UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




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




For the
quarterly period ended: September 30, 2010




or




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




For the
transition period from ______________ to ______________




Commission
File No. 333-120807




CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC.


(Exact
name of Registrant as specified in its charter)





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




10/F,
Wo Kee Hong Building


585-609
Castle Peak Road


Kwai Chung, N.T. Hong
Kong


(Address
of principal executive offices)




( 852)
2954-2469


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes   x  No  
 ̈




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 the definitions 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 Company 
      x(Do not check if a smaller reporting company)




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


Yes  
 ̈ No  
x





The
number of shares of Common Stock, $0.005 par value, outstanding as of the close
of business on November 12, 2010 was 24,534,491.









CHINA PREMIUM LIFESTYLE ENTERPRISE, INC.




FORM
10-Q




FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010




TABLE
OF CONTENTS





PagePART
      I: FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements
              4Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              22Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              32Item
      4.
              Controls
      and Procedures
              32PART
      II: OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              33Item
      1A.
              Risk
      Factors
              33Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              33Item
      3.
              Defaults
      Upon Senior Securities
              34Item
      4.
              (Removed
      and Reserved)
              34Item
      5.
              Other
      information
              34Item
      6.
              Exhibits
              35SIGNATURES
              36




2




Explanatory
Note





Pursuant
to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, as
amended, except as otherwise indicated, we have elected to comply throughout
this Quarterly Report on Form 10-Q with the scaled disclosure requirements
applicable to “smaller reporting companies”.  In this Quarterly
Report, unless otherwise stated or the context otherwise requires, the terms
“we”, “us”, “our” and “the Company” refer to China Premium Lifestyle Enterprise,
Inc. and our consolidated subsidiaries taken together as a whole.




3




PART I:  FINANCIAL INFORMATION






Item
1. Financial Statements




CHINA PREMIUM LIFESTYLE ENTERPRISE, INC. AND
SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)




September
      30, 2010
            
            
            December
      31, 2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            3,430,229
            
            
            $
            3,982,214Restricted
      cash
            
            
            4,398,742
            
            
            
            4,399,054Trade
      receivables, net of provision
            
            
            3,325,261
            
            
            
            5,496,182Inventory,
      net
            
            
            19,793,461
            
            
            
            18,124,145Prepayments
            
            
            617,520
            
            
            
            282,631Other
      current assets
            
            
            6,288,401
            
            
            
            4,161,493Amounts
      due from affiliates
            
            
            11,775,156
            
            
            
            12,349,734Total
      current assets
            
            
            49,628,770
            
            
            
            48,795,453Property
      and equipment, net
            
            
            5,772,653
            
            
            
            4,378,155Goodwill
            
            
            39,690
            
            
            
            39,700Total
      assets
            
            $
            55,441,113
            
            
            $
            53,213,308LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
            
            $
            8,866,154
            
            
            $
            11,208,645Bills
      payable
            
            
            2,193,863
            
            
            
            1,256,939Trade
      payables
            
            
            5,320,864
            
            
            
            3,712,429Deposits
      received
            
            
            27,464,045
            
            
            
            24,313,027Other
      current liabilities
            
            
            1,987,986
            
            
            
            4,696,114Amounts
      due to affiliates
            
            
            5,991,100
            
            
            
            4,177,612Total
      current liabilities
            
            
            51,824,012
            
            
            
            49,364,766Long-term
      borrowing
            
            
            544,006
            
            
            
            933,121TOTAL
      LIABILITIES
            
            
            52,368,018
            
            
            
            50,297,887Commitments
      and ContingenciesStockholders'
      equityCommon
      stockAuthorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 24,534,491 shares as at September 30, 2010; (23,323,860
      shares as at December 31, 2009)
            
            
            122,672
            
            
            
            116,619Additional
      paid-in-capital
            
            
            4,113,055
            
            
            
            4,119,108Accumulated
      other comprehensive income
            
            
            285,327
            
            
            
            244,371Accumulated
      deficit
            
            
            (7,032,317
            )
            
            
            (6,428,091
            )TOTAL
      CHINA PREMIUM LIFESTYLE ENTERPRISE, INC. STOCKHOLDERS’
    EQUITY
            
            
            (2,511,263
            )
            
            
            (1,947,993
            )Noncontrolling
      interests
            
            
            5,584,358
            
            
            
            4,863,414TOTAL
      EQUITY
            
            
            3,073,095
            
            
            
            2,915,421TOTAL
      LIABILITIES AND EQUITY
            
            $
            55,441,113
            
            
            $
            53,213,308




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




4




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)




Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Sales:New
      and used vehicles
            
            $
            34,494,909
            
            
            $
            27,391,199
            
            
            $
            89,457,083
            
            
            $
            77,216,005Parts
      and services and others
            
            
            2,885,791
            
            
            
            2,442,121
            
            
            
            8,334,175
            
            
            
            5,411,561Fashion
      apparel and accessories
            
            
            -
            
            
            
            299,423
            
            
            
            98
            
            
            
            1,181,328Net
      sales
            
            
            37,380,700
            
            
            
            30,132,743
            
            
            
            97,791,356
            
            
            
            83,808,894Cost
      of sales:New
      and used vehicles
            
            
            (30,847,952
            )
            
            
            (25,908,646
            )
            
            
            (80,890,643
            )
            
            
            (71,827,037
            )Parts
      and services and others
            
            
            (1,031,327
            )
            
            
            (612,026
            )
            
            
            (3,269,769
            )
            
            
            (1,112,490
            )Fashion
      apparel and accessories
            
            
            -
            
            
            
            (457,918
            )
            
            
            (582
            )
            
            
            (1,580,999
            )Total
      cost of sales
            
            
            (31,879,279
            )
            
            
            (26,978,590
            )
            
            
            (84,160,994
            )
            
            
            (74,520,526
            )Gross
      profit:New
      and used vehicles
            
            
            3,646,957
            
            
            
            1,482,553
            
            
            
            8,566,440
            
            
            
            5,388,968Parts
      and services and others
            
            
            1,854,464
            
            
            
            1,830,095
            
            
            
            5,064,406
            
            
            
            4,299,071Fashion
      apparel and accessories
            
            
            -
            
            
            
            (158,495
            )
            
            
            (484
            )
            
            
            (399,671
            )Total
      gross profit
            
            
            5,501,421
            
            
            
            3,154,153
            
            
            
            13,630,362
            
            
            
            9,288,368Selling,
      general and administrative expenses
            
            
            (5,210,646
            )
            
            
            (5,516,916
            )
            
            
            (14,285,184
            )
            
            
            (15,342,119
            )Operating
      earnings / (loss)
            
            
            290,775
            
            
            
            (2,362,763
            )
            
            
            (654,822
            )
            
            
            (6,053,751
            )Other
      income (expenses)Interest
      expenses and other finance costs
            
            
            (243,879
            )
            
            
            (218,630
            )
            
            
            (625,355
            )
            
            
            (623,771
            )Other
      (expenses) / income
            
            
            235,366
            
            
            
            35,391
            
            
            
            1,330,442
            
            
            
            805,446Total
      other income / (expenses)
            
            
            (8,513
            )
            
            
            (183,239
            )
            
            
            705,087
            
            
            
            181,675Earnings
      / (loss) before income taxes
            
            
            282,262
            
            
            
            (2,546,002
            )
            
            
            50,265
            
            
            
            (5,872,076
            )Provision
      for income taxes
            
            
            1,777
            
            
            
            (41
            )
            
            
            9,542
            
            
            
            (30,295
            )Earnings
      / (loss) including noncontrolling interests
            
            $
            284,039
            
            
            $
            (2,546,043
            )
            
            $
            59,807
            
            
            $
            (5,902,371
            )Net
      (loss) / earnings  attributable to:China
      Premium Lifestyle Enterprise, Inccommon
      stockholders
            
            
            (464
            )
            
            
            (1,826,728
            )
            
            
            (604,226
            )
            
            
            (4,171,152
            )Noncontrolling
      interests
            
            
            284,503
            
            
            
            (719,315
            )
            
            
            664,033
            
            
            
            (1,731,219
            )$
            284,039
            
            
            $
            (2,546,043
            )
            
            $
            59,807
            
            
            $
            (5,902,371
            )Loss
      per common stock attributable to China Premium Lifestyle Enterprise, Inc.
      common stockholdersBasic
            
            $
            (0.00002
            )
            
            $
            (0.07832
            )
            
            $
            (0.02463
            )
            
            $
            (0.17883
            )Diluted
            
            $
            (0.00002
            )
            
            $
            (0.07832
            )
            
            $
            (0.02463
            )
            
            $
            (0.17883
            )Weighted
      average number of common stock outstandingBasic
            
            
            24,534,491
            
            
            
            23,323,860
            
            
            
            24,534,491
            
            
            
            23,323,860Diluted
            
            
            24,534,491
            
            
            
            23,323,860
            
            
            
            24,534,491
            
            
            
            23,323,860





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




5




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Nine
      months ended
              September
      30,2010
            
            
            2009Operating
      activities:Net
      earnings / (loss) including noncontrolling interests
            
            $
            59,807
            
            
            $
            (5,902,371
            )Adjustments
      to reconcile net earnings / (loss) to net cash provided by
      operating  activitiesDepreciation
      and amortization
            
            
            1,161,756
            
            
            
            896,904Disposal
      of property and equipment
            
            
            9,971
            
            
            
            202,766Provision
      for bad debts written back
            
            
            -
            
            
            
            (25,346
            )Provision
      for inventory
            
            
            467,373
            
            
            
            29,978Other
      non-cash items
            
            
            55,345
            
            
            
            74,004Changes
      in operating assets and liabilities:Trade
      receivables
            
            
            2,170,921
            
            
            
            10,294,972Other
      current assets and prepayments
            
            
            (2,461,797
            )
            
            
            2,386,765Inventory
            
            
            (2,136,689
            )
            
            
            (7,991,746
            )Trade
      payables
            
            
            1,608,435
            
            
            
            1,012,923Other
      current liabilities and deposits received
            
            
            442,890
            
            
            
            (1,074,371
            )Net
      cash provided by / (used in) operating activities
            
            
            1,378,012
            
            
            
            (95,522
            )Investing
      activities:Purchases
      of property and equipment
            
            
            (2,525,527
            )
            
            
            (2,802,636
            )Proceeds
      from disposal of property and equipment
            
            
            1,834
            
            
            
            14,193Decrease
      in restricted cash
            
            
            312
            
            
            
            25,185Net
      cash used in investing activities
            
            
            (2,523,381
            )
            
            
            (2,763,258
            )Financing
      activities:Advances
      from affiliates
            
            
            2,388,066
            
            
            
            772,942Decrease
      in borrowings and bills payable
            
            
            (1,794,682
            )
            
            
            (414,727
            )Net
      cash provided by financing activities
            
            
            593,384
            
            
            
            358,215Decrease
      in cash and cash equivalents
            
            
            (551,985
            )
            
            
            (2,500,565
            )Cash
      and cash equivalents at beginning of the period
            
            
            3,982,214
            
            
            
            5,827,132Cash
      and cash equivalents at end of the period
            
            $
            3,430,229
            
            
            $
            3,326,567Supplemental
      disclosure of cash flows information:Cash
      paid for:Interest
            
            $
            625,355
            
            
            $
            623,771Income
      taxes
            
            
            (9,542
            )
            
            
            30,295





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




6




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1.  SUMMARY OF PRINCIPAL ACCOUNTING POLICIES





Basis
of presentation





The
condensed consolidated financial statements include the accounts of China
Premium Lifestyle Enterprise, Inc. (the “Company”) and its subsidiaries. The
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The condensed consolidated financial statements include the accounts of China
Premium Lifestyle Enterprise, Inc. and all of its subsidiaries in which a
controlling interest is maintained.  Controlling interest is
determined by the ownership of the majority voting interest or by the power to
control.  For those consolidated subsidiaries where our ownership is
less than 100%, the other shareholders’ interests are shown as noncontrolling
interest.  All significant intercompany accounts and transactions have
been eliminated upon consolidation.  All the direct and indirect
subsidiaries of Technorient are wholly-owned.





The
condensed consolidated financial statements are unaudited and, in our opinion,
include all adjustments, consisting of normal recurring adjustments and accruals
necessary for a fair representation of our condensed consolidated balance
sheets, operating results, and cash flows for the periods presented. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for 2010.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
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 accompany notes included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2009.





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.





Earnings
(loss) per share





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





Segment
reporting





The
Company determines and classifies its operating segments in accordance with
Accounting Standard Codification (“ASC”) 280 Segment Reporting (“ASC
280”).  The Company identifies and classifies its operating segments based
on the nature of the products and services with similar economic
characteristics.  The Company’s reportable segments are (i) motor
vehicles retailing, which includes sales of new and used vehicles and provision
of vehicle maintenance and repair services; and (ii) sales of vehicle
parts.




7





Fair
value of financial instruments





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





ASC 820
Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the
price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  When determining the fair value measurements for
assets and liabilities required to be recorded at fair value, the Company
considers the principal or most advantageous market in which the Company would
transact and consider assumptions that market participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions,
and risk of non-performance.  ASC 820 establishes a valuation
hierarchy for disclosure of the inputs to valuation used to measure fair
value.  This hierarchy prioritizes the inputs into three broad levels
as follows:




·
            Level
      1: quoted prices (unadjusted) in active markets for identical assets or
      liabilities;




·
            Level
      2: inputs other than quoted prices included within Level 1 that are either
      directly or indirectly observable;
and




·
            Level
      3: unobservable inputs in which little or no market activity exists,
      therefore requiring an entity to develop its own assumptions about the
      assumptions that market participants would use in
  pricing.





The
classification of a financial asset or liability within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement.  The carrying amounts of the Company’s financial
instruments, including cash and cash equivalents, approximate fair value due to
their high liquidity in actively quoted trading markets and their short
maturities.





Reclassifications





Certain
financial statement line items have been reclassified to conform to the current
period presentation and have no impact on the previously reported consolidated
net sales, operating results, or net financial position.





NOTE
2.  CONCENTRATION OF RISK





Concentration
of supplier risk





The
Company relies on supplies from numerous vendors.  For the nine months
ended September 30, 2010 and 2009, 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, we may not
have sufficient time to replace the supply of products from the remaining
vendors.  Any such interruption would negatively impact our ability to
sell and distribute our products.  However, the suppliers’
concentration of credit risk does not pose any effect to the concentration of
credit 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





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





8





NOTE
3.  RECENT ACCOUNTING PRONOUNCEMENTS





(a)   Recent
accounting pronouncements adopted




(i)
            In
      June 2009, the FASB issued Statement No. 167, “Amendments to FASB
      Interpretation No. 46(R)”. Statement No. 167 amends FASB
      Interpretation No. 46 (“FIN 46”) (revised December 2003),
      “Consolidation of Variable Interest entities” (“FIN 46R”) to require an
      analysis to determine whether a variable interest gives the entity a
      controlling financial interest in a variable interest entity. This
      statement requires an ongoing reassessment and eliminates the quantitative
      approach previously required for determining whether an entity is the
      primary beneficiary.  Statement No. 167 is effective for our
      fiscal year beginning January 1, 2010.  The Company adopted
      Statement No. 167 on January 1, 2010 and the adoption did not have a
      material impact on its financial position, cash flows and results of
      operations.




(ii)
            In
      June 2009, the FASB issued Statement No. 166, “Accounting for
      Transfers of Financial Assets”. Statement No. 166 removes the concept of a
      qualifying special-purpose entity from Statement No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”, and removes the exception from applying FIN
      46R.  This statement also clarifies the requirements for
      isolation and limitations on portions of financial assets that are
      eligible for sale accounting. Statement No. 166 is effective for our
      fiscal year beginning January 1, 2010.  The Company adopted
      Statement No. 166 on January 1, 2010 and the adoption did not have a
      material impact on its financial position, cash flows and results of
      operations.




(iii)
            In
      August 2009, the FASB issued Accounting Standards Update (“ASU”)
      No. 2009-05, Measuring Liabilities at Fair Value (“ASU 2009-05”),
      which provides additional guidance on how companies should measure
      liabilities at fair value under ASC 820.  ASU 2009-05 clarifies
      that the quoted price for an identical liability should be
      used.  However, if such information is not available, an entity
      may use the quoted price of an identical liability when traded as an
      asset, quoted prices for similar liabilities or similar liabilities traded
      as assets, or another valuation technique (such as the market or income
      approach).  ASU 2009-05 also indicates that the fair value of a
      liability is not adjusted to reflect the impact of contractual
      restrictions that prevent its transfer and indicates circumstances in
      which quoted prices for an identical liability or quoted price for an
      identical liability traded as an asset may be considered level 1 fair
      value measurements.  For the Company, this ASU is effective
      October 1, 2009.  The Company adopted ASU No. 2009-05 on
      January 1, 2010 and the adoption did not have a material impact on its
      financial position, cash flows and results of
  operations.




(iv)
            In
      September 2009, the FASB issued ASU No. 2009-12, Investments in
      Certain Entities That Calculate Net Asset Value per Share (or its
      Equivalent) (“ASU 2009-12”), which amends FASB ASC Topic Fair Value
      Measurements and Disclosures.  ASU 2009-12 provides additional
      guidance on estimating the fair value of certain alternative investments,
      such as hedge funds, private equity investments and venture capital funds.
      The updated guidance allows the fair value of such investments to be
      determined using the net asset value (“NAV”) as a practical expedient,
      unless it is probable the investment will be sold at a value other than
      the NAV.  In addition, the guidance requires disclosures by
      major category of investment regarding the attributes of the investments
      within the scope of the guidance, regardless of whether the fair value of
      the investment is measured using the NAV or other fair value
      technique.  ASU 2009-12 is effective for interim and annual
      periods ending after December 15, 2009.  Early application
      is permitted in financial statements for earlier interim and annual
      periods that have not been issued.  If an entity elects to early
      adopt the measurement amendments in this update, the entity is permitted
      to defer the adoption of the disclosure provisions until periods ending
      after December 15, 2009.  The Company adopted ASU 2009-12
      on January 1, 2010 and the adoption did not have a material impact on its
      financial position, cash flows and results of
  operations.





(b)   Recent
accounting pronouncements not yet effective




9




(i)
            In
      October 2009, the FASB issued ASU No. 2009-13,
      Multiple-Deliverable Revenue Arrangements, a consensus of the FASB
      Emerging Issues Task Force, that provides amendments to the criteria for
      separating consideration in multiple-deliverable
      arrangements.  As a result of these amendments,
      multiple-deliverable revenue arrangements will be separated in more
      circumstances than under existing U.S. GAAP.  The ASU does this
      by establishing a selling price hierarchy for determining the selling
      price of a deliverable.  The selling price used for each
      deliverable will be based on vendor-specific objective evidence if
      available, third-party evidence if vendor-specific objective evidence is
      not available, or estimated selling price if neither vendor-specific
      objective evidence nor third-party evidence is available.  A
      vendor will be required to determine its best estimate of selling price in
      a manner that is consistent with that used to determine the price to sell
      the deliverable on a standalone basis.  This ASU also eliminates
      the residual method of allocation and will require that arrangement
      consideration be allocated at the inception of the arrangement to all
      deliverables using the relative selling price method, which allocates any
      discount in the overall arrangement proportionally to each deliverable
      based on its relative selling price.  Expanded disclosures of
      qualitative and quantitative information regarding application of the
      multiple-deliverable revenue arrangement guidance are also required under
      the ASU.  The ASU does not apply to arrangements for which
      industry specific allocation and measurement guidance exists, such as
      long-term construction contracts and software transactions.  For
      the Company, ASU No. 2009-13 is effective beginning January 1,
      2011.  The Company may elect to adopt the provisions
      prospectively to new or materially modified arrangements beginning on the
      effective date or retrospectively for all periods
      presented.  The Company is currently evaluating the impact of
      this standard, but would not expect it to have a material impact on the
      Company’s consolidated results of operations or financial
      condition.




(ii)
            In
      January 2010, the FASB issued ASU No. 2010-6, Improving
      Disclosures About Fair Value Measurements, which amends existing
      disclosure requirements under ASC 820 by adding required disclosures about
      items transferring into and out of levels 1 and 2 in the fair value
      hierarchy; adding separate disclosures about purchase, sales, issuances,
      and settlements relative to level 3 measurements; and clarifying, among
      other things, the existing fair value disclosures about the level of
      disaggregation.  For the Company, this ASU is effective for the
      first quarter of 2010, except for the requirement to provide level 3
      activity of purchases, sales, issuances, and settlements on a gross basis,
      which is effective beginning the first quarter of 2011.  Since
      this standard impacts disclosure requirements only, its adoption will not
      have a material impact on the Company’s consolidated results of operations
      or financial condition.




(iii)
            In
      July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit
      Quality of Financing Receivables and the Allowance for Credit
      Losses.  This ASU enhances the disclosure requirements about the
      credit quality and related allowance for credit losses of financing
      receivables.  The Company is currently evaluating the impact of
      this standard, but would not expect it to have a material impact on the
      Company’s consolidated results of operations or financial condition, as
      its requirements only pertain to financial statement note
      disclosure.  For the Company, this ASU is effective for interim
      and annual reporting period ending on or after December 15,
      2010.





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.




10




NOTE
4.  LOSS PER SHARE




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




Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Numerator:Net
      loss attributable to China Premium Lifestyle Enterprise, Inc common
      stockholders
            
            $
            (464
            )
            
            $
            (1,826,728
            )
            
            $
            (604,226
            )
            
            $
            (4,171,152
            )Denominator:Weighted
      average common stock
            
            
            24,534,491
            
            
            
            23,323,860
            
            
            
            24,534,491
            
            
            
            23,323,860Basic
      net loss per share
            
            $
            (0.00002
            )
            
            $
            (0.07832
            )
            
            $
            (0.02463
            )
            
            $
            (0.17883
            )Diluted
      net loss per share
            
            $
            (0.00002
            )
            
            $
            (0.07832
            )
            
            $
            (0.02463
            )
            
            $
            (0.17883
            )





NOTE
5.  INVENTORY, NET




Inventory
by major categories are summarized as follows:




September
      30, 2010
            
            
            December
      31, 2009New
      vehicles
            
            $
            13,917,392
            
            
            $
            10,237,561Used
      vehicles
            
            
            3,514,254
            
            
            
            5,127,326Parts,
      accessories and others
            
            
            2,361,815
            
            
            
            2,759,258$
            19,793,461
            
            
            $
            18,124,145





Vehicles
included in inventory of approximately $4,914,479 and $4,956,258 were pledged to
secure the stocking loan and other loans outstanding as of September 30, 2010
and December 31, 2009, respectively (See Note 6).





NOTE
6.  BORROWINGS





The
Company's borrowings are summarized as follows:





September
      30,
              2010
            
            
            December
      31,
              2009Bank
      borrowings
            
            $
            4,167,091
            
            
            $
            5,081,938Stocking
      loans
            
            
            4,184,057
            
            
            
            5,374,489Unsecured
      bank borrowings
            
            
            1,059,012
            
            
            
            1,427,477Other
      loans
            
            
            -
            
            
            
            257,8629,410,160
            
            
            
            12,141,766Bank
      borrowings due after one year
            
            
            (544,006
            )
            
            
            (933,121
            )Short-term
      borrowings
            
            $
            8,866,154
            
            
            $
            11,208,645




11




Vehicles
included in inventory of approximately $4,914,479 and $4,956,258 were pledged to
secure the stocking loan and other loans outstanding as of September 30, 2010
and December 31, 2009, respectively.




NOTE
7.  OTHER CURRENT LIABILITIES





Other
current liabilities by major categories are summarized as follows:





September
      30,
              2010
            
            
            December
      31,
              2009Accruals
            
            $
            164,012
            
            
            $
            1,150,702Other
      payables
            
            
            1,823,974
            
            
            
            3,545,412$
            1,987,986
            
            
            $
            4,696,114





Other
payables mainly consist of first registration tax on motor vehicles sold. First
registration tax is applicable to new motor vehicles sold in Hong Kong and is
computed on a progressive rate based on the gross selling price of the new motor
vehicles.





NOTE
8. STOCKHOLDERS’ EQUITY





General





The
Company’s total authorized capital at September 30, 2010, is 100,000,000 shares
of common stock, par value $0.005.  At September 30, 2010,
24,534,491 shares of common stock were issued and outstanding.




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
December 2006, 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 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:




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




12




·
            on
      August 16, 2006, prior management filed an amendment to the Company’s
      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, an amendment to the Company’s Articles of Incorporation
      was filed by the Company 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 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, and (4)
      sought to have the restrictive legend removed from the resulting shares of
      common stock.




During
the pendency of the Federal Court Action, the Company’s legal advisors
discovered and advised the Company 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 by the written consent of a majority of the Company’s
      then-stockholders, whereas the Company’s By-Laws require stockholder
      actions by 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 or
effect.  Further, the Company was advised that it had never been
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 it 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 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, an aggregate of 14,400,000 shares of the Company’s common
      stock were deemed to have been issued on the closing date of the Share
      Exchange Agreement, and upon the effectiveness of and giving effect to the
      Reverse Stock Split on December 7, 2007, an aggregate of 3,537,977
      additional shares of common stock were deemed to have been issued;
      and




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




13




On March
1, 2010, the Company settled the Federal Court Action.  Under the
terms of the settlement, the defendants returned to the Company for cancellation
certificates representing 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 the Company in 2006 in connection with the closing of the
Share Exchange Agreement.  The Company is delivering the shares in
nine monthly instalments commencing in March 2010.




NOTE
9. COMMITMENTS AND CONTINGENT LIABILITIES





Litigation,
Claims and Assessments





This Note
should be read in conjunction with Note 8.




Settlement
of Federal Court Action




On
December 19, 2008, the Company filed an action, styled China Premium Lifestyle
Enterprise, Inc. v. Happy Emerald Limited, et al., in the United States District
Court, Central District of California, Case No. SACV08-1439 (the “Federal Court
Action”), asserting claims for Securities Fraud, Breach of Contract, Fraud,
Conversion, Unjust Enrichment, Constructive Trust, Breach of Fiduciary Duty and
Declaratory Relief.  The Company named Happy Emerald Ltd., a purported
British Virgin Islands corporate entity (“HEL”), Global Premium Brands Co.,
Inc., a defunct California corporation, Global Premium Brands Co., Inc., a
Nevada corporation, Fred De Luca, Charles Miseroy, Delia Rodriguez, Robert G.
Pautsch, Richard Cabo, Federico Cabo, Bern Noble Ltd., a Nevada corporation
and C&H Capital, Inc., a Georgia corporation, as defendants (collectively,
the “Defendants”).





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




In
December 2006, the Company had delivered 65,454 shares of purported preferred
stock to Bern Noble, for consulting services rendered in connection with the
Exchange.  In March 2007, Bern Noble converted such shares into
1,210,631 shares of common stock.  As previously disclosed in the
Company’s Current Report on Form 8-K, filed on May 11, 2009, the Company later
determined that it was never authorized to issue any shares of preferred
stock.




In the
settlement, Bern Noble agreed to return to us for cancellation the 1,210,631
shares of common stock (which were derived from unauthorized shares of preferred
stock), and the Company agreed to issue Bern Noble an equal number of new shares
of common stock in consideration of the services previously rendered to the
Company in 2006.  The Company is delivering the new shares in nine
monthly installments, commencing on March 15, 2010.





Addison-Davis
Litigation




On or
about December 1, 2009, the Company was made aware that it was named as a
co-defendant in a state court action, Addison-Davis Diagnostics, Inc. v.
Edward W. Withrow, III, et al., California Superior Court, Ventura
County, Case No. 56-2009-00361702-CU-FR-VTA.  The Company was formally
served in the action on April 28, 2010.  In the action, the plaintiff,
which is our former parent company, alleges that the plaintiff’s former
chief executive officer, with the assistance of certain other third parties,
engaged in multiple fraudulent transactions involving the plaintiff and the
plaintiff’s securities between 2004 and 2006.  As a result of such
alleged conduct, the plaintiff alleges that the plaintiff’s former chief
executive officer was able to fraudulently obtain shares of the plaintiff’s
common stock and certain of the plaintiff’s assets.  The plaintiff
alleges that as a result of the alleged conduct, the plaintiff was forced to
seek bankruptcy protection in September, 2006.  The plaintiff named
the Company as a co-defendant in four of the thirteen causes of action in the
complaint (plaintiff’s claims for conversion, constructive trust, unjust
enrichment and accounting).




14





Plaintiff
filed a First Amended Complaint on June 15, 2010.  The Company moved
to dismiss the First Amended Complaint and, on October 29, 2010, the Court
sustained the Company’s demurrer with leave to amend.  Plaintiff is to
file a Second Amended Complaint on or before November 19, 2010.  The
Company denies any alleged wrongdoing in connection with the claims asserted in
the action and will vigorously defend those claims.  The Company is
unable to evaluate the likelihood of an outcome, favorable or unfavorable, at
this time or to estimate the amount or range of a possible
loss.  However, an adverse result in this proceeding could have a
material adverse effect on the Company’s operations.





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 the PRC, from
unaffiliated third parties. Minimum future rental payments required under
non-cancellable operating leases in effect as of September 30, 2010 are as
follows:




2010
            
            $
            895,7472011
            
            
            2,252,4152012
            
            
            1,917,5122013
            
            
            1,819,7492014
            
            
            1,631,956Later
      years
            
            
            5,983,839$
            14,501,218





Rent
expense for the three months and nine months ended September 30, 2010 and 2009
was $966,058, $1,104,167, $2,603,076 and $3,378,340, respectively.




Employment
Agreements




The
Company maintains employment agreements with its executives which extend through
2011. 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,
2010, committed compensation to the executives and other key employees totaling
approximately $292,692 (December 31, 2009: $261,792) remain in
effect.




15





NOTE
10. COMPREHENSIVE INCOME INFORMATION





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





China
      Premium Lifestyle Enterprise, Inc common stockholdersAccumulated
      deficit
            
            
            Accumulated
      other comprehensive income
            
            
            Noncontrolling
      interests
            
            
            TotalAt
      January 1, 2010
            
            $
            (6,428,091
            )
            
            $
            244,371
            
            
            $
            4,863,414
            
            
            $
            (1,320,306
            )Net
      loss / earnings
            
            
            (55,320
            )
            
            
            -
            
            
            
            226,418
            
            
            
            171,098Translation
      adjustments
            
            
            -
            
            
            
            3,771
            
            
            
            6,455
            
            
            
            10,226At
      March 31, 2010
            
            
            (6,483,411
            )
            
            
            248,142
            
            
            
            5,096,287
            
            
            
            (1,138,982
            )Net
      loss / earnings
            
            
            (548,442
            )
            
            
            -
            
            
            
            153,112
            
            
            
            (395,330
            )Translation
      adjustments
            
            
            -
            
            
            
            27,041
            
            
            
            2,728
            
            
            
            29,769At
      September 30, 2010
            
            
            (7,031,853
            )
            
            
            275,183
            
            
            
            5,252,127
            
            
            
            (1,504,543
            )Net
      loss / earnings
            
            
            (464
            )
            
            
            -
            
            
            
            284,503
            
            
            
            284,039Translation
      adjustments
            
            
            -
            
            
            
            10,144
            
            
            
            47,728
            
            
            
            57,872At
      September 30, 2010
            
            $
            (7,032,317
            )
            
            $
            285,327
            
            
            $
            5,584,358
            
            
            $
            (1,162,632
            )








China
      Premium Lifestyle Enterprise, Inc common stockholdersAccumulated
      deficit
            
            
            Accumulated
      other comprehensive income
            
            
            Noncontrolling
      interests
            
            
            TotalAt
      January 1, 2009
            
            $
            (695,446
            )
            
            $
            247,279
            
            
            $
            7,104,333
            
            
            $
            6,656,166Net
      loss / earnings
            
            
            (1,622,151
            )
            
            
            -
            
            
            
            (1,058,637
            )
            
            
            (2,680,788
            )Translation
      adjustments
            
            
            -
            
            
            
            (1,214
            )
            
            
            -
            
            
            
            (1,214
            )At
      March 31, 2009
            
            
            (2,317,597
            )
            
            
            246,065
            
            
            
            6,045,696
            
            
            
            3,974,164Net
      (loss)/earnings
            
            
            (722,273
            )
            
            
            -
            
            
            
            46,733
            
            
            
            (675,540
            )Translation
      adjustments
            
            
            -
            
            
            
            7,791
            
            
            
            9,390
            
            
            
            17,181At
      September 30, 2009
            
            
            (3,039,870
            )
            
            
            253,856
            
            
            
            6,101,819
            
            
            
            3,315,805Net
      loss / earnings
            
            
            (1,826,728
            )
            
            
            -
            
            
            
            (719,315
            )
            
            
            (2,546,043
            )Translation
      adjustments
            
            
            -
            
            
            
            32,364
            
            
            
            34,337
            
            
            
            66,701At
      September 30, 2009
            
            $
            (4,866,598
            )
            
            $
            286,220
            
            
            $
            5,416,841
            
            
            $
            836,463





16





(b)
Condensed consolidated statement of comprehensive income (loss)





Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Net
      income / (loss) including noncontrolling interest
            
            $
            284,039
            
            
            $
            (2,546,043
            )
            
            $
            59,807
            
            
            $
            (5,902,371
            )Other
      comprehensive income, net of tax:Translation
      adjustments
            
            
            57,872
            
            
            
            66,701
            
            
            
            97,867
            
            
            
            82,668Comprehensive
      loss including noncontrolling interest
            
            
            341,911
            
            
            
            (2,479,342
            )
            
            
            157,674
            
            
            
            (5,819,703
            )Comprehensive
      loss / (income) attributable to noncontrolling interest:Net
      (income) / loss
            
            
            (284,503
            )
            
            
            719,315
            
            
            
            (664,033
            )
            
            
            1,731,219Translation
      adjustments
            
            
            (47,728
            )
            
            
            (34,337
            )
            
            
            (56,911
            )
            
            
            (43,727
            )Comprehensive
      loss attributable to China Premium Lifestyle Enterprise, Inc common
      stockholders
            
            $
            (9,680
            )
            
            $
            (1,794,364
            )
            
            $
            (563,270
            )
            
            $
            (4,132,211
            )




NOTE
11. BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION




Business
Segments




The
Company operates in two business segments: Vehicles Sales and Service and
Fashion Apparel.  The Company’s reporting segments are strategic
business units that offer different products and services. They are managed
separately based on the fundamental differences in their
operations.




The
Vehicles Sales and Service segment consists primarily of the group of companies
doing business as Auto Italia Limited, Nanjing Auto Italia Car Trading Co.,
Limited and Dalian Auto Italia Car Trading Co., Limited. The Vehicles Sales and
Service segment includes sales of new and used vehicles, provision of vehicle
maintenance and repair services, and sales of vehicle parts.




The
Fashion Apparel segment consists primarily of CPMM (Asia) Limited. The Fashion
Apparel segment provides wholesale and retailing of fashion
apparel.




Information
by industry segment is set forth below for the three months and nine months
ended September 30:




17





Three
      months ended September 30, 2010
            
            Vehicles
            
            
            Fashion
              Apparel
            
            
            Corporate
            
            
            Elimination
            
            
            ConsolidatedSalesExternal
      sales
            
            $
            37,380,700
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            37,380,700Inter-segment
      sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      sales
            
            
            37,380,700
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            37,380,700ResultsOperating
      earnings / (loss)
            
            
            564,595
            
            
            
            -
            
            
            
            (273,820
            )
            
            
            -
            
            
            
            290,775Interest
      revenue
            
            
            2,801
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,801Interest
      expense
            
            
            (243,879
            )
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            (243,879
            )Other
      income
            
            
            232,565
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            232,565Profit
      before income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            282,262Provision
      for income tax
            
            
            1,777
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            1,777Net
      earnings
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            284,039




Nine
      months ended September 30, 2010
            
            Vehicles
            
            
            Fashion
              Apparel
            
            
            Corporate
            
            
            Elimination
            
            
            ConsolidatedSalesExternal
      sales
            
            $
            97,791,258
            
            
            $
            98
            
            
            $
            -
            
            
            $
            -
            
            
            $
            97,791,356Inter-segment
      sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      sales
            
            
            97,791,258
            
            
            $
            98
            
            
            $
            -
            
            
            $
            -
            
            
            
            97,791,356ResultsOperating
      earnings / (loss)
            
            
            589,226
            
            
            
            (15,867
            )
            
            
            (1,228,181
            )
            
            
            -
            
            
            
            (654,822
            )Interest
      revenue
            
            
            8,679
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,679Interest
      expense
            
            
            (625,355
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (625,355
            )Other
      income
            
            
            1,321,763
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,321,763Profit
      before income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,265Provision
      for income tax
            
            
            9,542
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,542Net
      earnings
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            59,807





18




Three
      months ended September  30, 2009
              
              Vehicles
              
              
              Fashion
                Apparel
              
              
              Corporate
              
              
              Elimination
              
              
              ConsolidatedSalesExternal
      sales
              
              $
              29,833,320
              
              
              $
              299,423
              
              
              $
              -
              
              
              $
              -
              
              
              $
              30,132,743Inter-segment
      sales
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      sales
              
              
              29,833,320
              
              
              $
              299,423
              
              
              
              -
              
              
              
              -
              
              
              
              30,132,743ResultsOperating
      loss
              
              
              (1,231,196
              )
              
              
              (782,650
              )
              
              
              (348,917
              )
              
              
              -
              
              
              
              (2,362,763
              )Interest
      revenue
              
              
              2,244
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,244Interest
      expense
              
              
              (214,234
              )
              
              
              (4,396
              )
              
              
              -
              
              
              
              -
              
              
              
              (218,630
              )Other
      income
              
              
              32,803
              
              
              
              344
              
              
              
              -
              
              
              
              -
              
              
              
              33,147Loss
      before income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,546,002
              )Provision
      for income tax
              
              
              (41
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (41
              )Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,546,043
              )




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





19




Vehicles
            
            
            Fashion
              Apparel
            
            
            Corporate
            
            
            Consolidated2010Total
      assets
            
            $
            52,845,828
            
            
            $
            2,584,767
            
            
            $
            10,518
            
            
            $
            55,441,113Depreciation
      and amortization
            
            
            1,161,756
            
            
            
            -
            
            
            
            -
            
            
            
            1,161,756Net
      capital expenditures
            
            
            2,525,527
            
            
            
            -
            
            
            
            -
            
            
            
            2,525,5272009Total
      assets
            
            $
            51,025,202
            
            
            $
            555,766
            
            
            $
            488
            
            
            $
            51,581,456Depreciation
      and amortization
            
            
            878,961
            
            
            
            17,943
            
            
            
            -
            
            
            
            896,904Net
      capital expenditures
            
            
            2,794,757
            
            
            
            7,879
            
            
            
            -
            
            
            
            2,802,636





Geographic
Information




No
segment information is provided as the Company only has one geographical
segment.  The Company’s reportable business segments are
Vehicle Sales and Service and Fashion Apparel, which operations are located
in the PRC (including Hong Kong and Macau). Sales were predominately made to
customers located in the PRC (including Hong Kong and Macau).





NOTE
12.  RELATED PARTY TRANSACTIONS





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





Three
      months ended September 30,
            
            
            Nine
      months ended
              September
      30,Notes
            
            2010
            
            
            2009
            
            
            2010
            
            
            2009Sales
      to:-
      Affiliates
            (a)
            
            $
            2,456
            
            
            $
            1,572
            
            
            $
            11,774
            
            
            $
            191,008Purchases
      from:-
      Affiliates
            (a)
            
            
            784
            
            
            
            41,530
            
            
            
            784
            
            
            
            143,256Interest
      received from:-
      Affiliates
            (b)
            
            
            -
            
            
            
            164,785
            
            
            
            -
            
            
            
            478,995Management
      fee paid to:-
      Affiliates
            (c)
            
            
            89,268
            
            
            
            94,984
            
            
            
            268,982
            
            
            
            302,423Management
      fee received from:-
      Affiliates
            (c)
            
            
            -
            
            
            
            46,445
            
            
            
            -
            
            
            
            139,329Service
      cost charged by:-
      Affiliates
            (c)
            
            
            -
            
            
            
            578
            
            
            
            -
            
            
            
            10,912Rental
      income received from:-
      Affiliates
            (c)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            77,404Rental
      paid to:-
      Affiliate
            (c)
            
            
            -
            
            
            
            4,203
            
            
            
            -
            
            
            
            12,519Building
      management fee paid to:-
      Affiliate
            (c)
            
            
            -
            
            
            
            851
            
            
            
            -
            
            
            
            2,553Warehouse
      expenses paid to:-
      Affiliate
            (c)
            
            
            -
            
            
            
            3,448
            
            
            
            -
            
            
            
            12,670





20




Notes:





(a)
            The
      transactions were carried out at market price or, where no market price
      was available, at cost plus a percentage profit
  mark-up.





(b)
            The
      loan advance to an affiliate is unsecured, interest free (2009: bearing
      interest at 5.5% per annum) and repayable on
  demand.





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





NOTE
13. SUBSEQUENT EVENTS




We have
performed an evaluation of subsequent events or transactions through the date of
this filing, which is the date the financial statements were
issued.  During this period the Company did not have any material
subsequent events that impacted our condensed consolidated financial
statements.





[End
of condensed consolidated financial statements.]




21




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




FORWARD-LOOKING
STATEMENTS




The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us or on our behalf.  We may from
time to time make written or oral statements that are “forward-looking” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, including
statements contained in this report and other filings with the SEC and other
reports and public statements.  These statements may, for example,
express expectations or projections about future actions or results that we may
anticipate but, due to developments beyond our control, do not
materialize.  Actual results could differ materially because of issues
and uncertainties such as those listed herein, which, among others, should be
considered in evaluating our financial outlook.  The principal factors
that could cause our actual performance and future events and actions to differ
materially from such forward-looking statements include, but are not limited to,
(a) general economic conditions in Hong Kong, Macau and the PRC; (b) regulatory
factors in Hong Kong, Macau and the PRC that may lead to additional costs or
otherwise negatively affect our business; (c) whether we are able to manage our
planned growth efficiently, including whether our management will be able to:
(i) identify, hire, train, retain, motivate and manage required personnel or
(ii) successfully manage and exploit existing and potential market
opportunities; (d) whether we are able to generate sufficient revenues or obtain
financing to sustain and grow our operations; (e) our exposure to foreign
currency fluctuations, (f) whether we are able to successfully fulfill our
primary cash requirements which are explained below under “Financial Condition,
Liquidity and Capital Resources;” (g) whether worldwide economic conditions will
negatively affect the automobile retail industry in Hong Kong, Macau and the PRC
and other factors or conditions described in Item 1A – Risk Factors in Part I of
our 2009 Annual Report on Form 10-K.  We assume no obligation to
update publicly any forward-looking statements.





Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management’s judgment in its application.
There are also areas in which management’s judgment in selecting any available
alternative would not produce a materially different result.




Management’s
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the accompanying unaudited Condensed Consolidated
Financial Statements and notes thereto and with the audited Condensed
Consolidated Financial Statements, notes thereto, and Management’s Discussion
and Analysis of Financial Condition and Results of Operations included in our
2009 Annual Report on Form 10-K.





COMPANY
OVERVIEW





The main
business of the Company is its 49% ownership interest in Technorient Limited, a
Hong Kong corporation (“Technorient”).  The business of Technorient
and its subsidiaries consists of the importation, distribution and after-sales
service of Italian “Ferrari” and “Maserati” branded automobiles and spare parts
in the Hong Kong Special Administrative Region (“Hong Kong”), the Macau Special
Administrative Region (“Macau”) and the PRC.  We have eight automobile
sales and service locations in Hong Kong, Dalian and Nanjing, in the
PRC.





Technorient
is the parent company of Auto Italia Limited (“Auto Italia”) (and Auto Italia’s
wholly-owned subsidiary shown on the chart below), German Motors Limited
(“German Motors”), Italian Motors (Sales & Service) Limited (“IML”) (and
IML’s subsidiaries shown on the chart below) and King Express Group Limited
(“King Express”).  We refer to Auto Italia and IML (and their respective
subsidiaries) and German Motors and King Express, collectively, as the
“Technorient Group.”




22





In
addition to its interest in the Technorient Group, the Company’s wholly-owned
subsidiary, CPMM (Asia) Limited (f/k/a Leader Mount Limited), a Hong Kong
corporation (“CPMM Asia”), implemented a plan in 2008 to import, distribute and
sell premium brand apparel in Hong Kong, Macau, the PRC and
Taiwan.  The sale and distribution of premium brand apparel was wound
down in 2009 due to lack of sales, which was primarily attributable to the
downturn in the global economy and the tightening of consumer spending in the
PRC.





The
diagram below illustrates the organizational structure of the Company, including
the Technorient Group.










Comparisons
of operating results for the year ended 2009 and for the nine months ended
September 30, 2010 have been impacted by the global economic conditions that
existed during those periods.  In addition, the Company took certain
actions in response to the global economic downturn during these periods, which
included:





·
            the
      scale down of the fashion apparel
business,


·
            reductions
      in overhead,


·
            introduction
      of an automation program to improve the operational efficiency,
      and


·
            introduction
      of an extensive business redesign to achieve further cost
      savings.





For the
year ended 2009 and for the nine months ended September 30, 2010, our new
vehicles sales increased approximately $11,885,700 or 19.4% from approximately
$61,144,000 to approximately $73,029,700, while the number of new vehicles sold
increased 19% for the same period.  Used vehicles sales increased
approximately $355,400 or 2.2% from the first nine months of 2009 to
approximately $16,427,400 in the same period of 2010.  The number of used
vehicles sold increased by 1% over the same period in
2009.





In
addition, for the year ended 2009 and for the nine months ended September 30,
2010, we had gross revenues from maintenance repair services and the sale of
automobile parts of $5.4 million and $8.3 million, respectively.




23




Our
current operations and the growth of our business depends upon the execution of
our sales and service business strategy.  We receive factory
allocations of vehicles annually from both Ferrari and Maserati, which vary from
year to year.  There is no obligation on our part to purchase any
specific year’s allocation.  The allocation plan is solely for business
planning purposes.  The allocation plan is subject to unilateral
amendment by each manufacturer.  There is no legal consequence to us if we
fail to utilize the number of vehicles allocated to us under the allocation
plan.  If we are unable to utilize our entire allocation, each
manufacturer may reallocate the un-utilized portion of our allocation to other
dealers.





We
believe that we have a strong brand mix of attractive automobiles to sell.  Given the
exclusive nature and extremely limited production of Ferrari and Maserati
automobiles, our customers are willing to place material deposits in advance in
order to secure their new cars.  As of September 30, 2010, we have
received customer deposits of approximately $27,464,000.  We sell all
of our automobiles for the purchase price contracted for with the customer and
do not finance any of the purchase price.  We retain no credit
risk.  Luxury vehicle sales have historically fluctuated with local
and national economic conditions, including consumer confidence, available
consumer credit and product availability.  The primary risk in our
business is the availability of customers with the financial capability to
purchase the luxury vehicles we sell.





Our gross
profit margin varies with our revenue mix.  The sale of used vehicles
generally results in lower gross profit margins than new vehicle sales and sales
of parts and service.  Due to the current demand for new vehicles we
expect our overall gross profit margin to increase.  We continue to
focus on expense controls, although, should sales volume decline or gross
margins come under pressure, such efforts on our part may not keep pace with
lower gross profits.  Operating results are generally subject to
changes in the economic environment and seasonal variations.  We tend
to generate more revenue and operating income in the second half of the calendar
year than the first half.  Generally, seasonal variations in sales are
caused by factors related to manufacturer production schedules, model
changeovers and consumer buying patterns, among other things.  For the
nine months ended September 30, 2010 our sales and revenue have increased as a
reflection of the improvement in the economy in our markets.  As a
result of the improved economy in our markets, our used vehicles, parts and
service business have also grown substantially.





Our sales
outlook for the balance of 2010 and 2011 is optimistic inasmuch as we have
significant orders on hand for new Ferrari and Maserati
automobiles.  No assurance can be given, however, that such sales will
be completed.  We do not rely upon special incentives in the sale of
new or used vehicles, but depend upon the unique and exclusive nature of Ferrari
and Maserati automobiles and their appeal to high-income consumers.





RESULTS OF
OPERATIONS




Nine
Months Ended September 30





Results
of operations - comparison of nine months ended September 30, 2010 to
nine months ended September 30, 2009:




SALES





Nine
      months ended
              September
      30, 2010
            
            
            Nine
      months ended
              September
      30, 2009Total
              Sales
            
            
            %
      of
              Total
      Sales
            
            
            Total
              Sales
            
            
            %
      of
              Total
      SalesSales:New
      vehicles
            
            $
            73,029,700
            
            
            
            74.7
            %
            
            $
            61,144,000
            
            
            
            73.0
            %Used
      vehicles
            
            $
            16,427,400
            
            
            
            16.8
            %
            
            $
            16,072,000
            
            
            
            19.2
            %Parts
      and services and others
            
            $
            8,334,200
            
            
            
            8.5
            %
            
            $
            5,412,000
            
            
            
            6.5
            %Fashion
      Apparel
            
            $
            100
            
            
            
            -
            %
            
            $
            1,181,000
            
            
            
            1.3
            %Total
            
            $
            97,791,400
            
            
            
            100
            %
            
            $
            83,809,000
            
            
            
            100
            %




24




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




Net sales
for the nine months ended September 30, 2010 increased by approximately
$13,982,400 or 16.7% to approximately $97,791,400, compared with approximately
$83,809,000 for the same period of 2009.  The increase was primarily
attributable to increased sales of new vehicles and parts and
services.




New
vehicles sales increased approximately $11,885,700 or 19.4% from approximately
$61,144,000 in the first nine months of 2009 to approximately $73,029,700 in the
same period of 2010, while the number of new vehicles sold increased 19% for the
same period.  Used vehicles sales increased approximately $355,400 or 2.2%
from the first nine months of 2009 to approximately $16,427,400 in the same
period of 2010.  The number of used vehicles sold increased by 1%
in the same period over the 2009 period.  The increase in sales
of new vehicles was mainly attributable to an increase in the number of new
vehicles delivered to us from the manufacturer in the first nine months of 2010,
enabling us to better meet the demand for these vehicles in our
markets.





Parts and
services sales for the nine months ended September 30, 2010 increased
by approximately $2,922,200, or 53.9%, to
approximately $8,334,200 compared with approximately $5,412,000 for
the same period of 2009.  The increase in parts and service sales was
mainly attributable to additional capacity for maintenance and repair services
provided by our new 3S centre that became fully operational in the last quarter
of 2009.





COST OF SALES




Cost of
sales for the nine months ended September 30, 2010 increased to
approximately $84,161,000 from approximately $74,521,000 for the nine months
ended September 30, 2009, a $9,640,000 or 12.9% increase, which was relatively
consistent with the increase in Company’s revenues during the same
period.




GROSS
PROFIT




Gross
profit margin for the nine months ended September 30, 2010 increased by
2.8% to 13.9% from 11.1% in the same period of 2009.  Gross profit
increased by approximately $4,342,000 from approximately $9,288,000 in the
2009 period to approximately $13,630,000 for the nine months ended September 30,
2010.





Gross
profit margin on sales of new vehicles for the nine months ended September 30,
2010 increased by 1.1% to 10.6% from 9.5% for the same period of
2009.  Gross profit on sales of new vehicles increased by
approximately $1,888,000 from approximately $5,822,000 in the same period of
2009 to approximately $7,710,000 for the nine months ended September 30,
2010.





Gross
profit margin on sales of used vehicles for the nine months ended September 30,
2010 increased by 7.9% to 5.2% from negative 2.7% for the same period of
2009.  Gross profit on sales of used vehicles increased by
approximately $1,289,000 from a gross loss of approximately $433,000 for the
same period of 2009 to approximately $856,000 for the nine months ended
September 30, 2010.





The
increase in gross profit and gross profit margin was mainly attributable to
increased sales of new and used vehicles and parts and services which were
positively impacted by the improvement in the economy in our markets and
improvements in our capacity to service vehicles efficiently.




SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




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




25




SG&A
for the nine months ended September 30, 2010 was approximately $14,285,000,
compared to approximately $15,342,000 for the same period of 2009. The
approximate $1,057,000 decrease in SG&A expenses was primarily due to
decreased rental expenses.





Our rent,
rate and building management fees decreased from approximately $3,582,000 for
the nine months ended September 30, 2009 to $2,806,000 for the same period
of 2010.  The decrease in such fees was mainly due to the closing of
certain retail shops of the fashion apparel business.




OTHER
INCOME, NET




Other
income for the nine months ended September 30, 2010 increased to approximately
$705,000 compared to approximately $182,000 for the same period of 2009, a total
increase of $523,000. The increase was primarily due to an increase in other
operating income. Other operating income was comprised of commission
income, exchange gain and forfeitures of sales deposits.  Such income
increased from $805,000 for the nine months ended 2009 to $1,330,000 for the
same period of 2010 and was mainly due to increased commission income of
$235,000 for the nine months ended September 30, 2009 to approximately $540,000
for the same period of 2010.  Interest expenses and other finance
costs increased slightly from approximately $624,000 for the nine months ended
September 30, 2009 to approximately $625,000 for the same period of
2010.





Three Months Ended September
30





Results
of operations - comparison of three months ended September 30, 2010 to
three months ended September 30, 2009:




Three
      months ended
              September
      30, 2010
            
            
            Three
      months ended
              September
      30, 2009Total
              Sales
            
            
            %
      of
              Total
      Sales
            
            
            Total
              Sales
            
            
            %
      of
              Total
      SalesSales:New
      vehicles
            
            $
            28,830,000
            
            
            
            77.1
            %
            
            $
            22,584,000
            
            
            
            74.9
            %Used
      vehicles
            
            $
            5,665,000
            
            
            
            15.2
            %
            
            $
            4,807,000
            
            
            
            16.0
            %Parts
      and services and others
            
            $
            2,886,000
            
            
            
            7.7
            %
            
            $
            2,442,000
            
            
            
            8.1
            %Fashion
      Apparel
            
            $
            -
            
            
            
            -
            %
            
            $
            299,000
            
            
            
            1.0
            %Total
            
            $
            37,381,000
            
            
            
            100
            %
            
            $
            30,133,000
            
            
            
            100
            %




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




Net sales
for the three months ended September 30, 2010 increased by approximately
$7,248,000 or 24.1% to approximately $37,381,000, compared with approximately
$30,133,000 for the same period of 2009.  The increase was primarily
attributable to increased sales of new and used vehicles.





New
vehicles sales increased approximately $6,246,000 or 27.7% from approximately
$22,584,000 in the third quarter of 2009 to approximately $28,830,000 in the
same period of 2010, while the quantity of new vehicles sold increased 28% for
the same period.  Used vehicles sales increased approximately $858,000 or
17.8% from the third quarter of 2009 to approximately $5,665,000 in the same
period of 2010.  The quantity of used vehicles sold increased by 25.9% in
the same period of 2009 period.  The increase in sales of new
vehicles was mainly attributed to an increase in factory production in the
third quarter of 2010.





Parts and
service sales for the three months ended September 30, 2010 increased
by approximately $444,000, or 18.2%, to
approximately $2,886,000 compared with approximately $2,442,000 for
the same period of 2009.  The increase in parts and service sales was
mainly attributable to additional capacity for maintenance and repair services
provided by our new 3S centre that became fully operational in the last quarter
of 2009.




26




COST OF SALES




Cost of
sales for the three months ended September 30, 2010 increased to
approximately $31,879,000 from approximately $26,979,000 for the three months
ended September 30, 2009, a $4,900,000 or 18.2% increase, which was relatively
consistent with the increase in the Company’s revenues during the same
period.




GROSS
PROFIT




Gross
profit margin for the three months ended September 30, 2010 increased by
4.2% to 14.7% from 10.5% for the same period of 2009.  Gross profit
increased by approximately $2,347,000 from approximately $3,154,000 in the three
month period ended September 30, 2009 to approximately $5,501,000 for the three
months ended September 30, 2010.





Gross
profit margin on sales of new vehicles for the three months ended September 30,
2010 increased by 5.1% to 11.8% from 6.7% for the same period of
2009.  Gross profit on sales of new vehicles increased by
approximately $1,900,000 from approximately $1,513,000 in the same period
of 2009 to approximately $3,413,000 for the three months ended September 30,
2010.





Gross
profit margin on sales of new vehicles for the three months ended September 30,
2010 increased by 4.7% to 4.1% from negative 0.6% for the same period of
2009.  Gross profit on sales of used vehicles increased by
approximately $264,000 from a gross loss of approximately $30,000 in the
same period of 2009 to approximately $234,000 for the three months ended
September 30, 2010.





The
increase in gross profit and gross profit margin was mainly attributable to
sales of new and used vehicles and parts and services which were positively
impacted by the improvement in the economy in our markets and improvements in
our capacity to service vehicles efficiently.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




SG&A
expenses includes salaries and related staffing expenses, facilities rent, rate
and building management fees, legal, accounting and professional services
fees, general corporate expenses and marketing expenses.




SG&A
for the three months ended September 30, 2010 was approximately $5,211,000,
compared to approximately $5,517,000 for the same period of 2009.  The
decrease of approximately $306,000 in SG&A expenses was primarily due to
decreased rental expenses.





Our rent,
rate and building management fees decreased from approximately $1,169,000 for
the three months ended September 30, 2009 to $1,040,000 for the same period
of 2010.  The decrease in such fees was mainly due to the closing of
certain retail shops of the fashion apparel business.




OTHER
EXPENSES, NET




Other
expenses for the three months ended September 30, 2010 decreased to
approximately $9,000 compared to approximately $183,000 for the same period of
2009, a total decrease of $174,000.  The decrease was primarily due to
the combination of increased other operating income offset by increased interest
expenses and other finance costs. The other operating income was comprised
of commission income, exchange gain and forfeitures of sales deposits. 
Such income increased from $35,000 for the three months ended 2009 to $235,000
for the same period of 2010.  The increase was mainly due to increased
commission income, from $17,000 for the three months ended September 30, 2009 to
approximately $103,000 for the same period of 2010. Interest expenses and other
finance costs increased from approximately $219,000 for the three months ended
September 30, 2009 to approximately $244,000 for the same period of
2010.




27







FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES




As
indicated in the table below, at December 31, 2009 and September 30, 2010, we
had approximately $4.0 million and $3.4 million of cash and cash equivalents
respectively, and approximately $12.1 million and $9.4 million of debt,
respectively.  Debt at December 31, 2009 was approximately $11.2
million of short-term debt, comprised of approximately $5 million of bank
borrowings, approximately $5.4 million stocking loans, approximately $0.5
million of unsecured bank borrowings, approximately $0.3 of other loans, and
approximately $0.9 million of long-term debt.  The long term debt
represented unsecured bank borrowings which mature in 2012.  The
increases in long-term debt have been used for general working capital
purposes.





2010
              
              
              2009September
      30
              
              
              December
      31Total
      Debt
              
              $
              9,410,160
              
              
              $
              12,141,766Less:
      Cash and cash equivalents
              
              
              3,430,229
              
              
              
              3,982,214Net
      Debt
              
              $
              5,979,931
              
              
              $
              8,159,552


We have
sufficient liquidity to meet currently anticipated plans, including capital
expenditures and working capital investments.  Some of our assets and
liabilities, including cash and short-term debt, may fluctuate significantly
from month to month depending on short-term liquidity needs.  Working
capital (defined as current assets minus liabilities) totaled $0.6 million and
$2.1 million of current liabilities in excess of current assets at December 31,
2009 and September 30, 2010 respectively.  Decreased working capital
was attributable to declines in cash and cash equivalents and increases in
deposits received.





CASH
FLOWS FROM OPERATING ACTIVITIES




Our
operations generated cash resources of approximately $1,378,000 for the
nine months ended September 30, 2010, compared to utilizing cash resources
of approximately $96,000 for the nine months ended September 30, 2009, primarily
as a net result of the following:




(i)
            For
      the nine months ended September 30, 2010, cash flow provided by sales net
      of operating expenses increased by approximately $6,478,000 to
      approximately $1,754,000.  The increase was primarily a result
      of the increase in sales of new and used
  vehicles.




(ii)
            For
      the nine months ended September 30, 2010, accounts receivable decreased by
      approximately $2,171,000, primarily due to the collection of receivables
      relating to the sales recognized during the nine months ended September
      30, 2010.




(iii)
            For
      the nine months ended September 30, 2010, our inventory increased by
      approximately $2,137,000.  The increase was consistent with increased
      delivery from the manufacturers of new vehicles which is consistent with
      our business growth.




(iv)
            For
      the nine months ended September 30, 2010, the increase or decrease of
      various current operating assets and liabilities included in the
      aforementioned items resulted in an aggregate increase of cash outflow
      from operations of approximately
$376,000.




CASH
FLOWS FROM INVESTING ACTIVITIES




For the
nine months ended September 30, 2010, we expended net cash of approximately
$2,523,000 in investing activities mainly for the acquisition of property and
equipment to support the growth of our business.  For the nine months
ended September 30, 2009, we utilized approximately $2,763,000 for investing
activities, mainly for acquisition of property and equipment to support the
development of our vehicle sales business in the PRC.




28





CASH
FLOWS FROM FINANCING ACTIVITIES




During
the nine months ended September 30, 2010, we repaid approximately $1,794,000 of
our obligations owed on outstanding debt as compared to approximately $415,000
for the nine months ended September 30, 2009.




For the
nine months ended September 30, 2010, we received approximately $2,388,000 net
advances from affiliates. For the nine months ended September 30, 2009, we
received approximately $773,000 net advances from affiliates. The advances
from/to affiliates were made from/to entities that are under common management,
where Mr. Richard Man Fai Lee, the Company’s Chief Executive Officer, is the
common director of the Company and the affiliates. These advances included both
interest and non interest-bearing portions depending on the nature of the
advances.





FINANCING
ACTIVITIES





WORKING
CAPITAL REQUIREMENTS




Current
liabilities exceeded current assets at September 30, 2010 by approximately
$2,195,000, an increase of approximately $1,678,000 from December 31,
2009.  The ratio of our current assets to our current liabilities was
0.958 to 1 at September 30, 2010 compared to 0.989 to 1 at
December 31, 2009.  At September 30, 2010, our current assets of
approximately $49,629,000 included approximately $19,793,000 in inventory that
was funded by our operating cash flow and trade finance
facilities.  Our current liabilities of approximately $51,824,000
include non-refundable customer deposits.  Given the exclusive nature
and extremely limited production of Ferrari and Maserati cars, our customers are
willing to place material deposits in advance in order to secure their new car
orders.  This resulted in customer deposits of approximately
$27,464,000.





SEASONALITY





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





CURRENCY
CONVERSION AND FLUCTUATION IN FOREIGN EXCHANGE RATES





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.  On June 19, 2010, PBOC announced that it would allow
a more flexible exchangerate forRMB without mentioning specific policy changes, although
it ruled out any large-scale appreciation.  It is difficult to predict
how long the current situation may last and when and how RMB exchange rates may
change going forward. The reporting and functional currency of the Company is
the U.S. dollar.  However, the functional currency of our operating
subsidiaries is the RMB and the Hong Kong dollar and substantially all their
revenues and expenses are denominated in those
currencies.  Substantially all of our sales contracts are denominated
in RMB or Hong Kong dollars and substantially all of our costs and expenses are
denominated in Euros, Hong Kong dollars and RMB.





If the
RMB were to increase in value against the U.S. dollar, mainland Chinese
consumers would experience a reduction in the relative prices of goods and
services, which may translate into a positive increase in sales.  On
the other hand, a decrease in the value of the RMB against the dollar would have
the opposite effect and may adversely affect our results of
operations.  Any significant revaluation of RMB may materially and
adversely affect our cash flows, revenues, earnings and financial position, and
the value of any dividend payments.  For example, an appreciation of
RMB against the U.S. or Hong Kong dollars would make any new RMB-denominated
investments or expenditures more costly to us, to the extent that we need to
convert U.S. dollars or Hong Kong dollars into RMB for such
purposes.  In addition, a strengthening of the U.S. dollar against the
Hong Kong dollar or the Macau pataca, if it occurred, would adversely affect the
value of our common stock.




29





We have
engaged in limited hedging to reduce our exposure to exchange rate
fluctuations.  While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedges may be limited
and we may not be able to adequately hedge our exposure or at all.





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.





CRITICAL
ACCOUNTING POLICIES





In
preparing our financial statements, we make estimates, assumptions and judgments
that can have a significant effect on our revenues, income or loss from
operations, and net income or net loss, as well as on the value of certain
assets on our balance sheet.  We believe that there are several
accounting policies that are critical to an understanding of our historical and
future performance as these policies affect the reported amounts of revenues,
expenses, and significant estimates and judgments applied by
management.  While there are a number of accounting policies, methods
and estimates affecting our financial statements, the following policies
are considered critical.  In addition, you should refer to our
accompanying condensed consolidated balance sheet as of September 30, 2010 and
the condensed consolidated statements of operations for the nine months
ended September 30, 2010 and 2009, and the related notes thereto, for further
discussion of our accounting policies.





Trade
receivables and provision for bad debts





Trade
receivables, net of provision for bad debts, are concentrated with the
receivables from customers. We periodically record a provision for bad debts
based on our judgment resulting from an evaluation of the collectability of
trade receivables by assessing, among other factors, our customer’s willingness
or ability to pay, repayment history, general economic conditions, and the
ongoing relationship with our customers. The total amount of this provision is
determined by first identifying the receivables of customers that are considered
to be a higher credit risk based on their current overdue accounts, difficulties
in collecting from these customers in the past, and their overall financial
condition.  For each of these customers, we estimate the extent
to which the customer will be able to meet its financial obligation and record a
provision that reduces our trade receivables for that customer to the amount
that we reasonably believe will be collected.  Additional provisions may be
required in the future if the financial condition of our customers or general
economic conditions deteriorate, thereby reducing net earnings.
 Historically our provisions for bad debts have been sufficient to cover
actual credit losses, and we believe that the provisions recorded at the balance
sheet dates are sufficient.  The allowance for doubtful accounts at
December 31, 2009 and September 30, 2010 was $16,246 and $8,647,
respectively.  Provision for bad debts, if any, resulting from the
abovementioned assessment, would be reflected in loss before non-controlling
interest and income taxes in our Consolidated Statement of
Operations.





Inventory,
net





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




30





Share-based
compensation





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





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




Revenue
recognition




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




(i)
            Sales
      of new and used vehicles are recognized when the vehicle’s title has
      passed to the customer.




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




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




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




Impairment
of long-lived assets




We
evaluate long-lived assets, including property and equipment, for impairment
when events and circumstances exist that indicate that the carrying amount of
these assets may not be recoverable.  Recoverability of assets is measured
by comparing the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the use of the asset.  The
undiscounted cash flows are subject to estimations and assumptions made by
us.  If the estimated undiscounted cash flows change in the future, we
may be required to reduce the carrying amount of an asset.  Impairment
of assets, if any, as a result of the impairment testing, would be reflected in
loss before non-controlling interest and income taxes in our Consolidated
Statement of Operations.




Income
taxes




We are
required to estimate income tax provisions and amounts ultimately payable or
recoverable in numerous jurisdictions, including Hong Kong.  We
account for income taxes under the provision of ASC 740 “Income Taxes”,
resulting in two components of income tax expenses: current and deferred.
 Current income tax expense approximates taxes to be paid or refunded for
the relevant periods.  Deferred income tax expense results from changes in
deferred tax assets and liabilities between periods.  Deferred income tax
assets and liabilities are computed for differences between the financial
statements carrying amounts and the tax bases of existing assets and liabilities
that will result in taxable or deductible amounts in the future, as well as from
net operating loss and tax credit carryforwards, and are measured in accordance
with the enacted tax laws and at the rates applicable in the years in which the
differences are expected to be recovered or settled.  A deferred tax
asset is recognized if it is more likely than not that a benefit will be
realized.  Otherwise, we will record a valuation allowance when the
utilization of the deferred tax asset is uncertain.  Additional timing
differences, future earnings trends and/or tax strategies could warrant a need
for establishing an additional valuation allowance or a reserve.  If
the Company’s estimate of tax liabilities proves to be less than the ultimate
assessment, an additional charge to expense would result.  If payment
of these amounts proves to be less than the recorded amounts, the reversal of
the liabilities would result in tax benefits being recognized in the period when
the Company determines the liabilities are no longer necessary.




31




Contingencies




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




Item
3. Quantitative and Qualitative Disclosures about Market Risk.




Not
applicable to smaller reporting companies.




Item
4.   Controls and Procedures.




Controls
and Procedures




As of
September 30, 2010, we carried out an evaluation, under the supervision and with
the participation of our management, including our chief executive officer and
chief financial officer, of the effectiveness of the design and operation of our
“disclosure controls and procedures,” as such term is defined under Exchange Act
Rules 13a-15(e) and 15d-15(e).




Based on
this evaluation, our chief executive officer and chief financial officer
concluded that, as of September 30, 2010, such disclosure controls and
procedures were effective to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC, and accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.





In
designing and evaluating 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.




Changes
in Internal Control Over Financial Reporting




There
were no changes in our internal controls over financial reporting during the
quarter ended September 30, 2010 that materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.




32





PART
II - OTHER INFORMATION




Item 1. Legal Proceedings.




This Item
should be read in conjunction with Notes 8 and 9 to our Condensed Consolidated
Financial Statements (Unaudited) as of September 30, 2010.





Addison-Davis
Litigation




On or
about December 1, 2009, the Company was made aware that it was named as a
co-defendant in a state court action, Addison-Davis Diagnostics, Inc. v.
Edward W. Withrow, III, et al., California Superior Court, Ventura
County, Case No. 56-2009-00361702-CU-FR-VTA.  The Company was formally
served in the action on April 28, 2010.  In the action, the plaintiff,
which is our former parent company, alleges that the plaintiff’s former
chief executive officer, with the assistance of certain other third parties,
engaged in multiple fraudulent transactions involving the plaintiff and the
plaintiff’s securities between 2004 and 2006.  As a result of such
alleged conduct, the plaintiff alleges that the plaintiff’s former chief
executive officer was able to fraudulently obtain shares of the plaintiff’s
common stock and certain of the plaintiff’s assets.  The plaintiff
alleges that as a result of the alleged conduct, the plaintiff was forced to
seek bankruptcy protection in September, 2006.  The plaintiff named
the Company as a co-defendant in four of the thirteen causes of action in the
complaint (plaintiff’s claims for conversion, constructive trust, unjust
enrichment and accounting).





Plaintiff
filed a First Amended Complaint on June 15, 2010.  The Company moved
to dismiss the First Amended Complaint and, on October 29, 2010, the Court
sustained the Company’s demurrer with leave to amend.  Plaintiff is to
file a Second Amended Complaint on or before November 19, 2010.  The
Company denies any alleged wrongdoing in connection with the claims asserted in
the action and will vigorously defend those claims.  The Company is
unable to evaluate the likelihood of an outcome, favorable or unfavorable, at
this time, or to estimate the amount or range of a possible
loss.  However, an adverse result in this proceeding could have a
material adverse effect on the Company’s operations





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




Item 1A. Risk Factors.




Not
applicable to smaller reporting companies.




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




This Item
should be read in conjunction with Notes 8 and 9 to the consolidated financial
statements included in this Report.





As
previously disclosed in our Current Report on Form 8-K filed with the SEC on
March 5, 2010, on March 1, 2010, in connection with the settlement of the
Federal Court Action, Bern Noble agreed to return to us for cancellation
1,210,631 shares of common stock.  We also agreed to replace the shares
with an equal number of new shares of common stock in consideration of services
rendered to us in 2006 in connection with the closing of the Amended Share
Exchange Agreement.  We agreed to deliver the replacement shares in
nine monthly installments.  As of September 30, 2009 we have delivered
684,950 shares.  The shares were issued in reliance on an exemption
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D thereunder.





33




Item
3. Defaults Upon Senior Securities.




None.




Item
4. (Removed and Reserved).




Item
5. Other Information.




Not
applicable.





34




Item
6.  Exhibits.





Exhibit
              No.
            
            Description10.1
            
            Employment
      Agreement dated November 5, 2010 by and between the Company and Mr.
      Richard Man Fai LEE, filed as an Exhibit to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on November
      11, 2010 and incorporated herein by reference.10.2
            
            Employment
      Agreement dated November 5, 2010 by and between the Company and Mr.
      Herbert ADAMCZYK filed as an Exhibit to the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on November 11,
      2010 and incorporated herein by reference.10.3
            
            Employment
      Agreement dated November 5, 2010 by and between the Company and Mr. Joseph
      Tik Tung WONG, filed as an Exhibit to the Company’s Current Report on Form
      8-K filed with the Securities and Exchange Commission on November 11, 2010
      and incorporated herein by reference.31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
            
            Certification
      of the Chief Financial Officer pursuant to Rule 15D-15 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
      herewith.





35




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.,
                a Nevada corporationDate:
      November 15, 2010
              By:
              /s/ Richard
      Man Fai LEERichard
      Man Fai LEEChief
      Executive Officer


Date:
      November 15, 2010
              By:
              /s/ Joseph
      Tik Tung WONGJoseph
      Tik Tung WONGChief
      Financial Officer, Treasurer and Secretary




36