UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549





FORM
10-Q/A


(Amendment
No. 1)





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


For the
quarterly period ended: September 30, 2009


or


 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from ______________ to ______________





Commission
File No. 333-120807





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC.


(Exact
name of Registrant as specified in its charter)





Nevada
            
            11-3718650(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer Identification No.)





10/F,
Wo Kee Hong Building


585-609
Castle Peak Road


Kwai Chung, N.T. Hong
Kong


(Address
of principal executive offices)





(852)
2954-2469


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.


Yes
 x  
No  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yeso  Noo





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





Large
      Accelerated Filero
                Accelerated
      Filer  o
                Non-Accelerated
      Filer  o
                Smaller
      Reporting Company  x(Do
      not check if a smaller reporting
company.)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
 o  
No  x





The
number of shares of Common Stock, $0.005 par value, outstanding as of the close
of business on November 9, 2009 was 23,323,860.





EXPLANATORY
NOTE





As used
in this Amendment No. 1 (the “Form 10-Q/A”) to our Quarterly Report on Form 10-Q
for the nine months ended September 30, 2009 (the “Third Quarter 2009 Form
10-Q”), the terms “we”, “us”, “our” and the “Company” mean China Premium
Lifestyle Enterprise, Inc., a Nevada corporation, and our consolidated
subsidiaries, taken together as a whole.




On April
20, 2010, our management initially concluded that our consolidated audited
financial statements for the years ended December 31, 2008, 2007 and 2006 and
our consolidated unaudited interim financial statements for the periods ended
March 31, 2006 through September 30, 2009 needed to be restated and should not
be relied upon.  Upon further analysis, on May 14, 2010, our
management concluded that reliance on our unaudited interim financial statements
for the period ended March 31, 2006 should not be withdrawn and that no
restatements should be made to our unaudited interim financial statements for
the period ended March 31, 2006.  However, our management concluded
that certain Notes to our unaudited interim financial statements included in the
quarterly report on Form 10-QSB for the period ended March 31, 2006 needed to be
amended.  In addition, our management concluded that certain Notes to
our audited financial statements included in the annual report on Form 10-KSB
for our former fiscal year ended June 30, 2006 also needed to be
amended.




This Form
10-Q/A to our Third Quarter 2009 Form 10-Q is being filed with the Securities
and Exchange Commission (the “SEC”) to amend and restate our consolidated
unaudited interim financial statements as of September 30, 2009 and for the
three and nine months ended September 30, 2009 and 2008.




In
addition, we will file Reports on Form 10-K/A for prior periods to amend and
restate our consolidated audited financial statements for the annual periods in
fiscal years ended December 31, 2008, 2007 and 2006 and Reports on Form 10-Q/A
to amend and restate our consolidated unaudited financial statements for the
quarterly periods ended September 30, 2006 through September 30,
2009.  We will also file a Report on Form 10-K/A to amend certain
Notes to our audited financial statements for the annual period in our former
fiscal year ended June 30, 2006 and a Report on Form 10-Q/A to amend certain
Notes to our unaudited interim financial statements for the quarterly period
ended March 31, 2006.




The
common stock numbers in this Explanatory Note give effect to a one-for-five
reverse stock split (the “Reverse Stock Split”) of our common stock, par value
$0.005 per share, effective on December 7, 2007.




Background




In
September 2006, we closed the transactions contemplated by that certain Share
Exchange Agreement, dated July 15, 2006, by and among us, Fred De Luca, Corich
Enterprises, Inc., a British Virgin Islands corporation, Herbert Adamczyk and
Technorient Limited, a Hong Kong corporation (the “Share Exchange
Agreement”).  Pursuant to the terms of the Share Exchange Agreement,
we issued an aggregate of 972,728 shares (the “Exchange Shares”) of Series A
Convertible Preferred Stock in exchange for shares of the capital stock of
Technorient.




In
connection with the Share Exchange Agreement and prior to its closing, we
entered into a consulting agreement dated July 15, 2006 with Happy Emerald Ltd.
(“HEL”) pursuant to which we issued to HEL 561,245 shares (the “HEL Shares”) of
Series A Convertible Preferred Stock in exchange for certain future services to
be performed by HEL after the closing of the Share Exchange
Agreement.




In
January 2007, we authorized the delivery of 65,454 shares (the “Bern Noble
Shares”) of the HEL Shares to Bern Noble, Ltd. (“Bern Noble”) for consulting
services rendered by Bern Noble to us in connection with the Share Exchange
Agreement.  In March 2007, Bern Noble converted the Bern Noble Shares
into 1,210,631 shares of common stock.


i


The
following actions were also taken:




·
            on
      April 7, 2006, prior management filed an amendment to our Articles of
      Incorporation purporting to create a class of 100,000,000 shares of “blank
      check” preferred stock (the “Preferred Stock
  Amendment”);




·
            on
      August 16, 2006, prior management filed an amendment to our Articles of
      Incorporation purporting to designate 2,000,000 shares of the “blank
      check” preferred stock as “Series A Convertible Preferred Stock” (the
      “Certificate of Designation”); and




·
            on
      December 18, 2006, we filed an amendment to our Articles of Incorporation
      purporting to increase the number of shares of authorized common stock
      from 100,000,000 shares to 400,000,000 shares (the “Common Stock
      Amendment”).




On
December 19, 2008, we filed an action in the United States District Court for
the Central District of California (the “Federal Court Action”), for fraud,
breach of fiduciary duty, breach of contract and conversion against HEL, certain
members of our prior management, including Fred De Luca, Charles Miseroy, Robert
G. Pautsch and Federico Cabo, and certain other defendants.  In the
Federal Court Action, we alleged that:




·
            HEL
      had never performed any services under the consulting agreement;
      and




·
            the
      defendants, including the members of prior management, had (1)
      fraudulently obtained certificates for 495,596 shares of the Series A
      Convertible Preferred Stock, (2) improperly attempted to transfer the
      shares among themselves and their affiliates, (3) improperly converted
      247,798 of the shares into 4,569,619 shares of common stock, and (4)
      sought to have the restrictive legend removed from the resulting shares of
      common stock.




During
the pendency of the Federal Court Action, our legal advisors discovered that the
Preferred Stock Amendment, the Certificate of Designation and the Common Stock
Amendment had not been properly
authorized.  Specifically:




·
            each
      of the Preferred Stock Amendment and the Common Stock Amendment was
      approved only by the written consent of a majority of our
      then-stockholders, whereas our By-Laws required such written consent to be
      approved unanimously; and




·
            at
      the time of the filing of the Certificate of Designation with the Nevada
      Secretary of State, the Articles of Incorporation did not authorize the
      Board of Directors to designate the rights, preferences and privileges of
      any “blank check” preferred stock.




We were
advised that the Preferred Stock Amendment, the Certificate of Designation and
the Common Stock Amendment were invalid and of no force and
effect.  Further, we were advised that we were never authorized to
issue any shares of any class or series of preferred stock, including the
Exchange Shares, the Bern Noble Shares and the HEL Shares, and that any shares
of common stock underlying such shares would also not have been
authorized.  In addition, we were advised that we were never
authorized to issue any shares of common stock in excess of 100,000,000
shares.




Upon
learning of the invalidity of the Preferred Stock Amendment, the Certificate of
Designation and the Common Stock Amendment:




·
            current
      management took action to correct any potential defect in the transactions
      contemplated to acquire the shares of Technorient under the Share Exchange
      Agreement.  On May 5, 2009, we entered into a reformation
      (“Reformation”) of the Share Exchange Agreement pursuant to which the
      parties agreed that the 17,937,977 shares of common stock (on a
      post-Reverse Stock Split basis) underlying the Exchange Shares were agreed
      to have been issued in lieu of the Exchange Shares
      themselves.  Pursuant to the Reformation, the parties agreed
      that an aggregate of 14,400,000 shares of our common stock (on a
      post-Reverse Stock Split basis) were deemed to have been issued on the
      closing date of the Share Exchange Agreement, and that upon the
      effectiveness of and giving effect to the Reverse Stock Split on December
      7, 2007, an aggregate of an additional 3,537,977 shares of common stock
      were deemed to have been issued;
and


ii




·
            we
      amended our complaint in the Federal Court Action to allege that all of
      the disputed shares (the HEL Shares and, derivatively, the Bern Noble
      Shares), were void and subject to cancellation.  Because of the
      uncertainty of the outcome of the Federal Court Action, however, we
      determined not to make any changes with respect to such shares on our
      financial statements until the pending litigation was finally resolved
      through a judgment in or settlement of the Federal Court
      Action.




On March
1, 2010, we settled the Federal Court Action.  Under the terms of the
settlement, the defendants agreed to return to us for cancellation all of the
disputed shares, including 247,798 shares of the Series A Convertible Preferred
Stock and 4,569,619 shares of common stock.




Further,
in connection with the settlement, Bern Noble agreed to return to us for
cancellation the 1,210,631 shares of common stock that had originally been
derived from the HEL Shares.  We also agreed to replace the Bern Noble
Shares with an equal number of new shares of common stock in consideration of
services rendered to us in 2006 in connection with the closing of the Share
Exchange Agreement.  We agreed to deliver the replacement shares in
nine monthly installments.




Restatements




We have
restated certain items on our consolidated balance sheets, consolidated
statements of operations and consolidated statements of stockholders’ equity and
comprehensive income (loss), based on the following:




·
            our
      determination that we were never authorized to issue any shares of any
      class or series of preferred stock, including the Exchange Shares, the
      Bern Noble Shares and the HEL
Shares;




·
            our
      determination that the Preferred Stock Amendment, the Certificate of
      Designation designating the Series A Convertible Preferred Stock and the
      Common Stock Amendment were invalid and of no force and
      effect;




·
            the
      issuance of shares of common stock in connection with the
      Reformation;




·
            the
      cancellation and reissuance of the shares of common stock converted from
      the Bern Noble Shares (including the recognition of the receipt of the
      services performed by Bern Noble in 2006);
and




·
            the
      settlement of the Federal Court
Action.




The
following describes the restatements to the Company’s condensed consolidated
financial statements:




·
            on
      the condensed consolidated balance sheets, at September 30, 2009 and
      December 31, 2008, prepayments decreased by $1,468,930 to reflect the
      return for cancellation of the disputed shares of preferred stock and
      common stock in connection with the settlement of the Federal Court
      Action.  Accordingly, at September 30, 2009 and December 31,
      2008, preferred stock decreased by $248, common stock
      decreased by $28,902, additional paid-in-capital decreased by
      $1,439,780 and stockholders’ equity decreased by $1,468,930. Further,
      all references to an authorized class or series of preferred stock and any
      issued and outstanding shares of preferred stock have been deleted from
      the restated balance sheets at September 30, 2009 and December 31,
      2008;


iii




·
            on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2009, basic and diluted loss per share
      increased by $0.0155, for the nine months ended September 30, 2009,
      basic and diluted loss per share increased by $0.0355, for the three
      months ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0033 and $0.0051, respectively, and for the nine months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0037 and $0.0065, respectively;
  and




·
            for
      the three and nine months ended September 30, 2009, the basic and diluted
      weighted average number of outstanding shares decreased by 5,780,250, for
      the three months ended September 30, 2008, the basic and diluted weighted
      average number of outstanding shares decreased by 5,780,250 and
      10,349,869, respectively, and for the nine months ended September 30,
      2008, the basic and diluted weighted average number of outstanding shares
      decreased by 4,396,022 and 8,965,641,
  respectively.




The
restatements had no impact on the Company’s cash or cash flows.




Scope of This Form
10-Q/A




This Form
10-Q/A sets forth the Third Quarter 2009 Form 10-Q in its
entirety.  The following Items contain amended disclosures relating to
the restatements:




·
            Part
      I, Item 1. Financial Statements;




·
            Part
      I, Item. 2. Management’s Discussion and Analysis of Financial Condition
      and Results of Operation, under the headings “Restatements” and
      “Working Capital
      Requirements;”




·
            Part
      I, Item 4T. Controls and
Procedures;




·
            Part
      II, Item 1. Legal Proceedings; and




·
            Part
      II, Item 6. Exhibits (to contain the currently-dated certifications from
      our principal executive officer and principal financial officer, as
      required by Sections 302 and 906 of the Sarbanes-Oxley Act of
      2002).




Other
than the amendments to the disclosures in the Items listed above, no other
material modifications or updates have been made to the Third Quarter 2009 Form
10-Q.  Information not affected by the Items listed above remains
unchanged and reflects the disclosures made at the time of, and as of the dates
described in, the Third Quarter 2009 Form 10-Q.  Further, other than
the amendments to the disclosures in the Items listed above, this Form 10-Q/A
does not describe events occurring after the Third Quarter 2009 Form 10-Q
(including with respect to exhibits), or modify or update disclosures (including
forward-looking statements) which may have been affected by events or changes in
facts occurring after the date of the Third Quarter 2009 Form
10-Q.  Accordingly, this Form 10-Q/A should be read in its historical
context and in conjunction with our filings made with the SEC subsequent to the
filing of the Third Quarter 2009 Form 10-Q, as information in such filings may
update or supersede certain information contained in this Form
10-Q/A.


iv


CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC.




FORM
10-Q/A




FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009




TABLE
OF CONTENTS




PART
      I. FINANCIAL INFORMATION
                                              1Item
      1.
                                              Financial
      Statements.
                                              2Item
      2.
                                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                                              28Item
      3.
                                              Quantitative
      and Qualitative Disclosures about Market Risk.
                                              35Item
      4T.
                                              Controls
      and Procedures.
                                              35PART
      II. OTHER INFORMATION
                                              38Item
      1.
                                              Legal
      Proceedings.
                                              38Item
      1A.
                                              Risk
      Factors.
                                              39Item
      5.
                                              Other
      Information.
                                              39Item
      6.
                                              Exhibits.
                                              39SIGNATURES
                                              41


1


PART
I. FINANCIAL INFORMATION




Item
1.  Financial Statements.




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(Restated)
                      (Unaudited)
                    
                    
                    (Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    3,326,567
                    
                    
                    $
                    5,827,132Restricted
      cash
                    
                    
                    4,402,254
                    
                    
                    
                    4,427,439Trade
      receivables, net of provision
                    
                    
                    1,491,602
                    
                    
                    
                    11,761,228Inventory,
      net
                    
                    
                    20,632,335
                    
                    
                    
                    12,670,567Prepayments
                    
                    
                    385,333
                    
                    
                    
                    483,952Other
      current assets
                    
                    
                    4,130,960
                    
                    
                    
                    6,419,106Amounts
      due from affiliates
                    
                    
                    12,569,307
                    
                    
                    
                    11,147,103Total
      current assets
                    
                    
                    46,938,358
                    
                    
                    
                    52,736,527Property
      and equipment, net
                    
                    
                    4,603,368
                    
                    
                    
                    2,905,927Goodwill
                    
                    
                    39,730
                    
                    
                    
                    39,734TOTAL
      ASSETS
                    
                    $
                    51,581,456
                    
                    
                    $
                    55,682,188LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                    
                    $
                    8,867,915
                    
                    
                    $
                    9,935,435Bills
      payable
                    
                    
                    926,204
                    
                    
                    
                    1,333,502Trade
      payables
                    
                    
                    4,808,119
                    
                    
                    
                    3,795,196Deposits
      received
                    
                    
                    23,863,770
                    
                    
                    
                    19,887,368Other
      current liabilities
                    
                    
                    2,305,995
                    
                    
                    
                    7,405,454Amounts
      due to affiliates
                    
                    
                    4,677,172
                    
                    
                    
                    2,433,340Total
      current liabilities
                    
                    
                    45,449,175
                    
                    
                    
                    44,790,295Long-term
      borrowing
                    
                    
                    1,060,091
                    
                    
                    
                    -TOTAL
      LIABILITIES
                    
                    
                    46,509,266
                    
                    
                    
                    44,790,295Commitments
      and ContingenciesStockholders’
      equityCommon
      stockAuthorized:
      100,000,000 common stock, par value $0.005
                      Issued
      and outstanding: 23,323,860 shares as at September 30, 2009;
                      (23,323,860
      shares as at December 31, 2008)
                    
                    
                    116,619
                    
                    
                    
                    116,619Additional
      paid-in-capital
                    
                    
                    4,119,108
                    
                    
                    
                    4,119,108Accumulated
      other comprehensive income
                    
                    
                    286,220
                    
                    
                    
                    247,279Accumulated
      deficit
                    
                    
                    (4,866,598
                    )
                    
                    
                    (695,446
                    )TOTAL
      CHINA PREMIUM LIFESTYLE ENTERPRISE, INC. STOCKHOLDERS’
      EQUITY
                    
                    
                    (344,651)
                    
                    
                    
                    3,787,560Noncontrolling
      interests
                    
                    
                    5,416,841
                    
                    
                    
                    7,104,333TOTAL
      EQUITY
                    
                    
                    5,072,190
                    
                    
                    
                    10,891,893TOTAL
      LIABILITIES AND EQUITY
                    
                    $
                    51,581,456
                    
                    
                    $
                    55,682,188





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


2


CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


Three
      months ended
                    September
      30,
                  
                  
                  Nine
      months ended
                    September
      30,2009
                    (Restated)
                  
                  
                  2008
                    (Restated)
                  
                  
                  2009
                    (Restated)
                  
                  
                  2008
                    (Restated)Sales:New
      and used vehicles
                  
                  $
                  27,391,199
                  
                  
                  $
                  31,321,200
                  
                  
                  $
                  77,216,005
                  
                  
                  $
                  80,800,209Parts
      and services and others
                  
                  
                  2,442,121
                  
                  
                  
                  1,777,790
                  
                  
                  
                  5,411,561
                  
                  
                  
                  4,622,351Fashion
      apparel and accessories
                  
                  
                  299,423
                  
                  
                  
                  263,161
                  
                  
                  
                  1,181,328
                  
                  
                  
                  634,348Net
      sales
                  
                  
                  30,132,743
                  
                  
                  
                  33,362,151
                  
                  
                  
                  83,808,894
                  
                  
                  
                  86,056,908Cost
      of sales:New
      and used vehicles
                  
                  
                  (25,908,646
                  )
                  
                  
                  (27,544,207
                  )
                  
                  
                  (71,827,037
                  )
                  
                  
                  (70,604,162
                  )Parts
      and services and others
                  
                  
                  (612,026
                  )
                  
                  
                  (352,910
                  )
                  
                  
                  (1,112,490
                  )
                  
                  
                  (1,081,542
                  )Fashion
      apparel and accessories
                  
                  
                  (457,918
                  )
                  
                  
                  (159,212
                  )
                  
                  
                  (1,580,999
                  )
                  
                  
                  (403,240
                  )Total
      cost of sales
                  
                  
                  (26,978,590
                  )
                  
                  
                  (28,056,329
                  )
                  
                  
                  (74,520,526
                  )
                  
                  
                  (72,088,944
                  )Gross
      profit:New
      and used vehicles
                  
                  
                  1,482,553
                  
                  
                  
                  3,776,993
                  
                  
                  
                  5,388,968
                  
                  
                  
                  10,196,047Parts
      and services and others
                  
                  
                  1,830,095
                  
                  
                  
                  1,424,880
                  
                  
                  
                  4,299,071
                  
                  
                  
                  3,540,809Fashion
      apparel and accessories
                  
                  
                  (158,495
                  )
                  
                  
                  103,949
                  
                  
                  
                  (399,671
                  )
                  
                  
                  231,108Total
      gross profit
                  
                  
                  3,154,153
                  
                  
                  
                  5,305,822
                  
                  
                  
                  9,288,368
                  
                  
                  
                  13,967,964Selling,
      general and administrative expenses
                  
                  
                  (5,516,916
                  )
                  
                  
                  (4,301,541
                  )
                  
                  
                  (15,342,119
                  )
                  
                  
                  (12,544,791
                  )Operating
      (loss) / earnings
                  
                  
                  (2,362,763
                  )
                  
                  
                  1,004,281
                  
                  
                  
                  (6,053,751
                  )
                  
                  
                  1,423,173Other
      income (expenses)Interest
      expenses and other finance costs
                  
                  
                  (218,630
                  )
                  
                  
                  (150,640
                  )
                  
                  
                  (623,771
                  )
                  
                  
                  (411,360
                  )Other
      income
                  
                  
                  35,391
                  
                  
                  
                  327,101
                  
                  
                  
                  805,446
                  
                  
                  
                  1,332,403Total
      other income (expenses)
                  
                  
                  (183,239
                  )
                  
                  
                  176,461
                  
                  
                  
                  181,675
                  
                  
                  
                  921,043(Loss)
      / earnings  before income taxes
                  
                  
                  (2,546,002
                  )
                  
                  
                  1,180,742
                  
                  
                  
                  (5,872,076
                  )
                  
                  
                  2,344,216Provision
      for income taxes
                  
                  
                  (41
                  )
                  
                  
                  -
                  
                  
                  
                  (30,295
                  )
                  
                  
                  -Net
      (loss) / earnings including noncontrolling interests
                  
                  
                  (2,546,043
                  )
                  
                  
                  1,180,742
                  
                  
                  
                  (5,902,371
                  )
                  
                  
                  2,344,216Net
      (loss) / earnings  attributable to:China
      Premium Lifestyle Enterprise, Inc. common
stockholders
                  
                  
                  (1,826,728
                  )
                  
                  
                  383,784
                  
                  
                  
                  (4,171,152
                  )
                  
                  
                  544,855Noncontrolling
      interests
                  
                  
                  (719,315
                  )
                  
                  
                  796,958
                  
                  
                  
                  (1,731,219
                  )
                  
                  
                  1,799,361(2,546,043
                  )
                  
                  
                  1,180,742
                  
                  
                  $
                  (5,902,371
                  )
                  
                  $
                  2,344,216(Loss)
      / earnings per common stock attributable to China Premium Lifestyle
      Enterprise, Inc. common stockholdersBasic
                  
                  $
                  (0.0783
                  )
                  
                  $
                  0.0165
                  
                  
                  $
                  (0.1788
                  )
                  
                  $
                  0.0234Diluted
                  
                  $
                  (0.0783
                  )
                  
                  $
                  0.0165
                  
                  
                  $
                  (0.1788
                  )
                  
                  $
                  0.0234Weighted
      average number of common stock outstandingBasic
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860Diluted
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860
                  
                  
                  
                  23,323,860





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


3


CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Nine
      months ended
                      September
      30,2009
                    
                    
                    2008Operating
      activities:Net
      (loss) / earnings including noncontrolling interests
                    
                    $
                    (5,902,371
                    )
                    
                    $
                    2,344,216Adjustments
      to reconcile net (loss) / earnings to net cash provided by operating 
      activitiesDepreciation
      and amortization
                    
                    
                    896,904
                    
                    
                    
                    604,420Disposal
      of property and equipment
                    
                    
                    202,766
                    
                    
                    
                    (130,130
                    )Provision
      for bad debts written back
                    
                    
                    (25,346
                    )
                    
                    
                    (26,144
                    )Provision
      for inventory
                    
                    
                    29,978
                    
                    
                    
                    -Other
      non-cash items
                    
                    
                    74,004
                    
                    
                    
                    51,961Changes
      in operating assets and liabilities:Trade
      receivables
                    
                    
                    10,294,972
                    
                    
                    
                    8,039,925Other
      current assets and prepayments
                    
                    
                    2,386,765
                    
                    
                    
                    (4,044,996
                    )Inventory
                    
                    
                    (7,991,746
                    )
                    
                    
                    (6,924,087
                    )Trade
      payables
                    
                    
                    1,012,923
                    
                    
                    
                    2,498,971Other
      current liabilities and deposits received
                    
                    
                    (1,074,371
                    )
                    
                    
                    (331,106
                    )Net
      cash (used in)/provided by operating activities
                    
                    
                    (95,522
                    )
                    
                    
                    2,083,030Investing
      activities:Purchases
      of property and equipment
                    
                    
                    (2,802,636
                    )
                    
                    
                    (579,434
                    )Proceeds
      from disposal of property and equipment
                    
                    
                    14,193
                    
                    
                    
                    332,170Decrease
      in restricted cash
                    
                    
                    25,185
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (2,763,258
                    )
                    
                    
                    (247,264
                    )Financing
      activities:Advances
      from affiliates
                    
                    
                    772,942
                    
                    
                    
                    810,440Decrease
      in borrowings and bills payable
                    
                    
                    (414,727
                    )
                    
                    
                    (547,070
                    )Net
      cash provided by financing activities
                    
                    
                    358,215
                    
                    
                    
                    263,370(Decrease)
      / increase in cash and cash equivalents
                    
                    
                    (2,500,565
                    )
                    
                    
                    2,099,136Cash
      and cash equivalents at beginning of the period
                    
                    
                    5,827,132
                    
                    
                    
                    6,583,566Cash
      and cash equivalents at end of the period
                    
                    $
                    3,326,567
                    
                    
                    $
                    8,682,702Supplemental
      disclosure of cash flows information:Cash
      paid for:Interest
                    
                    $
                    623,771
                    
                    
                    $
                    411,360Income
      taxes
                    
                    
                    30,295
                    
                    
                    
                    -





The
accompanying notes are an integral part of these condensed consolidated
financial statements.







4





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




NOTE
1.  SUMMARY OF PRINCIPAL ACCOUNTING POLICIES




Basis
of presentation




The
condensed consolidated financial statements include the accounts of China
Premium Lifestyle Enterprise, Inc. (the “Company”) and its subsidiaries. The
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“US GAAP”). All significant intercompany transactions and balances have been
eliminated.  The accompanying condensed consolidated financial
statements have been restated as described in Note 14.




The
condensed consolidated financial statements are unaudited and, in our opinion,
include all adjustments, consisting of normal recurring adjustments and accruals
necessary for a fair representation of our condensed consolidated balance
sheets, operating results, and cash flows for the periods presented. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for all of 2009 or in future periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with US GAAP have been condensed or omitted in accordance with the
rules and regulations of the Securities and Exchange Commission (the “SEC”). The
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and accompanying notes included in
the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year
ended December 31, 2008.




Use
of estimates




The
preparation of the condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the reported
amounts of revenue and expenses during the reporting periods. Management makes
its best estimate of the outcome for these items based on historical trends and
other information available when the condensed consolidated financial statements
are prepared. Changes in estimates are recognized in accordance with the
accounting principles for the estimate, which is typically in the period when
new information becomes available to management. Management believes the most
significant estimates affecting the condensed consolidated financial statements
include provision for bad debts, provision for inventory write-off, and
accounting for income taxes. Actual results could differ from those
estimates.




Earnings
(loss) per share




Basic
earnings (loss) per share is computed by dividing net operating results for the
reporting period attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is calculated by dividing net operating results for the reporting
period attributable to common stockholders by the weighted average number of
shares of common stock outstanding and the dilutive effect of common stock
equivalents. The computation of diluted loss per share does not assume the
dilutive effect of common stock equivalents as the effect of the common stock
equivalents is antidilutive.




Segment
reporting




The
Company determines and classifies its operating segments in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM
(“ASC”) 280 Segment
Reporting.  The Company identifies and classifies its operating
segments based on the nature of the products and services with similar economic
characteristics.  The Company’s reportable segments are (1) motor
vehicles retailing, which includes sales of new and used vehicles, provision of
vehicle maintenance and repair services and sales of vehicle parts, and (2)
fashion apparel retailing, which includes sales of fashion apparel and
accessories.




Fair
value of financial instruments




The
carrying amounts of the Company’s financial instruments including cash and cash
equivalents approximate fair value due to their high liquidity in actively
quoted trading markets and their short maturities. The Company’s trade
receivables, trade payables, and accrued liabilities approximate fair value due
to their short maturities. The carrying amount of the short-term borrowings
approximate fair value as these borrowings bear interest at a variable rate tied
to the current market, and have terms similar to other borrowing arrangements
available to the Company.


5
  ASC 820
Fair Value Measurements and
Disclosures (“ASC 820”) defines fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required to
be recorded at fair value, the Company considers the principal or most
advantageous market in which the Company would transact and considers
assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of
nonperformance. ASC 820 establishes a valuation hierarchy for disclosure of the
inputs to valuation used to measure fair value. This hierarchy prioritizes the
inputs into three broad levels as follows:
  ·
              Level
      1: quoted prices (unadjusted) in active markets for identical assets or
      liabilities;
  ·
              Level
      2: inputs other than quoted prices included within Level 1 that are either
      directly or indirectly observable;
and
  ·
              Level
      3: unobservable inputs in which little or no market activity exists,
      therefore requiring an entity to develop its own assumptions about the
      assumptions that market participants would use in
  pricing.
  The
classification of a financial asset or liability within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement. The carrying amounts of the Company’s financial instruments,
including cash and cash equivalents, approximate fair value due to their high
liquidity in actively quoted trading markets and their short
maturities.
  Reclassifications
  Certain
financial statement line items have been reclassified to conform to the current
period presentation and have no impact on the previously reported consolidated
net sales, operating results, or net financial position.
  NOTE
2.  CONCENTRATION OF RISK
  Concentration
of supplier risk
  The
Company relies on supplies from numerous vendors. For the nine months ended
September 30, 2009 and 2008, the Company had two vendors that each accounted for
more than 10% of total supply purchases. If either of these vendors terminates
their relationship with the Company or if the Company’s supply from these
vendors is interrupted or terminated for any reason, the Company may
not have sufficient time to replace the supply of products from the remaining
vendors or other vendors to be engaged.  Any such interruption would
negatively impact the Company’s ability to sell and
distribute its products. However, the suppliers’ concentration of credit
risk does not affect the concentration of credit risk with respect to trade
payables as the Company makes the purchases through facilities provided by banks
and financial institutions.
  Concentration
of risk due to geographic location
  The
Company’s business, assets and operations are currently focused on the sales of
new and used vehicles, provision of vehicle maintenance and repair services, and
sales of vehicle parts in Hong Kong, and has recently expanded its operations to
the People’s Republic of China (“PRC”).  Accordingly, the Company’s
business is affected to a significant degree by economic, political and legal
developments in Hong Kong and PRC.  Among other factors, the Company’s
business may be affected by changes in laws and regulations, anti-inflationary
measures, currency conversion and remittances abroad, and rates and method of
taxation, among other factors.
  NOTE
3.  RECENT ACCOUNTING PRONOUNCEMENTS
  (a)       Recent
accounting pronouncements adopted
  In
June 2009, the FASB issued a standard that established the FASB ASC and
amended the hierarchy of generally accepted accounting principles (GAAP) such
that the ASC became the single source of authoritative nongovernmental U.S.
GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify
user access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All previously existing
accounting standard documents were superseded and all other accounting
literature not included in the ASC is considered non-authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by
the FASB through Accounting Standards Updates (“ASUs”). For the Company, the ASC
was effective July 1, 2009. This standard did not have an impact on the
Company’s consolidated results of operations or financial condition. However,
throughout the notes to the condensed consolidated financial statements
references that were previously made to various former authoritative U.S. GAAP
pronouncements have been changed to coincide with the appropriate section of the
ASC.
 6
  In
September 2006, the FASB issued an accounting standard codified in ASC 820,
which provides guidance about how to measure assets and liabilities that use
fair value. ASC 820 apply whenever another US GAAP standard requires (or
permits) assets or liabilities to be measured at fair value but does not expand
the use of fair value to any new circumstances. This standard also requires
additional disclosures in both annual and quarterly reports. ASC 820 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued amendments which state that
ASC 820 does not address fair value measurements for purposes of lease
classification or measurement and delay the effective date for non-financial
assets and non-financial liabilities to fiscal years beginning after
November 15, 2008, except for items that are measured at fair value in the
financial statements on a recurring basis (at least annually). The Company
adopted the provisions of ASC 820 for its financial assets and liabilities and
those items for which it has measured on a recurring basis effective
January 1, 2008, and the adoption did not have a material impact on its
financial position and results of operations. The Company adopted ASC 820 for
certain of its non-financial assets and liabilities on January 1, 2009 and the
adoption did not have a material impact on its financial position, cash flows
and results of operations.
  In
December 2007, the FASB issued a new business combinations standard codified
within ASC 805 Business
Combinations(“ASC 805”).  ASC 805 establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired.  ASC 805 also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business
combination.  The Company adopted ASC 805 on January 1, 2009 and the
adoption did not have a material impact on its financial position, cash flows
and results of operations.
  In
December 2007, the FASB issued a new standard which established the accounting
for and reporting of noncontrolling interests in partially owned consolidated
subsidiaries and the loss of control of subsidiaries codified within ASC 810
Consolidation(“ASC
810”).  ASC 810 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated.  ASC 810 also establishes disclosure requirements that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners.  Upon adoption of ASC 810 on
January 1, 2009, the Company reclassified its noncontrolling interest from
minority interest to equity in the accompanying September 30, 2009 and December
31, 2008 condensed consolidated balance sheets.  In addition, the
Company has separately disclosed the amount of consolidated net loss
attributable to the Company common stockholders and its noncontrolling interest
in the accompanying September 30, 2009 and 2008 condensed consolidated
statements of operations.
  In March
2008, the FASB issued an accounting standard related to disclosures about
derivative instruments and hedging activities, codified in ASC 815 Derivatives and Hedging(“ASC
815”). ASC 815 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. ASC 815 achieves these improvements by
requiring disclosure of the fair values of derivative instruments and their
gains and losses in a tabular format. It also provides more information about an
entity’s liquidity by requiring disclosure of derivative features that are
credit risk-related. Finally, it requires cross-referencing within footnotes to
enable financial statement users to locate important information about
derivative instruments. The Company adopted ASC 815 on January 1, 2009 and the
adoption did not have a material impact on its financial position, cash flows
and results of operations.
  In
April 2009, the FASB issued an accounting standard regarding interim
disclosures about fair value of financial instruments to require disclosure
about fair value of financial instruments in interim financial statements. 
The Company adopted the standard during the interim period ended June 30, 2009
and the adoption did not have a material impact on its financial position, cash
flows and results of operations.
  In April
2009, the FASB issued an accounting standard which provides guidelines for
making fair value measurements more consistent with the principles presented in
ASC 820. The standard provides additional authoritative guidance in determining
whether a market is active or inactive, and whether a transaction is distressed,
is applicable to all assets and liabilities (i.e., financial and nonfinancial)
and will require enhanced disclosures. The Company adopted the standard during
the interim period ended June 30, 2009 and the adoption did not have a material
impact on its financial position, cash flows and results of
operations.
  7
  In May
2009, the FASB issued a new accounting standard regarding subsequent events
codified in ASC 855 Subsequent
Events(“ASC 855”). ASC 855 is intended to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. It
requires disclosure of the date through which an entity has evaluated subsequent
events and the basis for selecting that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. ASC 855 is effective for the Company’s second quarter ended
June 30, 2009.
  (b)       Recent
accounting pronouncements not yet effective
  In June
2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation
No. 46(R)”. Statement No. 167 amends FASB Interpretation No. 46 (“FIN
46”) (revised December 2003), “Consolidation of Variable Interest entities”
(“FIN 46R”) to require an analysis to determine whether a variable interest
gives the entity a controlling financial interest in a variable interest entity.
This statement requires an ongoing reassessment and eliminates the quantitative
approach previously required for determining whether an entity is the primary
beneficiary. Statement No. 167 is effective for the Company’s fiscal year
beginning January 1, 2010. The Company is currently evaluating the impact
that adopting this standard will have on its consolidated financial
statements.
  In June
2009, the FASB issued Statement No. 166, “Accounting for Transfers of
Financial Assets”. Statement No. 166 removes the concept of a qualifying
special-purpose entity from Statement No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities” and
removes the exception from applying FIN 46R. This statement also clarifies the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. Statement No. 166 is effective for the
Company’s fiscal year beginning January 1, 2010. The Company is currently
evaluating the impact that adopting this standard will have on its consolidated
financial statements.
  In
August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair
Value, which provides additional guidance on how companies should measure
liabilities at fair value under ASC 820. The ASU clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, a entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value measurements. For the Company, this ASU is
effective October 1, 2009. The Company is currently evaluating the impact
of this standard, but would not expect it to have a material impact on the
Company’s consolidated results of operations or financial
condition.
  Other
recent accounting pronouncements issued by the FASB, and the SEC did not or are
not believed by management to have a material impact on the Company’s present or
future financial statements.
 8
  NOTE
4.  (LOSS) / EARNINGS PER SHARE
  The
computation of basic and diluted loss per share is as follows for the three
months and nine months ended September 30:
  Three months ended
                          September 30,
                        
                        
                        Nine months ended
                          September 30,2009
                          (Restated)
                        
                        
                        2008
                          (Restated)
                        
                        
                        2009
                          (Restated)
                        
                        
                        2008
                          (Restated)Numerator:Net
      (loss)/earnings attributable to China Premium Lifestyle Enterprise, Inc.
      common stockholders
                        
                        $
                        (1,826,728
                        )
                        
                        $
                        383,784
                        
                        
                        $
                        (4,171,152
                        )
                        
                        $
                        544,855Denominator:Weighted
      average common stock outstanding
                        
                        
                        23,323,860
                        
                        
                        
                        23,323,860
                        
                        
                        
                        23,323,860
                        
                        
                        
                        23,323,860Basic
      net (loss)/earnings per share
                        
                        $
                        (0.0783
                        )
                        
                        $
                        0.0165
                        
                        
                        $
                        (0.1788
                        )
                        
                        $
                        0.0234Diluted
      net (loss)/earnings per share
                        
                        $
                        (0.0783
                        )
                        
                        $
                        0.0165
                        
                        
                        $
                        (0.1788
                        )
                        
                        $
                        0.0234
 
 NOTE
5.  INVENTORY, NET
  Inventory
by major categories are summarized as follows:
  September 30,
                          
                          
                          December 31,2009
                          
                          
                          2008New
      vehicles
                          
                          $
                          13,286,085
                          
                          
                          $
                          4,003,200Used
      vehicles
                          
                          
                          4,269,719
                          
                          
                          
                          4,837,562Fashion
      apparel
                          
                          
                          292,884
                          
                          
                          
                          1,716,163Parts,
      accessories and others
                          
                          
                          2,783,647
                          
                          
                          
                          2,113,642$
                          20,632,335
                          
                          
                          $
                          12,670,567
 
 Vehicles
included in inventory of approximately $3,576,792 and $1,541,204 were pledged to
secure the stocking loan and other loans outstanding as of September 30, 2009
and December 31, 2008, respectively (See Note 6).
  NOTE
6.  BORROWINGS
  The
Company’s borrowings are summarized as follows:
  September 30,
                          
                          
                          December 31,2009
                          
                          
                          2008Bank
      borrowings
                          
                          $
                          6,834,472
                          
                          
                          $
                          8,790,806Stocking
      loans
                          
                          
                          2,835,479
                          
                          
                          
                          1,144,629Other
      loans
                          
                          
                          258,055
                          
                          
                          
                          -9,928,006
                          
                          
                          
                          9,935,435Bank
      borrowings due after one year
                          
                          
                          (1,060,091
                          )
                          
                          
                          -Short-term
      borrowings
                          
                          $
                          8,867,915
                          
                          
                          $
                          9,935,435
 
 Vehicles
included in inventory of approximately $3,576,792 and $1,541,204 were pledged to
secure the stocking loan and other loan outstanding as of September 30, 2009 and
December 31, 2008, respectively.


9
  NOTE
7.  OTHER CURRENT LIABILITIES
  Other
current liabilities by major categories are summarized as follows:
  September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008Accruals
                    
                    $
                    782,494
                    
                    
                    $
                    1,687,143Other
      payables
                    
                    
                    1,523,501
                    
                    
                    
                    5,718,311$
                    2,305,995
                    
                    
                    $
                    7,405,454
 
 Other
payables mainly consist of first registration tax on motor vehicles sold. First
registration tax is applicable to new motor vehicles sold in Hong Kong and is
computed on a progressive rate based on the gross selling price of the new motor
vehicles.
  NOTE
8. STOCKHOLDERS’ EQUITY
  This Note
should be read in conjunction with Note 9.
  On May 5,
2009, the independent non-executive member of the Board of Directors of the
Company approved the reformation (“Reformation”) of that certain Share Exchange
Agreement, dated July 15, 2006, among the Company, Fred De Luca, Corich
Enterprises, Inc., a British Virgin Islands corporation (“Corich”), Herbert
Adamczyk (“Adamczyk” and, together with Corich, the “Sellers”) and Technorient
Limited, a Hong Kong corporation (“Technorient”) (the “Exchange Agreement”).
Under the Exchange Agreement, the Company agreed to issue the Sellers and Orient
Financial Services, Ltd. (“OFS”), as a designee of the Sellers, an aggregate of
972,728 shares of the Company’s purported Series A Convertible Preferred Stock
(the “Preferred Shares”) in exchange for the Sellers transferring of an
aggregate of 226,231 shares of the capital stock of Technorient to the Company.
Upon conversion, the purported Preferred Shares were to be convertible into
89,689,881 shares (the “Conversion Shares”) of the Company’s common stock, par
value $0.001 per share (the “Common Stock”).
  The
Company has determined that: (i) the amendment (the “Preferred Stock Amendment”)
to the Company’s Articles of Incorporation (the “Articles”), dated April 7,
2006, pursuant to which a class of “blank check” preferred stock was purportedly
created, is invalid and of no force or effect because, while Article II, Section
10 of the Company’s By-Laws requires that if the Company’s stockholders elect to
act by written consent they must do so unanimously, the Preferred Stock
Amendment was approved only by the written consent of a majority of the
Company’s stockholders, (ii) the Certificate of Designation (the “Certificate of
Designation”), dated August 16, 2006, purportedly designating 2,000,000 shares
of the Company’s purported “blank check” preferred stock as “Series A
Convertible Preferred Stock”, is invalid and of no force and effect because, at
the time of the filing of the Certificate of Designation, the Company’s Articles
did not authorize the Company’s Board of Directors to designate the rights,
preferences and privileges of the Company’s purported “blank check” preferred
stock, and (iii) the amendment (the “Common Stock Amendment”) to the Company’s
Articles, dated December 18, 2006, pursuant to which the Company purported to
increase the number of shares of authorized common stock from 100,000,000 shares
to 400,000,000 shares, is invalid and of no force or effect because, while
Article II, Section 10 of the Company’s By-Laws requires that if the Company’s
stockholders elect to act by written consent they must do so unanimously, the
Common Stock Amendment was approved only by the written consent of a majority of
the Company’s stockholders. As a result, the Company has determined that the
Company has never been authorized to issue any shares of any class or series of
preferred stock, including the Preferred Shares, and that the total number of
authorized shares of common stock of the Company is 100,000,000
shares.
  As a
result of the foregoing, the Company determined that the Company has never been
authorized to issue any shares of any class or series of preferred stock,
including the Preferred Shares.
  On
December 7, 2007, the Company effectuated a one-for-five reverse stock split
(the “Reverse Stock Split”) of the Company’s Common Stock. As a result of the
Reverse Stock Split, each outstanding share of the Company’s Common Stock, par
value $0.001 per share, was converted into 0.20 shares of Common Stock, par
value $0.005 per share.
  Taking
into account: (i) the number of authorized but unissued shares of Common Stock
of the Company as of the Closing Date of the Exchange Agreement and (ii) the
effect of the Reverse Stock Split, the Company, the Sellers, OFS and Technorient
agreed that the shares of Common Stock shall be deemed to have been issued to
the Sellers and OFS, as follows:
 10
  1.           Effective
as of the Closing Date of the Exchange Agreement, the Sellers and OFS are deemed
to have been issued an aggregate of 72,000,000 shares of the Company’s Common
Stock (in lieu of the Preferred Shares and any underlying Conversion Shares), on
a pre-Reverse Stock Split basis, as follows:
  ·
                54,000,000
      shares of Common Stock to Corich;
  ·
                12,240,000
      shares of Common Stock to Adamczyk;
and
  ·
                5,760,000
      shares of Common Stock to OFS.
  2.           Upon
the effectiveness of and giving effect to the Reverse Stock Split, the
72,000,000 shares of pre-Reverse Stock Split Common Stock deemed to have been
issued to the Sellers and OFS effective as of the Closing Date of the Exchange
Agreement are deemed adjusted to an aggregate of 14,400,000 shares, as
follows:
  ·
                Corich’s
      shares were reduced to 10,800,000 shares of Common
  Stock;
  ·
                Adamczyk’s
      shares were reduced to 2,448,000 shares of Common Stock;
    and
  ·
                OFS’
      shares were reduced to 1,152,000 shares of Common
  Stock.
  3.           Upon
the effectiveness of and giving effect to the Reverse Stock Split, the Sellers
and OFS are deemed to have been issued an aggregate of 3,537,977 additional
shares of the Company’s Common Stock, on a post-Reverse Stock Split basis, as
follows:
  ·
                2,611,569
      shares of Common Stock to Corich;
  ·
                636,665
      shares of Common Stock to Adamczyk;
and
  ·
                289,743
      shares of Common Stock to OFS.
  Thus, the
shares of pre-Reverse Stock Split Common Stock deemed issued to the Sellers and
OFS effective as of the Closing Date of the Exchange Agreement (72,000,000), as
adjusted by the Reverse Stock Split (14,400,000), plus the post-Reverse Stock
Split shares of Common Stock deemed issued to the Sellers and OFS upon the
effectiveness of the Reverse Stock Split (3,537,977), equals the total aggregate
number of post-Reverse Stock Split shares of Common Stock the Company agreed to
issue to the Sellers and OFS (17,937,977).
  The
Company’s total authorized capital at September 30, 2009 is 100,000,000 shares
of common stock, par value $0.005 per share.  At September 30, 2009,
23,323,860 shares of common stock were issued and outstanding.
 
 NOTE
9.  COMMITMENTS AND CONTINGENT LIABILITIES
  Litigation,
Claims and Assessments
  From time
to time the Company may be involved in various disputes and litigation matters
arising in the normal course of business. Except as set forth herein, it is the
Company’s belief that the resolution of these matters will not have a material
adverse effect on its financial position or results of operations, however,
management cannot provide assurance that damages that result in a material
adverse effect on its financial position or results of operations will not be
imposed in these matters.  The Company accounts for contingent
liabilities when it is probable that future expenditures will be made and such
expenditures can be reasonably estimated.
  On
December 19, 2008, the Company filed an action, styled China Premium Lifestyle Enterprise,
Inc. v. Happy Emerald Limited, et al., in the United States District
Court, Central District of California, Case No. SACV08-1439 (the “Federal Court
Action”), asserting claims for Securities Fraud, Breach of Contract, Fraud,
Conversion, Unjust Enrichment, Constructive Trust, Breach of Fiduciary Duty and
Declaratory Relief.  The Company named Happy Emerald Ltd., a purported
British Virgin Islands corporate entity (“HEL”), Global Premium Brands Co.,
Inc., a defunct California Corporation (“California Global”), Global Premium
Brands Co., Inc., a Nevada corporation (“Nevada Global”), Fred De Luca, Charles
Miseroy, Delia Rodriguez, Robert G. Pautsch, Richard Cabo and Federico Cabo as
defendants (collectively, the “Defendants”).
 11
  The
Company asserts in the Federal Court Action that the Defendants have acted in
concert to fraudulently obtain shares of the Company’s purported Series A
Convertible Preferred Stock (the “Disputed Preferred Shares”) and certain shares
of the Company’s common stock purportedly issued upon the conversion of certain
of the Disputed Preferred Shares (the “Disputed Conversion Shares” and together
with the Disputed Preferred Shares, the “Disputed Shares”) and, in some
instances, have breached their fiduciary duties to the Company relating to their
conducts involving the Disputed Preferred Shares.  The Company
authorized the issuance of the Disputed Preferred Shares as consideration for
certain future services to be performed by HEL under a July 15, 2006 Consultancy
Services Agreement.  HEL, however, as alleged in the Federal Court
Action, has not performed the required services and the Disputed Preferred
Shares have accordingly never been paid for.  The Company believes
that all of the Disputed Shares are subject to cancellation.  In the
Federal Court Action, the Company alleges that the Defendants have improperly
obtained certificates for the Disputed Preferred Shares, attempted to transfer
the Disputed Preferred Shares between themselves, and sought to have the
restrictive legend removed from a portion of the Disputed Conversion
Shares.  The Company is seeking a declaration of the
parties’ respective rights regarding the Disputed Shares as well as
injunctive relief and damages against the Defendants.
  On May 5,
2009, the Company filed its Second Amended Complaint in the Federal Court Action
(the “SAC”).  On June 25, 2009, the court issued its ruling on a
motion to dismiss the SAC filed by some of the Defendants named in the
SAC.  Following that ruling, the court found that the SAC sufficiently
stated claims for breach of contract, fraud, conversion and breach of fiduciary
duty.
  Certain
defendants in the Federal Court Action filed their First Amended Answer to the
SAC on August 17, 2009 (the “First Amended Answer”).  Of those
defendants, Federico G. Cabo, Fred De Luca and Nevada Global asserted a
Counterclaim against the Company, and others, for slander of title, conversion,
promissory estoppels and fraud relating to the Disputed
Shares.  Federico G. Cabo, Fred De Luca and Robert G. Pautsch also
asserted Crossclaims against certain other parties (that did not include the
Company).  The Company is scheduled to answer the First Amended
Counterclaim on or before November 9, 2009.  It is anticipated that
HEL and the Defendants will oppose the Company’s position with respect to the
Company’s claims.  The Company is unable to evaluate the likelihood of
an outcome, favorable or unfavorable, to the Company with respect to its claims
or Counterclaims at this time, or to estimate the amount or range of a possible
loss.
  As more
fully discussed in Note 8, the Company has determined that the Company has never
been authorized to issue any shares of any class or series of preferred stock,
including the Disputed Preferred Shares.  As a result, in addition to
its other claims against HEL and the Defendants, the Company has asserted in the
SAC that all of the Disputed Shares are void and subject to
cancellation.  The Company is seeking a declaration that all of the
Disputed Shares are void and subject to cancellation.  It is
anticipated that HEL and the Defendants will oppose the Company’s position with
respect to the validity of the Disputed Shares.  The Company is unable
to evaluate the likelihood of an outcome, favorable or unfavorable, to the
Company with respect to the validity of the Disputed Shares at this time, or to
estimate the amount or range of a possible loss.
  In a
related matter, the Company was named as a defendant in a state court action,
styled Federico G. Cabo, et
al. v. China Premium Lifestyle Enterprise, Inc., et al.,California
Superior Court, Ventura County, Case No. 56-2008-00333382-CU-BC-VTA (the “State
Court Action”).  The plaintiffs in the State Court Action (defendants
in the Federal Court Action) Federico Cabo, Fred De Luca, and Nevada Global,
asserted various claims against multiple defendants relating to the Preferred
Shares issued to HEL in which these plaintiffs claim an interest.  The
plaintiffs asserted claims for estoppels, slander of title, conversion and
constructive trust against the Company in the State Court Action.  By
agreement with the plaintiffs in the State Court Action, the State Court Action
was dismissed, without prejudice, and it is anticipated that the same or similar
claims will be asserted in the Federal Court Action.  The Company
denies any such alleged wrongdoing and will vigorously defend these claims if
they are asserted in the Federal Court Action.  The Company, however,
is unable to evaluate the likelihood of an outcome, favorable or
unfavorable, to the Company at this time or to estimate the amount or range of a
possible loss.
  Effective
March 1, 2010, the Company settled the Federal Court Action.  Under
the terms of the settlement: (1) the defendants agreed to return to the Company
for cancellation 247,798 shares of preferred stock and 4,569,619 shares of
common stock; (2) Mr. De Luca resigned from the Company’s board of directors
effective March 1, 2010; (3) the parties executed a mutual release; and (4) the
Company dismissed the action with prejudice.
  In
December 2006, the Company had delivered 65,454 shares of preferred stock to
Bern Noble, Ltd. (“Bern Noble”) for consulting services rendered in connection
with the Exchange.  In March 2007, Bern Noble converted such shares
into 1,210,631 shares of common stock.  As discussed in the
Explanatory Note at the beginning of this Report and as previously disclosed in
the Company’s Current Report on Form 8-K, as filed with the SEC on May 11, 2009,
the Company later determined that it was never authorized to issue any shares of
preferred stock.  In connection with the settlement, Bern Noble agreed
to return to us for cancellation the 1,210,631 shares of common
stock.  We also agreed to replace the shares with an equal number of
new shares of common stock in consideration of services rendered to us in 2006
in connection with the closing of the Amended Share Exchange
Agreement.  We agreed to deliver the replacement shares in nine
monthly installments.
 12
  Operating
Lease Commitments
  The
Company leases its dealership facilities, service center facilities and office
space under non-cancellable operating leases in Hong Kong and PRC. Minimum
future rental payments required under non-cancellable operating leases in effect
as of September 30, 2009 are as follows:
  2009
                            
                            $
                            858,7662010
                            
                            
                            3,350,4752011
                            
                            
                            2,206,5832012
                            
                            
                            1,919,7892013
                            
                            
                            1,823,219Later
      years
                            
                            
                            7,635,838$
                            17,794,670
 
 Rent
expense for the three months and nine months ended September 30, 2009 and 2008
was $1,104,167, $762,224, $3,378,340 and $2,109,189, respectively.
  Employment
Agreements
  The
Company maintains employment agreements with its executives which extend through
2009. The agreements provide for a base salary, annual bonus to be determined by
the Board of Directors, termination payments, and other terms and conditions of
employment. In addition, the Company maintains employment agreements with other
key employees with similar terms and conditions.  As of September 30,
2009, committed compensation to the executives and other key employees totaling
approximately $340,138 remain in effect.
 13
  NOTE
10. COMPREHENSIVE INCOME INFORMATION
  (a)       The
Company’s comprehensive income is comprised of net operating results and
translation adjustments. Comprehensive income for the nine months ended
September 30 is as follows:
  China Premium Lifestyle Enterprise, Inc.
                              common stockholdersAccumulated deficit
                            
                            
                            Accumulated other
                              comprehensive income
                            
                            
                            Noncontrolling
                              interests
                            
                            
                            Total(Unaudited)At
      January 1, 2009
                            
                            $
                            (695,446
                            )
                            
                            $
                            247,279
                            
                            
                            $
                            7,104,333
                            
                            
                            $
                            6,656,166Net
      loss
                            
                            
                            (1,622,151
                            )
                            
                            
                            -
                            
                            
                            
                            (1,058,637
                            )
                            
                            
                            (2,680,788
                            )Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            (1,214
                            )
                            
                            
                            -
                            
                            
                            
                            (1,214
                            )At
      March 31, 2009
                            
                            
                            (2,317,597
                            )
                            
                            
                            246,065
                            
                            
                            
                            6,045,696
                            
                            
                            
                            3,974,164Net
      (loss)/earnings
                            
                            
                            (722,273
                            )
                            
                            
                            -
                            
                            
                            
                            46,733
                            
                            
                            
                            (675,540
                            )Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            7,791
                            
                            
                            
                            9,390
                            
                            
                            
                            17,181At
      June 30,2009
                            
                            
                            (3,039,870
                            )
                            
                            
                            253,856
                            
                            
                            
                            6,101,819
                            
                            
                            
                            3,315,805Net
      loss
                            
                            
                            (1,826,728
                            )
                            
                            
                            -
                            
                            
                            
                            (719,315
                            )
                            
                            
                            (2,546,043
                            )Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            32,364
                            
                            
                            
                            34,337
                            
                            
                            
                            66,701At
      September 30, 2009
                            
                            $
                            (4,866,598
                            )
                            
                            $
                            286,220
                            
                            
                            $
                            5,416,841
                            
                            
                            $
                            836,463
 
 China Premium Lifestyle Enterprise, Inc.
                              common stockholdersAccumulated deficit
                            
                            
                            Accumulated other
                              comprehensive income
                            
                            
                            Noncontrolling
                              interests
                            
                            
                            Total(Unaudited)At
      January 1, 2008
                            
                            $
                            (510,438
                            )
                            
                            $
                            118,892
                            
                            
                            $
                            4,918,636
                            
                            
                            $
                            4,527,090Net
      (loss)/earnings
                            
                            
                            (229,320
                            )
                            
                            
                            -
                            
                            
                            
                            107,519
                            
                            
                            
                            (121,801
                            )Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            96,619
                            
                            
                            
                            -
                            
                            
                            
                            96,619At
      March 31, 2008
                            
                            
                            (739,758
                            )
                            
                            
                            215,511
                            
                            
                            
                            5,026,155
                            
                            
                            
                            4,501,908Net
      earnings
                            
                            
                            390,391
                            
                            
                            
                            -
                            
                            
                            
                            894,884
                            
                            
                            
                            1,285,275Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            32,934
                            
                            
                            
                            -
                            
                            
                            
                            32,934At
      June 30, 2008
                            
                            
                            (349,367
                            )
                            
                            
                            248,445
                            
                            
                            
                            5,921,039
                            
                            
                            
                            5,820,117Net
      earnings
                            
                            
                            383,784
                            
                            
                            
                            -
                            
                            
                            
                            796,958
                            
                            
                            
                            1,180,742Translation
      adjustments
                            
                            
                            -
                            
                            
                            
                            (49,938
                            )
                            
                            
                            -
                            
                            
                            
                            (49,938
                            )At
      September 30, 2008
                            
                            $
                            34,417
                            
                            
                            $
                            198,507
                            
                            
                            $
                            6,717,997
                            
                            
                            $
                            6,950,921
 
 (b)       Condensed
consolidated statements of comprehensive income (loss)/earnings
  Three months ended
                              September 30,
                            
                            
                            Nine months ended
                              September 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Net
      (loss) /earnings including noncontrolling interest
                            
                            $
                            (2,546,043
                            )
                            
                            $
                            1,180,742
                            
                            
                            $
                            (5,902,371
                            )
                            
                            $
                            2,344,216Other
      comprehensive income, net of tax:Translation
      adjustments
                            
                            
                            66,701
                            
                            
                            
                            (49,938
                            )
                            
                            
                            82,668
                            
                            
                            
                            79,615Comprehensive
      (loss) /earnings including noncontrolling interest
                            
                            
                            (2,479,342
                            )
                            
                            
                            1,130,804
                            
                            
                            
                            (5,819,703
                            )
                            
                            
                            2,423,831Comprehensive
      loss /(income) attributable to noncontrolling interest:Net
      loss /(income)
                            
                            
                            719,315
                            
                            
                            
                            (796,958
                            )
                            
                            
                            1,731,219
                            
                            
                            
                            (1,799,361
                            )Translation
      adjustments
                            
                            
                            (34,337
                            )
                            
                            
                            -
                            
                            
                            
                            (43,727
                            )
                            
                            
                            -Comprehensive
      (loss) /earnings attributable to China Premium Lifestyle Enterprise, Inc.
      common stockholders
                            
                            $
                            (1,794,364
                            )
                            
                            $
                            333,846
                            
                            
                            $
                            (4,132,211
                            )
                            
                            $
                            624,470
 14
  NOTE
11. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION
  Business
Segments
  The
Company operates in two business segments: Vehicles and Fashion Apparel. The
Company’s reporting segments are strategic business units that offer different
products and services. They are managed separately based on the fundamental
differences in their operations.
  The
Vehicles segment consists primarily of the group of companies doing business as
Auto Italia Limited, Nanjing Auto Italia Car Trading Co., Limited and Dalian
Auto Italia Car Trading Co., Limited. The Vehicle segment includes sales of new
and used vehicles, provision of vehicle maintenance and repair services, and
sales of vehicle parts.
  The
Fashion Apparel segment consists primarily of CPMM (Asia) Limited. The Fashion
Apparel segment provides wholesale and retailing of fashion
apparel.
  Information
by industry segment is set forth below for the three months and nine months
ended September 30:
  Three months ended September 30,
                                    2009 (Unaudited)
                                  
                                  Vehicles
                                  
                                  
                                  Fashion
                                    Apparel
                                  
                                  
                                  Corporate
                                  
                                  
                                  Elimination
                                  
                                  
                                  ConsolidatedSalesExternal
      sales
                                  
                                  $
                                  29,833,320
                                  
                                  
                                  $
                                  299,423
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  30,132,743Inter-segment
      sales
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      sales
                                  
                                  
                                  29,833,320
                                  
                                  
                                  $
                                  299,423
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  30,132,743ResultsOperating
      earnings/(loss)
                                  
                                  
                                  (1,231,196)
                                  
                                  
                                  
                                  (782,650)
                                  
                                  
                                  
                                  (348,917)
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,362,763)Interest
      revenue
                                  
                                  
                                  2,244
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,244Interest
      expense
                                  
                                  
                                  (214,234)
                                  
                                  
                                  
                                  (4,396)
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (218,630)Other
      income
                                  
                                  
                                  32,803
                                  
                                  
                                  
                                  344
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  33,147Loss
      before income taxes
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,546,002)Provision
      for income tax
                                  
                                  
                                  (41)
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (41)Net
      loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,546,043
                                  )


15


Nine months ended September 30,
                              2009 (Unaudited)
                            
                            Vehicles
                            
                            
                            Fashion
                              Apparel
                            
                            
                            Corporate
                            
                            
                            Elimination
                            
                            
                            ConsolidatedSalesExternal
      sales
                            
                            $
                            82,627,566
                            
                            
                            $
                            1,181,328
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            83,808,894Inter-segment
      sales
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      sales
                            
                            
                            82,627,566
                            
                            
                            $
                            1,181,328
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            83,808,894ResultsOperating
      loss
                            
                            
                            (3,535,546)
                            
                            
                            
                            (1,726,119)
                            
                            
                            
                            (792,086)
                            
                            
                            
                            -
                            
                            
                            
                            (6,053,751)Interest
      revenue
                            
                            
                            17,974
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            17,974Interest
      expense
                            
                            
                            (606,357)
                            
                            
                            
                            (17,414)
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (623,771)Other
      income
                            
                            
                            759,675
                            
                            
                            
                            27,797
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            787,472Loss
      before income taxes
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (5,872,076)Provision
      for income tax
                            
                            
                            (30,295)
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (30,295)Net
      loss
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (5,902,371
                            )


16
  Three months ended September 30,
                                2008 (Unaudited)
                              
                              Vehicles
                              
                              
                              Fashion
                                Apparel
                              
                              
                              Corporate
                              
                              
                              Elimination
                              
                              
                              ConsolidatedSalesExternal
      sales
                              
                              $
                              33,098,990
                              
                              
                              $
                              263,161
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              33,362,151Inter-segment
      sales
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      sales
                              
                              
                              33,098,990
                              
                              
                              $
                              263,161
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              33,362,151ResultsOperating
      earnings/(loss)
                              
                              
                              1,407,241
                              
                              
                              
                              (368,663)
                              
                              
                              
                              (34,297)
                              
                              
                              
                              -
                              
                              
                              
                              1,004,281Interest
      revenue
                              
                              
                              17,249
                              
                              
                              
                              11,958
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              29,207Interest
      expense
                              
                              
                              (145,912)
                              
                              
                              
                              (4,728)
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (150,640)Other
      income
                              
                              
                              284,082
                              
                              
                              
                              13,812
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              297,894Earnings
      before income taxes
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,180,742Provision
      for income tax
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      earnings
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,180,742
 
 Nine months ended September 30,
                                2008 (Unaudited)
                              
                              Vehicles
                              
                              
                              Fashion
                                Apparel
                              
                              
                              Corporate
                              
                              
                              Elimination
                              
                              
                              ConsolidatedSalesExternal
      sales
                              
                              $
                              85,422,560
                              
                              
                              $
                              634,348
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              86,056,908Inter-segment
      sales
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      sales
                              
                              
                              85,422,560
                              
                              
                              $
                              634,348
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              86,056,908ResultsOperating
      earnings/(loss)
                              
                              
                              2,624,915
                              
                              
                              
                              (1,080,367)
                              
                              
                              
                              (121,375)
                              
                              
                              
                              -
                              
                              
                              
                              1,423,173Interest
      revenue
                              
                              
                              59,684
                              
                              
                              
                              11,958
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              71,642Interest
      expense
                              
                              
                              (401,091)
                              
                              
                              
                              (10,269)
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (411,360)Other
      income
                              
                              
                              1,244,651
                              
                              
                              
                              16,110
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,260,761Earnings
      before income taxes
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2,344,216Provision
      for income tax
                              
                              
                              
                              -
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      earnings
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2,344,216
 17
 
 Vehicles
                            
                            
                            Fashion
                              Apparel
                            
                            
                            Corporate
                            
                            
                            Consolidated2009Total
      assets (Restated)
                            
                            $
                            51,025,202
                            
                            
                            $
                            555,766
                            
                            
                            $
                            488
                            
                            
                            $
                            51,581,456Depreciation
      and amortization
                            
                            
                            878,961
                            
                            
                            
                            17,943
                            
                            
                            
                            -
                            
                            
                            
                            896,904Net
      capital expenditures
                            
                            
                            2,794,757
                            
                            
                            
                            7,879
                            
                            
                            
                            -
                            
                            
                            
                            2,802,6362008Total
      assets (Restated)
                            
                            $
                            44,162,665
                            
                            
                            $
                            2,980,343
                            
                            
                            $
                            488
                            
                            
                            $
                            47,143,496Depreciation
      and amortization
                            
                            
                            555,398
                            
                            
                            
                            49,022
                            
                            
                            
                            -
                            
                            
                            
                            604,420Net
      capital expenditures
                            
                            
                            329,417
                            
                            
                            
                            250,017
                            
                            
                            
                            -
                            
                            
                            
                            579,434
 
 Geographic
Information
  No
segment information is provided as the Company only has one geographical
segment. The Company’s reportable business segments are Vehicle and Fashion
Apparel, which operations are located in the PRC (including Hong Kong and
Macau). Sales were predominately made to customers located in the PRC (including
Hong Kong and Macau).
  NOTE
12.  RELATED PARTY TRANSACTIONS
  The
following is a summary of significant transactions among certain related parties
and the Company during the three months and nine months ended September
30:
  Three months ended
                                                                September 30,
                                                              
                                                              
                                                              Nine months ended
                                                                September 30,Notes
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008Sales
      to:-
      Affiliates
                                                              
                                                              (a)
                                                              
                                                              
                                                              $
                                                              1,572
                                                              
                                                              
                                                              $
                                                              6,892
                                                              
                                                              
                                                              $
                                                              191,008
                                                              
                                                              
                                                              $
                                                              22,611Purchases
      from:-
      Affiliates
                                                              
                                                              (a)
                                                              
                                                              
                                                              
                                                              41,530
                                                              
                                                              
                                                              
                                                              40,634
                                                              
                                                              
                                                              
                                                              143,256
                                                              
                                                              
                                                              
                                                              55,548- A
      director of Technorient
                                                              
                                                              (a)
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              600,000
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              600,000Interest
      received from:-
      Affiliates
                                                              
                                                              (b)
                                                              
                                                              
                                                              
                                                              164,875
                                                              
                                                              
                                                              
                                                              154,525
                                                              
                                                              
                                                              
                                                              478,995
                                                              
                                                              
                                                              
                                                              443,307Management
      fee paid to:-
      Affiliates
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              94,984
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              302,413
                                                              
                                                              
                                                              
                                                              -Management
      fee received from:-
      Affiliates
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              46,445
                                                              
                                                              
                                                              
                                                              46,146
                                                              
                                                              
                                                              
                                                              139,329
                                                              
                                                              
                                                              
                                                              138,519Service
      cost charged by:-
      Affiliates
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              578
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              10,912
                                                              
                                                              
                                                              
                                                              -Rental
      income received from:-
      Affiliates
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              38,455
                                                              
                                                              
                                                              
                                                              77,404
                                                              
                                                              
                                                              
                                                              115,433Rental
      paid to:-
      Affiliate
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              4,203
                                                              
                                                              
                                                              
                                                              5,670
                                                              
                                                              
                                                              
                                                              12,519
                                                              
                                                              
                                                              
                                                              18,335Building
      management fee paid to:-
      Affiliate
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              851
                                                              
                                                              
                                                              
                                                              637
                                                              
                                                              
                                                              
                                                              2,553
                                                              
                                                              
                                                              
                                                              1,955Warehouse
      expenses paid to:-
      Affiliate
                                                              
                                                              (c)
                                                              
                                                              
                                                              
                                                              3,448
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              12,670
                                                              
                                                              
                                                              
                                                              -
 18
  Notes:
  (a)       The
transactions were carried out at market price or, where no market price was
available, at cost plus a percentage profit mark-up.
  (b)       The
loan advance to an affiliate is unsecured, bears interest at 5.5% per annum and
repayable on demand.
  (c)       The
transactions were carried out at terms agreed between both parties.
  NOTE
13. SUBSEQUENT EVENTS
  The
Company evaluated all events or transactions through the date of this filing,
which is the date the financial statements were issued.  During this
period the Company did not have any material subsequent events that impacted our
condensed consolidated financial statements.
  NOTE
14. RESTATEMENT OF FINANCIAL STATEMENTS
  Background
  In
September 2006, the Company closed the transactions contemplated by that certain
Share Exchange Agreement, dated July 15, 2006, among the Company, Fred De Luca,
Corich Enterprises, Inc., a British Virgin Islands corporation, Herbert Adamczyk
and Technorient Limited, a Hong Kong corporation (the “Share Exchange
Agreement”).  Pursuant to the terms of the Share Exchange Agreement,
the Company issued an aggregate of 972,728 shares (the “Exchange Shares”)
of Series A Convertible Preferred Stock in exchange for shares of the capital
stock of Technorient.
  In
connection with the Share Exchange Agreement and prior to its closing, the
Company entered into a consulting agreement dated July 15, 2006 with Happy
Emerald Ltd. (“HEL”) pursuant to which the Company issued to HEL 561,245 shares
(the “HEL Shares”) of Series A Convertible Preferred Stock in exchange for
certain future services to be performed by HEL after the closing of the Share
Exchange Agreement.
  In
January 2007, the Company authorized the delivery of 65,454 shares (the “Bern
Noble Shares”) of the HEL Shares to Bern Noble, Ltd. (“Bern Noble”) for
consulting services rendered by Bern Noble to the Company in connection with the
Share Exchange Agreement.  In March 2007, Bern Noble converted the
Bern Noble Shares into 1,210,631 shares of common stock.
  The
following actions were also taken:
  ·
                          on
      April 7, 2006, prior management filed an amendment to the Articles of
      Incorporation purporting to create a class of “blank check” preferred
      stock (the “Preferred Stock
Amendment”);
  ·
                          on
      August 16, 2006, prior management filed an amendment to the Articles of
      Incorporation purporting to designate 2,000,000 shares of the “blank
      check” preferred stock as “Series A Convertible Preferred Stock” (the
      “Certificate of Designation”); and
  ·
                          on
      December 18, 2006, the Company filed an amendment to the Articles of
      Incorporation purporting to increase the number of shares of authorized
      common stock from 100,000,000 shares to 400,000,000 shares (the “Common
      Stock Amendment”).
  On
December 19, 2008, the Company filed an action in the United States District
Court for the Central District of California (the “Federal Court Action”), for
fraud, breach of fiduciary duty, breach of contract and conversion against HEL,
certain members of the Company’s prior management, including Fred De Luca,
Charles Miseroy, Robert G. Pautsch and Federico Cabo, and certain other
defendants.  In the Federal Court Action, the Company alleged
that:
  ·
                          HEL
      had never performed any services under the consulting agreement;
      and
  19
  ·
                            the
      defendants, including the members of prior management, had (1)
      fraudulently obtained certificates for 495,596 shares of the Series A
      Convertible Preferred Stock, (2) improperly attempted to transfer the
      shares among themselves and their affiliates, (3) improperly converted
      247,798 of the shares into 4,569,619 shares of common stock, and (4)
      sought to have the restrictive legend removed from the resulting shares of
      common stock.
  During
the pendency of the Federal Court Action, the Company’s legal advisors
discovered that the Preferred Stock Amendment, the Certificate of Designation
and the Common Stock Amendment had not been properly
authorized.  Specifically:
  ·
                            each
      of the Preferred Stock Amendment and the Common Stock Amendment was
      approved only by the written consent of a majority of the Company’s
      then-stockholders, whereas the By-Laws required such written consent to be
      approved unanimously; and
  ·
                            at
      the time of the filing of the Certificate of Designation with the
      Secretary of State of the State of Nevada, the articles of incorporation
      did not authorize the Board of Directors to designate the rights,
      preferences and privileges of any “blank check” preferred
      stock.
  The
Company was advised that the Preferred Stock Amendment, the Certificate of
Designation and the Common Stock Amendment were invalid and of no force and
effect.  Further, the Company was advised that the Company was never
authorized to issue any shares of any class or series of preferred stock,
including the Exchange Shares, the Bern Noble Shares and the HEL Shares, and
that any shares of common stock underlying the shares of preferred stock would
also not have been authorized.  In addition, the Company was advised
that the Company was never authorized to issue any shares of common stock in
excess of 100,000,000 shares,
  Upon
learning of the invalidity of the Preferred Stock Amendment, the Certificate of
Designation and the Common Stock Amendment:
  ·
                            current
      management took action to correct any potential defect in the transactions
      contemplated to acquire the shares of Technorient under the Share Exchange
      Agreement.  On May 5, 2009, the Company entered into a
      reformation (“Reformation”) of the Share Exchange Agreement pursuant to
      which the parties agreed that the 17,937,977 shares of common stock (on a
      post-Reverse Stock Split basis) underlying the Exchange Shares were agreed
      to have been issued in lieu of the Exchange Shares
      themselves.  Pursuant to the Reformation, the parties agreed
      that an aggregate of 14,400,000 shares of the Company’s common stock were
      deemed to have been issued on the closing date of the Share Exchange
      Agreement, and that upon the effectiveness of and giving effect to the
      Reverse Stock Split on December 7, 2007, an aggregate of an additional
      3,537,977 shares of common stock were deemed to have been issued;
      and
  ·
                            the
      Company amended its complaint in the Federal Court Action to allege that
      all of the disputed shares (the HEL Shares and, derivatively, the Bern
      Noble Shares), were void and subject to cancellation.  Because
      of the uncertainty of the outcome of the Federal Court Action, however,
      the Company determined not to make any changes with respect to such shares
      on its financial statements until the pending litigation was finally
      resolved through a judgment in or settlement of the Federal Court
      Action.
  On March
1, 2010, the Company settled the Federal Court Action.  Under the
terms of the settlement, the defendants agreed to return to the Company for
cancellation all of the disputed shares, including 247,798 shares of the Series
A Convertible Preferred Stock and 4,569,619 shares of common stock.
  Further,
in connection with the settlement, Bern Noble agreed to return to the Company
for cancellation the 1,210,631 shares of common stock that had originally been
derived from the HEL Shares.  The Company also agreed to replace the
Bern Noble Shares with an equal number of new shares of common stock in
consideration of services rendered to the Company in 2006 in connection with the
closing of the Share Exchange Agreement.  The Company agreed to
deliver the replacement shares in nine monthly installments.
 20
  Restatements
  Certain
items on the Company’s consolidated balance sheets, consolidated statements of
operations and consolidated statements of stockholders’ equity and comprehensive
income (loss) have been restated, based on the following:
  ·
                              the
      Company’s determination that it was never authorized to issue any shares
      of any class or series of preferred stock, including the Exchange Shares,
      the Bern Noble Shares and the HEL
Shares;
  ·
                              the
      Company’s determination that the Preferred Stock Amendment, the
      Certificate of Designation designating the Series A Preferred Stock and
      the Common Stock Amendment were invalid and of no force and
      effect;
  ·
                              the
      issuance of shares of common stock in connection with the
      Reformation;
  ·
                              the
      cancellation and reissuance of the shares of common stock converted from
      the Bern Noble Shares (including the recognition of the receipt of the
      services performed by Bern Noble in 2006);
and
  ·
                              the
      settlement of the Federal Court
Action.
  The
following describes the restatements to the Company’s condensed consolidated
financial statements:
  ·
                              on
      the condensed consolidated balance sheets, at September 30, 2009 and
      December 31, 2008, prepayments decreased by $1,468,930 to reflect the
      return for cancellation of the disputed shares of preferred stock and
      common stock in connection with the settlement of the Federal Court
      Action.  Accordingly, at September 30, 2009 and December 31,
      2008, preferred stock decreased by $248, common stock
      decreased by $28,902, additional paid-in-capital decreased by
      $1,439,780 and stockholders’ equity decreased by $1,468,930. Further,
      all references to an authorized class or series of preferred stock and any
      issued and outstanding shares of preferred stock have been deleted from
      the restated balance sheets at September 30, 2009 and December 31,
      2008;
  ·
                              on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2009, basic and diluted loss per share
      increased by $0.0155, for the nine months ended September 30, 2009,
      basic and diluted loss per share increased by $0.0355, for the three
      months ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0033 and $0.0051, respectively, and for the nine months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0037 and $0.0065, respectively;
  and
  ·
                              for
      the three and nine months ended September 30, 2009, the basic and diluted
      weighted average number of outstanding shares decreased by 5,780,250, for
      the three months ended September 30, 2008, the basic and diluted weighted
      average number of outstanding shares decreased by 5,780,250 and
      10,349,869, respectively, and for the nine months ended September 30,
      2008, the basic and diluted weighted average number of outstanding shares
      decreased by 4,396,022 and 8,965,641,
  respectively.
  The
restatements had no impact on the Company’s cash or cash flows.
  21





The
condensed consolidated balance sheets have been restated as
follows:




Condensed
Consolidated Balance Sheets





As of September 30, 2009As Previously
                                            Reported
                                          
                                          
                                          Adjustments
                                          
                                          
                                          As Restated$
                                          
                                          
                                          $
                                          
                                          
                                          $ASSETSCurrent
      assets:Cash
      and cash equivalents
                                          
                                          
                                          3,326,567
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,326,567Restricted
      cash
                                          
                                          
                                          4,402,254
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,402,254Trade
      receivables, net of provision
                                          
                                          
                                          1,491,602
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,491,602Inventory,
      net
                                          
                                          
                                          20,632,335
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          20,632,335Prepayments
                                          
                                          
                                          1,854,263
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          385,333Other
      current assets
                                          
                                          
                                          4,130,960
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,130,960Amounts
      due from affiliates
                                          
                                          
                                          12,569,307
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          12,569,307Total
      current assets
                                          
                                          
                                          48,407,288
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          46,938,358Property
      and equipment, net
                                          
                                          
                                          4,603,368
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,603,368Goodwill
                                          
                                          
                                          39,730
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          39,730TOTAL
      ASSETS
                                          
                                          
                                          53,050,386
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          51,581,456LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                                          
                                          
                                          8,867,915
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          8,867,915Bills
      payable
                                          
                                          
                                          926,204
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          926,204Trade
      payables
                                          
                                          
                                          4,808,119
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,808,119Deposits
      received
                                          
                                          
                                          23,863,770
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          23,863,770Other
      current liabilities
                                          
                                          
                                          2,305,995
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,305,995Amounts
      due to affiliates
                                          
                                          
                                          4,677,172
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,677,172Total
      current liabilities
                                          
                                          
                                          45,449,175
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          45,449,175Long-term
      liabilities:Long
      term borrowings
                                          
                                          
                                          1,060,091
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,060,091TOTAL
      LIABILITIES
                                          
                                          
                                          46,509,266
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          46,509,266Commitments
      and ContingenciesStockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2009: 247,798 (note 1)
                                          
                                          
                                          248
                                          
                                          
                                          
                                          (248
                                          )
                                          
                                          
                                          -Common
      stockAuthorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 2009: 29,104,110 (note 2)
                                          
                                          
                                          145,521
                                          
                                          
                                          
                                          (28,902
                                          )
                                          
                                          
                                          116,619Additional
      paid-in capital
                                          
                                          
                                          5,558,888
                                          
                                          
                                          
                                          (1,439,780
                                          )
                                          
                                          
                                          4,119,108Accumulated
      other comprehensive income
                                          
                                          
                                          286,220
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          286,220Accumulated
      deficit
                                          
                                          
                                          (4,866,598
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,866,598
                                          )TOTAL
      CHINA PREMIUM LIFESTYLE ENTERPRISE, INC. STOCKHOLDERS’
    EQUITY
                                          
                                          
                                          1,124,279
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          (344,651
                                          )Noncontrolling
      interests
                                          
                                          
                                          5,416,841
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,416,841TOTAL
      STOCKHOLDERS’ EQUITY
                                          
                                          
                                          6,541,120
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          5,072,190TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                          
                                          
                                          53,050,386
                                          
                                          
                                          
                                          (1,468,930
                                          )
                                          
                                          
                                          51,581,456





22





As of December 31, 2008As Previously
                            Reported
                          
                          
                          Adjustments
                          
                          
                          As Restated$
                          
                          
                          $
                          
                          
                          $ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          
                          5,827,132
                          
                          
                          
                          -
                          
                          
                          
                          5,827,132Restricted
      cash
                          
                          
                          4,427,439
                          
                          
                          
                          -
                          
                          
                          
                          4,427,439Trade
      receivables, net of provision
                          
                          
                          11,761,228
                          
                          
                          
                          -
                          
                          
                          
                          11,761,228Inventory,
      net
                          
                          
                          12,670,567
                          
                          
                          
                          -
                          
                          
                          
                          12,670,567Prepayments
                          
                          
                          1,952,882
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          483,952Other
      current assets
                          
                          
                          6,419,106
                          
                          
                          
                          -
                          
                          
                          
                          6,419,106Amounts
      due from affiliates
                          
                          
                          11,147,103
                          
                          
                          
                          -
                          
                          
                          
                          11,147,103Total
      current assets
                          
                          
                          54,205,457
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          52,736,527Property
      and equipment, net
                          
                          
                          2,905,927
                          
                          
                          
                          -
                          
                          
                          
                          2,905,927Goodwill
                          
                          
                          39,734
                          
                          
                          
                          -
                          
                          
                          
                          39,734TOTAL
      ASSETS
                          
                          
                          57,151,118
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          55,682,188LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                          
                          
                          9,935,435
                          
                          
                          
                          -
                          
                          
                          
                          9,935,435Bills
      payable
                          
                          
                          1,333,502
                          
                          
                          
                          -
                          
                          
                          
                          1,333,502Trade
      payables
                          
                          
                          3,795,196
                          
                          
                          
                          -
                          
                          
                          
                          3,795,196Deposits
      received
                          
                          
                          19,887,368
                          
                          
                          
                          -
                          
                          
                          
                          19,887,368Other
      current liabilities
                          
                          
                          7,405,454
                          
                          
                          
                          -
                          
                          
                          
                          7,405,454Amounts
      due to affiliates
                          
                          
                          2,433,340
                          
                          
                          
                          -
                          
                          
                          
                          2,433,340Total
      current liabilities
                          
                          
                          44,790,295
                          
                          
                          
                          -
                          
                          
                          
                          44,790,295Long-term
      borrowing
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -TOTAL
      LIABILITIES
                          
                          
                          44,790,295
                          
                          
                          
                          -
                          
                          
                          
                          44,790,295Commitments
      and ContingenciesStockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2008: 247,798 (note 1)
                          
                          
                          248
                          
                          
                          
                          (248
                          )
                          
                          
                          -Common
      stock
                          
                          
                          145,521
                          
                          
                          
                          (28,902
                          )
                          
                          
                          116,619Authorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 2008: 29,104,110 (note 2)Additional
      paid-in capital
                          
                          
                          5,558,888
                          
                          
                          
                          (1,439,780
                          )
                          
                          
                          4,119,108Accumulated
      other comprehensive income
                          
                          
                          247,279
                          
                          
                          
                          -
                          
                          
                          
                          247,279Accumulated
      deficit
                          
                          
                          (695,446
                          )
                          
                          
                          -
                          
                          
                          
                          (695,446
                          )TOTAL
      CHINA PREMIUM LIFESTYLE, INC. STOCKHOLDERS’ EQUITY
                          
                          
                          5,256,490
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          3,787,560Noncontrolling
      interests
                          
                          
                          7,104,333
                          
                          
                          
                          -
                          
                          
                          
                          7,104,333TOTAL
      STOCKHOLDERS’ EQUITY
                          
                          
                          12,360,823
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          10,891,893TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
                          
                          57,151,118
                          
                          
                          
                          (1,468,930
                          )
                          
                          
                          55,682,188





Note:


1.
            The
      Company did not have any authorized shares or any class or series of
      preferred stock at any of the dates referenced in the balance sheets. The
      references to an authorized class or series of preferred stock and any
      issued and outstanding shares of preferred stock have been deleted from
      the restated balance sheets at September 30, 2009 and December 31,
      2008.





2.
              At
      September 30, 2009 and December 31, 2008, giving effect to the
      transactions related to the restatements discussed in this Note 14, there
      were issued and outstanding 23,323,860 shares of common
    stock.





23








Condensed
Consolidated Statement of Operations




For the 3 months ended September 30, 2009As Previously
                                                Reported
                                              
                                              
                                              Adjustments
                                              
                                              
                                              As RestatedSales:New
      and used vehicles
                                              
                                              $
                                              27,391,199
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              27,391,199Parts
      and services and others
                                              
                                              
                                              2,442,121
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,442,121Fashion
      apparel and accessories
                                              
                                              
                                              299,423
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              299,423Net
      sales
                                              
                                              
                                              30,132,743
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              30,132,743Cost
      of sales:New
      and used vehicles
                                              
                                              
                                              (25,908,646
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (25,908,646
                                              )Parts
      and services and others
                                              
                                              
                                              (612,026
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (612,026
                                              )Fashion
      apparel and accessories
                                              
                                              
                                              (457,918
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (457,918
                                              )Total
      cost of sales
                                              
                                              
                                              (26,978,590
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (26,978,590
                                              )Gross
      profit:New
      and used vehicles
                                              
                                              
                                              1,482,553
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,482,553Parts
      and services and others
                                              
                                              
                                              1,830,095
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,830,095Fashion
      apparel and accessories
                                              
                                              
                                              (158,495
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (158,495
                                              )Total
      gross profit
                                              
                                              
                                              3,154,153
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,154,153Selling,
      general and administrative expenses
                                              
                                              
                                              (5,516,916
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,516,916
                                              )Operating
      loss
                                              
                                              
                                              (2,362,763
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,362,763
                                              )Other
      income (expenses)Interest
      expenses and other finance costs
                                              
                                              
                                              (218,630
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (218,630
                                              )Other
      income
                                              
                                              
                                              35,391
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              35,391Total
      other income (expenses)
                                              
                                              
                                              (183,239
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (183,239
                                              )Loss
      before income taxes
                                              
                                              
                                              (2,546,002
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,546,002
                                              )Provision
      for income taxes
                                              
                                              
                                              (41
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (41
                                              )Net
      loss including noncontrolling interests
                                              
                                              
                                              (2,546,043
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,546,043
                                              )Net
      loss  attributable to:China
      Premium Lifestyle Enterprise, Inc common stockholders
                                              
                                              
                                              (1,826,728
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (1,826,728
                                              )Noncontrolling
      interests
                                              
                                              
                                              (719,315
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (719,315
                                              )$
                                              (2,546,043
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (2,546,043
                                              )Loss
      per common stock attributable to China Premium Lifestyle Enterprise, Inc
      common stockholdersBasic
                                              
                                              $
                                              (0.0628)
                                              
                                              
                                              $
                                              (0.0155)
                                              
                                              
                                              $
                                              (0.0783)Diluted
                                              
                                              $
                                              (0.0628)
                                              
                                              
                                              $
                                              (0.0155)
                                              
                                              
                                              $
                                              (0.0783)Weighted
      average number of common shares outstandingBasic
                                              
                                              
                                              29,104,110
                                              
                                              
                                              
                                              (5,780,250
                                              )
                                              
                                              
                                              23,323,860Diluted
                                              
                                              
                                              29,104,110
                                              
                                              
                                              
                                              (5,780,250
                                              )
                                              
                                              
                                              23,323,860





24





For the 9 months ended September 30, 2009As Previously
                                                Reported
                                              
                                              
                                              Adjustments
                                              
                                              
                                              As RestatedSales:New
      and used vehicles
                                              
                                              $
                                              77,216,005
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              77,216,005Parts
      and services and others
                                              
                                              
                                              5,411,561
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,411,561Fashion
      apparel and accessories
                                              
                                              
                                              1,181,328
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,181,328Net
      sales
                                              
                                              
                                              83,808,894
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              83,808,894Cost
      of sales:New
      and used vehicles
                                              
                                              
                                              (71,827,037
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (71,827,037
                                              )Parts
      and services and others
                                              
                                              
                                              (1,112,490
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,112,490
                                              )Fashion
      apparel and accessories
                                              
                                              
                                              (1,580,999
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,580,999
                                              )Total
      cost of sales
                                              
                                              
                                              (74,520,526
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (74,520,526
                                              )Gross
      profit:New
      and used vehicles
                                              
                                              
                                              5,388,968
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,388,968Parts
      and services and others
                                              
                                              
                                              4,299,071
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,299,071Fashion
      apparel and accessories
                                              
                                              
                                              (399,671
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (399,671
                                              )Total
      gross profit
                                              
                                              
                                              9,288,368
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              9,288,368Selling,
      general and administrative expenses
                                              
                                              
                                              (15,342,119
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (15,342,119
                                              )Operating
      loss
                                              
                                              
                                              (6,053,751
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (6,053,751
                                              )Other
      income (expenses)Interest
      expenses and other finance costs
                                              
                                              
                                              (623,771
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (623,771
                                              )Other
      income
                                              
                                              
                                              805,446
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              805,446Total
      other income (expenses)
                                              
                                              
                                              181,675
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              181,675Loss
      before income taxes
                                              
                                              
                                              (5,872,076
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,872,076
                                              )Provision
      for income taxes
                                              
                                              
                                              (30,295
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (30,295
                                              )Net
      loss including noncontrolling interests
                                              
                                              
                                              (5,902,371
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,902,371
                                              )Net
      loss  attributable to:China
      Premium Lifestyle Enterprise, Inc common stockholders
                                              
                                              
                                              (4,171,152
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (4,171,152
                                              )Noncontrolling
      interests
                                              
                                              
                                              (1,731,219
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,731,219
                                              )$
                                              (5,902,371
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (5,902,371
                                              )Loss
      per common stock attributable to China Premium Lifestyle Enterprise, Inc
      common stockholdersBasic
                                              
                                              $
                                              (0.1433)
                                              
                                              
                                              $
                                              (0.0355)
                                              
                                              
                                              $
                                              (0.1788)Diluted
                                              
                                              $
                                              (0.1433)
                                              
                                              
                                              $
                                              (0.0355)
                                              
                                              
                                              $
                                              (0.1788)Weighted
      average number of common shares outstandingBasic
                                              
                                              
                                              29,104,110
                                              
                                              
                                              
                                              (5,780,250
                                              )
                                              
                                              
                                              23,323,860Diluted
                                              
                                              
                                              29,104,110
                                              
                                              
                                              
                                              (5,780,250
                                              )
                                              
                                              
                                              23,323,860





25





For the 3 months ended September 30, 2008As Previously
                                                        Reported
                                                      
                                                      
                                                      Adjustments
                                                      
                                                      
                                                      As RestatedSales:New
      and used vehicles
                                                      
                                                      $
                                                      31,321,200
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      31,321,200Parts
      and services and others
                                                      
                                                      
                                                      1,777,790
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,777,790Fashion
      apparel and accessories
                                                      
                                                      
                                                      263,161
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      263,161Net
      sales
                                                      
                                                      
                                                      33,362,151
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      33,362,151Cost
      of sales:New
      and used vehicles
                                                      
                                                      
                                                      (27,544,207
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (27,544,207
                                                      )Parts
      and services and others
                                                      
                                                      
                                                      (352,910
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (352,910
                                                      )Fashion
      apparel and accessories
                                                      
                                                      
                                                      (159,212
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (159,212
                                                      )Total
      cost of sales
                                                      
                                                      
                                                      (28,056,329
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (28,056,329
                                                      )Gross
      profit:New
      and used vehicles
                                                      
                                                      
                                                      3,776,993
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      3,776,993Parts
      and services and others
                                                      
                                                      
                                                      1,424,880
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,424,880Fashion
      apparel and accessories
                                                      
                                                      
                                                      103,949
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      103,949Total
      gross profit
                                                      
                                                      
                                                      5,305,822
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      5,305,822Selling,
      general and administrative expenses
                                                      
                                                      
                                                      (4,301,541
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (4,301,541
                                                      )Operating
      earnings
                                                      
                                                      
                                                      1,004,281
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,004,281Other
      income (expenses)Interest
      expenses and other finance costs
                                                      
                                                      
                                                      (150,640
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (150,640
                                                      )Other
      income
                                                      
                                                      
                                                      327,101
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      327,101Total
      other income (expenses)
                                                      
                                                      
                                                      176,461
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      176,461Earnings
      before income taxes
                                                      
                                                      
                                                      1,180,742
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,180,742Provision
      for income taxes
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Net
      earnings including noncontrolling interests
                                                      
                                                      
                                                      1,180,742
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,180,742Net
      earnings attributable to:China
      Premium Lifestyle Enterprise Inc. common stockholders
                                                      
                                                      
                                                      383,784
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      383,784Noncontrolling
      interests
                                                      
                                                      
                                                      796,958
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      796,958$
                                                      1,180,742
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      1,180,742Earnings
      per common stock attributable to China Premium Lifestyle Enterprise, Inc.
      common stockholdersBasic
                                                      
                                                      $
                                                      0.0132
                                                      
                                                      
                                                      $
                                                      0.0033
                                                      
                                                      
                                                      $
                                                      0.0165Diluted
                                                      
                                                      $
                                                      0.0114
                                                      
                                                      
                                                      $
                                                      0.0051
                                                      
                                                      
                                                      $
                                                      0.0165Weighted
      average number of common shares outstandingBasic
                                                      
                                                      
                                                      29,104,110
                                                      
                                                      
                                                      
                                                      (5,780,250
                                                      )
                                                      
                                                      
                                                      23,323,860Diluted
                                                      
                                                      
                                                      33,673,729
                                                      
                                                      
                                                      
                                                      (10,349,869
                                                      )
                                                      
                                                      
                                                      23,323,860





26





For the 9 months ended September 30, 2008As Previously
                                                      Reported
                                                    
                                                    
                                                    Adjustments
                                                    
                                                    
                                                    As RestatedSales:New
      and used vehicles
                                                    
                                                    $
                                                    80,800,209
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    80,800,209Parts
      and services and others
                                                    
                                                    
                                                    4,622,351
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    4,622,351Fashion
      apparel and accessories
                                                    
                                                    
                                                    634,348
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    634,348Net
      sales
                                                    
                                                    
                                                    86,056,908
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    86,056,908Cost
      of sales:New
      and used vehicles
                                                    
                                                    
                                                    (70,604,162
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (70,604,162
                                                    )Parts
      and services and others
                                                    
                                                    
                                                    (1,081,542
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (1,081,542
                                                    )Fashion
      apparel and accessories
                                                    
                                                    
                                                    (403,240
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (403,240
                                                    )Total
      cost of sales
                                                    
                                                    
                                                    (72,088,944
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (72,088,944
                                                    )Gross
      profit:New
      and used vehicles
                                                    
                                                    
                                                    10,196,047
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    10,196,047Parts
      and services and others
                                                    
                                                    
                                                    3,540,809
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,540,809Fashion
      apparel and accessories
                                                    
                                                    
                                                    231,108
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    231,108Total
      gross profit
                                                    
                                                    
                                                    13,967,964
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    13,967,964Selling,
      general and administrative expenses
                                                    
                                                    
                                                    (12,544,791
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (12,544,791
                                                    )Operating
      earnings
                                                    
                                                    
                                                    1,423,173
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,423,173Other
      income (expenses)Interest
      expenses and other finance costs
                                                    
                                                    
                                                    (411,360
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (411,360
                                                    )Other
      income
                                                    
                                                    
                                                    1,332,403
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,332,403Total
      other income (expenses)
                                                    
                                                    
                                                    921,043
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    921,043Earnings
      before income taxes
                                                    
                                                    
                                                    2,344,216
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,344,216Provision
      for income taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      earnings including noncontrolling interests
                                                    
                                                    
                                                    2,344,216
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,344,216Net
      earnings attributable to:China
      Premium Lifestyle Enterprise Inc. common stockholders
                                                    
                                                    
                                                    544,855
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    544,855Noncontrolling
      interests
                                                    
                                                    
                                                    1,799,361
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    1,799,361Net
      earnings
                                                    
                                                    $
                                                    2,344,216
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    2,344,216Earnings
      per common stock attributable to China Premium Lifestyle Enterprise, Inc.
      common stockholdersBasic
                                                    
                                                    $
                                                    0.0197
                                                    
                                                    
                                                    $
                                                    0.0037
                                                    
                                                    
                                                    $
                                                    0.0234Diluted
                                                    
                                                    $
                                                    0.0169
                                                    
                                                    
                                                    $
                                                    0.0065
                                                    
                                                    
                                                    $
                                                    0.0234Weighted
      average number of common shares outstandingBasic
                                                    
                                                    
                                                    27,719,882
                                                    
                                                    
                                                    
                                                    (4,396,022)
                                                    
                                                    
                                                    
                                                    23,323,860Diluted
                                                    
                                                    
                                                    32,289,501
                                                    
                                                    
                                                    
                                                    (8,965,641)
                                                    
                                                    
                                                    
                                                    23,323,860




[End of condensed consolidated
financial statements.]




27




Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.




FORWARD-LOOKING
STATEMENTS




The
following discussion of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related
notes thereto. The following discussion contains forward-looking statements. The
words or phrases “would be”, “will allow”, “intends to”, “will likely result”,
“are expected to”, “will continue”, “is anticipated”, “estimate”,
“project”, ”believe”,  ”plan”, “intend” or similar
expressions are intended to identify “forward-looking statements.” Such
statements include those concerning expected financial performance, corporate
strategy, and operational plans. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
risks and uncertainties, including: (a) general economic conditions in Hong
Kong, Macau and China; (b) regulatory factors in Hong Kong, Macau and China that
may lead to additional costs or otherwise negatively affect our business; (c)
whether we are able to manage our planned growth efficiently, including whether
our management will be able to: (i) identify, hire, train, retain, motivate and
manage required personnel or (ii) successfully manage and exploit existing and
potential market opportunities; (d) whether we are able to generate sufficient
revenues or obtain financing to sustain and grow our operations; (e) whether we
are able to successfully fulfill our primary cash requirements which are
explained below under “Liquidity and Capital Resources;” and (f) whether
worldwide economic conditions will negatively affect the automobile retail
industry in Hong Kong, Macau and China. Statements made herein are as of the
date of the filing of this Form 10-Q with the United States Securities and
Exchange Commission and should not be relied upon as of any subsequent date.
Unless otherwise required by applicable law, we do not undertake, and we
specifically disclaim any obligation, to update any forward-looking statements
to reflect occurrences, developments, unanticipated events or circumstances
after the date of such statement.




RESTATEMENTS




The
Company is restating its consolidated financial statements as of September 30,
2009 and for the three and nine months ended September 30, 2009 and 2008 in
this amendment to the Company’s Quarterly Report on Form 10-Q/A for
the period ended September 30, 2009. All amounts in Management’s Discussion and
Analysis of Financial Condition and Results of Operations that are the
subject of these restatements in the financial statements filed
herewith have been adjusted, as appropriate, for the effects of the
restatement. For a more detailed discussion of the restatements and their
underlying circumstances, please refer to the Explanatory Note at the beginning
of this Report and Note 14 of the Notes to the consolidated financial statements
included in this Report.




COMPANY
OVERVIEW




China
Premium Lifestyle Enterprise, Inc. is in the business of the importation,
distribution and sales of premium brand luxury products in the Hong Kong Special
Administrative Region (“Hong Kong”), the Macau Special Administrative Region,
(“Macau”), and in the People’s Republic of China, (which for the purpose of this
report excludes Hong Kong, Macau and Taiwan, and hereinafter “China”).
Currently, the Company’s main business is its ownership interest in Technorient
Limited, a Hong Kong corporation (“Technorient”). The business of the
subsidiaries of Technorient Limited consists mainly of importation,
distribution, and after-sales service of Italian “Ferrari” and “Maserati”
branded cars and spare parts in Hong Kong, Macau and China. During 2008, through
its wholly-owned subsidiary, CPMM (Asia) Limited (“CPMM Asia”), the Company
implemented its plan to import, distribute and sell premium brand apparel in
Hong Kong, Macau, China and Taiwan.




THE
BUSINESS OF TECHNORIENT




The
Company’s main business is its 49% ownership interest in Technorient.
 Technorient is a corporation formed in Hong Kong on March 8, 1983.
Technorient is the parent company of Auto Italia Limited (“Auto Italia”), German
Motors Limited (“German Motors”), Italian Motors (Sales & Service) (“Italian
Motors”), Italian Motors (Sales & Service) Limited (“IML”) and King Express
Group Limited (“King Express”). Collectively, Auto Italia, Italian Motors, IML,
German Motors and King Express are hereafter referred to as the “Technorient
Group”. Originally founded in 1974 as German Motors, Technorient has served as
the holding company for Auto Italia, IML and German Motors since 1985.  IML
was appointed sole Ferrari importer and distributor for Hong Kong and Macau in
1992 (and exclusive importer for China between 1994 and 2004), and Auto Italia
was appointed importer and distributor for Maserati in 1996, having been a
dealer for the brand since 1994.  In 2003, IML transferred its entire car
trading business to Auto Italia, which in turn set up a new subdivision, Italian
Motors, to continue the business. On April 24, 2008, Auto Italia formed a
wholly-owned subsidiary named Success Master Holdings Limited, in Hong
Kong. This new entity currently does not have any operations.  On August 7,
2008, IML formed a wholly owned subsidiary named Nanjing Auto Italia Car Trading
Co., Ltd. in China to engage in the distribution of Ferrari and Maserati cars in
Nanjing.





28




IML is a
1% equity holder in Ferrari Maserati Cars International Trading (Shanghai) Co.
Ltd., an equity joint venture company created with Ferrari S.p.A. and the
Beijing-based Poly Investment Group in 2004 to handle sales, marketing and
distribution of Maserati and Ferrari in China. We refer to Ferrari Maserati Cars
International Trading (Shanghai) Co. Ltd. as the “Shanghai JV”. The Shanghai JV
is building a network of dealerships for Ferrari and Maserati in
China.




Auto
Italia and Italian Motors operate from eight locations in Hong Kong and China,
incorporating sales, spare parts, service and body and paint shop facilities for
Ferrari and Maserati. Management believes that the group has a well-established
customer base comprised of high net worth individuals in Hong Kong and China and
enjoys through its sales performance and reputation for first class facilities
and customer service, and excellent relationship with senior management of both
Ferrari S.p.A. and Maserati S.p.A.




Management
of Technorient views the rapid development of the consumer market in China,
particularly the market for luxury products, as an opportunity to leverage the
Company’s existing high net worth customer base and reputation to develop a
platform for distribution of a wide range of luxury items, including additional
high end (performance) autos, luxury yachts and other premium lifestyle
items.




In
October 2007, King Express was appointed by AgustaWestland as its exclusive
distributor for the complete fleet of AgustaWestland commercial helicopters in
Hong Kong and Macau. It also has the right to sell to the highly strategic Pearl
River Delta region of Southern China on a non-exclusive basis. Currently, the
AgustaWestland helicopters business is in its preparatory stage with the likely
arrival of the first helicopter anticipated during the second half of
2010.




THE
BUSINESS OF CPMM ASIA




On
January 18, 2008, CPMM Asia entered into a License and Supply Agreement
(the “Agreement”) with Akkurate Ltd. (“Akkurate”) and Falber Confezioni S.R.L.
(“Falber”) for a term of 10 seasons through approximately January 31, 2013. The
Agreement granted CPMM Asia the exclusive right to sell men’s and women’s
Ready-to-Wear John Richmond, Richmond X, and Richmond Denim (“Products”)
and to open points of sale identified by the signs of Products identified by
the ”John Richmond”, “Richmond”, “Richmond X”, and “Richmond Denim” marks
(collectively, the “Signs”) in China, Hong Kong, Macau and Taiwan (the
“Exclusivity Area”), which Products would be supplied by Falber.




CURRENCY
CONVERSION AND EXCHANGE




The value
of Renminbi (“RMB”), Hong Kong Dollar and the Macau Pataca against the U.S.
dollar and other currencies may fluctuate and is affected by, among other
things, changes in political and economic conditions. Since 1994, the conversion
of RMB into foreign currencies, including Hong Kong and U.S. dollars,
has been based on rates set by the People’s Bank of China, or PBOC, which
are set daily based on the previous day’s PRC interbank foreign exchange market
rate and current exchange rates on the world financial markets. Since 1994, the
official exchange rate for the conversion of RMB to U.S. dollars has generally
been stable.




On July
21, 2005, however, PBOC announced a reform of its exchange rate system. Under
the reform, RMB is no longer effectively linked to US dollars but instead is
allowed to trade in a tight band against a basket of foreign currencies. If the
RMB were to increase in value against the U.S. dollar, for example, mainland
Chinese consumers would experience a reduction in the relative prices of goods
and services, which may translate into a positive increase in sales. On the
other hand, a decrease in the value of the RMB against the dollar would have the
opposite effect and may adversely affect our results of operations. Any
significant revaluation of RMB may materially and adversely affect our cash
flows, revenues, earnings and financial position, and the value of any dividend
payments. For example, an appreciation of RMB against the U.S. dollar or Hong
Kong dollars would make any new RMB denominated investments or expenditures more
costly to us, to the extent that we need to convert U.S. dollars or Hong Kong
dollars into RMB for such purposes. In addition, a strengthening of the U.S.
dollar against the Hong Kong Dollar or the Macau Pataca, if it occurred, would
adversely affect the value of our common stock.





29




CRITICAL
ACCOUNTING POLICIES




In
preparing our financial statements, we make estimates, assumptions and judgments
that can have a significant effect on our revenues, income or loss from
operations, and net income or net loss, as well as on the value of certain
assets on our balance sheet. We believe that there are several accounting
policies that are critical to an understanding of our historical and future
performance as these policies affect the reported amounts of revenues, expenses,
and significant estimates and judgments applied by management. While there are a
number of accounting policies, methods and estimates affecting our financial
statements, the following policies are considered critical. In addition, you
should refer to our accompanying condensed consolidated balance sheet as of
September 30, 2009 and the condensed consolidated statements of operations
for the nine months ended September 30, 2009 and 2008, and the related
notes thereto, for further discussion of our accounting policies.




Trade
receivables and provision for bad debts




Trade
receivables, net of provision for bad debts, are concentrated with the
receivables from customers. We periodically record a provision for bad debts
based on our judgment resulting from an evaluation of the collectability of
trade receivables by assessing, among other factors, our customer’s willingness
or ability to pay, repayment history, general economic conditions, and the
ongoing relationship with our customers. The total amount of this provision is
determined by first identifying the receivables of customers that are considered
to be a higher credit risk based on their current overdue accounts, difficulties
in collecting from these customers in the past and their overall financial
condition. For each of these customers, we estimate the extent to which the
customer will be able to meet its financial obligation, and record a provision
that reduces our trade receivables for that customer to the amount that we
reasonably believe will be collected.  Additional provisions may be
required in the future if the financial condition of our customers or general
economic conditions deteriorate, thereby reducing net earnings.
 Historically our provisions for bad debts have been sufficient to cover
actual credit losses, and we believe that the provisions recorded at the balance
sheet dates are sufficient.




Inventory,
net




Inventory
consists primarily of new and used vehicles held for sale, and vehicle parts and
accessories, and are stated at the lower of cost or market. The new and used
vehicles are valued using the specific identification method and the costs
include acquisition and transportation expenses. The value of the parts and
accessories are valued at the first-in, first-out method and are stated at the
lower of cost or market.  Fashion apparel inventory is valued at the
first-in, first-out method and is stated at the lower of cost or market.
Write-down of potentially obsolete or slow-moving inventory is recorded based on
our analysis of inventory levels and assessment of estimated obsolescence based
upon assumptions about future demand and market conditions. Historically our
actual physical inventory count results have shown our estimates of write-down
of potentially obsolete or slow-moving inventory to be
reliable.  However, additional provisions may be required in the
future if general economic conditions deteriorate, thereby reducing net
earnings.




Share-based
compensation




We have
adopted ASC 718 “Compensation-Stock Compensation”, for our share-based
compensation. We utilized the modified prospective method approach, pursuant to
which we record compensation for all share-based awards granted based on their
fair value. The estimate of the fair value of the share-based compensation
requires the input of subjective assumptions. Changes in the subjective
assumptions could materially affect the estimate of fair value of share-based
compensation; however, based on an analysis using changes in certain assumptions
that could be reasonably possible in the near term, we believe the effect on the
share-based compensation recognized would not have been material.




Stock-based
compensation expense is based on awards that are ultimately expected to vest. We
evaluate the assumptions used to value our awards and if factors change, we
employ different assumptions. If there are any modifications or cancellations of
the underlying unvested securities, we may be required to accelerate, increase
or cancel any remaining unearned stock-based compensation expense. Future
stock-based compensation expense and unearned stock-based compensation will
increase to the extent that we grant additional equity awards to
employees.





30





Revenue
recognition




Revenue
consists of sales of new and used vehicles, vehicle maintenance and repair
services, and sales of vehicle parts and sales of fashion apparel. Revenues from
the following components are recognized as follows:




(i)
            Sales
      of new and used vehicles are recognized when a sales contract has been
      executed and the vehicle’s title has
passed.




(ii)
            Sales
      of fashion apparel and accessories are recognized when the products have
      been delivered and title has
passed.




(iii)
            Sales
      of vehicle parts are recognized when the parts have been delivered and the
      title has passed.




(iv)
            Vehicle
      maintenance and repair income is recognized when services are fully
      rendered.




Impairment
of long-lived assets




We
evaluate long-lived assets, including property and equipment, for impairment
when events and circumstances exist that indicate the carrying amount of these
assets may not be recoverable.  Recoverability of assets is measured by
comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the use of the asset.  The
undiscounted cash flows are subject to estimations and assumptions made by us.
If the estimated undiscounted cash flows change in the future, we may be
required to reduce the carrying amount of an asset.




Income
taxes




We are
required to estimate income tax provisions and amounts ultimately payable or
recoverable in numerous jurisdictions, including Hong Kong. We account for
income taxes under the provision of ASC 740 “Income Taxes”, resulting in two
components of income tax expenses: current and deferred.  Current income
tax expense approximates taxes to be paid or refunded for the relevant periods.
 Deferred income tax expense results from changes in deferred tax assets
and liabilities between periods.  Deferred income tax assets and
liabilities are computed for differences between the financial statements
carrying amounts and the tax bases of existing assets and liabilities that will
result in taxable or deductible amount in the future, as well as from net
operating loss and tax credit carryforwards, and are measured in accordance with
the enacted tax laws and at the rates applicable in the years in which the
differences are expected to be recovered or settled.  A deferred tax
asset is recognized if it is more likely than not that a benefit will be
realized.  Otherwise, we will record a valuation allowance when the
utilization of the deferred tax asset is uncertain.  Additional timing
differences, future earnings trends and/or tax strategies could warrant a need
for establishing an additional valuation allowance or a reserve.




Contingencies




From time
to time, we are involved in disputes, litigation and other legal proceedings. We
record a charge equal to at least the minimum estimated liability for a loss
contingency when both of the following conditions are met: (i) information
available prior to issuance of the financial statements indicates that it is
probable that an asset had been impaired or a liability had been incurred at the
date of the financial statements, and (ii) the range of loss can be
reasonably estimated.  However, the actual liability in any such litigation
may be materially different from our estimates, which could result in the need
to record additional costs. Currently, we have no outstanding legal proceedings
or claims that require a loss contingency.




RESULTS
OF OPERATIONS


Nine Months Ended
September 30




Results
of operations - comparison of nine months ended September 30, 2009 to
nine months ended September 30, 2008:




SALES


Nine months ended
                          September 30, 2009
                        
                        
                        Nine months ended
                          September 30, 2008Total
                          Sales
                        
                        
                        % of
                          Total Sales
                        
                        
                        Total
                          Sales
                        
                        
                        % of
                          Total SalesSales:New
      vehicles
                        
                        $
                        61,144,000
                        
                        
                        
                        72.9
                        %
                        
                        $
                        66,768,000
                        
                        
                        
                        77.6
                        %Used
      vehicles
                        
                        $
                        16,072,000
                        
                        
                        
                        19.2
                        %
                        
                        $
                        14,033,000
                        
                        
                        
                        16.3
                        %Parts
      and services and others
                        
                        $
                        5,412,000
                        
                        
                        
                        6.5
                        %
                        
                        $
                        4,622,000
                        
                        
                        
                        5.4
                        %Fashion
      Apparel
                        
                        $
                        1,181,000
                        
                        
                        
                        1.4
                        %
                        
                        $
                        634,000
                        
                        
                        
                        0.7
                        %Total
                        
                        $
                        83,809,000
                        
                        
                        
                        100
                        %
                        
                        $
                        86,057,000
                        
                        
                        
                        100
                        %





31





Sales
mainly consist of sales of new and used vehicles, sales of parts and services
for vehicle maintenance and repair and sale of fashion apparel.




Total
sales for the nine months ended September 30, 2009 decreased by
approximately $2,248,000 or 2.6% to approximately $83,809,000, compared with
approximately $86,057,000 for the same period of 2008.




New
vehicles sales decreased approximately $5,624,000 or 8.4% from the
first nine months of 2008 compared to the same period of 2009,
while the quantity of new vehicles sold decreased 12.5% for the same period. The
used vehicles sales increased approximately $2,039,000 or 14.5% from the
first nine months of 2008 compared to the same period of 2009, while
the quantity of used vehicles sold increased by 43.3% for the same
period.  The increase in sales of used vehicles and fashion
apparel as well as parts and service sales was partially offset by the
decrease in sale of new vehicles, which reflected a challenging automotive
retail market impacted by the unfavorable global economic
conditions.




COST OF
SALES




Cost of
sales for the nine months ended September 30, 2009 increased to $74,521,000
from $72,089,000 for the nine months ended September 30, 2008, an increase
of $2,432,000 or 3.3%.




GROSS
PROFIT




Gross
profit margin for the nine months ended September 30, 2009 decreased by
5.1% from 16.2% for the same period of 2008 to 11.1% for the current period of
2009 and the gross profit decreased by $4,680,000 to $9,288,000 for the
nine months ended September 30, 2009.  This decrease was mainly caused by
the new and used vehicles trading segment that was negatively impacted by an
overall competitive retail environment.  Certain used
vehicles were sold with a special discount in order to encourage the
sales.




Our
results of operations were adversely impacted by overall economic conditions,
including a decline in consumer confidence and reduced credit availability
offered to consumers by financial institutions.




SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




Selling,
general and administrative expenses or “S,G&A” expenses includes salaries
and related staffing expenses, facilities rent, rate and building management
fees, legal, accounting and  professional services fees, general
corporate expenses and marketing expenses.




S,G&A
for the nine months ended September 30, 2009 were approximately $15,342,000,
compared to approximately $12,545,000 for the same period of 2008. The
approximate $2,797,000 increase in S,G&A expenses was primarily due to
increased rental and depreciation expenses, legal, professional and audit
fees.




Our rent,
rate, building management fees and depreciation expenses increased from
approximately $3,178,000 for the nine months ended September 30, 2008 to
$4,479,000 for the same period of 2009.  This increase is mainly due
to the continued development of the motor business. Legal, professional and
audit fees increased from $422,000 in the nine months ended September 30, 2008
to $1,131,000 for the same period of 2009. The increase was mainly due to the
professional fees incurred for US SEC reporting and compliance
obligations.




OTHER
INCOME, NET




Other
income for the nine months ended September 30, 2009 decreased to
approximately $182,000 compared to approximately $921,000 for the same period of
2008, a total decrease of $739,000. The decrease was primarily due to the
decreased other operating income and the increased interest expenses and
other finance costs. The other operating income is comprised of interest and
rental recharge to affiliates and forfeitures of sales
deposits.  Interest expenses and other finance costs increased from
approximately $411,000 for the nine months ended September 30, 2008 to
approximately $624,000 for the same period of 2009. The funds from which our
increased interest expenses were incurred were used for working capital
purposes.





32




Three Months Ended September
30




Results
of operations - comparison of three months ended September 30, 2009 to
three months ended September 30, 2008:




SALES
                        
                        Three months ended
                          September 30, 2009
                        
                        
                        Three months ended
                          September 30, 2008Total
                          Sales
                        
                        
                        % of
                          Total Sales
                        
                        
                        Total
                          Sales
                        
                        
                        % of
                          Total SalesSales:New
      vehicles
                        
                        $
                        22,584,000
                        
                        
                        
                        74.9
                        %
                        
                        $
                        26,677,000
                        
                        
                        
                        80.0
                        %Used
      vehicles
                        
                        $
                        4,807,000
                        
                        
                        
                        16.0
                        %
                        
                        $
                        4,644,000
                        
                        
                        
                        13.9
                        %Parts
      and services and others
                        
                        $
                        2,442,000
                        
                        
                        
                        8.1
                        %
                        
                        $
                        1,778,000
                        
                        
                        
                        5.4
                        %Fashion
      Apparel
                        
                        $
                        299,000
                        
                        
                        
                        1.0
                        %
                        
                        $
                        263,000
                        
                        
                        
                        0.7
                        %Total
                        
                        $
                        30,132,000
                        
                        
                        
                        100
                        %
                        
                        $
                        33,362,000
                        
                        
                        
                        100
                        %





Sales
mainly consist of sales of new and used vehicles, sales of parts and services
for vehicle maintenance and repair and sale of fashion apparel.




Total
sales for the three months ended September 30, 2009 decreased by
approximately $3,230,000 or 9.7% to approximately $30,132,000, compared with
approximately $33,362,000 for the same period of 2008.




New
vehicles sales decreased approximately $4,093,000 or 15.3% from the
third quarter of 2008 to the same period of 2009, while the quantity
of new vehicles sold decreased 11.8% for the same period.  The used
vehicles sales increased approximately $163,000 or 3.5% from the
third quarter of 2008 to the same period of 2009, while the
quantity of used vehicles sold increased by 17.4% for the same
period.  The increase in sales of used vehicles and fashion
apparel as well as parts and service sales was partially offset by the
decrease in sale of new vehicles, which reflected a challenging automotive
retail market impacted by the unfavorable global economic
conditions..




COST OF
SALES




Cost of
sales for the three months ended September 30, 2009 decreased to
$26,979,000 from $28,056,000 for the three months ended September 30, 2008; the
$1,077,000 or 3.8% decrease was consistent with the decrease in Company’s
revenues during the same period.




GROSS
PROFIT




Gross
profit margin for the three months ended September 30, 2009 decreased
by 5.4% from 15.9% for the same period of 2008, to 10.5% for the
current period of 2009, and the gross profit decreased by $2,152,000
to $3,154,000 for the three months ended September 30,
2009.  This decrease was mainly caused by the new and used vehicles
trading segment that was negatively impacted by an overall competitive retail
environment. Certain used vehicles were sold with a special discount
in order to encourage the sales.




Our
results of operations were adversely impacted by overall economic conditions,
including a decline in consumer confidence and reduced credit availability
offered to consumers by financial institutions.




SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




Selling,
general and administrative expenses or “S,G&A” expenses includes salaries
and related staffing expenses, facilities rent, rate and building management
fees, legal, accounting, professional services, general corporate expenses and
marketing expenses.





33




S,G&A
for the three months ended September 30, 2009 were approximately
$5,517,000, compared to approximately $4,302,000 for the same period of 2008.
The approximate $1,215,000 increase in S,G&A expenses was primarily due to
increased rental expenses, depreciation expenses, legal, professional and audit
fees.




Our rent,
rate, building management fees and depreciation expenses increased from
approximately $1,134,000 for the three months ended September 30, 2008 to
$1,516,000 for the same period of 2009, the increase in such fees were
mainly due to development of the motor business. Legal, professional and
audit fees increased from $184,000 in the three months ended September 30,
2008 to $316,000 for the same period of 2009. The increase was mainly due
to the professional fees incurred for US SEC reporting and compliance
obligations.




OTHER
INCOME (EXPENSES), NET




Other
expenses for the three months ended September 30, 2009 decreased to
approximately $183,000 compared to other income of approximately $176,000 for
the same period of 2008, a total decrease of $360,000. The decrease was
primarily due to the decreased other operating income and the increased
interest expenses and other finance costs. The other operating income is
comprised of interest and rental recharge to affiliates and forfeitures of sales
deposits.  Interest expenses and other finance costs increased from
approximately $151,000 for the third quarter of 2008 to approximately
$219,000 for the same period of 2009. The funds from which our increased
interest expenses were incurred were used for working capital
purposes.




LIQUIDITY
AND CAPITAL RESOURCES




CASH
FLOWS FROM OPERATING ACTIVITIES




Our
operations utilized cash resources of approximately $96,000 for the
nine months ended September 30, 2009, compared to generating cash resources
of approximately $2,083,000 for the nine months ended September 30, 2008,
primarily as a net result of the following:




·
            For
      the nine months ended September 30, 2009, cash flow provided by sales
      net of operating expenses decreased by approximately $7,568,000 to cash
      outflow of $4,724,000. The decrease was primarily as a result of the
      decrease in gross profit.




·
            For
      the nine months ended September 30, 2009, account receivables
      decreased by approximately $10,295,000, primarily due to the collection of
      account receivables relating to the sales recognized in the last three
      quarters and a decrease in orders for new and used
      automobiles.




·
            For
      the nine months ended September 30, 2009, our inventory increased by
      approximately $7,992,000, which was caused by overall
      unfavorable economic conditions, including a decline in consumer
      confidence.




·
            For
      the nine months ended September 30, 2009, the increase or decrease of
      various current operating assets and liabilities, included in the
      aforementioned items, resulted in an aggregate increase of cash inflow
      from operations of approximately
$4,629,000.




CASH
FLOWS FROM INVESTING ACTIVITIES




For the
nine months ended September 30, 2009, we expended net cash of approximately
$2,763,000 in investing activities mainly for the acquisition of property and
equipment to support the development of the motor business. For the
nine months ended September 30, 2008, we utilized approximately
$247,000 in investing activities, mainly for acquisition of property and
equipment.  The increase in the acquisition of property and equipment
was due to the inauguration of our second 3S (Sales, Service and Spare Parts)
Centre in the third quarter of 2009.




CASH
FLOWS FROM FINANCING ACTIVITIES




During
the nine months ended September 30, 2009, we repaid approximately $415,000
of our obligations owed on outstanding debt as compared to approximately
$547,000 for the nine months ended September 30, 2008.





34




For the
nine months ended September 30, 2009, we received approximately $773,000 in
net advances from affiliates. For the nine months ended September 30, 2008,
we received approximately $810,000 in net advances from affiliates.
The advances from/to affiliates were made from/to entities that are under
common management, where Mr. Richard Man Fai Lee, the Company’s Chief Executive
Officer, is the common director of the Company and the affiliates. These
advances included interest bearing and non interest bearing portions depending
on the nature of the advances.




WORKING
CAPITAL REQUIREMENTS




Current
assets exceeded current liabilities at September 30, 2009 by approximately
$1,489,000, a decrease of $6,457,000 from December 31, 2008. The ratio of our
current assets to our current liabilities was 1.03 to 1 at September 30,
2009 compared to 1.18 to 1 at December 31, 2008. At
September 30, 2009, our current assets of approximately $46,938,000
included approximately $20,632,000 in inventory that was funded by the operating
cash flow and trade finance facilities. Our current liabilities of approximately
$45,449,000 included non-refundable customer deposits. Given the exclusive
nature and extremely limited production of Ferrari cars, our customers are
willing to place material deposits in advance to the Company in order to secure
their new car orders. This resulted in customer deposits of approximately
$23,864,000.




SEASONALITY




Our
business is modestly seasonal.  Our operations generally experience higher
volumes of vehicle sales in the fourth quarter of each year due in part to
manufacturers’ production and delivery patterns.




EFFECT OF
FLUCTUATION IN FOREIGN EXCHANGE RATES




We have
no foreign exchange contracts.  Our financial instruments consist of cash
and cash equivalents, trade receivable and payables, bills payable, other
current assets, other current liabilities, and bank borrowings.  We
consider investments in highly liquid instruments purchased with a remaining
maturity of 90 days or less at the date of purchase to be cash equivalents.
However, in order to manage the foreign exchange risks, we may engage in hedging
activities to manage our financial exposure related to currency exchange
fluctuation. In these hedging activities, we might use fixed-price, forward and
option contracts when feasible.




While our
reporting currency is the U.S. dollar, to date virtually all of our revenues and
costs are denominated in Hong Kong Dollars and a significant portion of our
assets and liabilities is denominated in Hong Kong Dollars. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations may
be impacted by fluctuations in the exchange rate between U.S. Dollars and Hong
Kong Dollars.  If the Hong Kong Dollar depreciates against the U.S. Dollar,
the value of our Hong Kong Dollar revenues and assets as expressed in our U.S.
Dollar financial statements will decline. Thus, our revenues and operating
results may be impacted by exchange rate fluctuations of the Hong Kong Dollar.
While we may choose to do so in the future, the availability and effectiveness
of any hedging transactions may be limited and we may not be able to
successfully hedge our exchange rate risks. Accordingly, we may experience
economic losses and negative impacts on earnings and equity as a result of
foreign exchange rate fluctuations. The effect of foreign exchange rate
fluctuation for the nine months ended September 30, 2009 was not material to
us.




OFF-BALANCE
SHEET ARRANGEMENTS




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a material current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.




Item
3.  Quantitative and Qualitative Disclosures about Market
Risk.




Not
applicable to smaller reporting companies.




Item
4T.  Controls and Procedures




NOTE:
This Item 4T. Controls and Procedures has been updated to reflect the
restatement of our audited financial statements for the years ended December 31,
2008, 2007 and 2006, the restatement of our unaudited interim financial
statements for the periods ended September 30, 2006 through September 30, 2009,
the amendment of certain Notes to our audited financial statements for our
former fiscal year ended June 30, 2006 and the amendment of certain Notes
to our unaudited interim financial statements for the period ended March 31,
2006, as discussed above in the Explanatory Note at the beginning of this Report
and in Note 14 of the Notes to the consolidated financial statements included in
this Report.





35





Reevaluation
of Effectiveness of Internal Control over Financial Reporting and Disclosure
Controls and Procedures




This Form
10-Q/A presents restatements of the financial statements for the covered
period.  In connection with this Form 10-Q/A, our management
reevaluated the effectiveness of our internal control over financial reporting
and our disclosure controls and procedures, as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of
September 30, 2009.  In assessing whether our internal control over
financial reporting and disclosure controls and procedures were effective as of
such date, our management considered the impact of the restatements to our
consolidated audited financial statements for the period ended September 30,
2009, as outlined in Part I, Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the section heading “Restatements”,as well as our control
environment.  In connection with our reevaluation, we discovered
material weaknesses in our internal control over financial reporting and
determined that our disclosure controls and procedures were not adequate as of
the end of the period covered by this report.




Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting as required by Section 404A of the
Sarbanes-Oxley Act of 2002 (“SOX”).  Our system of internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).  Our
internal control over financial reporting includes those policies and procedures
that:




·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect our transactions and dispositions of our
      assets;




·
            provide
      reasonable assurance that our transactions are recorded as necessary to
      permit preparation of our financial statements in accordance with GAAP,
      and that our receipts and expenditures are being made only in accordance
      with authorizations of our management and our directors;
    and




·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on the financial
  statements.




Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements.  Further, because of changes in conditions,
effectiveness of internal controls over financial reporting may vary over
time.  Our system contains self monitoring mechanisms, and actions are
taken to correct deficiencies as they are identified.




During
the pendency of the Federal Court Action and preparing for our 2009 year end
evaluation of effectiveness of our system of internal control over financial
reporting based on the framework in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and SEC guidance on conducting such assessments, our
management concluded that our system of internal control over financial
reporting was not effective as of the period ended March 31, 2006 through the
period ended September 30, 2009, which resulted in restatements described in the
Explanatory Note at the beginning of this Report and Note 14 of the Notes to the
consolidated financial statements included in this Report.




Our
management has identified internal control deficiencies which resulted in the
material restatements described above and which, in our management’s judgment,
represented a material weakness in internal control over financial
reporting.  The control deficiencies related to controls over the
accounting and disclosure for certain transactions to ensure that such
transactions were recorded as necessary to permit preparation of financial
statements and disclosure in accordance with GAAP.




Specifically,
the control deficiencies related to:




·
            the
      invalid adoption of certain purported amendments to our Articles of
      Incorporation;





36




·
            the
      unauthorized issuance by prior management of shares of our capital stock;
      and




·
            the
      lack of recognition of the receipt of services from certain third party
      consultants on our financial
statements.




A
material weakness in internal controls is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the financial statements would not be
prevented or detected on a timely basis by us.




In the
course of our revised assessment of internal controls over financial reporting,
we also re-assessed our disclosure controls and procedures as defined in Rule
13a-15(e) of the Exchange Act.  Our management is responsible for
establishing and maintaining an adequate system of disclosure controls and
procedures designed to provide reasonable assurance that the information
required to be disclosed by us in reports that we file and submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.  Disclosure controls
also are designed to reasonably assure that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.  Disclosure controls include components of internal
control over financial reporting, which consists of control processes designated
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with United States
generally accepted accounting principles.




We have
determined that our material weakness in internal controls over financial
reporting was also a weakness in our disclosure controls and procedures, since
such weakness related to the disclosure controls which provide us with
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles.




In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.




Based on
its assessment, including consideration of the aforementioned material
weaknesses, and the criteria discussed above, management has restated its
conclusion relative to the effectiveness of our internal control over financial
reporting and disclosure controls and procedures as of September 30,
2009.  Accordingly, our management has concluded that our internal
control over financial reporting and our disclosure controls and procedures were
not effective as of September 30, 2009 to provide reasonable assurance that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, and summarized within the appropriate
periods.




Our
management is responsible for establishing and maintaining an adequate system of
disclosure controls and procedures designed to provide reasonable assurance that
the information required to be disclosed by us in reports that we file and
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and
forms.  Disclosure controls also are designed to reasonably assure
that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosures.  Disclosure
controls include components of internal control over financial reporting, which
consists of control processes designated to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP.




We have
determined that our material weakness in internal controls over financial
reporting was also a weakness in our disclosure controls and procedures, since
such weakness related to the disclosure controls which provide us with
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP.




In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.





37




Based on
its assessment, including consideration of the above-mentioned material
weakness, and the criteria discussed above, management has restated its
conclusion relative to the effectiveness of our internal control over financial
reporting and disclosure controls and procedures as of September 30,
2009.  Accordingly, our management has concluded that our internal
control over financial reporting and that our disclosure controls and procedures
were not effective as of September 30, 2009 to provide reasonable assurance that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, and summarized within the appropriate
periods.




Management
will continue to evaluate the effectiveness of our internal controls over
financial reporting and our disclosure controls and procedures on an ongoing
basis, and has taken action and implemented improvements as
necessary.




Changes
in Internal Controls over Financial Reporting




No
changes to our internal control over financial reporting or disclosure controls
and procedures were made to rectify the material weakness during the period
covered by this Form 10-Q/A because such weakness was not known at that
time.  However, subsequent to the period, we remediated this weakness
by:




·
            retaining
      new advisors to advise us and adopting a policy to consult with such
      advisors (or other outside experts) regarding complex legal and accounting
      issues;




·
            completing
      a review and updated risk assessment of all of our financial controls and
      procedures; and




·
            reviewing
      and instituting controls for each
weakness.




PART
II.  OTHER INFORMATION




Item
1.  Legal Proceedings.




This Item
should be read in conjunction with Notes 8 and 9 to the Company’s Condensed
Consolidated Financial Statements (Unaudited) as of September 30,
2009.




The
Company is currently engaged in litigation (the “Federal Court Action”) with
respect to certain shares of the Company’s purported Series A Convertible
Preferred Stock (the “Disputed Preferred Shares”) purportedly issued to Happy
Emerald Limited (“HEL”) and certain shares of the Company’s Common Stock
purportedly issued upon the conversion of certain of the Disputed Preferred
Shares (the “Disputed Conversion Shares” and together with the Disputed
Preferred Shares, the “Disputed Shares”).




On May 5,
2009, the Company filed its Second Amended Complaint in the Federal Court Action
(the “SAC”).  On September 25, 2009, the court issued its ruling on a
motion to dismiss the SAC filed by some of the defendants named in the
SAC.  Following that ruling, the court found that the SAC sufficiently
stated claims for breach of contract, fraud, conversion and breach of fiduciary
duty.




Certain
defendants in the Federal Court Action filed their First Amended Answer to the
SAC on August 17, 2009 (the “First Amended Answer”).  Of those
defendants, Federico G. Cabo, Fred De Luca and Global Premium Brands Co., Inc. a
Nevada corporation, asserted a First Amended Counterclaim against the Company,
and others, for slander of title, conversion, promissory estoppels and fraud
relating to the Disputed Shares.  Federico G. Cabo, Fred De Luca and
Robert G. Pautsch also asserted Crossclaims against certain other parties (that
did not include the Company).  The Company is scheduled to answer the
First Amended Counterclaim on or before November 9, 2009.




In
addition, as more fully discussed in Note 8 to the Company’s Consolidated
Financial Statements (Unaudited) as of September 30, 2009, the Company has
determined that the Company has never been authorized to issue any shares of any
class or series of preferred stock, including the Disputed Preferred
Shares.  As a result, in addition to its other claims against HEL and
the defendants, the Company asserted in the SAC that all of the Disputed Shares
are void and subject to cancellation.





38





In a
related matter, the Company was named as a defendant in a state court action,
styled Federico G. Cabo, et
al. v. China Premium Lifestyle Enterprise, Inc., et al.,California
Superior Court, Ventura County, Case No. 56-2008-00333382-CU-BC-VTA (the “State
Court Action”).  The plaintiffs in the State Court Action (defendants
in the Federal Court Action) Federico Cabo, Fred De Luca, and Nevada Global,
asserted various claims against multiple defendants relating to the Preferred
Shares issued to HEL in which these plaintiffs claim an interest.  The
plaintiffs asserted claims for estoppels, slander of title, conversion and
constructive trust against the Company in the State Court Action.  By
agreement with the plaintiffs in the State Court Action, the State Court Action
was dismissed, without prejudice, and it is anticipated that the same or similar
claims will be asserted in the Federal Court Action.  The Company
denies any such alleged wrongdoing and will vigorously defend these claims if
they are asserted in the Federal Court Action.  The Company, however,
is unable to evaluate the likelihood of an outcome, favorable or
unfavorable, to the Company at this time or to estimate the amount or range of a
possible loss.




Effective
March 1, 2010, the Company settled the Federal Court Action.  Under
the terms of the settlement: (1) the defendants agreed to return to the Company
for cancellation 247,798 shares of preferred stock and 4,569,619 shares of
common stock; (2) Mr. De Luca resigned from the Company’s board of directors
effective March 1, 2010; (3) the parties executed a mutual release; and (4) the
Company dismissed the action with prejudice.




In
December 2006, the Company had delivered 65,454 shares of preferred stock to
Bern Noble, Ltd. (“Bern Noble”) for consulting services rendered in connection
with the Exchange.  In March 2007, Bern Noble converted such shares
into 1,210,631 shares of common stock.  As discussed in the
Explanatory Note at the beginning of this Report and as previously disclosed in
the Company’s Current Report on Form 8-K, as filed with the SEC on May 11, 2009,
the Company later determined that it was never authorized to issue any shares of
preferred stock.  In connection with the settlement, Bern Noble agreed
to return to us for cancellation the 1,210,631 shares of common
stock.  We also agreed to replace the shares with an equal number of
new shares of common stock in consideration of services rendered to us in 2006
in connection with the closing of the Amended Share Exchange
Agreement.  We agreed to deliver the replacement shares in nine
monthly installments.




In the
ordinary course of its business, and other than as set forth above or as
described in the notes to our condensed consolidated financial statements, we
and our subsidiaries may be involved from time to time in various pending or
threatened legal proceedings, arising from the conduct of
business.  After consultation with legal counsel and a review of
available facts, it is management’s opinion that these proceedings, after
consideration of any reserves and rights to indemnification, ultimately will be
resolved without materially affecting our consolidated financial
position.  However given the indeterminate amounts that may be sought
in these proceedings and the inherent difficulty in predicting the outcome of
such legal proceedings, including the proceeding described above, it is possible
that an adverse outcome in certain matters could be material to our operating
results for any particular reporting period.




Item
1A.  Risk Factors.




Not
applicable to smaller reporting companies.




Item
5.  Other Information.




During
the three months ended September 30, 2009, there have been no matters required
to be disclosed in a report on Form 8-K but not reported, and no material
changes to the procedures by which security holders may recommend nominees to
the Company’s board of directors.




Item
6.  Exhibits.




Exhibit
              No.
            
            Description2.1
            
            Share
      Exchange Agreement dated July 15, 2006 among the Company, Fred De Luca,
      Corich Enterprises, Inc., Herbert Adamczyk and Technorient Limited,
      incorporated by reference from the Form 8-K/A filed with the SEC on July
      28, 2006.2.2
            
            Reformation
      of Share Exchange Agreement dated May 5, 2009 among the Company, Corich
      Enterprises, Inc., Herbert Adamczyk, Technorient Limited and Orient
      Financial Services, Ltd., incorporated by reference from the Form 8-K
      filed with the SEC on May 11, 2009.3.1
            
            Articles
      of Incorporation, dated as of April 19, 2004, incorporated by reference
      from the Company’s Form SB-2 Registration Statement filed with the SEC on
      November 26, 2004 (File No.
333-120807).





39





3.2
            
            By-Laws
      of Xact Aid Inc., incorporated by reference from the Company’s Form SB-2
      Registration Statement filed with the SEC on November 26, 2004 (File No.
      333-120807).3.3
            
            Certificate
      of Amendment to Articles of Incorporation, effective date December 27,
      2006, incorporated by reference from the Company’s Annual Report on Form
      10-K for the year ended December 31, 2007 filed with the SEC on March 31,
      2008.3.4
            
            Certificate
      of Amendment to Articles of Incorporation, effective date December 7,
      2007, incorporated by reference from the Company’s Current Report on Form
      8-K filed with the SEC on December 10, 2007.10.1
            
            Supplemental
      Deed dated June 24, 2009, incorporated by reference from the Company’s
      Current Report on Form 8-K filed with the SEC on June 26,
      2009.31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
            
            Certification
      of the Chief Financial Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
      herewith.





40





SIGNATURES




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




CHINA
      PREMIUM LIFESTYLE ENTERPRISE, INC.(Registrant)Date:
      May 28, 2010
                    
                    By:
                    /s/ Richard Man Fai LEERichard
      Man Fai LEEChief
      Executive OfficerDate:
      May 28, 2010
                    
                    By:
                    /s/ Joseph Tik Tung WONGJoseph
      Tik Tung WONGChief
      Financial Officer, Treasurer and
Secretary





41





EXHIBIT
INDEX




Exhibit
              No.
            
            Description2.1
            
            Share
      Exchange Agreement dated July 15, 2006 among the Company, Fred De Luca,
      Corich Enterprises, Inc., Herbert Adamczyk and Technorient Limited,
      incorporated by reference from the Form 8-K/A filed with the SEC on July
      28, 2006.2.2
            
            Reformation
      of Share Exchange Agreement dated May 5, 2009 among the Company, Corich
      Enterprises, Inc., Herbert Adamczyk, Technorient Limited and Orient
      Financial Services, Ltd., incorporated by reference from the Form 8-K
      filed with the SEC on May 11, 2009.3.1
            
            Articles
      of Incorporation, dated as of April 19, 2004, incorporated by reference
      from the Company’s Form SB-2 Registration Statement filed with the SEC on
      November 26, 2004 (File No. 333-120807).3.2
            
            By-Laws
      of Xact Aid Inc., incorporated by reference from the Company’s Form SB-2
      Registration Statement filed with the SEC on November 26, 2004 (File No.
      333-120807).3.3
            
            Certificate
      of Amendment to Articles of Incorporation, effective date December 27,
      2006, incorporated by reference from the Company’s Annual Report on Form
      10-K for the year ended December 31, 2007 filed with the SEC on March 31,
      2008.3.4
            
            Certificate
      of Amendment to Articles of Incorporation, effective date December 7,
      2007, incorporated by reference from the Company’s Current Report on Form
      8-K filed with the SEC on December 10, 2007.10.1
            
            Supplemental
      Deed dated June 24, 2009, incorporated by reference from the Company’s
      Current Report on Form 8-K filed with the SEC on June 26,
      2009.31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
            
            Certification
      of the Chief Financial Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
      herewith.