruments and Hedging Activities, and No. 140,
      Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities. This Statement resolves issues addressed in Statement 133
      Implementation Issue No. D1, “Application of Statement 133 to Beneficial
      Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value
      remeasurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation, clarifies which
      interest-only strips and principal-only strips are not subject to the
      requirements of Statement 133, and establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation. It also clarifies that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives and amends Statement 140 to eliminate the prohibition on a
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This Statement is effective for all financial instruments acquired
      or issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. The Company does not expect that the adoption of this
      statement will have a material impact on its financial statements.




In
      2006,
      the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”.
      This Statement amends FASB Statement No. 140, Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities, with respect
      to the accounting for separately recognized servicing assets and servicing
      liabilities. This Statement requires an entity to recognize a servicing asset
      or
      servicing liability each time it undertakes an obligation to service a financial
      asset by entering into a servicing contract in indicated situations; requires
      all separately recognized servicing assets and servicing liabilities to be
      initially measured at fair value, if practicable; permits an entity to choose
      relevant subsequent measurement methods for each class of separately recognized
      servicing assets and servicing liabilities; at its initial adoption, permits
      a
      one-time reclassification of available-for-sale securities to trading securities
      by entities with recognized servicing rights, without calling into question
      the
      treatment of other available-for-sale securities under Statement 115, provided
      that the available-for-sale securities are identified in some manner as
      offsetting the entity’s exposure to changes in fair value of servicing assets or
      servicing liabilities that a servicer elects to subsequently measure at fair
      value; and requires separate presentation of servicing assets and servicing
      liabilities subsequently measured at fair value in the statement of financial
      position and additional disclosures for all separately recognized servicing
      assets and servicing liabilities. The Company is required to adopt this
      Statement as of the beginning of its first fiscal year that begins after
      September 15, 2006, i.e. fiscal 2007. The
      Company does not expect that the adoption of this statement will have a material
      impact on its financial statements.




In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
      company should recognize, measure, present and disclose in its financial
      statements uncertain tax positions that the company has taken or expects to
      take
      on a tax return (including a decision whether to file or not to file a return
      in
      a particular jurisdiction). The accounting provisions of FIN No.48 are effective
      for fiscal years beginning after December 15, 2006. The adoption of this
      Interpretation will have no impact on our financial position or results of
      operations.




22


In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS
      157”), to define fair value, establish a framework for measuring fair value in
      accordance with generally accepted accounting principles and expand disclosures
      about fair value measurements. SFAS 157 requires quantitative disclosures using
      a tabular format in all periods (interim and annual) and qualitative disclosures
      about the valuation techniques used to measure fair value in all annual periods.
      The provisions of this Statement shall be effective for financial statements
      issued for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. The Company will be required to adopt the provisions
      of this statement as of January 1, 2008. The Company does not expect that the
      adoption of this Statement will have a material impact on its financial
      statements.




In
      September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans – An amendment of
      FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement
      enhances disclosure regarding the funded status of an employers’ defined benefit
      postretirement plan by (a) requiring companies to include the funding status
      in
      comprehensive income and (b) recognize transactions and events that affect
      the
      funded status in the financial statements in the year in which they occur (c)
      at
      a measurement date of the employer’s fiscal year-end. The Company does not
      expect that the adoption of this statement will have a material impact on its
      financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. The provisions of SFAS 159 are effective as of January 1, 2008.
      We are currently reviewing SFAS 159 to determine its impact, if any, on our
      financial position or results of operations.





**Interest
      Rate Risk**





We
      do not
      have significant risk from potential fluctuations in interest rates, as our
      debt
      obligations are primarily short-term in nature, and all of our debt obligations
      carry fixed interest rates.




**Foreign
      Currency Risk**




Substantially
      all of our operations are conducted in the PRC, and substantially all of our
      sales and purchases are conducted within the PRC in Chinese Renminbi. As a
      result, the effect of the fluctuations of exchange rates only minimally impacts
      our business operations currently, but will be increasingly material as we
      introduce our products directly within new international markets.




Substantially
      all of our revenues and expenses are denominated in Renminbi. However, we use
      the United States dollar for financial reporting purposes. Conversion of
      Renminbi into foreign currencies is regulated by the People’s Bank of China
      through a unified floating exchange rate system. Although the PRC government
      has
      stated our intention to support the value of the Renminbi, there can be no
      assurance that such exchange rate will not again become volatile or that the
      Renminbi will not devalue significantly against the U.S. dollar. Exchange rate
      fluctuations may adversely affect the value, in U.S. dollar terms, of our net
      assets and income derived from our operations in the PRC.




**Certain
      Factors That Could Affect Our Future Results**




All
      of
      the information in this Form 10-QSB, including the factors listed below, should
      be carefully considered and evaluated. These factors are not the only concerns
      or uncertainties facing our company. Additional matters not now known to us
      or
      that we may currently deem immaterial could also impair our ability to conduct
      business in the future.




If
      any of
      the circumstances among the following or others factors actually occur or occur
      again, our business, financial condition or results of operations could be
      materially adversely affected by these risks if any of them actually occur.
      Some
      of these factors have affected our financial condition and operating results
      in
      the past or are currently affecting us. We operate in a market environment
      that
      is difficult to predict and that involves significant risks and uncertainties,
      many of which are beyond our control. **




*With
      respect to this discussion, the terms, “we,” “us,” or “our” refer to Long-e
      International, Inc., our wholly-owned subsidiary Long-e International Group
      Co.,
      Ltd. (“LIG”), and our wholly-owned subsidiary Long-e Technology (Shenzhen) Co.,
      Ltd. (“LTS”).*




23




**Risks
      Related to Our Operations**




***The
      cyclical nature of automotive sales and production could adversely affect our
      business and results of operations.*** Demand
      for our auto electronic products is related in large part to automotive sales
      and vehicle production by our automotive manufacturer customers. Automotive
      sales and production are highly cyclical and depend on general economic
      conditions and other factors, including consumer spending and preferences,
      as
      well as changes in interest rate levels, consumer confidence, fuel prices,
      labor
      relations issues, regulatory requirements, trade agreements and other factors.
      A
      decrease in consumer demand for specific types of vehicles in which our products
      have traditionally been included or significant economic decline that results
      in
      a reduction in automotive sales and production by our OEM customers could have
      a
      significant adverse effect on our business and financial condition.




***The
      automotive industry is subject to intense competition and our current products
      may be rendered obsolete by future technological developments in the industry.*** The
      automotive component supply industry, including the auto electronic products
      market, is highly competitive, both within China and internationally. There
      can
      be no assurance that our products will be able to compete successfully with
      the
      products of our competitors. Competition is based primarily on price,
      technology, quality, delivery and overall customer service. Many of our
      competitors are substantially larger in size, have substantially greater
      financial, marketing and other resources, and have more extensive experience
      and
      records of successful operations than we do. While we currently offer TPMSs
      and
      all-digital reverse sensor systems, competitors are introducing similar products
      which provide some of the same attributes and are very price competitive with
      our products. Additionally, mechanical tire pressure monitors and non-digital
      reverse sensor systems are readily available from our competitors. Competitive
      pressures extend to attracting and retaining qualified technical and marketing
      personnel. There can be no assurance that we will successfully differentiate
      our
      products from those of our competitors, that the marketplace will consider
      our
      current or proposed products to be superior or even comparable to those of
      our
      competitors, or that we can succeed in establishing necessary relationships
      with
      automobile manufacturers or the wholesalers and retailers of aftermarket auto
      electronics products. Furthermore, no assurance can be given that competitive
      pressures we face will not adversely affect our financial performance. In
      addition, the rapidly evolving nature of the markets in which we compete may
      attract new entrants, and as a result, our sales levels and margins could be
      adversely affected by pricing pressures caused by such new
      entrants.




***Our
      success is highly dependent on continually developing new and advanced products,
      technologies, and processes, and failure to do so may cause us to lose our
      competitiveness in the auto electronics industry and may cause our profits
      to
      decline.*** To
      remain
      competitive in the auto electronics industry, it is important to continually
      develop new and advanced products, technologies, and processes. There is no
      assurance that competitors’ new products, technologies, and processes will not
      render our existing products obsolete or non-competitive. Alternately, changes
      in legislative, regulatory or industry requirements or in competitive
      technologies may render certain of our products obsolete or less attractive.
      Our
      competitiveness in the auto electronic products market therefore relies upon
      our
      ability to enhance our current products, introduce new products, and develop
      and
      implement new technologies and processes. The research and development of new
      products and technologies is costly and time consuming, and there are no
      assurances that our research and development of new products will either be
      successful or completed within anticipated timeframes, if at all our failure
      to
      technologically evolve and/or develop new or enhanced products may cause us
      to
      lose our competitiveness in the auto electronics industry and may cause our
      profits to decline. In addition, in order to effectively compete in the
      automotive supply industry, we must be able to launch new products to meet
      our
      customers’ demand in a timely manner. However, we cannot provide assurance that
      we will be able to install and certify any equipment needed to produce new
      products in a timely manner, or that the transitioning of our manufacturing
      facility and resources to full production under new product programs will not
      impact production rates or other operational efficiency measures at our
      manufacturing facility. In addition, new product introductions and applications
      are risky, and may suffer from a lack of market acceptance, delays in related
      product development and failure of new products to operate properly. Any failure
      by us to successfully launch new products, or a failure by our customers accept
      such products, could adversely affect our results.





***The
      sales cycle for our products is lengthy, which may impede our
      growth.*** The
      sales cycle in the automotive components industry is lengthy. Automotive
      manufacturers must develop a high degree of assurance that the products they
      buy
      from us will meet customer needs, interface as easily as possible with the
      other
      parts of a vehicle and with the manufacturer’s production and assembly process,
      and have minimal warranty, safety and service problems. As a result, from the
      time that a manufacturer develops a strong interest in one of our products,
      it
      normally will take several years before the automotive manufacturer purchases
      a
      significant volume of such product and such product becomes available in a
      particular manufacturer’s vehicles.




24




In
      addition, automobile component products typically proceed through five stages
      of
      research and development. We first conduct initial research on the product
      concept to assess our technical feasibility and economic costs and benefits,
      which may include development of an internal prototype for evaluation. If the
      product appears feasible, we then manufacture a functioning prototype to
      demonstrate and test the product’s features. We then market this prototype and
      sell it to automotive vehicle manufacturers or other systems manufacturers
      for
      further testing and evaluation. If a vehicle manufacturer shows interest in
      the
      product, we then typically work to refine the product with that manufacturer,
      selling the manufacturer second and subsequent generation engineering prototypes
      for further evaluation. Finally, the automotive manufacturer either decides
      to
      purchase the product for a production vehicle or terminates the
      program.





The
      time
      required to progress through these five stages to commercialization varies
      widely. Generally, the more one of our products must be integrated with other
      vehicle systems, the longer the process takes. Further, products that are
      installed by the factory usually require extra time for evaluation because
      other
      vehicle systems are affected, and a decision to introduce the product into
      the
      vehicle is not easily reversed. These factors directly influence the sales
      cycle
      for our integrated car alarm systems, TPMSs and reverse parking sensor
      systems ** to
      automotive manufacturers. ** Because
      our products rely on new and evolving technology, and because OEM customers
      will
      likely require any new product we develop to pass certain feasibility and
      economic viability tests before committing to purchase it, we expect it to
      take
      several years before each newly developed product generates significant enough
      sales to grow our overall product line and sales revenues. As a result of this
      lengthy process, we also may not be able to adapt product offerings to meet
      changing consumer preferences and our customers’ supply requirements on a
      timely, cost effective basis, which may materially adversely affect our results
      of operations.




***Escalating
      pricing pressures from our customers may adversely affect our business and
      results of operations.*** Downward
      pricing pressures by automotive manufacturers have been a characteristic of
      the
      automotive industry in recent years. Virtually all automakers have aggressive
      price reduction initiatives and objectives each year with their suppliers,
      and
      such actions are expected to continue in the future. Automotive manufacturers
      historically have had significant leverage over their outside suppliers because
      the automotive component supply industry, including the market in auto
      electronics products, is fragmented and serves a limited number of automotive
      manufacturers, and as such, suppliers are subject to substantial continuing
      pressure from their OEM consumers to reduce the price of their products.
      Accordingly, suppliers must be able to reduce their operating costs in order
      to
      maintain profitability. We have taken steps to minimize our operating costs
      to
      offset customer price pressures, however, future price reductions could impact
      our sales and profit margins. If we are unable to offset customer price
      reductions in the future through improved operating efficiencies, new
      manufacturing processes, sourcing alternatives and other cost reduction
      initiatives, our results of operations and financial condition could be
      adversely affected.




***Our
      customers typically reserve the right unilaterally to cancel contracts or reduce
      prices, and the exercise of such rights could reduce or eliminate any financial
      benefit to us anticipated from such contracts.*** Automotive customers, both vehicle manufacturers and aftermarket auto
      electronics purchasers, typically reserve the right unilaterally to cancel
      contracts completely or to require price reductions. Although they generally
      reimburse companies for actual out-of-pocket costs incurred with respect to
      the
      particular contract up to the point of cancellation, these reimbursements
      typically do not cover costs associated with acquiring general purpose assets
      such as facilities and capital equipment, and may be subject to negotiation
      and
      substantial delays in receipt by us. Any unilateral cancellation of, or price
      reduction with respect to, any contract that we may obtain could reduce or
      eliminate any financial benefits anticipated from such contract and could have
      a
      material adverse effect on our financial condition and results of
      operations.





***Because
      a significant portion of the accounts receivable are generated by a small number
      of customers, the failure of one or more of these customers could impair our
      financial condition.*** ** Because
      a
      substantial portion of our sales are made to a small number of customers, our
      accounts receivable from a small number of customers may represent a large
      percentage of our accounts receivable and assets. Our largest account receivable
      at March 31, 2007 was approximately $827,000, representing approximately 6%
      of
      our total current assets and approximately 10% of our working capital, and
      our
      three largest accounts receivable totaled approximately $1.5 million,
      representing approximately 11% of our total current assets and approximately
      18%
      of our working capital. This concentration of accounts receivable represents
      a
      significant credit risk, and the failure of any of these customers to pay their
      obligations to us in a timely manner could have a material adverse effect upon
      our financial condition.




***Certain
      disruptions in supply of and changes in the competitive environment for raw
      materials integral to our products may adversely affect our profitability.*** We
      use a
      broad range of materials and supplies, including metals, castings, chemicals
      and
      other electronic components in our products. A significant disruption in the
      supply of these materials could decrease production and shipping levels,
      materially increase our operating costs and materially adversely affect our
      profit margins. Shortages of materials or interruptions in transportation
      systems, labor strikes, work stoppages, war, acts of terrorism or other
      interruptions to or difficulties in the employment of labor or transportation
      in
      the markets in which we purchase material, components and supplies for the
      production of our products, in each case may adversely affect our ability to
      maintain production of our products and sustain profitability. If we were to
      experience a significant or prolonged shortage of critical components from
      any
      of our suppliers and could not procure the components from other sources, we
      would be unable to meet our production schedules for some of our key products
      and to ship such products to our customers in timely fashion, which would
      adversely affect our sales, margins and customer relations.




25




In
      recent
      periods there have been significant increases in the global prices of steel,
      resins, and copper, which have had and may again in the future have an
      unfavorable impact on our business. These inflationary pressures have placed
      significant operational and financial burdens on automotive suppliers at all
      levels, and are expected to continue for the foreseeable future. We anticipate
      that these inflationary pressures and related price increases will continue
      to
      affect our business in the future, either directly or by disrupting the business
      and financial condition of one or more of our suppliers. Any continued
      fluctuations in the price or availability of steel, resins or copper may have
      a
      material adverse effect on our business, results of operations or financial
      condition. To address increased costs associated with these market forces,
      a
      number of our suppliers have implemented surcharges on existing fixed price
      contracts. Without the surcharge, some suppliers claim they will be unable
      to
      provide adequate supply. As cost pressures associated with the resin raw
      material market related continue, we expect to see increasing costs in resin
      as
      well as plastic component supplier value streams, as well as potential delivery
      delays and less readily available supply inventories. We will continue efforts
      to pass some of the supply and raw material cost increases onto our customers,
      although competitive and marketing pressures may limit our ability to do so.
      This inability to pass on price increases to our customers when raw material
      prices increase rapidly or to significantly higher than historic levels could
      adversely affect our operating margins and cash flow, possibly resulting in
      lower operating income and profitability.




***The
      failure to manage growth or diversification effectively could have an adverse
      effect on our business, financial condition, and results of
      operations.*** **** Any
      significant growth in the market for our auto electronic products, entry into
      new markets by us or diversification of our products and services may require
      us
      to expand our employee base for managerial, operational, financial, and other
      purposes. As of March 31, 2007, we had 461 full time employees. Continued future
      growth will impose significant added responsibilities upon the members of
      management to identify, recruit, maintain, integrate, and motivate new
      employees. Aside from increased difficulties in the management of human
      resources, we may also encounter working capital issues, as we will need
      increased liquidity to finance the purchases of raw materials and supplies,
      research and development of new products, acquisition of new businesses and
      technologies, and the hiring of additional employees. For effective growth
      management, we will be required to continue improving our operations,
      management, and financial systems and control. Our failure to manage growth
      or
      diversification effectively may lead to operational and financial inefficiencies
      that will have a negative effect on our profitability.




***We
      are dependent on certain key personnel and loss of these key personnel could
      have a material adverse effect on our business, financial condition and results
      of operations.*** Our
      success is, to a certain extent, attributable to the management, sales and
      marketing, and operational and technical expertise of certain key personnel.
      Each of the named executive officers performs key functions in the operation
      of
      our business. Although we have employment agreements with such key personnel,
      there can be no assurance that we will be able to retain these officers after
      the term of their employment contracts expire or that such personnel may not
      receive and/or accept competing offers of employment. The loss of a significant
      number of these employees could have a material adverse effect upon our
      business, financial condition, and results of operations.




***We
      are dependent on a technically trained workforce and an inability to retain
      or
      effectively recruit such employees could have a material adverse effect on
      our
      business, financial condition and results of
      operations.*** **** We
      must
      attract, recruit and retain a sizeable workforce of technically competent
      employees to develop and manufacture our auto electronics products and provide
      service support. Our ability to effectively implement our business strategy
      will
      depend upon, among other factors, the successful recruitment and retention
      of
      additional highly skilled and experienced engineering and other technical and
      marketing personnel. There is significant competition for technologically
      qualified personnel in our business and we may not be successful in recruiting
      or retaining sufficient qualified personnel consistent with our operational
      needs.




***We
      cannot guarantee the protection of our intellectual property rights and if
      infringement of our intellectual property rights occurs, including
      counterfeiting of our products, our reputation and business may be adversely
      affected.*** To
      protect the reputation of our products, we have sought to file or register
      our
      intellectual property, as appropriate, in the PRC where we have our primary
      business presence. As of March 31, 2007, we, via LTS, had registered 5
      trademarks as used on our automotive safety and security systems and had applied
      for registration of an additional trademark relating to the use of “Long-e Auto
      Electronics Products.” Our products are currently sold under these trademarks in
      the PRC, and we plan to expand our products to other international markets.
      There is no assurance that there will not be any infringement of our brand
      name
      or other registered trademarks or counterfeiting of our products in the future,
      in China or elsewhere. Should any such infringement and/or counterfeiting occur,
      our reputation and business may be adversely affected. We may also incur
      significant expenses and substantial amounts of time and effort to enforce
      our
      trademark rights in the future. Such diversion of our resources may adversely
      affect our existing business and future expansion plans.




26




As
      of
      March 31, 2007, we, via LTS, held four Chinese patents relating to the
      technology in our FSK interactive visual car alarm system. We believe that
      obtaining patents and enforcing other proprietary protections for our
      technologies and products have been and will continue to be very important
      in
      enabling us to compete effectively. However, there can be no assurance that
      our
      pending patent applications will issue, or that we will be able to obtain any
      new patents, in China or elsewhere, or that our or our licensors’ patents and
      proprietary rights will not be challenged or circumvented, or that these patents
      will provide us with any meaningful competitive advantages. Furthermore, there
      can be no assurance that others will not independently develop similar products
      or will not design around any patents that have been or may be issued to us
      or
      our licensors. We currently do not have any patent applications pending in,
      or
      any patents from, jurisdictions outside of China and may not seek such foreign
      patents. Failure to obtain patents in certain foreign countries may materially
      adversely affect our ability to compete effectively in those international
      markets. If a sufficiently broad patent were to be issued from a competing
      application in China or elsewhere, it could have a material adverse effect
      upon
      our intellectual property position in that particular market.




In
      addition, our rights to use the licensed proprietary technologies of our
      licensors depends on the timely and complete payment for such rights pursuant
      to
      license agreements between the parties; failure to adhere to the terms of these
      agreements could result in the loss of such rights and could materially and
      adversely affect our business.




***If
      our products are alleged to or found to conflict with patents that have been
      or
      may be granted to competitors or others, our reputation and business may be
      adversely affected.*** Rapid
      technological developments in the automotive component industry and the
      competitive nature of the auto electronic products market make the patent
      position of any component manufacturer subject to numerous uncertainties related
      to complex legal and factual issues. Consequently, although we either own or
      hold licenses to certain patents in the PRC, and are currently processing
      several additional patent applications in the PRC via our wholly-owned
      subsidiary, LTS, it is possible that no patents will issue from any pending
      applications or that claims allowed in any existing or future patents issued
      or
      licensed to us will be challenged, invalidated, or circumvented, or that any
      rights granted there under will not provide us adequate protection. As a result,
      we may be required to participate in interference or infringement proceedings
      to
      determine the priority of certain inventions or may be required to commence
      litigation to protect our rights, which could result in substantial costs.
      Further, other parties could bring legal actions against us claiming damages
      and
      seeking to enjoin manufacturing and marketing of our products for allegedly
      conflicting with patents held by them. Any such litigation could result in
      substantial cost to us and diversion of effort by our management and technical
      personnel. If any such actions are successful, in addition to any potential
      liability for damages, we could be required to obtain a license in order to
      continue to manufacture or market the affected products. There can be no
      assurance that we would prevail in any such action or that any license required
      under any such patent would be made available on acceptable terms, if at all.
      Failure to obtain needed patents, licenses or proprietary information held
      by
      others may have a material adverse effect on our business. In addition, if
      we
      were to become involved in such litigation, it could consume a substantial
      portion of our time and resources. Also, with respect to licensed technology,
      there can be no assurance that the licensor of the technology will have the
      resources, financial or otherwise, or desire to defend against any challenges
      to
      the rights of such licensor to our patents.




***We
      rely on trade secret protections through confidentiality agreements with our
      employees, customers and other parties; the breach of such agreements could
      adversely affect our business ands results of operations.*** We
      also
      rely on trade secrets, which we seek to protect, in part, through
      confidentiality and non-disclosure agreements with employees, customers and
      other parties. There can be no assurance that these agreements will not be
      breached, that we would have adequate remedies for any such breach or that
      our
      trade secrets will not otherwise become known to or independently developed
      by
      competitors. To the extent that consultants, key employees or other third
      parties apply technological information independently developed by them or
      by
      others to our proposed projects, disputes may arise as to the proprietary rights
      to such information that may not be resolved in our favor. We may be involved
      from time to time in litigation to determine the enforceability, scope and
      validity of our proprietary rights. Any such litigation could result in
      substantial cost and diversion of effort by our management and technical
      personnel.




***Warranty
      claims, product liability claims and product recalls could harm our business,
      results of operations and financial condition.*** Our
      business inherently exposes us to potential warranty and product liability
      claims, in the event that our products fail to perform as expected or such
      failure of our products results, or is alleged to result, in bodily injury
      or
      property damage (or both). Such claims may arise despite our quality controls,
      proper testing and instruction for use of our products, either due to a defect
      during manufacturing or due to the individual’s improper use of the product. In
      addition, if any of our designed products are or are alleged to be defective,
      then we may be required to participate in a recall of them. As suppliers become
      more integrally involved in the vehicle design process, automakers are
      increasingly expecting them to warrant their products and are increasingly
      looking to them for contributions when faced with product liability claims
      or
      recalls. Depending on the terms under which we supply our products to a vehicle
      manufacturer, the vehicle manufacturer may attempt to hold us responsible for
      some or all of the repair or replacement costs of defective products under
      new
      vehicle warranties, in the event a vehicle manufacturer asserts that one of
      our
      products did not perform as warranted.




27


Existing
      PRC laws and regulations do not require us to maintain third party liability
      insurance to cover product liability claims. Although we, through LTS, have
      obtained products liability insurance, if a warranty or product liability claim
      is brought against us and/or LTS, regardless of merit or eventual outcome,
      or a
      recall of one of our products is required, such claim or recall may result
      in
      damages in excess of such coverage, in damage to our reputation, breach of
      contracts with our customers, decreased demand for our products, costly
      litigation, additional product recalls, loss of revenue, and the inability
      to
      commercialize some products.




***Our
      planned expansion into new international markets poses additional risks and
      could fail, which could cost us valuable resources and affect our results of
      operations.*** We
      plan
      to expand sales of products into overseas markets including developing and
      developed countries, such as Russia and the United States. These markets are
      untested for our products and we face risks in expanding the business overseas,
      which include differences in regulatory product testing requirements,
      intellectual property protection (including patents and trademarks), taxation
      policy, legal systems and rules, marketing costs, fluctuations in currency
      exchange rates and changes in political and economic conditions.




***Our
      products are made at our production facility located in Shenzhen, China;
      however, our insurance may not adequately cover any losses at that facility
      due
      to fire, casualty or theft.*** We
      have
      obtained property insurance aggregating approximately $3.0 million, covering
      our
      raw materials, goods and merchandise, furniture and equipment and production
      facility in Shenzhen, China. However, the proceeds of such insurance may not
      be
      sufficient to cover material damage to, or the loss of, our production facility
      due to fire, severe weather, flood or other cause, and such damage or loss
      would
      have a material adverse effect on our financial condition, business and
      prospects.




***Our
      quarterly results may fluctuate significantly, which could adversely affect
      the
      market price of our stock.*** Our
      quarterly operating results may fluctuate significantly in the future due to
      such factors as acceptance of our products by automotive manufacturers and
      other
      consumers, timing of introductions for new and updated products, availability
      and pricing of components from third parties, competition, timing of orders,
      foreign currency exchange rates, technological changes and economic conditions
      generally. Broad market fluctuations in the stock markets could adversely affect
      the market price of our common stock, if and when we become listed or quoted
      on
      a national stock exchange. In addition, failure to meet or exceed analysts’
expectations of financial performance may result in immediate and significant
      price and volume fluctuations in our common stock, if and when we becomes listed
      or quoted on a national stock exchange. ****




**Risks
      Related to us Doing Business in China**




***All
      of our assets are located in China and all of our revenues are derived from
      our
      operations in China, and changes in the political and economic policies of
      the
      PRC government could have a significant impact upon the business we may be
      able
      to conduct in the PRC and our results of operations and financial condition.*** Our
      business operations may be adversely affected by the current and future
      political environment in the PRC. The PRC has operated as a socialist state
      since the mid-1900s and is controlled by the Communist Party of China. The
      Chinese government exerts substantial influence and control over the manner
      in
      which we must conduct our business operations in the PRC. Over the past decade,
      the PRC has increasingly permitted provincial and local economic autonomy and
      private economic activities. However, the government of the PRC has exercised
      and continues to exercise substantial control over virtually every sector of
      the
      Chinese economy, including the auto electronics industry, through regulation
      and
      state ownership. Our ability to operate in China may be adversely affected
      by
      changes in Chinese laws and regulations, including those relating to taxation,
      import and export tariffs, raw materials, environmental regulations, land use
      rights, property and other matters. Under our current leadership, the government
      of the PRC has been pursuing economic reform policies that encourage private
      economic activity and greater economic decentralization. There is no assurance,
      however, that the government of the PRC will continue to pursue these policies,
      or that it will not significantly alter these policies from time to time without
      notice.




28





***The
      PRC laws and regulations governing our current business operations in the PRC
      are sometimes vague and uncertain; any changes in such PRC laws and regulations
      may have a material and adverse effect on our business and financial condition.*** The
      PRC’s
      legal system is a civil law system based on written statutes, in which decided
      legal cases have little value as precedents unlike the common law system
      prevalent in the United States. There are substantial uncertainties regarding
      the interpretation and application of PRC laws and regulations, including but
      not limited to the laws and regulations governing our business, or the
      enforcement and performance of our arrangements with customers in the event
      of
      the imposition of statutory liens, death, bankruptcy and criminal proceedings.
      The Chinese government has been developing a comprehensive system of commercial
      laws, and considerable progress has been made in introducing laws and
      regulations dealing with economic matters such as foreign investment, corporate
      organization and governance, commerce, taxation and trade. However, because
      these laws and regulations are relatively new, and because of the limited volume
      of published cases and judicial interpretation and their lack of force as
      precedents, interpretation and enforcement of these laws and regulations involve
      significant uncertainties. New laws and regulations that affect existing and
      proposed future businesses may also be applied retroactively. We are considered
      a foreign person or foreign funded enterprise under PRC laws, and as a result,
      we are required to comply with PRC laws and regulations. We cannot predict
      what
      effect the interpretation of existing or new PRC laws or regulations may have
      on
      our businesses. If the relevant authorities find us in violation of PRC laws
      or
      regulations, they would have broad discretion in dealing with such a violation,
      including, without limitation:




·
            levying
                fines;




·
            revoking
                our business and other licenses;




·
            requiring
                that we restructure our ownership or operations;
                and




·
            requiring
                that we discontinue any portion or all of our
                business.




***The
      foreign currency exchange rate between U.S. Dollars and Renminbi could adversely
      affect our financial condition.*** To
      the
      extent that we need to convert dollars into Renminbi (RMB) for our operational
      needs, our financial position and the price of our common stock may be adversely
      affected should the Renminbi appreciate against the U.S. dollar at that time.
      Conversely, if we decide to convert our Renminbi into dollars for the
      operational needs or paying dividends on our common stock, the dollar equivalent
      of our earnings from our subsidiary in China would be reduced should the dollar
      appreciate against the Renminbi. Further, our operational results are reported
      in U.S. dollars, and thus fluctuations in the exchange rate applied for purposes
      of consistent presentation may appear to exacerbate or minimize trends in our
      reported results.




Until
      1994, the Renminbi experienced a gradual but significant devaluation against
      most major currencies, including dollars, and there was a significant
      devaluation of the Renminbi on January 1, 1994 in connection with the
      replacement of the dual exchange rate system with a unified managed floating
      rate foreign exchange system. Since 1994, the value of the Renminbi relative
      to
      the U.S. Dollar has remained stable and has appreciated slightly against the
      U.S. dollar. Countries, including the United States, have argued that the
      Renminbi is artificially undervalued due to China’s current monetary policies
      and have pressured China to allow the Renminbi to float freely in world markets.
      In July 2005, the PRC government changed its policy of pegging the value of
      the
      Renminbi to the dollar. Under the new policy the Renminbi is permitted to
      fluctuate within a narrow and managed band against a basket of designated
      foreign currencies. While the international reaction to the Renminbi revaluation
      has generally been positive, there remains significant international pressure
      on
      the PRC government to adopt an even more flexible currency policy, which could
      result in further and more significant appreciation of the Renminbi against
      the
      dollar.




***Inflation
      in the PRC could negatively affect our profitability and growth.*** While
      the
      PRC economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. During the past decade, the rate of inflation in China has been
      as
      high as approximately 20% and China has experienced deflation as low as
      approximately minus 2%. If prices for our products rise at a rate that is
      insufficient to compensate for the rise in the costs of supplies such as raw
      materials, it may have an adverse effect on our profitability. In order to
      control inflation in the past, the PRC government has imposed controls on bank
      credits, limits on loans for fixed assets and restrictions on state bank
      lending. The implementation of such policies may impede economic growth. In
      October 2004, the People’s Bank of China, the PRC’s central bank, raised
      interest rates for the first time in nearly a decade and indicated in a
      statement that the measure was prompted by inflationary concerns in the Chinese
      economy. In April and August 2006, the People’s Bank of China raised the
      interest rate again. Repeated rises in interest rates by the central bank would
      likely slow economic activity in China which could, in turn, materially increase
      our costs and also reduce demand for our products.




***We
      enjoy certain preferential tax concessions in the PRC and loss of these
      preferential tax concessions will cause our tax liabilities to increase and
      our
      profitability to decline.*** **** We,
      through our wholly-owned operating subsidiary LTS, enjoy preferential tax
      concessions as a high-tech enterprise. Pursuant to the Regulation of Tax Policy
      of Enterprises of Shenzhen Municipal Special Administrative Economy District
      as
      issued by the Shenzhen municipal government, the Shenzhen Regional Tax Bureau
      recognized and approved our status as a high and new technology enterprise
      and
      thus we were granted a 100% reduction in our income tax liability for our first
      two profitable years after 2003 and a 50% reduction in our income tax liability
      for three years from our third profitable year. As the historical corporate
      income tax rate in Shenzhen, China is 15%, LTS’s effective income tax rate for
      the 2005 through 2007 fiscal years is 7.5%.




29





However,
      the PRC Enterprise Income Tax Law (the “EIT Law”) was enacted on March 16, 2007.
      Under the EIT Law, effective January 1, 2008, China will adopt a uniform tax
      rate of 25.0% for all enterprises (including foreign-invested enterprises)
      and
      cancel several tax incentives enjoyed by foreign-invested enterprises. However,
      for foreign-invested enterprises established before the promulgation of the
      EIT
      Law, a five-year transition period is provided during which reduced rates will
      apply but gradually be phased out. Although the 15% corporate income tax rate
      for qualified high and new technology enterprises appears to survive the
      enactment of the EIT Law, and our preferential rate should survive during the
      first year of the transitional period, because the PRC government has not fully
      announced implementation measures for the transitional policy with regards
      to
      such preferential tax rates, we cannot reasonably estimate the financial impact
      of the new tax law to us at this time. Further, any future increase in the
      enterprise income tax rate applicable to us or other adverse tax treatments,
      such as the discontinuation of preferential tax treatments for high and new
      technology enterprises altogether, would have a material adverse effect on
      our
      results of operations and financial condition.





***Recent
      PRC regulations relating to acquisitions of PRC companies by foreign entities
      may create regulatory uncertainties that could restrict or limit our ability
      to
      operate, including our ability to pay dividends.*** The
      PRC
      State Administration of Foreign Exchange, or SAFE, issued a public notice in
      January 2005 concerning foreign exchange regulations on mergers and acquisitions
      in China. The public notice states that if an offshore company controlled by
      PRC
      residents intends to acquire a PRC company, such acquisition will be subject
      to
      strict examination by the relevant foreign exchange authorities. The public
      notice also states that the approval of the relevant foreign exchange
      authorities is required for any sale or transfer by the PRC residents of a
      PRC
      company’s assets or equity interests to foreign entities for equity interests or
      assets of the foreign entities.




In
      April
      2005, SAFE issued another public notice further explaining the January notice.
      In accordance with the April notice, if an acquisition of a PRC company by
      an
      offshore company controlled by PRC residents has been confirmed by a Foreign
      Investment Enterprise Certificate prior to the promulgation of the January
      notice, the PRC residents must each submit a registration form to the local
      SAFE
      branch with respect to their respective ownership interests in the offshore
      company, and must also file an amendment to such registration if the offshore
      company experiences material events, such as changes in the share capital,
      share
      transfer, mergers and acquisitions, spin-off transaction or use of assets in
      China to guarantee offshore obligations. The April notice also provides that
      failure to comply with the registration procedures set forth therein may result
      in restrictions on our PRC resident shareholders and LTS, LIG and us. Pending
      the promulgation of detailed implementation rules, the relevant government
      authorities are reluctant to commence processing any registration or application
      for approval required under the SAFE notices.





In
      October 2005, SAFE issued its “Notice on Relevant Issues in the Foreign Exchange
      Control over Financing and Return Investment Through Special Purpose Companies
      by Residents Inside China,” generally referred to as Circular 75, requiring PRC
      residents to register with the competent local SAFE branch before establishing
      or acquiring control over an offshore special purpose company, or SPV, for
      the
      purpose of engaging in an equity financing outside of China on the strength
      of
      domestic PRC assets originally held by those residents.





In
      addition, on August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by
      the State-owned Assets Supervision and Administration Commission of the State
      Council, State Administration of Taxation, State Administration for Industry
      and
      Commerce, China Securities Regulatory Commission and SAFE, amended and released
      the *Provisions for Foreign Investors to Merge and Acquire Domestic
      Enterprises* ,
      new
      foreign-investment rules which took effect September 8, 2006, superseding
      much, but not all, of the guidance in the prior SAFE circulars. These new rules
      significantly revise China’s regulatory framework governing onshore-offshore
      restructurings and how foreign investors can acquire domestic enterprises.
      These
      new rules signify greater PRC government attention to cross-border merger,
      acquisition and other investment activities, by confirming MOFCOM as a key
      regulator for issues related to mergers and acquisitions in China and requiring
      MOFCOM approval of a broad range of merger, acquisition and investment
      transactions. Further, the new rules establish reporting requirements for
      acquisition of control by foreigners of companies in key industries, and
      reinforce the ability of the Chinese government to monitor and prohibit foreign
      control transactions in key industries.





30





In
      May
      2007, SAFE issued internal implementing guidelines (which became public in
      June
      2007, and became known as Notice 106), which expanded the reach of Circular
      75
      by (i) purporting to cover the establishment or acquisition of control by PRC
      residents of offshore entities which merely acquire “control” over domestic
      companies or assets, even in the absence of legal ownership; (ii) adding
      requirements relating to the source of the PRC resident’s funds used to
      establish or acquire the offshore entity; (iii) covering the use of existing
      offshore entities for offshore financings; (iv) purporting to cover situations
      in which an offshore SPV establishes a new subsidiary in China or acquires
      an
      unrelated company or unrelated assets in China; and (v) making the domestic
      affiliate of the SPV responsible for the accuracy of certain documents which
      must be filed in connection with any such registration, notably, the business
      plan which describes the overseas financing and the use of proceeds. Amendments
      to registrations made under Circular 75 are required in connection with any
      increase or decrease of capital, transfer of shares, mergers and acquisitions,
      equity investment or creation of any security interest in any assets located
      in
      China to guarantee offshore obligations, and Notice 106 makes the offshore
      SPV
      jointly responsible for these filings. Failure to comply with the requirements
      of Circular 75, as applied by SAFE in accordance with Notice 106, may result
      in
      fines and other penalties under PRC laws for evasion of applicable foreign
      exchange restrictions. Any such failure could also result in the SPV’s
      affiliates being impeded or prevented from distributing their profits and the
      proceeds from any reduction in capital, share transfer or liquidation to the
      SPV, or from engaging in other transfers of funds into or out of
      China.





We
      believe our stockholders who are PRC residents as defined in Circular 75 have
      registered with the relevant branch of SAFE, as currently required, in
      connection with their equity interests in us and our acquisitions of equity
      interests in our PRC subsidiaries. However, we cannot provide any assurances
      that their existing registrations have fully complied with, and they have made
      all necessary amendments to their registration to fully comply with, all
      applicable registrations or approvals required by Circular 75. Moreover, because
      of uncertainty over how Circular 75 will be interpreted and implemented, and
      how
      or whether SAFE will apply it to us, we cannot predict how it will affect our
      business operations or future strategies. For example, our present and
      prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
      such as the remittance of dividends and foreign currency-denominated borrowings,
      may be subject to compliance with Circular 75 by our PRC resident beneficial
      holder.





These
      new
      rules may significantly affect the means by which offshore-onshore
      restructurings are undertaken in China in connection with offshore private
      equity and venture capital financings, mergers and acquisitions, as well as
      the
      ability of current offshore-onshore structured companies to effectively seek
      further financing. It is expected that such transactional activity in China
      in
      the near future will require significant case-by-case guidance from MOFCOM
      and
      other government authorities as appropriate. It is anticipated that application
      of the new rules will be subject to significant administrative interpretation,
      and we will need to closely monitor how MOFCOM and other ministries apply the
      rules to ensure our domestic and offshore activities continue to comply with
      PRC
      law. Given the uncertainties regarding interpretation and application of the
      new
      rules, we may need to expend significant time and resources to maintain
      compliance, including educating or assisting our PRC-based shareholders with
      their SAFE registration requirements.





Our
      business operations or future strategy could be adversely affected by the
      interpretations and implementation of the SAFE notices and the new rules. For
      example, we may be subject to more stringent review and approval process with
      respect to our foreign exchange activities.





***Recent
      negative publicity regarding the quality and reliability of products
      manufactured in China, and a perceived lack of quality control in Chinese
      operations may adversely affect demand for our products and our ability to
      internationally expand our customer base.*** ** In
      recent
      months there has been a significant amount of publicity about quality control
      issues in various industries in China, as well as a number of product recalls
      or
      safety warnings issued in relation to Chinese-manufactured products. Although
      we
      have received numerous quality control certifications and, to our knowledge,
      none of the incidents receiving international attention arose in the China-based
      auto electronics industry, this negative publicity could have an adverse impact
      on customer demand for items made in China. Although we currently do business
      solely with China-based customers, a portion of our sales are to export agents
      who rely on demand in the broader international market for auto electronic
      products, which could be impacted by negative reports on the quality or safety
      of Chinese products. Further, we are strategically evaluating expansion into
      other international markets, and our ability to do so could be substantially
      reduced by such negative publicity for China-produced goods. If such negative
      publicity continues or increases, or the product recalls and safety warnings
      extend to the China-based auto electronics industry, even if we maintain our
      high standards of quality control, our operations may be adversely affected
      by
      association and our financial condition may suffer.





***Failure
      to comply with the United States Foreign Corrupt Practices Act could subject
      us
      to penalties and other adverse consequences.*** We
      are
      subject to the United States Foreign Corrupt Practices Act, which generally
      prohibits United States companies from engaging in bribery or other prohibited
      payments to foreign officials for the purpose of obtaining or retaining
      business. Foreign companies, including some that may compete with us, are not
      subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
      and other fraudulent practices may occur from time-to-time in the PRC. Although
      we have adopted a Code of Ethics and Business Conduct, we can make no assurance,
      however, that our employees or other agents will not engage in such conduct
      for
      which we might be held responsible. If our employees or other agents are found
      to have engaged in such practices, we could suffer severe penalties and other
      consequences that may have a material adverse effect on our business, financial
      condition and results of operations.





31





***Any
      recurrence of severe acute respiratory syndrome, or SARS, or occurrence of
      any
      other widespread public health problem, in the PRC could adversely affect our
      operations.*** A
      renewed
      outbreak of SARS, or the occurrence of another widespread public health problem
      in China, where all of our manufacturing facilities are located and where all
      of
      our sales currently occur, could have a negative effect on our operations.
      Such
      an outbreak could have an impact on our operations as a result of:




·
            quarantines
                or closures of some of our manufacturing facilities, which would
                severely
                disrupt our operations,




·
            the
                sickness or death of our key officers and employees,
                and




·
            a
                general slowdown in the Chinese
                economy.




Any
      of
      the foregoing events or other unforeseen consequences of public health problems
      could adversely affect our operations.




***A
      downturn in the economy of the PRC may slow our growth and
      profitability*** **.** The
      growth of the Chinese economy has been uneven across geographic regions and
      economic sectors. There can be no assurance that growth of the Chinese economy
      will be steady or that any downturn will not have a negative effect on our
      business, especially if it results in either a decreased use of our products
      or
      in pressure on us to lower our prices.




***We
      may have difficulty establishing adequate management, legal and financial
      controls in the PRC*** **.** PRC
      companies have historically not adopted a Western style of management and
      financial reporting concepts and practices, which includes strong corporate
      governance, internal controls and, computer, financial and other control
      systems. In addition, we may have difficulty in hiring and retaining a
      sufficient number of qualified employees to work in the PRC. As a result of
      these factors, we may experience difficulty in establishing management, legal
      and financial controls, collecting financial data and preparing financial
      statements, books of account and corporate records and instituting business
      practices that meet Western standards. Therefore, we may, in turn, experience
      difficulties in implementing and maintaining adequate internal controls as
      required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result
      in
      significant deficiencies or material weaknesses in our internal controls which
      could impact the reliability of our financial statements and prevent us from
      complying with SEC rules and regulations and the requirements of the
      Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
      compliance could have a materially adverse effect on our business.




***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based upon U.S. laws,
      including the federal securities laws or other foreign laws against us or our
      management.*** **** All
      of
      our current operations are conducted in China. Moreover, all but one of our
      directors and officers are nationals and residents of China, and the remaining
      director is a citizen of Canada. All or substantially all of the assets of
      these
      persons are located outside the United States and in the PRC. As a result,
      it
      may not be possible to effect service of process within the United States or
      elsewhere outside China upon these persons. In addition, uncertainty exists
      as
      to whether the courts of China would recognize or enforce judgments of U.S.
      courts obtained against us or such officers and/or directors predicated upon
      the
      civil liability provisions of the securities law of the United States or any
      state thereof, or be competent to hear original actions brought in China against
      us or such persons predicated upon the securities laws of the United States
      or
      any state thereof.




**Risks
      Related to our Corporate Structure and Capitalization**




***There
      is currently a limited trading market for our common stock, and there is no
      assurance a more established public trading market will develop, the absence
      of
      which would adversely affect the ability of our investors to sell their
      securities in the public market.*** **  As
      of
      December 31, 2006, our common stock was listed on the OTC Bulletin Board (the
      “OTCBB”), however our common stock was subsequently removed from quotation on
      the OTCBB and is now quoted on the Electronic Quotation Service known as the
      Pink Sheets. Quotes for stocks traded via the Pink Sheets are not listed in
      the
      financial sections of newspapers, and bid and ask prices for securities traded
      solely on the Pink Sheets may be difficult to obtain. In addition, stocks traded
      solely on the Pink Sheets tend to have a limited number of market makers and
      a
      larger spread between bid and ask prices than those listed on the NYSE, AMEX,
      or
      Nasdaq exchanges, or even the OTCBB. As a result, holders of our common stock
      may be unable to resell their securities at or near their original offering
      price or at any price.





32





Market
      prices for our common stock may be influenced by a number of factors,
      including:




·
            Our
                ability to obtain additional financing and, if available, the terms
                and
                conditions of the financing;




·
            Our
                financial position and results of
                operations;




·
            Concern
                as to, or other evidence of, the reliability and safety of our products
                and services or our competitors’ products and
                services;




·
            Announcements
                of innovations or new products or services by us or our
                competitors;




·
            U.S.
                federal and state governmental regulatory actions and the impact
                of such
                requirements on our business;




·
            Chinese
                governmental regulatory actions and the impact of such requirements
                on our
                business;




·
            The
                development of litigation against
                us;




·
            Period-to-period
                fluctuations in our operating
                results;




·
            Changes
                in estimates of our performance by any securities
                analysts;




·
            The
                issuance of new equity securities pursuant to a future offering or
                acquisition;




·
            Changes
                in interest rates and/or foreign currency exchange
                rates;




·
            Competitive
                developments, including announcements by competitors of new products
                or
                services or significant contracts, acquisitions, strategic partnerships,
                joint ventures or capital
                commitments;




·
            Investor
                perceptions of us; and




·
            General
                economic and other national and international
                conditions.




There
      is
      currently no active trading market in our common stock. Even if such a market
      were to become established, we would need to become current in our SEC filings
      and maintain compliance for a certain period before our common stock could
      potentially be quoted again on the OTCBB.




***Certain
      commitments into which we entered in connection with our most recent equity
      financing arrangement could lead to further dilution of our common stock and
      reduce the price of our common stock*** **.** In
      connection with our most recent equity financing arrangement, we entered into
      certain commitments with investors, including commitments to reincorporate
      in
      the state of Delaware, to issue a certain amount of preferred stock, and to
      incur obligations under certain convertible promissory notes. If holders of
      our
      convertible notes or warrants to purchase common stock exercise their rights
      under such instruments, our common stock will be further diluted and this could
      contribute to a reduction and/or greater volatility in the price of our common
      stock. Additionally, failure to carry out any of our commitments could have
      a
      negative impact on our financing arrangements .




***Shares
      eligible for future sale may adversely affect the market price of our common
      stock, as the future sale of a substantial amount of outstanding stock in the
      public marketplace could reduce the price of our common stock.*** During
      2006, in conjunction with our previously reported share exchange and private
      placement of shares of common stock and warrants, we agreed to file registration
      statements with the Securities and Exchange Commission to register a total
      of
      5,285,714 shares of common stock and an aggregate of 5,278,570 shares of common
      stock underlying warrants issued in an equity financing, as well as up to 45,000
      shares held by pre-existing shareholders of Inncardio and shares underlying
      other outstanding warrants to purchase up to 1,528,571 shares of our common
      stock.




Effective
      as of January 25, 2007, we effected a second private placement transaction.
      Pursuant to a Securities Purchase Agreement entered into with the investors,
      we
      sold and the investors purchased: (1) Convertible Promissory Notes (the “Notes”)
      in the aggregate principal amount of $5,353,000, convertible into a total of
      13,382,500 shares of the Company’s common stock at a price of $0.40 per share,
      (2) Common Stock Purchase Warrants (the “Series A Warrants”) entitling the
      investors to purchase up to an aggregate of 6,691,250 shares of the Company’s
      common stock at a price of $0.48 per share, and (3) Common Stock Purchase
      Warrants (the “Series B Warrants”) to purchase up to an aggregate of 6,691,250
      shares of the Company’s common stock at a price of $0.60 per share (the “Second
      Private Placement”). As of December 31, 2007, the Notes had not been converted
      and none of the Series A or B Warrants had been exercised, in whole or in part.





33





Pursuant
      to the terms of the Securities Purchase Agreement, we agreed to file, not later
      than 120 days after the closing date of the Securities Purchase Agreement and
      an
      Amended and Restated Registration Rights Agreement, a registration statement
      registering a portion of the shares issuable upon conversion of the Notes and
      the Series A and Series B Warrants, and a portion of the shares issued
      in the Private Placement closed December 29, 2006. We failed to satisfy certain
      agreed deadlines during the registration process, and are now obligated to
      pay
      the investors liquidated damages in cash equal to 2% of the investors’ initial
      investment in the Company, up to 20% of such investment in the
      aggregate. As of December 31, 2007, the required registration filing has
      not been completed. We have recognized a liability of $918,000 on our books
      as
      of December 31, 2007 to provide for the liquidated damages accrued as of such
      date. Although we have received some requests for partial payment of the
      liquidated damages accrued, we have not made any cash payments of liquidated
      damages. If we were to pay these liquidated damages with shares of our common
      stock or other equity securities, this will have a dilutive effect and may
      have
      an adverse effect on the market price of our common stock by creating an
      excessive supply.





Additionally,
      some of our shareholders may be eligible to sell all or some of their shares
      of
      common stock by means of ordinary brokerage transactions in the open market
      pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), subject
      to certain limitations. In general, pursuant to Rule 144, a shareholder (or
      shareholders whose shares are aggregated) who has satisfied a one-year holding
      period may, under certain circumstances, sell within any three-month period
      a
      number of securities which does not exceed the greater of 1% of the then
      outstanding shares of common stock or the average weekly trading volume of
      the
      class during the four calendar weeks prior to such sale. As of March 31, 2007,
      1% of our issued and outstanding shares of common stock was approximately
      312,597 shares. Rule 144 also permits, under certain circumstances, the sale
      of
      securities, without any limitations, by a non-affiliate that has satisfied
      a
      two-year holding period. Any substantial sale of common stock pursuant to any
      resale prospectus or Rule 144 may have an adverse effect on the market price
      of
      our common stock by creating an excessive supply.





***We
      are in breach of our obligations pursuant to our Amended and Restated
      Registration Rights Agreement, subjecting us to liquidated
      damages.***  In
      conjunction with the Private Placement and the Second Private Placement, we
      entered into an Amended and Restated Registration Rights Agreement dated January
      25, 2007, which required that we file a registration statement registering
      certain of our recently issued securities for resale no later than 120 days
      from
      the closing date of the sale of the securities in the Second Private Placement.
      We failed to satisfy the agreed deadline for filing of the initial registration
      statement, and subsequently also breached our obligation to remain timely in
      our
      required filings with the SEC and to maintain quotation of our common stock
      on
      the OTCBB. As a result, we have triggered the liquidated damages provision
      of
      the Amended and Restated Registration Rights Agreement and are contractually
      obligated to pay the investors who are signatories to that agreement liquidated
      damages in cash equal to 2% of each investor’s initial investment in the
      Company, up to 2% of such investment in the aggregate (approximately $1.45
      million). We have recognized a liability of $918,000 on our books as of December
      31, 2007 to provide for the liquidated damages accrued as of such date. Although
      we have received some requests for partial payment of the liquidated damages
      accrued, we have not made any cash payments of liquidated damages. If we were
      to
      pay these liquidated damages with shares of our common stock or other equity
      securities, this will have a dilutive effect and may have an adverse effect
      on
      the market price of our common stock by creating an excessive
      supply.





***The
      ability of our Chinese operating subsidiary to pay dividends may be restricted
      due to our corporate structure.*** Substantially
      all of our operations are conducted in China and substantially all of our
      revenues are generated in China. As a wholly foreign-owned enterprise, LTS
      is
      required to establish reserve funds and staff and workers’ bonus and welfare
      funds, each of which is appropriated from net profit after taxation but before
      dividend distributions in accordance with Chinese law. LTS is required to
      allocate at least 10% of our net profits to the reserve fund until the balance
      of this fund has reached 50% of LTS’s registered capital; as of March 31, 2007,
      LTS’s registered capital was approximately $1.2 million.




In
      addition, the profit available for distribution from LTS is determined in
      accordance with generally accepted accounting principles in China. This
      calculation may differ from the one performed under generally accepted
      accounting principles in the United States, or GAAP. As a result, we may not
      receive sufficient distributions from our Chinese subsidiaries to enable us
      to
      make dividend distributions to our stockholders in the future and limitations
      on
      distributions of the profits of LTS could negatively affect our financial
      condition and assets, even if our GAAP financial statements indicate that our
      operations have been profitable.




34


***Our
      common stock is considered a “penny stock,” and thereby is subject to additional
      sale and trading regulations that may make it more difficult to sell.*** Our
      common stock is currently considered to be a “penny stock” because it does not
      qualify for one of the exemptions from the definition of “penny stock” under
      Section 3a51-1 of the Securities Exchange Act for 1934, as amended (the
“Exchange Act”). Our common stock may be a “penny stock” if it meets one or more
      of the following conditions (i) the stock trades at a price less than $5.00
      per
      share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is
      NOT quoted on the Nasdaq Stock Market, or even if so, has a price less than
      $5.00 per share; or (iv) is issued by a company that has been in business less
      than three years with net tangible assets less than $5 million.




The
      principal result or effect of being designated a “penny stock” is that
      securities broker-dealers participating in sales of our common stock will be
      subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9
      promulgated under the Exchange Act. For example, Rule 15g-2 requires
      broker-dealers dealing in penny stocks to provide potential investors with
      a
      document disclosing the risks of penny stocks and to obtain a manually signed
      and dated written receipt of the document at least two business days before
      effecting any transaction in a penny stock for the investor’s account. Moreover,
      Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
      any
      investor for transactions in such stocks before selling any penny stock to
      that
      investor. This procedure requires the broker-dealer to (i) obtain from the
      investor information concerning his or her financial situation, investment
      experience and investment objectives; (ii) reasonably determine, based on that
      information, that transactions in penny stocks are suitable for the investor
      and
      that the investor has sufficient knowledge and experience as to be reasonably
      capable of evaluating the risks of penny stock transactions; (iii) provide
      the
      investor with a written statement setting forth the basis on which the
      broker-dealer made the determination in (ii) above; and (iv) receive a signed
      and dated copy of such statement from the investor, confirming that it
      accurately reflects the investor’s financial situation, investment experience
      and investment objectives. Compliance with these requirements may make it more
      difficult and time consuming for holders of our common stock to resell their
      shares to third parties or to otherwise dispose of them in the market or
      otherwise.




***We
      do not foresee paying cash dividends in the foreseeable
      future*** **.** We
      have
      not declared or paid any cash dividends on our shares of common stock in the
      past and we currently intend to retain any future earnings for funding growth.
      We do not anticipate paying any dividends in the foreseeable future. As a
      result, you should not rely on an investment in our securities if you require
      dividend income. Capital appreciation, if any, of our shares may be your sole
      source of gain for the foreseeable future. Moreover, you may not be able to
      resell your shares in us at or above the price you paid for them.




**Risks
      Related to U.S. Regulatory Requirements**




***Our
      officers and directors have no experience in public company reporting and
      limited experience in financial accounting, which could impair our ability
      to
      satisfy public company filing requirements and increase our securities
      compliance costs.*** **** Our
      officers and directors do not have any prior experience as officers and
      directors of a publicly traded company, or in complying with the regulatory
      requirements applicable to a public company. As a result, we could have
      difficulty satisfying the regulatory requirements applicable to public
      companies, which could adversely affect the market for our common stock. At
      present, we rely upon outside experts to advise us on matters relating to
      financial accounting and public company reporting. For example, our 2006 audit
      and annual reporting process has taken significant longer and been more
      expensive than originally anticipated due to the learning curve of our key
      personnel, and as a result we are no longer current in our SEC filings and
      have
      been removed from quotation on the OTCBB. While we continue to believe that
      it
      will be possible to satisfy our public company reporting requirements through
      the use of third party experts, our general and administrative costs will remain
      higher to the extent our officers alone are not able to satisfy our public
      company reporting requirements




***If
      we fail to maintain effective internal controls over financial reporting, the
      price of our common stock may be adversely affected.*** **** Our
      internal control over financial reporting may have weaknesses and conditions
      that need to be addressed, the disclosure of which may have an adverse impact
      on
      the price of our common stock. We are required to establish and maintain
      appropriate internal controls over financial reporting. Failure to establish
      those controls, or any failure of those controls once established, could
      adversely impact our public disclosures regarding our business, financial
      condition or results of operations. In addition, management’s assessment of
      internal controls over financial reporting may identify weaknesses and
      conditions that need to be addressed in our internal controls over financial
      reporting or other matters that may raise concerns for investors. As management
      has not completed and reported on a formal assessment of our internal control
      over financial reporting to date, we are not certain if these are currently
      any
      material weaknesses or significant deficiencies in our internal control over
      financial reporting at this time. Any actual or perceived weaknesses and
      conditions that need to be addressed in our internal control over financial
      reporting, disclosure of management’s assessment of our internal controls over
      financial reporting or disclosure of our public accounting firm’s attestation to
      or report on management’s assessment of our internal controls over financial
      reporting may have an adverse impact on the price of our common
      stock.




35




***Compliance
      with changing regulation of corporate governance and public disclosure will
      result in additional expenses.*** Changing
      laws, regulations and standards relating to corporate governance and public
      disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC
      regulations, have created uncertainty for public companies and significantly
      increased the costs and risks associated with accessing the United States public
      markets and related public reporting obligations. Our management team will
      need
      to invest significant management time and financial resources to comply with
      both existing and evolving standards for public companies, which will lead
      to
      increased general and administrative expenses and a diversion of management
      time
      and attention from revenue generating activities to compliance
      activities.





***Standards
      for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
      and if we fail to comply in a timely manner, our business could be harmed and
      our stock price could decline.***  Rules
      adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
      require annual assessment of our internal control over financial reporting,
      and
      attestation of this assessment by our company’s independent registered public
      accountants. The SEC extended the compliance dates for non-accelerated filers,
      as defined by the SEC. Accordingly, we believe that this requirement will first
      apply to our annual report for fiscal 2007. The standards that must be met
      for
      management to assess the internal control over financial reporting as effective
      are new and complex, and require significant documentation, testing and possible
      remediation to meet the detailed standards. We may encounter problems or delays
      in completing activities necessary to make an assessment of our internal control
      over financial reporting. In addition, the attestation process by our
      independent registered public accountants is new and it may encounter problems
      or delays in completing the implementation of any requested improvements and
      receiving an attestation of our assessment by our independent registered public
      accountants. If we cannot assess our internal control over financial reporting
      as effective, or our independent registered public accountants are unable to
      provide an unqualified attestation report on such assessment, investor
      confidence and share value may be negatively impacted.




**Item
      3.**   **Controls
      and Procedures.**




As
      of the
      end of the period covered by this report on Form 10-QSB, our Chief Executive
      Officer and our Chief Financial Officer performed an evaluation of the
      effectiveness of and the operation of our disclosure controls and procedures
      as
      defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on
      that evaluation, our Chief Executive Officer and Chief Financial Officer could
      not conclude that as of March 31, 2007, our disclosure controls and procedures
      were effective in timely alerting them to material information relating to
      Long-e International, Inc. required to be included in our Exchange Act filings
      and ensuring such information is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms. Further, since the closing of the previously reported share exchange
      marked a change in the operations of the business, our Chief Executive Officer
      and Chief Financial Officer concluded that there was a further need to evaluate
      and implement appropriate disclosure controls and procedures to ensure the
      timely, accurate and comprehensive flow of material information, especially
      in
      relation to LIG and LTS, required to be disclosed in our Exchange Act filings
      and to ensure that all such information is recorded, processed, summarized
      and
      reported within the time periods required. Since March 31, 2007, our Chief
      Executive Officer and other members of the management team have been working
      to
      design and implement such effective disclosure controls and procedures.





There
      have been no changes in our internal control over financial reporting identified
      in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15(d)
      under the Exchange Act that occurred during the quarter ended March 31,
      2007 that has materially affected, or is reasonably likely to materially affect,
      our internal control over financial reporting.





**PART
      II — OTHER INFORMATION**




**Item
      1.**   **Legal
      Proceedings.**




None.




**Item
      2.**   **Unregistered
      Sales of Equity Securities and Use of Proceeds.**




On
      January 25, 2007, we effected the Second Private Placement and sold Convertible
      Promissory Notes and five-year Series A and Series B warrants to purchase shares
      of our common stock, as previously reported in our Current Report on Form 8-K
      filed on January 31, 2007.




36




On
      March
      30, 2007, we engaged CCG Elite Investor Relations (“CCG Elite”) to assist us in
      the design and execution of our investor relations strategy. In addition to
      cash
      consideration for CCG Elite’s services, we agreed to issue CCG Elite a
      three-year warrant to purchase 125,000 restricted shares of our common stock
      at
      $1.20 per share. The warrant, dated March 31, 2007, vests in four equal
      installments upon issuance, on July 1, 2007, on September 1, 2007 and on January
      1, 2008. As of March 31, 2007, none of the warrants had been
      exercised.




**Item
      3.****Defaults
      Upon Senior Securities**




Pursuant
      to the terms of the Amended and Restated Registration Rights Agreement entered
      into with the Second Private Placement, we agreed to file, not later than 120
      days after the closing date of the Securities Purchase Agreement, a registration
      statement registering a portion of the shares issuable upon conversion of the
      Notes and the Series A and Series B Warrants, and a portion of the shares issued
      in the Private Placement closed December 29, 2006. We failed to file the
      registration statement in accordance with the 120-day filing period, which
      constituted a default under the Amended and Restated Registration Rights
      Agreement in relation to the Notes and Warrants. As a result, we are obligated
      to pay the investors liquidated damages in cash equal to 2% of the investors’
initial investment in the Company for each 30-day delay in filing, up to 20%
      of
      such investment in the aggregate. We have recognized a liability of $918,000
      on
      our books in December 2007 to provide for the liquidated damages accrued as
      of
      such date. Although we have received some requests for partial payment of the
      liquidated damages accrued, we have not made any cash payments of liquidated
      damages. The payment of these liquidated damages in cash will have an adverse
      effect on our cash position. If we were to pay these liquidated damages with
      shares of our common stock or other equity securities, this will have a dilutive
      effect and may have an adverse effect on the market price of our common stock
      by
      creating an excessive supply.





**Item
      4.**   **Submission
      of Matters to a Vote of Security Holders.**





On
      March
      31, 2007, our board of directors unanimously: approved an amendment and
      restatement of our Articles of Incorporation to authorize the issuance of
      preferred stock and an increase in the number of authorized shares of common
      stock (the “Articles Amendment”); approved the conversion of the Company from a
      State of Utah corporation to a State of Delaware corporation (the “Jurisdiction
      Conversion”); affirmed the continuation of Bu Shengfu, Xu Rujiang, Liang Zhu,
      Jin Yushan, and Chen Dong as directors of the converted entity and recommended
      seeking shareholder ratification of such continuing appointments (the “Director
      Ratification”); and adopted the Long-e 2007 Equity Incentive Plan (the “Equity
      Incentive Plan”). By action by written consent, dated April 4, 2007, the
      holders of 17,678,404 shares (56.55%) of our outstanding common stock approved
      the Articles Amendment, the Jurisdiction Conversion, the Director Ratification
      and the Equity Incentive Plan. As a result, adoption of the Articles Amendment,
      Jurisdiction, Director Ratification and the Equity Incentive Plan were approved
      and no further votes will be needed; however, these actions will not become
      effective until at least 20 days after we file a definitive information
      statement on Schedule 14C, promulgated under the Securities Exchange Act of
      1934
      and mail such information statement to our shareholders, plus we must make
      certain state filings. We filed a preliminary information statement on Schedule
      14C with the SEC on April 5, 2007, and intend to file a revised preliminary
      information statement on Schedule 14C in the near future. Thus, at this time,
      none of the actions described in this Item 4 are yet effective.




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




Not
      applicable.




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




(a)
      Exhibits.




**Exhibit**
              
              **Item**4.1
              
              Form
                  of Convertible Note issued to purchasers listed in Securities Purchase
                  Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by
                  reference
                  to Exhibit 4.1 in registrant’s Current Report on Form 8-K filed on January
                  31, 2007)4.2
              
              Form
                  of Series A Warrants issued to purchasers listed in Securities
                  Purchase
                  Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by
                  reference
                  to Exhibit 4.2 in registrant’s Current Report on Form 8-K filed on January
                  31, 2007)4.3
              
              Form
                  of Series B Warrants issued to purchasers listed in Securities
                  Purchase
                  Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by
                  reference
                  to Exhibit 4.2 in registrant’s Current Report on Form 8-K filed on January
                  31, 2007)
  37
  10.1
              
              Securities
                  Purchase Agreement dated January 25, 2007 (incorporated by reference
                  to
                  Exhibit 10.1 in registrant’s Current Report on Form 8-K filed on January
                  31, 2007)10.2
              
              Amended
                  and Restated Registration Rights Agreement dated January 25, 2007
                  (incorporated by reference to Exhibit 10.2 in registrant’s Current Report
                  on Form 8-K filed on January 31, 2007)10.3
              
              Escrow
                  Agreement dated January 17, 2007 (incorporated by reference to
                  Exhibit
                  10.3 in registrant’s Current Report on Form 8-K filed on January 31,
                  2007)10.4
              
              Amendment
                  No. 1 to Escrow Agreement dated January 17, 2007 (incorporated
                  by
                  reference to Exhibit 10.4 in registrant’s Current Report on Form 8-K filed
                  on January 31, 2007)10.5
              
              Lease
                  Agreement for Manufacturing and Office Space in Seaside Industrial
                  Zone,
                  Bao’an District, Shenzhen dated January 1, 2007 (translated) (incorporated
                  by reference to Exhibit 10.8 in registrant’s Form 10-KSB filed on October
                  16, 2007)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.


38


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





LONG-E
                INTERNATIONAL, INC.DateJanuary
                10 , 2008
            /s/
                Bu ShengfuBu
                Shengfu, President
              (Principal
                Executive Officer)DateJanuary
                10, 2008
            /s/
                Liang ZhuLiang
                Zhu, Chief Financial Officer (PrincipalFinancial and Accounting
                Officer)




39