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, 2007




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)
2514-4880


(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  ̈




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).  Yes ̈  No ̈




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




Large Accelerated
      Filer ̈
            Accelerated
      Filer ̈
            Non-Accelerated
      Filer ̈
            Smaller
      Reporting Companyx(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  ̈No x




The
number of shares of common stock outstanding as of November 7, 2007 was
98,929,180.










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, 2007 (the “Third Quarter 2007 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 2007 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, 2007 and for the
three and nine months ended September 30, 2007 and 2006.




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.




NOTE:  The common stock numbers in the
“Background” sections of this Explanatory Note and Note 14 of the financial
statements filed herewith 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.  However, unless otherwise indicated,
the common stock numbers in the “Restatements” sections of this Explanatory Note
and Note 14 of the financial statements filed herewith, and in the balance of
this Form 10-Q/A reflect our pre-Reverse Stock Split capitalization, as in
effect during the period covered by this Form 10-Q/A.




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.




The
following actions were also taken:





i




·
            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, 2007 and
      December 31, 2006, 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, 2007, preferred stock
      decreased by $496, common stock decreased by $23,743, additional
      paid-in-capital decreased by $1,444,691 and stockholders' equity
      decreased by $1,468,930. At December 31, 2006, preferred stock
      decreased by $1,534, common stock increased by $72,000,
      additional paid-in-capital decreased by $1,539,396 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, 2007 and December 31,
  2006;




iii




·
            on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2007, basic and diluted earnings per share
      increased by $0.0006 and $0.0013, respectively, for the nine months
      ended September 30, 2007, basic earnings per share decreased by
      $0.0005 and diluted earnings per share increased by $0.0012, for the three
      months ended September 30, 2006, basic earnings per share decreased by
      $0.0241 and diluted earnings per share increased by $0.0006, and for the
      nine months ended September 30, 2006, basic earnings per share
      decreased by $0.1867 and diluted earnings per share increased by
      $0.0014; and




·
            for
      the three months ended September 30, 2007, the basic and diluted weighted
      average number of outstanding shares decreased by 23,743,034 and
      69,439,213, respectively, for the nine months ended September 30, 2007,
      the basic weighted average number of outstanding shares increased by
      8,643,277 and the diluted weighted average number of outstanding shares
      decreased by 37,052,902, and for the three and nine months ended September
      30, 2006, the basic weighted average number of outstanding shares
      increased by 90,069,541 and 95,511,453, respectively, and diluted weighted
      average number of outstanding shares decreased by 51,369,672 and
      45,927,760, 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 2007 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,” “Company Overview and
      History” and “Working Capital
      Requirements;”




·
            Part
      I, Item 4. Controls and Procedures;
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 2007 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 2007 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 2007 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 2007 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 2007 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, 2007




TABLE
OF CONTENTS





Part
      I: FINANCIAL INFORMATION
              1Item
      1. Financial Statements.
              1Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
              21Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk.
              29Item
      4. Controls and Procedures.
              30Part
      II: OTHER INFORMATION
              33Item
      1. Legal Proceedings.
              33Item
      1A. Risk Factors.
              33Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
              33Item
      3. Defaults Upon Senior Securities.
              33Item
      4. Submission of Matters to a Vote of Security Holders.
              33Item
      5. Other Information.
              33Item
      6. Exhibits.
              33SIGNATURES
              34









PART
I:  FINANCIAL INFORMATION




Item
1.  Financial Statements.




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




AS
OF SEPTEMBER 30, 2007 AND




FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006




INDEX
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




CONDENSED
      CONSOLIDATED BALANCE SHEETS (UNAUDITED)
              
              2CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
              
              3CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
              
              4NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
              
              5




1





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)




September 30,
                            
                            
                            December 31,2007
                            
                            
                            2006$
                              (Restated)
                            
                            
                            $
                              (Restated)(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            
                            3,997,188
                            
                            
                            
                            3,475,635Restricted
      cash
                            
                            
                            514,940
                            
                            
                            
                            385,629Trade
      receivables, net of provision
                            
                            
                            3,371,778
                            
                            
                            
                            11,246,621Inventory,
      net
                            
                            
                            11,844,059
                            
                            
                            
                            6,815,863Prepayments
                            
                            
                            181,782
                            
                            
                            
                            37,328Other
      current assets
                            
                            
                            1,555,929
                            
                            
                            
                            1,503,626Amounts
      due from affiliates
                            
                            
                            10,253,622
                            
                            
                            
                            4,503,367Amount
      due from an associate
                            
                            
                            851,356
                            
                            
                            
                            457,267Total
      current assets
                            
                            
                            32,570,654
                            
                            
                            
                            28,425,336Property
      and equipment, net
                            
                            
                            2,001,286
                            
                            
                            
                            2,377,656Goodwill
                            
                            
                            39,640
                            
                            
                            
                            -Investment
      in an associate
                            
                            
                            1,285,257
                            
                            
                            
                            1,355,530Deferred
      income taxes
                            
                            
                            540,687
                            
                            
                            
                            539,880TOTAL
      ASSETS
                            
                            
                            36,437,524
                            
                            
                            
                            32,698,402LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                            
                            
                            3,546,041
                            
                            
                            
                            5,315,497Obligations
      due under finance lease - current portion
                            
                            
                            153,409
                            
                            
                            
                            167,106Bills
      payable
                            
                            
                            3,739,887
                            
                            
                            
                            4,412,575Trade
      payables
                            
                            
                            1,498,850
                            
                            
                            
                            480,859Deposits
      received
                            
                            
                            17,619,963
                            
                            
                            
                            8,607,049Other
      current liabilities
                            
                            
                            2,005,725
                            
                            
                            
                            7,331,020Amounts
      due to affiliates
                            
                            
                            3,969
                            
                            
                            
                            -Total
      current liabilities
                            
                            
                            28,567,844
                            
                            
                            
                            26,314,106Long-term
      liabilities:Obligations
      due under finance lease - non-current portion
                            
                            
                            -
                            
                            
                            
                            111,404TOTAL
      LIABILITIES
                            
                            
                            28,567,844
                            
                            
                            
                            26,425,510Commitments
      and ContingenciesMinority
      interests
                            
                            
                            4,313,672
                            
                            
                            
                            3,318,358Stockholders'
      equityCommon
      stockAuthorized:
      100,000,000 common stock, par value $0.001Issued
      and outstanding: 98,929,180 shares as at September 30, 2007 (98,929,180 as
      at December 31, 2006)
                            
                            
                            98,961
                            
                            
                            
                            98,961Additional
      paid-in-capital
                            
                            
                            4,136,766
                            
                            
                            
                            4,136,766Accumulated
      other comprehensive income
                            
                            
                            213,910
                            
                            
                            
                            51,507Accumulated
      deficits
                            
                            
                            (893,629
                            )
                            
                            
                            (1,332,700
                            )TOTAL
      STOCKHOLDERS’ EQUITY
                            
                            
                            3,556,008
                            
                            
                            
                            2,954,534TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                            
                            
                            36,437,524
                            
                            
                            
                            32,698,402





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 INCOME (UNAUDITED)




Three months ended
                                    September 30,
                                  
                                  
                                  Nine months ended
                                    September 30,2007
                                    (Restated)
                                  
                                  
                                  2006
                                    (Restated)
                                  
                                  
                                  2007
                                    (Restated)
                                  
                                  
                                  2006
                                    (Restated)$
                                  
                                  
                                  $
                                  
                                  
                                  $
                                  
                                  
                                  $Sales:New
      and used vehicles
                                  
                                  
                                  24,819,562
                                  
                                  
                                  
                                  13,327,113
                                  
                                  
                                  
                                  64,290,343
                                  
                                  
                                  
                                  35,859,615Parts
      and services
                                  
                                  
                                  1,941,571
                                  
                                  
                                  
                                  1,347,905
                                  
                                  
                                  
                                  4,597,838
                                  
                                  
                                  
                                  3,715,532Net
      sales
                                  
                                  
                                  26,761,133
                                  
                                  
                                  
                                  14,675,018
                                  
                                  
                                  
                                  68,888,181
                                  
                                  
                                  
                                  39,575,147Cost
      of sales:New
      and used vehicles
                                  
                                  
                                  (21,862,921
                                  )
                                  
                                  
                                  (11,455,667
                                  )
                                  
                                  
                                  (57,008,236
                                  )
                                  
                                  
                                  (30,863,133
                                  )Parts
      and services
                                  
                                  
                                  (639,969
                                  )
                                  
                                  
                                  (373,758
                                  )
                                  
                                  
                                  (1,408,830
                                  )
                                  
                                  
                                  (1,160,336
                                  )Total
      cost of sales
                                  
                                  
                                  (22,502,890
                                  )
                                  
                                  
                                  (11,829,425
                                  )
                                  
                                  
                                  (58,417,066
                                  )
                                  
                                  
                                  (32,023,469
                                  )Gross
      profit:New
      and used vehicles
                                  
                                  
                                  2,956,641
                                  
                                  
                                  
                                  1,871,446
                                  
                                  
                                  
                                  7,282,107
                                  
                                  
                                  
                                  4,996,482Parts
      and services
                                  
                                  
                                  1,301,602
                                  
                                  
                                  
                                  974,147
                                  
                                  
                                  
                                  3,189,008
                                  
                                  
                                  
                                  2,555,196Total
      gross profit
                                  
                                  
                                  4,258,243
                                  
                                  
                                  
                                  2,845,593
                                  
                                  
                                  
                                  10,471,115
                                  
                                  
                                  
                                  7,551,678Selling
      and marketing
                                  
                                  
                                  (401,350
                                  )
                                  
                                  
                                  (260,939
                                  )
                                  
                                  
                                  (792,555
                                  )
                                  
                                  
                                  (479,219
                                  )General
      and administrative expenses
                                  
                                  
                                  (3,051,887
                                  )
                                  
                                  
                                  (2,160,000
                                  )
                                  
                                  
                                  (8,273,451
                                  )
                                  
                                  
                                  (6,113,520
                                  )Operating
      earnings
                                  
                                  
                                  805,006
                                  
                                  
                                  
                                  424,654
                                  
                                  
                                  
                                  1,405,109
                                  
                                  
                                  
                                  958,939Other
      income (expenses)Interest
      expenses
                                  
                                  
                                  (158,803
                                  )
                                  
                                  
                                  (112,679
                                  )
                                  
                                  
                                  (580,783
                                  )
                                  
                                  
                                  (291,913
                                  )Share
      of result of an associate
                                  
                                  
                                  (71,615
                                  )
                                  
                                  
                                  (33,586
                                  )
                                  
                                  
                                  (149,675
                                  )
                                  
                                  
                                  7,032Other
      income
                                  
                                  
                                  274,928
                                  
                                  
                                  
                                  66,187
                                  
                                  
                                  
                                  759,760
                                  
                                  
                                  
                                  184,599Total
      other income (expenses)
                                  
                                  
                                  44,510
                                  
                                  
                                  
                                  (80,078
                                  )
                                  
                                  
                                  29,302
                                  
                                  
                                  
                                  (100,282
                                  )Earnings
      before income taxes and minority interests
                                  
                                  
                                  849,516
                                  
                                  
                                  
                                  344,576
                                  
                                  
                                  
                                  1,434,411
                                  
                                  
                                  
                                  858,657Provision
      for income taxes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Earnings
      before minority interests
                                  
                                  
                                  849,516
                                  
                                  
                                  
                                  344,576
                                  
                                  
                                  
                                  1,434,411
                                  
                                  
                                  
                                  858,657Minority
      interests
                                  
                                  
                                  (539,044
                                  )
                                  
                                  
                                  (175,734
                                  )
                                  
                                  
                                  (995,340
                                  )
                                  
                                  
                                  (437,915
                                  )Net
      earnings
                                  
                                  
                                  310,472
                                  
                                  
                                  
                                  168,842
                                  
                                  
                                  
                                  439,071
                                  
                                  
                                  
                                  420,742Earnings
      per shareBasic
                                  
                                  
                                  0.0031
                                  
                                  
                                  
                                  0.0017
                                  
                                  
                                  
                                  0.0044
                                  
                                  
                                  
                                  0.0043Diluted
                                  
                                  
                                  0.0031
                                  
                                  
                                  
                                  0.0017
                                  
                                  
                                  
                                  0.0044
                                  
                                  
                                  
                                  0.0043Weighted
      average number of common shares outstandingBasic
                                  
                                  
                                  98,929,180
                                  
                                  
                                  
                                  96,607,467
                                  
                                  
                                  
                                  98,929,180
                                  
                                  
                                  
                                  97,714,710Diluted
                                  
                                  
                                  98,929,180
                                  
                                  
                                  
                                  96,607,467
                                  
                                  
                                  
                                  98,929,180
                                  
                                  
                                  
                                  97,714,710




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 30,2007
                            
                            
                            2006$
                            
                            
                            $Cash
      flows from operating activities:Net
      earnings
                            
                            
                            439,071
                            
                            
                            
                            420,742Adjustments
      to reconcile net earnings to net cash provided by operating
      activitiesMinority
      interest
                            
                            
                            995,340
                            
                            
                            
                            437,915Depreciation
      and amortization
                            
                            
                            525,599
                            
                            
                            
                            391,973Provision
      for bad debts and bad debts written off
                            
                            
                            80,646
                            
                            
                            
                            46,156Provision
      for inventory written back
                            
                            
                            (8,965
                            )
                            
                            
                            -Equity
      earnings of an associate
                            
                            
                            149,675
                            
                            
                            
                            (7,032
                            )Other
      non-cash items
                            
                            
                            28,472
                            
                            
                            
                            39,800Gain
      on disposal of property, plant and equipment
                            
                            
                            (1,601
                            )Changes
      in operating assets and liabilities:Trade
      receivables
                            
                            
                            7,794,197
                            
                            
                            
                            3,116,179Other
      current assets and prepayments
                            
                            
                            (196,756
                            )
                            
                            
                            529,752Inventory
                            
                            
                            (5,019,231
                            )
                            
                            
                            (3,558,837
                            )Trade
      payables
                            
                            
                            1,017,991
                            
                            
                            
                            237,153Other
      current liabilities and deposits received
                            
                            
                            3,687,620
                            
                            
                            
                            217,201Net
      cash provided by operating activities
                            
                            
                            9,492,058
                            
                            
                            
                            1,871,002Cash
      flows from investing activities:Increase
      in restricted cash
                            
                            
                            (129,311
                            )
                            
                            
                            -Cash
      acquired upon acquisition of a subsidiary
                            
                            
                            -
                            
                            
                            
                            1,284Purchases
      of property and equipment
                            
                            
                            (149,666
                            )
                            
                            
                            (783,016
                            )Proceeds
      from disposal of property, plant and equipment
                            
                            
                            16,092
                            
                            
                            
                            -Net
      cash used in investing activities
                            
                            
                            (262,885
                            )
                            
                            
                            (781,732
                            )Cash
      flows from financing activities:Advances
      to affiliates
                            
                            
                            (5,746,286
                            )
                            
                            
                            (2,770,608
                            )Advance
      from (to) an associate
                            
                            
                            (394,089
                            )
                            
                            
                            153,561(Decrease)
      increase in borrowings and bills payable
                            
                            
                            (2,567,245
                            )
                            
                            
                            1,284,651Net
      cash used in financing activities
                            
                            
                            (8,707,620
                            )
                            
                            
                            (1,332,396
                            )(Decrease)
      increase in cash and cash equivalents
                            
                            
                            521,553
                            
                            
                            
                            (243,126
                            )Cash
      and cash equivalents at beginning of the period
                            
                            
                            3,475,635
                            
                            
                            
                            452,754Cash
      and cash equivalents at end of the period
                            
                            
                            3,997,188
                            
                            
                            
                            209,628Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
                            
                            
                            580,783
                            
                            
                            
                            291,913




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
accompanying condensed consolidated financial statements have been restated as
described in Note 14.




The
condensed consolidated financial statements as of September 30, 2007 and for the
three months and nine months ended September 30, 2007 and 2006 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 2007 due to seasonal and
other factors. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States 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, 2006.




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
it 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.




Share-based
compensation




The
Company elected to adopt SFAS No. 123(R), “Share-Based Payment,” as amended and
interpreted, which was effective as of the beginning of the annual reporting
period that began after June 15, 2005. The Company utilized the modified
prospective method approach, pursuant to which the Company has recorded
compensation for all awards granted after July 1, 2005 based on their fair
value.




Earnings
per share




Basic
earnings per share is computed by dividing net operating results for the
reporting period attributable to common stockholders by the weighted average
number of common shares 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 common
shares outstanding and the dilutive effect of common stock equivalents. All per
share information is adjusted retroactively to the earliest periods presented to
reflect the effect of the recent recapitalization between the Company and
Technorient Limited (See the Company’s Annual Report on Form 10-K/A (Amendment
No. 1) for the fiscal year ended December 31, 2006 for details of the Company’s
recent recapitalization).





5




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 three months ended
September 30, 2007 and 2006 and nine months ended September 30, 2007 and 2006,
the Company had two vendors that each accounted for more than 10% of total
supply purchases. If any of the vendors terminate their relationships with the
Company or if the Company’s supply from the 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. Any such interruption would negatively
impact the Company’s ability to sell and distribute its products. However, the
suppliers’ concentration of risk does not pose any effect to the concentration
of risk with respect to trade payables as the Company made the purchases through
facilities provided by banks and financial institutions.




Concentration
of risk due to geographic location




The
Company’s business is 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 is currently expanding its operations to the People’s Republic
of China (“PRC”), and accordingly, is affected to a significant degree by any
economic, political and legal developments in Hong Kong and the
PRC.




NOTE
3. RECENT ACCOUNTING PRONOUNCEMENTS




In
February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements 133 and 140,
(“SFAS 155”), which was effective for the Company beginning January 1, 2007. The
statement permits interests in hybrid financial instruments that contain an
embedded derivative that would otherwise require bifurcation, to be accounted
for as a single financial instrument at fair value, with changes in fair value
recognized in earnings. This election is permitted on an
instrument-by-instrument basis for all hybrid financial instruments held,
obtained, or issued as of the adoption date. The Company considers the adoption
of this standard have no significant impact on its consolidated financial
position, cash flows and results of operations.




In June
2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”), which
clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that the Company recognize in its financial statements the impact of a
tax position if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. The provisions of FIN 48
became effective for the Company on January 1, 2007, with the cumulative effect
of the change in accounting principle, if any, recorded as an adjustment to
opening retained earnings. The Company considers the adoption of FIN
48 as having no significant impact on its consolidated financial position,
cash flows and results of operations.




In
September 2006, the FASB issued SFAS 157, Fair Value Measurements
(“SFAS 157”), which provides guidance about how to measure assets and
liabilities that use fair value. SFAS 157 will 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 will require additional disclosures in both annual and quarterly
reports. SFAS 157 will be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and will be adopted by us beginning in
the first quarter of 2008. The Company does not expect there to be any
significant impact of adopting this standard on its consolidated financial
position, cash flows and results of operations.





6




In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) 108,
Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”). SAB 108 was issued to eliminate the
diversity of practice in how public companies quantify misstatements of
financial statements, including misstatements that were not material to prior
years’ financial statements. The Company began to apply the provisions of SAB
108 to its annual financial statements for the year ending December 31, 2006.
The impact of the application of this guidance has not had a material effect on
the Company’s consolidated financial position, cash flows and results of
operations.




In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement No.
115 (“SFAS 159”), which will be effective for the Company beginning
January 1, 2008. This standard permits entities to choose to measure many
financial instruments and certain other items at fair value and consequently
report unrealized gains and losses on such items in earnings. The Company does
not expect there to be any significant impact of adopting this standard on its
consolidated financial position, cash flows and results of
operations.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), 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.




NOTE
4. EARNINGS PER SHARE




The
computation of basic and diluted earnings per share are as follows for the three
months and nine months ended September 30:




Three months ended
                      September 30,
                    
                    
                    Nine months ended
                      September 30,2007
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2006$
                      (Restated)
                    
                    
                    $
                      (Restated)
                    
                    
                    $
                      (Restated)
                    
                    
                    $
                      (Restated)Numerator:Net
      earnings available to common stockholders
                    
                    
                    310,472
                    
                    
                    
                    168,842
                    
                    
                    
                    439,071
                    
                    
                    
                    420,742Denominator:Weighted
      average common stock outstanding
                    
                    
                    98,929,180
                    
                    
                    
                    96,607,467
                    
                    
                    
                    98,929,180
                    
                    
                    
                    97,714,710Basic
      net earnings per share
                    
                    
                    0.0031
                    
                    
                    
                    0.0017
                    
                    
                    
                    0.0044
                    
                    
                    
                    0.0043Diluted
      net earnings per share
                    
                    
                    0.0031
                    
                    
                    
                    0.0017
                    
                    
                    
                    0.0044
                    
                    
                    
                    0.0043




The
weighted average common stock outstanding for the three months and nine months
ended September 30, 2006, were adjusted to reflect the recent recapitalization
between the Company and Technorient Limited. The computation of the net earnings
per share for the three months and nine months periods ended September 30, 2006,
is computed by dividing the net earnings attributable to the common
stockholders’ by the number of shares issued in the reverse takeover
transaction.





7




NOTE
5. INVENTORY, NET




Inventory
by major categories are summarized as follows:




September
                            30,
                          
                          
                          December
                            31,2007
                          
                          
                          2006$
                          
                          
                          $New
      vehicles
                          
                          
                          6,558,489
                          
                          
                          
                          2,310,112Used
      vehicles
                          
                          
                          3,544,786
                          
                          
                          
                          3,183,658Parts,
      accessories and other
                          
                          
                          1,740,784
                          
                          
                          
                          1,322,09311,844,059
                          
                          
                          
                          6,815,863





Vehicles
included in inventory valued at approximately $1,260,000 and $1,710,000 were
pledged to secure the stocking loan outstanding as of September 30, 2007 and
December 31, 2006, respectively (See Note 8).




NOTE
6. PREPAYMENTS




Prepayments
are summarized as follows:




September
                    30,
                  
                  
                  December
                    31,2007
                  
                  
                  2006$
                    (Restated)
                  
                  
                  $
                    (Restated)Prepaid
      expenses
                  
                  
                  181,782
                  
                  
                  
                  37,328181,782
                  
                  
                  
                  37,328





NOTE
7. INVESTMENT IN AN ASSOCIATE




In 2004,
a subsidiary of the Company entered into a strategic alliance with Ferrari
S.p.A. (“Ferrari”) and Poly Technologies, Inc. (“Poly Technologies”), a
subsidiary of Poly Group, to set up an Equity Joint Venture (“EJV”) company,
Ferrari Maserati Cars International Trading (Shanghai) Co., Limited, in Mainland
China. The EJV is the sole importer of “Ferrari” and “Maserati” cars in China,
responsible for the import, marketing, dealer sales, spare parts and accessories
supply, and after-sale technical supports for these unique global brands. The
Company, Ferrari and Poly Technologies own 30%, 40% and 30%, respectively in the
EJV. The registered capital of the EJV was $3 million and was contributed by the
partners to the EJV in proportion to their respective equity interest. In August
2004, the EJV was formally set up, with the business license issued by the
relevant PRC authority.




On
December 30, 2005, a subsidiary of the Company and Ferrari entered into the
Equity Interest Transfer Agreement relating to the transfer of 29% equity
interest in the EJV (“Equity Interest Transfer”), for consideration of $870,000.
As of September 30, 2007, the disposal has been approved by the relevant
authorities in the PRC and is waiting for the completion of local formalities.
Due to the undeterminable timeline in finalizing the Equity Interest Transfer,
the investment in EJV continues to be accounted for as “Investment In An
Associate” under equity method of accounting.





8





NOTE
8. BORROWINGS




The
Company's borrowings at are summarized as follows:




September
                            30,
                          
                          
                          December
                            31,2007
                          
                          
                          2006$
                          
                          
                          $Bank
      borrowings
                          
                          
                          2,406,528
                          
                          
                          
                          3,985,579Stocking
      loans
                          
                          
                          1,139,513
                          
                          
                          
                          1,329,918Obligations
      due under finance lease
                          
                          
                          153,409
                          
                          
                          
                          278,5103,699,450
                          
                          
                          
                          5,594,007Borrowings
      due after one year - obligations under finance lease
                          
                          
                          -
                          
                          
                          
                          111,404Short-term
      borrowings
                          
                          
                          3,699,450
                          
                          
                          
                          5,482,603





Vehicles
included in inventory of approximately $1,260,000 and $1,710,000 were pledged to
secure the stocking loan outstanding as of September 30, 2007 and December 31,
2006, respectively. The current portion of the finance lease was secured by the
motor vehicle included in property and equipment with a carrying value of
approximately $264,000 (December 31, 2006: $330,000).




The bank
borrowings, which are mainly used to finance the purchase of vehicles, are
secured by cross guarantee with affiliates and by pledge of certain affiliates’
properties. The borrowings are interest-bearing with settlement dates within
twelve months from the corresponding balance sheet dates. The interest rates are
generally based on the bank's best lending rate plus a certain percentage and
the credit lines are normally subject to periodic review. The range of effective
interest rates (which are also equal to contracted interest rates) on the
Company’s borrowings as of September 30, 2007 was 8.50% to 10.50% per annum
(December 31, 2006: ranged from 8.50% to 9.25% per annum).




NOTE
9. OTHER CURRENT LIABILITIES




Other
current liabilities by major categories are summarized as follows:




September
                            30,
                          
                          
                          December
                            31,2007
                          
                          
                          2006$
                          
                          
                          $Accruals
                          
                          
                          457,375
                          
                          
                          
                          443,434Other
      payables
                          
                          
                          1,548,350
                          
                          
                          
                          6,887,5862,005,725
                          
                          
                          
                          7,331,020





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
10. CAPITAL STOCK




General




The
Company’s total authorized capital at September 30, 2007, is 100,000,000 shares
of common stock, par value $0.001. At September 30, 2007, 98,929,180 shares of
common stock were issued and outstanding.





9




NOTE
11. COMPREHENSIVE INCOME




The
Company’s comprehensive income is comprised of net operating results and
translation adjustments. Comprehensive income for the three months and nine
months ended September 30 are as follows:




Three months ended
                                    September 30,
                                  
                                  
                                  Nine months ended
                                    September 30,2007
                                  
                                  
                                  2006
                                  
                                  
                                  2007
                                  
                                  
                                  2006$
                                  
                                  
                                  $
                                  
                                  
                                  $
                                  
                                  
                                  $Comprehensive
      income:Net
      earnings
                                  
                                  
                                  310,472
                                  
                                  
                                  
                                  168,842
                                  
                                  
                                  
                                  439,071
                                  
                                  
                                  
                                  420,742Translation
      adjustments
                                  
                                  
                                  70,201
                                  
                                  
                                  
                                  1,157
                                  
                                  
                                  
                                  162,403
                                  
                                  
                                  
                                  19,489Total
      comprehensive income, net of taxes
                                  
                                  
                                  380,673
                                  
                                  
                                  
                                  169,999
                                  
                                  
                                  
                                  601,474
                                  
                                  
                                  
                                  440,231





NOTE
12. 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. 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.




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, 2007 are as follows:




2007
                  
                  $
                  257,6142008
                  
                  
                  480,6902009
                  
                  
                  309,4362010
                  
                  
                  31,3692011
                  
                  
                  31,369Thereafter
                  
                  
                  27,448$
                  1,137,926





Rent
expenses for the three months ended September 30, 2007, 2006 and nine months
ended September 30, 2007, 2006 were $317,974, $316,970, $916,638 and $847,592,
respectively.




Employment
Agreements




The
Company maintains employment agreements with its executives which extend through
2007 to 2008. 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, 2007, committed compensation to the executives and other key
employees totaling approximately $451,000 remain in effect.





10





NOTE
13. RELATED PARTY TRANSACTIONS




The
following is a summary of significant transactions among certain related parties
and the Company during the three months ended September 30, 2007 and 2006 and
nine months ended September 30, 2007 and 2006:




Note
                                                        
                                                        Three months ended
                                                          September 30,
                                                        
                                                        
                                                        Nine months ended
                                                          September 30,2007
                                                        
                                                        
                                                        2006
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006$
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $Sales
      to:-
      Affiliates
                                                        (a)
                                                        
                                                        
                                                        191,174
                                                        
                                                        
                                                        
                                                        3,220
                                                        
                                                        
                                                        
                                                        200,084
                                                        
                                                        
                                                        
                                                        166,158-
      An associate
                                                        (a)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        119
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        70,852- A
      related company
                                                        (b)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        394,847
                                                        
                                                        
                                                        
                                                        -Purchases
      from:-
      Affiliates
                                                        (a)
                                                        
                                                        
                                                        110,422
                                                        
                                                        
                                                        
                                                        5,696
                                                        
                                                        
                                                        
                                                        115,981
                                                        
                                                        
                                                        
                                                        12,969-
      An associate
                                                        (a)
                                                        
                                                        
                                                        3,162,986
                                                        
                                                        
                                                        
                                                        733,517
                                                        
                                                        
                                                        
                                                        5,389,418
                                                        
                                                        
                                                        
                                                        1,044,820- A
      director of Technorient
                                                        (a)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        172,926
                                                        
                                                        
                                                        
                                                        -Interest
      received from:-
      Affiliates
                                                        (c)
                                                        
                                                        
                                                        174,125
                                                        
                                                        
                                                        
                                                        15,072
                                                        
                                                        
                                                        
                                                        449,519
                                                        
                                                        
                                                        
                                                        19,783Management
      fee received from:-
      Affiliates
                                                        (d)
                                                        
                                                        
                                                        38,404
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        115,260
                                                        
                                                        
                                                        
                                                        -Management
      fee paid to:-
      Affiliates
                                                        (d)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        78,045
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        232,258Service
      fee from:-
      An associate
                                                        (d)
                                                        
                                                        
                                                        238,593
                                                        
                                                        
                                                        
                                                        113,979
                                                        
                                                        
                                                        
                                                        498,917
                                                        
                                                        
                                                        
                                                        382,494





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
      transaction with a related company, which was under common management by a
      common director of Technorient, was carried out at market price or, where
      no market price was available, at cost plus a percentage profit
      mark-up.




(c)
            Advances
      to affiliates are unsecured, bear interest at 8.50% per annum and are
      repayable on demand.




(d)
            The
      transactions were carried out at terms agreed between both
      parties.




11





NOTE
14. RESTATEMENT OF FINANCIAL STATEMENTS




NOTE:
The common stock numbers in the “Background” section of this Note 14 give effect
to the Company’s one-for-five reverse stock split (the “Reverse Stock Split”) of
its common stock, par value $0.005 per share, effective on December 7,
2007.  However, the common stock numbers in the “Restatements” section
of this Note 14 reflect the Company’s pre-Reverse Stock Split capitalization, as
in effect during the period covered by this Form 10-Q/A.




Background




In
September 2006, the Company closed the transactions contemplated by that certain
Share Exchange Agreement, dated July 15, 2006, by and 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 (on a post-Reverse Stock
Split basis).




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 100,000,000 shares 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




·
            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 (on a
      post-Reverse Stock Split basis), and (4) sought to have the restrictive
      legend removed from the resulting shares of common
  stock.




12




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 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.




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 such shares 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 (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
      (on a post-Reverse Stock Split basis) 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 the Company’s 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 (on a
post-Reverse Stock Split basis).




Further,
in connection with the settlement, Bern Noble agreed to return to the Company
for cancellation the 1,210,631 shares of common stock (on a post-Reverse Stock
Split basis) 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 (on a post-Reverse Stock Split
basis) 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.




13




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 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, 2007 and
      December 31, 2006, 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, 2007, preferred stock
      decreased by $496, common stock decreased by $23,743, additional
      paid-in-capital decreased by $1,444,691 and stockholders' equity
      decreased by $1,468,930. At December 31, 2006, preferred stock
      decreased by $1,534, common stock increased by $72,000,
      additional paid-in-capital decreased by $1,539,396 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, 2007 and December 31,
  2006;




·
            on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2007, basic and diluted earnings per share
      increased by $0.0006 and $0.0013, respectively, for the nine months
      ended September 30, 2007, basic earnings per share decreased by
      $0.0005 and diluted earnings per share increased by $0.0012, for the three
      months ended September 30, 2006, basic earnings per share decreased by
      $0.0241 and diluted earnings per share increased by $0.0006, and for the
      nine months ended September 30, 2006, basic earnings per share
      decreased by $0.1867 and diluted earnings per share increased by
      $0.0014; and




·
            for
      the three months ended September 30, 2007, the basic and diluted weighted
      average number of outstanding shares decreased by 23,743,034 and
      69,439,213, respectively, for the nine months ended September 30, 2007,
      the basic weighted average number of outstanding shares increased by
      8,643,277 and the diluted weighted average number of outstanding shares
      decreased by 37,052,902, and for the three and nine months ended September
      30, 2006, the basic weighted average number of outstanding shares
      increased by 90,069,541 and 95,511,453, respectively, and diluted weighted
      average number of outstanding shares decreased by 51,369,672 and
      45,927,760, respectively.




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





14





The
condensed consolidated balance sheets have been restated as
follows:




Condensed
Consolidated Balance Sheets




As of September 30, 2007As Previously
                                                  Reported
                                                
                                                
                                                Adjustments
                                                
                                                
                                                As Restated$
                                                
                                                
                                                $
                                                
                                                
                                                $ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                
                                                
                                                3,997,188
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,997,188Restricted
      cash
                                                
                                                
                                                514,940
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                514,940Trade
      receivables, net of provision
                                                
                                                
                                                3,371,778
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,371,778Inventory,
      net
                                                
                                                
                                                11,844,059
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                11,844,059Prepayments
                                                
                                                
                                                1,650,711
                                                
                                                
                                                
                                                (1,468,930
                                                )
                                                
                                                
                                                181,782Other
      current assets
                                                
                                                
                                                1,555,929
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,555,929Amounts
      due from affiliates
                                                
                                                
                                                10,253,622
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                10,253,622Amount
      due from an associate
                                                
                                                
                                                851,356
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                851,356Total
      current assets
                                                
                                                
                                                34,039,583
                                                
                                                
                                                
                                                (1,468,930
                                                )
                                                
                                                
                                                32,570,654Property
      and equipment, net
                                                
                                                
                                                2,001,286
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,001,286Goodwill
                                                
                                                
                                                39,640
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                39,640Investment
      in an associate
                                                
                                                
                                                1,285,257
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,285,257Deferred
      income taxes
                                                
                                                
                                                540,687
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                540,687TOTAL
      ASSETS
                                                
                                                
                                                37,906,453
                                                
                                                
                                                
                                                (1,468,930
                                                )
                                                
                                                
                                                36,437,524LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                                                
                                                
                                                3,546,041
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,546,041Obligations
      due under finance lease – current portion
                                                
                                                
                                                153,409
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                153,409Bills
      payable
                                                
                                                
                                                3,739,887
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,739,887Trade
      payables
                                                
                                                
                                                1,498,850
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,498,850Deposits
      received
                                                
                                                
                                                17,619,963
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                17,619,963Other
      current liabilities
                                                
                                                
                                                2,005,725
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,005,725Amounts
      due to affiliates
                                                
                                                
                                                3,969
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,969Total
      current liabilities
                                                
                                                
                                                28,567,844
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                28,567,844Long-term
      liabilities:Obligations
      due under finance lease – non-current portion
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -TOTAL
      LIABILITIES
                                                
                                                
                                                28,567,844
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                28,567,844Commitments
      and ContingenciesMinority
      interests
                                                
                                                
                                                4,313,672
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,313,672Stockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2007: 495,791 (note 1)
                                                
                                                
                                                496
                                                
                                                
                                                
                                                (496
                                                )
                                                
                                                
                                                -Common
      stockAuthorized:
      100,000,000 common stock, par value $0.001Issued
      and outstanding: 2007: 122,672,214 (note 2)
                                                
                                                
                                                122,704
                                                
                                                
                                                
                                                (23,743
                                                )
                                                
                                                
                                                98,961Additional
      paid-in capital
                                                
                                                
                                                5,581,457
                                                
                                                
                                                
                                                (1,444,691
                                                )
                                                
                                                
                                                4,136,766Accumulated
      other comprehensive income
                                                
                                                
                                                213,910
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                213,910Accumulated
      deficit
                                                
                                                
                                                (893,629
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (893,629
                                                )TOTAL
      STOCKHOLDERS’ EQUITY
                                                
                                                
                                                5,024,938
                                                
                                                
                                                
                                                (1,468,930
                                                )
                                                
                                                
                                                3,556,008TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                
                                                
                                                37,906,454
                                                
                                                
                                                
                                                (1,468,930
                                                )
                                                
                                                
                                                36,437,524




15





As of December 31, 2006As Previously
                                                    Reported
                                                  
                                                  
                                                  Adjustments
                                                  
                                                  
                                                  As Restated$
                                                  
                                                  
                                                  $
                                                  
                                                  
                                                  $ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                  
                                                  
                                                  3,475,635
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  3,475,635Restricted
      cash
                                                  
                                                  
                                                  385,629
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  385,629Trade
      receivables, net of provision
                                                  
                                                  
                                                  11,246,621
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  11,246,621Inventory,
      net
                                                  
                                                  
                                                  6,815,863
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  6,815,863Prepayments
                                                  
                                                  
                                                  1,506,258
                                                  
                                                  
                                                  
                                                  (1,468,930
                                                  )
                                                  
                                                  
                                                  37,328Other
      current assets
                                                  
                                                  
                                                  1,503,626
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,503,626Amounts
      due from affiliates
                                                  
                                                  
                                                  4,503,367
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  4,503,367Amount
      due from an associate
                                                  
                                                  
                                                  457,267
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  457,267Total
      current assets
                                                  
                                                  
                                                  29,894,266
                                                  
                                                  
                                                  
                                                  (1,468,930
                                                  )
                                                  
                                                  
                                                  28,425,336Property
      and equipment, net
                                                  
                                                  
                                                  2,377,656
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  2,377,656Investment
      in an associate
                                                  
                                                  
                                                  1,355,530
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,355,530Deferred
      income taxes
                                                  
                                                  
                                                  539,880
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  539,880TOTAL
      ASSETS
                                                  
                                                  
                                                  34,167,332
                                                  
                                                  
                                                  
                                                  (1,468,930
                                                  )
                                                  
                                                  
                                                  32,698,402LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                                                  
                                                  
                                                  5,315,497
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  5,315,497Obligations
      due under finance lease – current portion
                                                  
                                                  
                                                  167,106
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  167,106Bills
      payable
                                                  
                                                  
                                                  4,412,575
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  4,412,575Trade
      payables
                                                  
                                                  
                                                  480,859
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  480,859Deposits
      received
                                                  
                                                  
                                                  8,607,049
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  8,607,049Other
      current liabilities
                                                  
                                                  
                                                  7,331,020
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  7,331,020Amounts
      due to affiliates
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Total
      current liabilities
                                                  
                                                  
                                                  26,314,106
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  26,314,106Long-term
      liabilities:Obligations
      due under finance lease – non-current portion
                                                  
                                                  
                                                  111,404
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  111,404TOTAL
      LIABILITIES
                                                  
                                                  
                                                  26,425,510
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  26,425,510Commitments
      and ContingenciesMinority
      interests
                                                  
                                                  
                                                  3,318,358
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  3,318,358Stockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2006: 1,533,973 (note 1)
                                                  
                                                  
                                                  1,534
                                                  
                                                  
                                                  
                                                  (1,534
                                                  )
                                                  
                                                  
                                                  -Common
      stock
                                                  
                                                  
                                                  26,961
                                                  
                                                  
                                                  
                                                  72,000
                                                  
                                                  
                                                  
                                                  98,961Authorized:
      100,000,000 common stock, par value $0.001Issued
      and outstanding: 2006: 26,929,180 (note 2)Additional
      paid-in capital
                                                  
                                                  
                                                  5,676,162
                                                  
                                                  
                                                  
                                                  (1,539,396
                                                  )
                                                  
                                                  
                                                  4,136,766Accumulated
      other comprehensive income
                                                  
                                                  
                                                  51,507
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  51,507Accumulated
      deficit
                                                  
                                                  
                                                  (1,332,700
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (1,332,700
                                                  )TOTAL
      STOCKHOLDERS’ EQUITY
                                                  
                                                  
                                                  4,423,464
                                                  
                                                  
                                                  
                                                  (1,468,930
                                                  )
                                                  
                                                  
                                                  2,954,534TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                  
                                                  
                                                  34,167,332
                                                  
                                                  
                                                  
                                                  (1,468,930
                                                  )
                                                  
                                                  
                                                  32,698,402
  Notes:




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, 2007 and December 31,
      2006.




2.
            At
      September 30, 2007 and December 31, 2006, giving effect to the
      transactions related to the restatements discussed in this Note 14, there
      were issued and outstanding 98,929,180 shares of common
    stock.







16





The
condensed consolidated statements of operation have been restated as
follows:




Condensed
Consolidated Statements of Operation




For the 3 months ended September 30, 2007As Previously
                              Reported
                            
                            
                            Adjustments
                            
                            
                            As RestatedSales:New
      and used vehicles
                            
                            $
                            24,819,562
                            
                            
                            $
                            -
                            
                            
                            $
                            24,819,562Parts
      and services
                            
                            
                            1,941,571
                            
                            
                            
                            -
                            
                            
                            
                            1,941,571Net
      sales
                            
                            
                            26,761,133
                            
                            
                            
                            -
                            
                            
                            
                            26,761,133Cost
      of sales:New
      and used vehicles
                            
                            
                            (21,862,921
                            )
                            
                            
                            -
                            
                            
                            
                            (21,862,921
                            )Parts
      and services
                            
                            
                            (639,969
                            )
                            
                            
                            -
                            
                            
                            
                            (639,969
                            )Total
      cost of sales
                            
                            
                            (22,502,890
                            )
                            
                            
                            -
                            
                            
                            
                            (22,502,890
                            )Gross
      profit:New
      and used vehicles
                            
                            
                            2,956,641
                            
                            
                            
                            -
                            
                            
                            
                            2,956,641Parts
      and services
                            
                            
                            1,301,602
                            
                            
                            
                            -
                            
                            
                            
                            1,301,602Total
      gross profit
                            
                            
                            4,258,243
                            
                            
                            
                            -
                            
                            
                            
                            4,258,243Selling
      and marketing
                            
                            
                            (401,350
                            )
                            
                            
                            -
                            
                            
                            
                            (401,350
                            )General
      and administrative expenses
                            
                            
                            (3,051,887
                            )
                            
                            
                            -
                            
                            
                            
                            (3,051,887
                            )Operating
      earnings
                            
                            
                            805,006
                            
                            
                            
                            -
                            
                            
                            
                            805,006Other
      income (expenses)Interest
      expenses
                            
                            
                            (158,803
                            )
                            
                            
                            -
                            
                            
                            
                            (158,803
                            )Share
      of result of an associate
                            
                            
                            (71,615
                            )
                            
                            
                            -
                            
                            
                            
                            (71,615
                            )Other
      income
                            
                            
                            274,928
                            
                            
                            
                            -
                            
                            
                            
                            274,928Total
      other income (expenses)
                            
                            
                            44,510
                            
                            
                            
                            -
                            
                            
                            
                            44,510Earnings
      before minority interests and income taxes
                            
                            
                            849,516
                            
                            
                            
                            -
                            
                            
                            
                            849,516Provision
      for income taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Earnings
      before minority interests
                            
                            
                            849,516
                            
                            
                            
                            -
                            
                            
                            
                            849,516Minority
      interests
                            
                            
                            (539,044
                            )
                            
                            
                            -
                            
                            
                            
                            (539,044
                            )Net
      earnings
                            
                            $
                            310,472
                            
                            
                            $
                            -
                            
                            
                            $
                            310,472Earnings
      per shareBasic
                            
                            $
                            0.0025
                            
                            
                            $
                            0.0006
                            
                            
                            $
                            0.0031Diluted
                            
                            $
                            0.0018
                            
                            
                            $
                            0.0013
                            
                            
                            $
                            0.0031Weighted
      average number of common shares outstandingBasic
                            
                            
                            122,672,214
                            
                            
                            
                            (23,743,034
                            )
                            
                            
                            98,929,180Diluted
                            
                            
                            168,368.393
                            
                            
                            
                            (69,439,213
                            )
                            
                            
                            98,929,180




17





For the 9 months ended September 30, 2007As Previously
                              Reported
                            
                            
                            Adjustments
                            
                            
                            As RestatedSales:New
      and used vehicles
                            
                            $
                            64,290,343
                            
                            
                            $
                            -
                            
                            
                            $
                            64,290,343Parts
      and services
                            
                            
                            4,597,838
                            
                            
                            
                            -
                            
                            
                            
                            4,597,838Net
      sales
                            
                            
                            68,888,181
                            
                            
                            
                            -
                            
                            
                            
                            68,888,181Cost
      of sales:New
      and used vehicles
                            
                            
                            (57,008,236
                            )
                            
                            
                            -
                            
                            
                            
                            (57,008,236
                            )Parts
      and services
                            
                            
                            (1,408,830
                            )
                            
                            
                            -
                            
                            
                            
                            (1,408,830
                            )Total
      cost of sales
                            
                            
                            (58,417,066
                            )
                            
                            
                            -
                            
                            
                            
                            (58,417,066
                            )Gross
      profit:New
      and used vehicles
                            
                            
                            7,282,107
                            
                            
                            
                            -
                            
                            
                            
                            7,282,107Parts
      and services
                            
                            
                            3,189,008
                            
                            
                            
                            -
                            
                            
                            
                            3,189,008Total
      gross profit
                            
                            
                            10,471,115
                            
                            
                            
                            -
                            
                            
                            
                            10,471,115Selling
      and marketing
                            
                            
                            (792,555
                            )
                            
                            
                            -
                            
                            
                            
                            (792,555
                            )General
      and administrative expenses
                            
                            
                            (8,273,451
                            )
                            
                            
                            -
                            
                            
                            
                            (8,273,451
                            )Operating
      earnings
                            
                            
                            1,405,109
                            
                            
                            
                            -
                            
                            
                            
                            1,405,109Other
      income (expenses)Interest
      expenses
                            
                            
                            (580,783
                            )
                            
                            
                            -
                            
                            
                            
                            (580,783
                            )Share
      of result of an associate
                            
                            
                            (149,675
                            )
                            
                            
                            -
                            
                            
                            
                            (149,675
                            )Other
      income
                            
                            
                            759,760
                            
                            
                            
                            -
                            
                            
                            
                            759,760Total
      other income (expenses)
                            
                            
                            29,302
                            
                            
                            
                            -
                            
                            
                            
                            29,302Earnings
      before minority interests and income taxes
                            
                            
                            1,434,411
                            
                            
                            
                            -
                            
                            
                            
                            1,434,411Provision
      for income taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Earnings
      before minority interests
                            
                            
                            1,434,411
                            
                            
                            
                            -
                            
                            
                            
                            1,434,411Minority
      interests
                            
                            
                            (995,340
                            )
                            
                            
                            -
                            
                            
                            
                            (995,340
                            )Net
      earnings
                            
                            $
                            439,071
                            
                            
                            $
                            -
                            
                            
                            $
                            439,071Earnings
      per shareBasic
                            
                            $
                            0.0049
                            
                            
                            $
                            (0.0005
                            )
                            
                            $
                            0.0044Diluted
                            
                            $
                            0.0032
                            
                            
                            $
                            0.0012
                            
                            
                            $
                            0.0044Weighted
      average number of common shares outstandingBasic
                            
                            
                            90,285,903
                            
                            
                            
                            8,643,277
                            
                            
                            
                            98,929,180Diluted
                            
                            
                            135,982,082
                            
                            
                            
                            (37,052,902
                            )
                            
                            
                            98,929,180




18





For the 3 months ended September 30, 2006As Previously
                                Reported
                              
                              
                              Adjustments
                              
                              
                              As RestatedSales:New
      and used vehicles
                              
                              $
                              13,327,113
                              
                              
                              $
                              -
                              
                              
                              $
                              13,327,113Parts
      and services
                              
                              
                              1,347,905
                              
                              
                              
                              -
                              
                              
                              
                              1,347,905Net
      sales
                              
                              
                              14,675,018
                              
                              
                              
                              -
                              
                              
                              
                              14,675,018Cost
      of sales:New
      and used vehicles
                              
                              
                              (11,455,667
                              )
                              
                              
                              -
                              
                              
                              
                              (11,455,667
                              )Parts
      and services
                              
                              
                              (373,758
                              )
                              
                              
                              -
                              
                              
                              
                              (373,758
                              )Total
      cost of sales
                              
                              
                              (11,829,425
                              )
                              
                              
                              -
                              
                              
                              
                              (11,829,425
                              )Gross
      profit:New
      and used vehicles
                              
                              
                              1,871,446
                              
                              
                              
                              -
                              
                              
                              
                              1,871,446Parts
      and services
                              
                              
                              974,147
                              
                              
                              
                              -
                              
                              
                              
                              974,147Total
      gross profit
                              
                              
                              2,845,593
                              
                              
                              
                              -
                              
                              
                              
                              2,845,593Selling
      and marketing
                              
                              
                              (260,939
                              )
                              
                              
                              -
                              
                              
                              
                              (260,939
                              )General
      and administrative expenses
                              
                              
                              (2,160,000
                              )
                              
                              
                              -
                              
                              
                              
                              (2,160,000
                              )Operating
      earnings
                              
                              
                              424,654
                              
                              
                              
                              -
                              
                              
                              
                              424,654Other
      income (expenses)Interest
      expenses
                              
                              
                              (112,679
                              )
                              
                              
                              -
                              
                              
                              
                              (112,679
                              )Share
      of result of an associate
                              
                              
                              (33,586
                              )
                              
                              
                              -
                              
                              
                              
                              (33,586
                              )Other
      income
                              
                              
                              66,187
                              
                              
                              
                              -
                              
                              
                              
                              66,187Total
      other income (expenses)
                              
                              
                              (80,078
                              )
                              
                              
                              -
                              
                              
                              
                              (80,078
                              )Earnings
      before minority interests and income taxes
                              
                              
                              344,576
                              
                              
                              
                              -
                              
                              
                              
                              344,576Provision
      for income taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Earnings
      before minority interests
                              
                              
                              344,576
                              
                              
                              
                              -
                              
                              
                              
                              344,576Minority
      interests
                              
                              
                              (175,734
                              )
                              
                              
                              -
                              
                              
                              
                              (175,734
                              )Provision
      for income taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      earnings
                              
                              $
                              168,842
                              
                              
                              $
                              -
                              
                              
                              $
                              168,842Earnings
      per shareBasic
                              
                              $
                              0.0258
                              
                              
                              $
                              (0.0241
                              )
                              
                              $
                              0.0017Diluted
                              
                              $
                              0.0011
                              
                              
                              $
                              0.0006
                              
                              
                              $
                              0.0017Weighted
      average number of common shares outstandingBasic
                              
                              
                              6,537,926
                              
                              
                              
                              90,069,541
                              
                              
                              
                              96,607,467Diluted
                              
                              
                              147,977,139
                              
                              
                              
                              (51,369,672
                              )
                              
                              
                              96,607,467




19





For the 9 months ended September 30, 2006As Previously
                              Reported
                            
                            
                            Adjustments
                            
                            
                            As RestatedSales:New
      and used vehicles
                            
                            $
                            35,859,615
                            
                            
                            $
                            -
                            
                            
                            $
                            35,859,615Parts
      and services
                            
                            
                            3,715,532
                            
                            
                            
                            -
                            
                            
                            
                            3,715,532Net
      sales
                            
                            
                            39,575,147
                            
                            
                            
                            -
                            
                            
                            
                            39,575,147Cost
      of sales:New
      and used vehicles
                            
                            
                            (30,863,133
                            )
                            
                            
                            -
                            
                            
                            
                            (30,863,133
                            )Parts
      and services
                            
                            
                            (1,160,336
                            )
                            
                            
                            -
                            
                            
                            
                            (1,160,336
                            )Total
      cost of sales
                            
                            
                            (32,023,469
                            )
                            
                            
                            -
                            
                            
                            
                            (32,023,469
                            )Gross
      profit:New
      and used vehicles
                            
                            
                            4,996,482
                            
                            
                            
                            -
                            
                            
                            
                            4,996,482Parts
      and services
                            
                            
                            2,555,196
                            
                            
                            
                            -
                            
                            
                            
                            2,555,196Total
      gross profit
                            
                            
                            7,551,678
                            
                            
                            
                            -
                            
                            
                            
                            7,551,678Selling
      and marketing
                            
                            
                            (479,219
                            )
                            
                            
                            -
                            
                            
                            
                            (479,219
                            )General
      and administrative expenses
                            
                            
                            (6,113,520
                            )
                            
                            
                            -
                            
                            
                            
                            (6,113,520
                            )Operating
      earnings
                            
                            
                            958,939
                            
                            
                            
                            -
                            
                            
                            
                            958,939Other
      income (expenses)Interest
      expenses
                            
                            
                            (291,913
                            )
                            
                            
                            -
                            
                            
                            
                            (291,913
                            )Share
      of result of an associate
                            
                            
                            7,032
                            
                            
                            
                            -
                            
                            
                            
                            7,032Other
      income
                            
                            
                            184,599
                            
                            
                            
                            -
                            
                            
                            
                            184,599Total
      other income (expenses)
                            
                            
                            (100,282
                            )
                            
                            
                            -
                            
                            
                            
                            (100,282
                            )Earnings
      before minority interests and income taxes
                            
                            
                            858,657
                            
                            
                            
                            -
                            
                            
                            
                            858,657Provision
      for income taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Earnings
      before minority interests
                            
                            
                            858,657
                            
                            
                            
                            -
                            
                            
                            
                            858,657Minority
      interests
                            
                            
                            (437,915
                            )
                            
                            
                            -
                            
                            
                            
                            (437,915
                            )Net
      earnings
                            
                            $
                            420,742
                            
                            
                            $
                            -
                            
                            
                            $
                            420,742Earnings
      per shareBasic
                            
                            $
                            0.1910
                            
                            
                            $
                            (0.1867
                            )
                            
                            $
                            0.0043Diluted
                            
                            $
                            0.0029
                            
                            
                            $
                            0.0014
                            
                            
                            $
                            0.0043Weighted
      average number of common shares outstandingBasic
                            
                            
                            2,203,257
                            
                            
                            
                            95,511,453
                            
                            
                            
                            97,714,710Diluted
                            
                            
                            143,642,470
                            
                            
                            
                            (45,927,760
                            )
                            
                            
                            97,714,710




(End of
condensed consolidated financial statements)





20




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




FORWARD-LOOKING
STATEMENTS




In addition to historical information,
the matters discussed in this Form 10-Q contain forward-looking statements that
involve risks or uncertainties. Generally, the words “believes”, “anticipates”,
“may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue”, and similar
expressions or the negative thereof or comparable terminology are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this report or other
reports or documents we file with the Securities and Exchange Commission from
time to time, which could cause actual results or outcomes to differ materially
from those projected. Undue reliance should not be placed on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to update these forward-looking statements. Readers should
carefully review the risks described in other documents we file from time to
time with the Securities and Exchange Commission, including the Annual Report on
Form 10-K for the fiscal year ended December 31, 2006, the Quarterly Reports on
Form 10-Q or 10-QSB filed by the Company and Current Reports on Form 8-K
(including any amendments to such reports). References in this filing to the
“Company”, “Group”, “we”, “us” and “our” refer to China Premium Lifestyle
Enterprise, Inc. and its subsidiaries.




RESTATEMENTS




The
Company is restating its consolidated financial statements as of September 30,
2007 and for the three and nine month periods ended September 30, 2007 and 2006
in this amendment to the Company’s Quarterly Report on Form 10-Q/A for
the period ended September 30, 2007. 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 AND HISTORY




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, the Macau Special Administrative Region and in the
People’s Republic of China, (which for the purposes of this report excludes Hong
Kong, Macau and Taiwan). 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 consists mainly of the importation,
distribution, and after-sales service of Italian “Ferrari” and “Maserati”
branded cars and spare parts in Hong Kong, Macau and China. The Company is also
planning to import, distribute and sell premium brand apparel and other luxury
brand products in Hong Kong, Macau, China and Taiwan.




The
Company was originally formed in the State of Nevada on April 19, 2004 under its
predecessor name, Xact Aid, Inc. (“Xact Aid”).  On April 30, 2004, the
Company issued 1,000 shares of its common stock (representing all of its issued
and outstanding shares) to Addison-Davis Diagnostics, Inc. (f/k/a QT5, Inc.), a
Delaware corporation (“Addison-Davis”), in consideration of Addison-Davis
advancing start-up and operating capital. On November 15, 2004, the Company
acquired the Xact Aid line of first aid products for minor injuries from
Addison-Davis in accordance with an Agreement of Sale and Transfer of Assets
entered into between the Company and Addison-Davis.




From the
Company’s inception to May 9, 2005, the date that the Company was spun-off from
Addison-Davis, Addison-Davis was the Company’s sole stockholder.  As
such, the Company was a wholly-owned subsidiary of Addison-Davis and was
included in the consolidated financial statements filed by Addison-Davis with
the Securities and Exchange Commission (the “SEC”).




On
December 22, 2005, the Company acquired 100% of the issued and outstanding
shares of Brooke Carlyle Life Sciences, Inc., a Nevada corporation (“Brooke
Carlyle”), a development stage company with a business plan to develop an online
internet portal containing information on sexually transmitted diseases, which
was designed to generate revenue from advertising from pharmaceutical
companies.





21




The
Company’s management team then determined that it was no longer in the best
interests of the Company and its stockholders to continue pursuing sales and
marketing efforts for the wound-specific first aid kit line of products. In an
effort to bring revenues and profitable operations to the Company, management
sought to effect a transaction that would attract a viable business operation
and liquidate its liabilities. As a result of such decisions, on March 3, 2006,
the Company entered into a non-binding letter of intent with Technorient for a
proposed acquisition of an interest in Technorient via a share exchange by and
among the Company, Technorient and Technorient’s shareholders. On May 4, 2006,
in order to satisfy certain provisions in the Share Exchange Agreement described
below with Technorient, the Company entered into a Stock Purchase Agreement with
Nexgen Biogroup, Inc. (“Nexgen”), for the sale of the 1,000,000 shares of the
common stock of Brooke Carlyle held by the Company, which, at that time,
represented all or substantially all of the assets of the Company, for $1,000
cash, representing a consideration of $0.001 per share (the par value). In
accordance with the terms of the agreement, the Company agreed to: (i) sell,
assign and transfer to Nexgen any and all of its rights, title and interests in
Brooke Carlyle; and (ii) transfer to Nexgen 1,000,000 shares of Brooke Carlyle
common stock.




On June
9, 2006, the Company entered into a share exchange agreement (the “Exchange
Agreement”) with Technorient, Fred De Luca, a director of the Company, Corich
Enterprises Inc., a British Virgin Islands corporation (“Corich”), and Herbert
Adamczyk. Subsequently, on July 15, 2006, the parties entered into an amended
share exchange agreement, which agreement replaced in its entirety and
superseded the Exchange Agreement (the “Amended Exchange Agreement”). Pursuant
to the terms of the Amended Exchange Agreement, the Company agreed to acquire
from Corich and Mr. Adamczyk (collectively, the “Sellers”) 49% of the
outstanding, fully-diluted capital stock of Technorient in exchange for the
Company issuing to the Sellers and Orient Financial Services Ltd. (“OFS”)
972,728 shares of Series A Convertible Preferred Stock (the “Series A Preferred
Shares”) (the “Exchange”). The 972,728 Series A Preferred Shares were to be
convertible into approximately 89,689,881 shares of common stock (on a
pre-Reverse Stock Split basis), which, on an as-converted basis, represented
53.5% of the outstanding common stock of the Company on a fully diluted basis,
taking into account the Exchange.




On
September 5, 2006, pursuant to the Amended Exchange Agreement and after all of
the conditions precedent to closing were satisfied (including the completion of
the Company’s sale of all of the capital stock of Brooke Carlyle to Nexgen),
Corich and Mr. Adamczyk, as shareholders of Technorient, transferred 49% of the
outstanding capital stock of Technorient on a fully diluted basis to the Company
in exchange for the 972,728 Series A Preferred Shares. As a result of the
Exchange, the Company became a 49% shareholder of Technorient on a fully-diluted
basis.




In
connection with the Exchange, the Company issued: (i) an aggregate of 972,728
Series A Preferred Shares to the Sellers (in exchange for 49% of the issued and
outstanding shares of Technorient) and OFS; (ii) 561,245 Series A Preferred
Shares (the “HEL Shares”) to Happy Emerald Limited, a British Virgin Islands
company (“HEL”), for consulting services to be provided to Technorient after the
Exchange; and (iii) an aggregate of 21,629,337 shares of common stock in
connection with certain conversions of outstanding debt. After the closing of
the Exchange, the Company’s main business became its 49% ownership interest in
Technorient.




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.  As a result, on
May 5, 2009, we entered into a reformation (“Reformation”) of the Amended
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
Series A Preferred Shares issued to Corich and Mr. Adamczyk were agreed to have
been issued in lieu of the Series A Preferred 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 of the Exchange, and
that upon the effectiveness of and giving effect to the Reverse Stock Split, an
aggregate of an additional 3,537,977 (on a post-Reverse Stock Split basis)
shares of common stock were deemed to have been issued.  For a more
detailed discussion of the Reformation, please refer to the Explanatory Note at
the beginning of this Report and the Company’s Current Report on Form 8-K, as
filed with the SEC on May 11, 2009.





22




The
Company was previously engaged in litigation regarding the HEL Shares (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 HEL Shares, including all
shares of common stock that were converted therefrom.  For a more
detailed discussion of the Federal Court Action and the settlement, please refer
to the Explanatory Note at the beginning of this Report and the Company’s
Current Report on Form 8-K, as filed with the SEC on March 5, 2010.




On April 3, 2007, the Company
established a wholly owned subsidiary named CPMM (Asia) Limited (f/k/a Leader
Mount Limited), a limited liability company organized under Hong Kong Law (“CPMM
Asia”). CPMM Asia is principally engaged in the distribution of luxury brand
apparel.




TECHNORIENT
OVERVIEW




Technorient
is a corporation incorporated 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”), and
Italian Motors (Sales & Service) Limited (“IML”). Collectively, Auto Italia,
Italian Motors, IML and German Motors are hereafter referred to as the
“Technorient Group”. Originally founded in 1974 by Adamczyk as German Motors,
Technorient was formed as the holding company for Auto Italia, IML and German
Motors in 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.




IML is a
30% equity holder in Ferrari Maserati Cars International Trading (Shanghai) Co.
Ltd., (the “Shanghai JV”) 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. As the structure of
Shanghai JV precludes direct ownership by the shareholders of a licensed dealer
in China and in view of Technorient’s strategy to develop a luxury brand
platform amongst its high net worth clients, Technorient’s management
subsequently approached Ferrari S.p.A. to dispose of Shanghai JV’s interest so
that it could acquire an independent dealer network and, inter alia, maintain
its direct customer relationships. As part of this arrangement, Technorient
would apply for and receive a number of dealer licenses in key markets in China
such as Dalian (already awarded) and would, in conjunction with Ferrari and
Maserati, continue to build its dealer network to capitalize on its client base
in China and pursue its luxury brand platform.




Pursuant
to the above, IML entered into an agreement with the Shanghai JV parties to
dispose of 29% equity interest in Shanghai JV in July 2006. As of the date of
this report, the disposal has been approved by the relevant authorities and
completion is waiting for the fulfillment of some formalities. After the
disposal, IML will continue to hold a 1% equity interest in Shanghai JV.
Beginning in 2006, the Technorient Group was able to act as an authorized dealer
of Ferrari and Maserati cars in certain cities in China that were allocated in
accordance with the Shanghai JV. In January 2006, IML formed Dalian Auto Italia
in China to engage in the distribution of Ferrari and Maserati cars in Dalian,
China and IML owned a 95% equity interest in Dalian Auto Italia. On August 3,
2007, IML entered into an agreement to acquire the remaining 5% of equity
interest in Dalian Auto Italia. IML currently owns 100% equity interest in
Dalian Auto Italia.




Auto
Italia and Italian Motors operate from six locations in Hong Kong and China,
incorporating sales, spare parts, service and body and paint shop facilities for
Ferrari and Maserati.




On July 10, 2007, we entered into a
Non-binding Letter of Intent with Keyforce (BVI) Limited (“Keyforce (BVI)”), a
subsidiary of Wo Kee Hong Group of Hong Kong, to begin negotiations to acquire
from Keyforce (BVI) its luxury yacht distribution business. Keyforce (BVI) is
the sole shareholder of Keyforce Holdings Limited (“Keyforce Holdings”) and
Noble Brand Investments Limited (“Noble Brand”). Keyforce Holdings is engaged in
the distribution of luxurious Italian “Ferretti” motor yachts in south China
while Noble Brand distributes Taiwanese produced “Horizon” motor yachts in
China, Hong Kong and Macau. If consummated, the acquisition would enable us to
add the distribution of these vessels in the regions to our portfolio of luxury
brands. As of October 31, 2007, no binding agreements had been entered into, but
discussions remain ongoing.





23




EMPLOYEES




As of
September 30, 2007, we employed approximately 166 persons on a full-time
basis in Hong Kong and China. We believe we have good relationships with our
employees and no major disputes or work stoppages have occurred since our
inception.




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, and any
dividends 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 your
investment.




CRITICAL
ACCOUNTING POLICIES




See Note
1 of the Notes to Condensed Consolidated Financial Statements (unaudited)
included as Item 1 of Part I herein.




RECENT
ACCOUNTING PRONOUNCEMENTS




In
February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements 133 and 140,
(“SFAS 155”), which was effective for the Company beginning January 1, 2007. The
statement permits interests in hybrid financial instruments that contain an
embedded derivative that would otherwise require bifurcation, to be accounted
for as a single financial instrument at fair value, with changes in fair value
recognized in earnings. This election is permitted on an
instrument-by-instrument basis for all hybrid financial instruments held,
obtained, or issued as of the adoption date. The Company considers the adoption
of this standard have no significant impact on its consolidated financial
position, cash flows and results of operations.




In June
2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”), which
clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that the Company recognize in its financial statements the impact of a
tax position if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. The provisions of FIN 48
became effective for the Company on January 1, 2007, with the cumulative effect
of the change in accounting principle, if any, recorded as an adjustment to
opening retained earnings. The Company considers the adoption of FIN 48 as
having no significant impact on its consolidated financial position, cash flows
and results of operations.





24




In
September 2006, the FASB issued SFAS 157, Fair Value Measurements
(“SFAS 157”), which provides guidance about how to measure assets and
liabilities that use fair value. SFAS 157 will 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 will require additional disclosures in both annual and quarterly
reports. SFAS 157 will be effective for financial statements issued for fiscal
years beginning after November 15, 2007, and will be adopted by us beginning in
the first quarter of 2008. The Company does not expect there to be any
significant impact on its consolidated financial position, cash flows and
results of operations.




In
September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) 108,
Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”). SAB 108 was issued to eliminate the
diversity of practice in how public companies quantify misstatements of
financial statements, including misstatements that were not material to prior
years’ financial statements. The Company began to apply the provisions of SAB
108 to its annual financial statements for the year ending December 31, 2006.
The impact of the application of this guidance has not had a material effect on
the Company’s consolidated financial position, cash flows and results of
operations.




In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement No.
115 (“SFAS 159”), which will be effective for the Company beginning
January 1, 2008. This standard permits entities to choose to measure many
financial instruments and certain other items at fair value and consequently
report unrealized gains and losses on such items in earnings. The Company does
not expect there to be any significant impact of adopting this standard on its
consolidated financial position, cash flows and results of
operations.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), 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.




RESULTS
OF OPERATIONS




Results
of operations comparison of nine months ended September 30, 2007 to nine months
ended September 30, 2006




SALES




Nine months ended
                  
                  
                  Nine months endedSeptember 30, 2007
                  
                  
                  September 30, 2006Total
                    Sales
                  
                  
                  % of Total Sales
                  
                  
                  Total
                    Sales
                  
                  
                  % of Total SalesNew
      and Used Vehicles
                  
                  $
                  64,290,000
                  
                  
                  
                  93.4
                  %
                  
                  $
                  35,860,000
                  
                  
                  
                  90.6
                  %Parts
      and Services
                  
                  $
                  4,598,000
                  
                  
                  
                  6.6
                  %
                  
                  $
                  3,715,000
                  
                  
                  
                  9.4
                  %Total
                  
                  $
                  68,888,000
                  
                  
                  
                  100
                  %
                  
                  $
                  39,575,000
                  
                  
                  
                  100
                  %





Total sales consists of sales of new
and used vehicles, sale of parts, and services rendered for vehicle maintenance
and repair.




Net total sales for nine months ended
September 30, 2007 increased by approximately $29,313,000 or 74% to
approximately $68,888,000, compared with approximately $39,575,000 for the
same period of 2006. The increase was attributable to the increased sales from
our new and used vehicles trading segment. The increase was due to an increase
of deliveries of the “Ferrari” 8-cylinder sports car, F430 and Spider and the
launch of the new “Ferrari” 12-cylinder 2-seater sports car, F599 GTB Fiorano in
the last quarter of 2006. The increase in parts and service sales was mainly
attributed to the increase of deliveries of Ferrari and Maserati cars to
customers during the last few years, for which our parts and services were used
to maintain.





25




COST
OF SALES




Cost of sales for the nine months ended
September 30, 2007 increased to $58,417,000 from $32,023,000 for the nine months
ended September 30, 2006, a $26,394,000 or 82% increase was in line with the
increase in Company’s increase in revenues during this period.




GROSS
PROFIT




Gross profit margin for the nine months
ended September 30, 2007 decreased by 3.9% from 19.1% for the same period of
2006 to 15.2% for the current period, while the gross profit increased by
approximately $2,919,000 to approximately $10,471,000 for the nine months ended
September 30, 2007. This increase is mainly attributed to the new and used
vehicles trading segment. The decrease in gross profit margin was mainly due to
an increase in used car sales which had lower gross profit margins.




SELLING
AND MARKETING EXPENSES




Selling and marketing expenses for the
nine months ended September 30, 2007 were approximately $793,000, compared to
approximately $479,000 for the same period of 2006. The increase in selling and
marketing expenses was primarily due to the increased exhibition expenses
incurred during this period, which increased from approximately $187,000 in the
first nine months of 2006 to approximately $606,000 in the first nine months of
2007. This was mainly due to expenditures relating to an event held in Hong Kong
during February 2007 for the celebration of Ferrari’s 60th
anniversary and an event held in Macau during July 2007 for the launch of
Maserati GranTurismo.




GENERAL
AND ADMINISTRATIVE EXPENSES




General and administrative (“G&A”)
expenses include salaries and related staffing expenses, facilities rent, rate
and building management fees, legal, professional services and general corporate
expenses.




G&A expenses for the nine months
ended September 30, 2007 were approximately $8,273,000 or 12% of net sales
compared to approximately $6,114,000 or 15.4% of net sales for the same period
of 2006. The approximately $2,159,000 increase in G&A expenses was primarily
due to the growth of our revenues and business expansion which required an
increase in staffing and legal and professional services. The staffing expenses
increased from approximately $2,489,000 for the nine months ended September 30,
2006 to approximately $3,670,000 for the same period of 2007. The aggregate of
audit fees, legal and professional fees and other related fees increased from
approximately $107,000 for the nine months ended September 30, 2006 to
approximately $439,000 for the same period of 2007.




OTHER
INCOME / EXPENSES




Other income increased to approximately
$29,000 compared with approximately $100,000 other expenses in the first nine
months of 2006, an increase of $129,000. The increase was primarily due to the
combined effect of increased interest income charged to affiliate companies and
increased interest expenses. The interest income charged to affiliate companies
increased from approximately $20,000 for the nine months ended September 30,
2006 to approximately $450,000 for the same period of 2007. The interest
expenses increased from approximately $292,000 in the first nine months of 2006
to approximately $581,000 for the same period of 2007. The funds from which our
increased interest expenses were incurred were used for working capital
purposes.




MINORITY
INTERESTS




Minority interests for the periods
presented represent outside ownership interests in subsidiaries that are
consolidated with the parent for financial reporting purposes.





26




Results
of operations comparison of three months ended September 30, 2007 to three
months ended September 30, 2006




SALES




Three months ended
                    September 30, 2007
                  
                  
                  Three months ended
                    September 30, 2006Total Sales
                  
                  
                  % of Total
                    Sales
                  
                  
                  Total Sales
                  
                  
                  % of Total
                    SalesNew
      and Used Vehicles
                  
                  $
                  24,820,000
                  
                  
                  
                  92.7
                  %
                  
                  $
                  13,327,000
                  
                  
                  
                  90.8
                  %Parts
      and Services
                  
                  $
                  1,941,000
                  
                  
                  
                  7.3
                  %
                  
                  $
                  1,348,000
                  
                  
                  
                  9.2
                  %Total
                  
                  $
                  26,761,000
                  
                  
                  
                  100
                  %
                  
                  $
                  14,675,000
                  
                  
                  
                  100
                  %





Total sales consists of new and used
vehicles, sale of parts, and services rendered for vehicle maintenance and
repair.




Net total sales for three months ended
September 30, 2007 increased by approximately $12,086,000 or 82% to
approximately $26,761,000, compared with approximately $14,675,000 for the same
period of 2006. The increase was attributable to the increased sales from our
new and used vehicles trading segment. The increase was due to deliveries of the
“Ferrari” 12-cylinder 2-seater sports car, F599 GTB Fiorano which was launched
in the last quarter of 2006 and sales of certain high value limited edition used
cars included “Ferrari” F40 and F599 GTB Fiorano.




COST
OF SALES




Cost of sales for the three months
ended September 30, 2007 increased to $22,503,000 from $11,829,000 for the three
months ended September 30, 2006, a $10,674,000 or 90.2% increase was in line
with the increase in Company’s increase in revenues during this
period.




GROSS
PROFIT




Gross profit margin for three months
ended September 30, 2007 decreased by 3.5% from 19.4% for the same period
of 2006 to 15.9% for the current period, while the gross profit increased by
approximately $1,412,000 to approximately $4,258,000 for the three months ended
September 30, 2007. This increase is mainly attributed to the new and used
vehicles trading segment. Gross profit margin decrease in the third quarter of
2007 was mainly due to an increase in used car sales which had lower gross
profit margins.




SELLING
AND MARKETING EXPENSES




Selling and marketing expenses for the
three months ended September 30, 2007 were approximately $401,000, compared to
approximately $261,000 for the same period of 2006. The increase in selling and
marketing expenses was mainly due to expenditures relating to an event held in
Macau during July 2007 for the launch of Maserati GranTurismo.




GENERAL
AND ADMINISTRATIVE EXPENSES




G&A expenses include salaries and
related staffing expenses, facilities rent, rate and building management fees,
legal, professional services and general corporate expenses.




G&A expenses for the three months
ended September 30, 2007 were approximately $3,052,000 or 11.4% of net sales
compared to approximately $2,160,000 or 14.7% of net sales for the same period
of 2006. The approximately $892,000 increase in G&A expenses was primarily
due to the growth of our revenues and business expansion which required an
increase in staffing and legal and professional services. The staffing expenses
increased from approximately $850,000 for the three months ended September 30,
2006 to approximately $1,356,000 for the same period of 2007. The aggregate of
audit fees, legal and professional fees and other related fees increased from
approximately $12,000 for the three months ended September 30, 2006 to
approximately $46,000 for the same period of 2007.





27




OTHER
INCOME/EXPENSES




Other income increased to approximately
$45,000 compared with approximately $80,000 other expenses in the third quarter
of 2006, a total increase of $125,000. The increase was primarily due to the
combined effect of increased interest income charged to affiliate companies and
increased interest expenses. The interest income charged to affiliate companies
increased from approximately $15,000 for the three months ended September 30,
2006 to approximately $174,000 for the same period of 2007. The interest
expenses increased from approximately $113,000 in the third quarter of 2006 to
approximately $159,000 for the same period of 2007. The funds from which our
increased interest expenses were incurred were used for working capital
purposes.




MINORITY
INTERESTS




Minority interests for the periods
presented represent outside ownership interests in subsidiaries that are
consolidated with the parent for financial reporting purposes.




LIQUIDITY
AND CAPITAL RESOURCES




CASH
FLOWS FROM OPERATING ACTIVITIES




Our operations generated cash resources
of approximately $9,492,000 for the nine months ended September 30, 2007,
compared to generating cash resources of approximately $1,871,000 for the nine
months ended September 30, 2006, primarily as a net result of the
following:




·
            For
      the nine months ended September 30, 2007, cash flow provided by sales net
      of operating expenses increased by approximately $878,000 to $2,208,000.
      The increase was primarily as a result of the increase in
      sales.




·
            For
      the nine months ended September 30, 2007, account receivables decreased by
      approximately $7,794,000, primarily due to the collection of account
      receivable in regarding to the remarkable sales recognized in the last
      three quarters.




·
            For
      the nine months ended September 30, 2007, our inventory increased by
      approximately $5,019,000. The increase was consistent with our business
      growth especially in the car trading
segment.




·
            For
      the nine months ended September 30, 2007, 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
$7,284,000.




CASH
FLOWS FROM INVESTING ACTIVITIES




For the nine months ended September 30,
2007 we expended net cash of approximately $263,000 in investing activities,
mainly for the acquisition of property, plant and equipment and the increase of
restricted cash to enhance our trade finance facilities in order to support the
growth of our business. For the nine months ended September 30, 2006, we
utilized approximately $782,000 in investing activities, mainly for acquisition
of property and equipment.





28




CASH
FLOWS FROM FINANCING ACTIVITIES




During the nine months ended September
30, 2007, we repaid approximately $2,567,000 of our obligations owed on
outstanding debt. For the nine months ended September 30, 2006, we made new net
drawdown amounting to approximately $1,285,000 from banks.




For the nine months ended September 30,
2007, we provided approximately $5,746,000 and $394,000 advances to affiliates
and associate respectively. For the nine months ended September 30, 2006, we
provided approximately $2,771,000 advance to affiliates and received
approximately $154,000 advance from associate. The advances to affiliates were
made 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 portion depending on the nature of the advances.




WORKING
CAPITAL REQUIREMENTS




Current assets exceeded current
liabilities at September 30, 2007 by approximately $4,003,000 an increase of
$1,892,000 from December 31, 2006. The ratio of our current assets to our
current liabilities was 1.14 to 1 at September 30, 2007 compared to 1.08 to
1 at December 31, 2006. At September 30, 2007, our current assets of
approximately $32,571,000 included approximately $11,844,000 in inventory that
was funded by the operating cash flow and trade finance facilities. Our current
liabilities of approximately $28,568,000 included 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
$17,620,000.




SEASONALITY




Our business is modestly seasonal
overall. 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




Information regarding the effects of
the fluctuation in foreign exchange rates on our Company is included in Item 3
below.




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.




We
currently do not hold or use any derivative or other financial instruments that
expose us to substantial market risk and we have no foreign exchange contracts.
Our financial instruments consist of cash and cash equivalents, trade
receivables 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.




Interest Rates. Our exposure
to market risk for changes in interest rates relates primarily to our short-term
obligations; thus, fluctuations in interest rates would not have a material
impact on the fair value of the Company’s securities. At September 30, 2007, we
had approximately $3,997,188 in cash and cash equivalents. A hypothetical 10%
increase or decrease in interest rates would not have a material impact on our
earnings or loss, or the fair market value or cash flows of these
instruments.





29




Foreign Exchange Rates. 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, 2007 was not material to
us.




Item
4.  Controls and Procedures.




NOTE:
This Item 4. 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.




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, 2007.  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,
2007, 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.




30




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;




·
            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.





31




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,
2007.  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, 2007 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.




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,
2007.  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, 2007 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.




32




PART
II:  OTHER INFORMATION




Item
1.  Legal Proceedings.




None.




Item
1A.  Risk Factors.




There have been no material changes in
our business, operations or prospects that would require a change to the Risk
Factor disclosure included in our most recent Annual Report on Form 10-K that
have not already been disclosed.




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




None.




Item
3.  Defaults Upon Senior Securities.




None.




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




None.




Item
5.  Other Information.




There have been no material changes to
the procedures by which security holders may recommend nominees to the Company’s
board of directors.




Item
6.  Exhibits.




Exhibit Number
            
            Description31.1
            
            Certification
      of Chief Executive Officer pursuant to Rules 13A-14(A)/15D-15(E) 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 Rules 13A-14(A)/15D-15(E) 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. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
      herewith.




33





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 Officer





Date:
      May 28, 2010
              By:
              /s/ Joseph Tik Tung WONGJoseph
      Tik Tung WONGChief
      Financial Officer, Treasurer and
Secretary




34