UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549




FORM
10-Q/A


(Amendment
No. 1)





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





For the
quarterly period ended: September 30, 2008




or




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





For the
transition period from __________________ to _____________________




Commission
File No. 333-120807




CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC.


(Exact
name of Registrant as specified in its charter)





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





10/F,
      Wo Kee Hong Building
                585-609
      Castle Peak Road
                Kwai
      Chung, N.T. Hong Kong(Address
      of principal executive
offices)





(852)
      2954-2469(Registrant’s
      telephone number, including area
code)





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


Yes x  No o




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




Large
Accelerated Filer  o    Accelerated
Filer  o      Non-Accelerated
Filer o       Smaller
Reporting Company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  o No x




The
number of shares of Common Stock outstanding as of November 3, 2008 was
23,323,860.











EXPLANATORY
NOTE





As used
in this Amendment No. 1 (the “Form 10-Q/A”) to our Quarterly Report on Form 10-Q
for the nine months ended September 30, 2008 (the “Third Quarter 2008 Form
10-Q”), the terms “we”, “us”, “our” and the “Company” mean China Premium
Lifestyle Enterprise, Inc., a Nevada corporation, and our consolidated
subsidiaries, taken together as a whole.




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




This Form
10-Q/A to our Third Quarter 2008 Form 10-Q is being filed with the Securities
and Exchange Commission (the “SEC”) to amend and restate our consolidated
unaudited interim financial statements as of September 30, 2008 and for the
three and nine months ended September 30, 2008 and 2007.




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




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




Background




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




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




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




The
following actions were also taken:




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











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




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




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




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




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




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




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




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




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




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




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




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











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




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




Restatements




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




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




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




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




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




·
            the
      settlement of the Federal Court
Action.




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




·
            on
      the condensed consolidated balance sheets, at September 30, 2008 and
      December 31, 2007, prepayments decreased by $1,468,930 to reflect the
      return for cancellation of the disputed shares of preferred stock and
      common stock in connection with the settlement of the Federal Court
      Action.  Accordingly, at September 30, 2008, preferred stock
      decreased by $248, common stock decreased by $28,902, additional
      paid-in-capital decreased by $1,439,780 and stockholders' equity
      decreased by $1,468,930. At December 31, 2007, preferred stock
      decreased by $496, common stock decreased by $6,053, additional
      paid-in-capital decreased by $1,462,381 and stockholders' equity
      decreased by $1,468,930. Further, all references to an authorized
      class or series of preferred stock and any issued and outstanding shares
      of preferred stock have been deleted from the restated balance sheets at
      September 30, 2008 and December 31,
2007;




·
            on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0033 and $0.0051, respectively, for the nine months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0037 and $0.0065, respectively, for the three months
      ended September 30, 2007, basic and diluted earnings per share increased
      by $0.0030 and $0.0065, respectively, and for the nine months ended
      September 30, 2007, basic earnings per share decreased by $0.0021 and
      diluted earnings per share increased by $0.0061;
  and




·
            for
      the three months ended September 30, 2008, the basic and diluted weighted
      average number of outstanding shares decreased by 5,780,250 and
      10,349,869, respectively, for the nine months ended September 30, 2008,
      the basic and diluted weighted average number of outstanding shares
      decreased by 4,396,022 and 8,965,641, respectively, for the three months
      ended September 30, 2007, the basic and diluted weighted average number of
      outstanding shares decreased by 4,748,607 and 13,887,843, respectively,
      and for the nine months ended September 30, 2007, the basic weighted
      average number of outstanding shares increased by 1,728,655 and the
      diluted weighted average number of outstanding shares decreased by
      7,410,581.











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




Scope of This Form
10-Q/A




This Form
10-Q/A sets forth the Third Quarter 2008 Form 10-Q in its entirety.  The
following Items contain amended disclosures relating to the
restatements:




·
            Part
      I, Item 1. Financial Statements;




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




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




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




Other than the amendments to the
disclosures in the Items listed above, no other material modifications or
updates have been made to the Third Quarter 2008 Form 10-Q.  Information
not affected by the Items listed above remains unchanged and reflects the
disclosures made at the time of, and as of the dates described in, the Third
Quarter 2008 Form 10-Q.  Further, other than the amendments to the
disclosures in the Items listed above, this Form 10-Q/A does not describe events
occurring after the Third Quarter 2008 Form 10-Q (including with respect to
exhibits), or modify or update disclosures (including forward-looking
statements) which may have been affected by events or changes in facts occurring
after the date of the Third Quarter 2008 Form 10-Q.  Accordingly, this Form
10-Q/A should be read in its historical context and in conjunction with our
filings made with the SEC subsequent to the filing of the Third Quarter 2008
Form 10-Q, as information in such filings may update or supersede certain
information contained in this Form 10-Q/A










CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC.




FORM
10-Q/A




FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008




TABLE
OF CONTENTS




PagePART
      I.  FINANCIAL INFORMATION
                
                1Item
      1. Financial Statements.
                
                1Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
                
                21Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk.
                
                32Item
      4T.  Controls and Procedures
                
                33PART
      II.  OTHER INFORMATION
                
                35Item
      1. Legal Proceedings.
                
                35Item
      1A.  Risk Factors.
                
                35Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
                
                36Item
      3. Defaults Upon Senior Securities.
                
                36Item
      4. Submission of Matters to a Vote of Security Holders.
                
                36Item
      5. Other Information.
                
                36Item
      6. Exhibits.
                
                36SIGNATURES
                
                37











PART
I.  FINANCIAL INFORMATION




Item
1.  Financial Statements.




CHINA
PREMIUM LIFESTYLE ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




AS
OF SEPTEMBER 30, 2008 AND




FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007







1





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)




September
                  30,
                
                
                December
                  31,2008
                
                
                2007(Restated)
                  (unaudited)
                
                
                (Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                8,682,702
                
                
                $
                6,583,566Restricted
      cash
                
                
                1,158,734
                
                
                
                1,154,226Trade
      receivables, net of provision
                
                
                2,426,674
                
                
                
                10,440,455Inventory,
      net
                
                
                16,087,021
                
                
                
                9,162,934Prepayments
                
                
                1,539,629
                
                
                
                133,863Other
      current assets
                
                
                5,571,107
                
                
                
                2,931,877Amounts
      due from affiliates
                
                
                9,791,224
                
                
                
                10,226,161Total
      current assets
                
                
                45,257,091
                
                
                
                40,633,082Property
      and equipment, net
                
                
                1,846,761
                
                
                
                2,050,850Goodwill
                
                
                39,644
                
                
                
                39,436TOTAL
      ASSETS
                
                $
                47,143,496
                
                
                $
                42,723,368LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                
                $
                6,688,824
                
                
                $
                5,274,838Obligations
      under finance lease - current portion
                
                
                -
                
                
                
                110,996Bills
      payable
                
                
                809,131
                
                
                
                2,659,191Trade
      payables
                
                
                3,562,236
                
                
                
                1,063,265Deposits
      received
                
                
                21,567,102
                
                
                
                16,306,698Other
      current liabilities
                
                
                1,496,919
                
                
                
                7,088,429Amounts
      due to affiliates
                
                
                1,832,636
                
                
                
                1,457,134TOTAL
      LIABILITIES
                
                
                35,956,848
                
                
                
                33,960,551Minority
      interests
                
                
                6,717,997
                
                
                
                4,918,636Commitments
      and ContingenciesStockholders'
      equityCommon
      stockAuthorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 23,323,860 shares as at September 30, 2008; (23,323,860
      shares as at December 31, 2007)
                
                
                116,619
                
                
                
                116,619Additional
      paid-in-capital
                
                
                4,119,108
                
                
                
                4,119,108Accumulated
      other comprehensive income
                
                
                198,507
                
                
                
                118,892Retained
      earnings/(Accumulated deficit)
                
                
                34,417
                
                
                
                (510,438
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                4,468,651
                
                
                
                3,844,181TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                47,143,496
                
                
                $
                42,723,368





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





2





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)




Three
      months ended
                  September
      30,
                
                
                Nine
      months ended
                  September
      30,2008
                  (Restated)
                
                
                2007
                  (Restated)
                
                
                2008
                  (Restated)
                
                
                2007
                  (Restated)Sales:New
      and used vehicles
                
                $
                31,321,200
                
                
                $
                24,819,562
                
                
                $
                80,800,209
                
                
                $
                64,290,343Parts
      and services and others
                
                
                2,040,951
                
                
                
                1,941,571
                
                
                
                5,256,699
                
                
                
                4,597,838Net
      sales
                
                
                33,362,151
                
                
                
                26,761,133
                
                
                
                86,056,908
                
                
                
                68,888,181Cost
      of sales:New
      and used vehicles
                
                
                (27,544,207
                )
                
                
                (21,862,921
                )
                
                
                (70,604,162
                )
                
                
                (57,008,236
                )Parts
      and services and others
                
                
                (512,122
                )
                
                
                (639,969
                )
                
                
                (1,484,782
                )
                
                
                (1,408,830
                )Total
      cost of sales
                
                
                (28,056,329
                )
                
                
                (22,502,890
                )
                
                
                (72,088,944
                )
                
                
                (58,417,066
                )Gross
      profit:New
      and used vehicles
                
                
                3,776,993
                
                
                
                2,956,641
                
                
                
                10,196,047
                
                
                
                7,282,107Parts
      and services and others
                
                
                1,528,829
                
                
                
                1,301,602
                
                
                
                3,771,917
                
                
                
                3,189,008Total
      gross profit
                
                
                5,305,822
                
                
                
                4,258,243
                
                
                
                13,967,964
                
                
                
                10,471,115Selling,
      general and administrative expenses
                
                
                (4,301,541
                )
                
                
                (3,453,237
                )
                
                
                (12,544,791
                )
                
                
                (9,066,006
                )Operating
      earnings
                
                
                1,004,281
                
                
                
                805,006
                
                
                
                1,423,173
                
                
                
                1,405,109Other
      incomeInterest
      expenses
                
                
                (150,640
                )
                
                
                (158,803
                )
                
                
                (411,360
                )
                
                
                (580,783
                )Share
      of result of an associate
                
                
                -
                
                
                
                (71,615
                )
                
                
                -
                
                
                
                (149,675
                )Other
      income
                
                
                327,101
                
                
                
                274,928
                
                
                
                1,332,403
                
                
                
                759,760Total
      other income
                
                
                176,461
                
                
                
                44,510
                
                
                
                921,043
                
                
                
                29,302Earnings
      before minority interests and income taxes
                
                
                1,180,742
                
                
                
                849,516
                
                
                
                2,344,216
                
                
                
                1,434,411Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Earnings
      before minority interests
                
                
                1,180,742
                
                
                
                849,516
                
                
                
                2,344,216
                
                
                
                1,434,411Minority
      interests
                
                
                (796,958
                )
                
                
                (539,044
                )
                
                
                (1,799,361
                )
                
                
                (995,340
                )Net
      earnings
                
                $
                383,784
                
                
                $
                310,472
                
                
                $
                544,855
                
                
                $
                439,071Earnings
      per shareBasic
                
                $
                0.0165
                
                
                $
                0.0157
                
                
                $
                0.0234
                
                
                $
                0.0222Diluted
                
                $
                0.0165
                
                
                $
                0.0157
                
                
                $
                0.0234
                
                
                $
                0.0222Weighted
      average number of common stock outstandingBasic
                
                
                23,323,860
                
                
                
                19,785,836
                
                
                
                23,323,860
                
                
                
                19,785,836Diluted
                
                
                23,323,860
                
                
                
                19,785,836
                
                
                
                23,323,860
                
                
                
                19,785,836




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





3





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)




Nine months ended
                    September 30,2008
                  
                  
                  2007Operating
      activities:Net
      earnings
                  
                  $
                  544,855
                  
                  
                  $
                  439,071Adjustments
      to reconcile net earnings to net cash provided by operating
      activitiesMinority
      interests
                  
                  
                  1,799,361
                  
                  
                  
                  995,340Depreciation
      and amortization
                  
                  
                  604,420
                  
                  
                  
                  525,599(Bad
      debts written back)/provision for bad debts and bad debts written
      off
                  
                  
                  (26,144
                  )
                  
                  
                  80,646Provision
      for inventory written back
                  
                  
                  -
                  
                  
                  
                  (8,965
                  )Equity
      earnings of an associate
                  
                  
                  -
                  
                  
                  
                  149,675Other
      non-cash items
                  
                  
                  51,961
                  
                  
                  
                  28,472Disposal
      of property and equipment
                  
                  
                  (130,130
                  )
                  
                  
                  (1,601
                  )Changes
      in operating assets and liabilities:Trade
      receivables
                  
                  
                  8,039,925
                  
                  
                  
                  7,794,197Other
      current assets and prepayments
                  
                  
                  (4,044,996
                  )
                  
                  
                  (196,756
                  )Inventory
                  
                  
                  (6,924,087
                  )
                  
                  
                  (5,019,231
                  )Trade
      payables
                  
                  
                  2,498,971
                  
                  
                  
                  1,017,991Other
      current liabilities and deposits received
                  
                  
                  (331,106
                  )
                  
                  
                  3,687,620Net
      cash provided by operating activities
                  
                  
                  2,083,030
                  
                  
                  
                  9,492,058Investing
      activities:Increase
      in restricted cash
                  
                  
                  -
                  
                  
                  
                  (129,311
                  )Purchases
      of property and equipment
                  
                  
                  (579,434
                  )
                  
                  
                  (149,666
                  )Proceeds
      from disposal of property and equipment
                  
                  
                  332,170
                  
                  
                  
                  16,092Net
      cash used in investing activities
                  
                  
                  (247,264
                  )
                  
                  
                  (262,885
                  )Financing
      activities:Advances
      from/(to) affiliates
                  
                  
                  810,440
                  
                  
                  
                  (5,746,286
                  )Advances
      to an associate
                  
                  
                  -
                  
                  
                  
                  (394,089
                  )Decrease
      in borrowings and bills payable
                  
                  
                  (547,070
                  )
                  
                  
                  (2,567,245
                  )Net
      cash provided by/(used in) financing activities
                  
                  
                  263,370
                  
                  
                  
                  (8,707,620
                  )Increase
      in cash and cash equivalents
                  
                  
                  2,099,136
                  
                  
                  
                  521,553Cash
      and cash equivalents at beginning of the period
                  
                  
                  6,583,566
                  
                  
                  
                  3,475,635Cash
      and cash equivalents at end of the period
                  
                  $
                  8,682,702
                  
                  
                  $
                  3,997,188Supplemental
      disclosure of cash flows information:Cash
      paid for:Interest
                  
                  $
                  411,360
                  
                  
                  $
                  580,783




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





4





CHINA PREMIUM LIFESTYLE
ENTERPRISE, INC. AND SUBSIDIARIES




NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)




NOTE
1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES




Basis
of presentation




The
condensed consolidated financial statements include the accounts of China
Premium Lifestyle Enterprise, Inc. (the “Company”) and its subsidiaries. The
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
All significant intercompany transactions and balances have been eliminated. The
accompanying condensed consolidated financial statements have been restated as
described in Note 12.




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 2008. 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 accompanying notes included in the Company’s Annual
Report on Form 10-K/A (Amendment No. 2) for the fiscal year ended December 31,
2007.




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 and 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
per share




Basic
earnings per share is computed by dividing net operating results for the
reporting period attributable to common stockholders by the weighted average
number of common stocks outstanding during the period. Diluted earnings per
share is calculated by dividing net operating results for the reporting period
attributable to common stockholders by the weighted average number of common
stocks outstanding and the dilutive effect of common stock
equivalents.




Segment
reporting




The
Company determines and classified its operating segments in accordance SFAS No.
132 Disclosures About Segments of An Enterprise and Related Information. The
Company identified and classifies its operating segments based on the nature of
the products and services with similar economic characteristics. The Company’s
reportable segment is motor vehicles retailing, which includes sales of new and
used vehicles, provision of vehicle maintenance and repair services, and sales
of vehicle parts.





5




Warranty
Claims, Purchase Discounts, Rebates or Sales Discounts and Returns




The motor
vehicles and parts the Company sells have a limited warranty policy provided by
the manufacturers. The warranty is limited in terms of number of parts and
services covered by the warranty policy and the duration of the warranty period.
The Company does not offer any purchase discount or rebate due to the unique
brand of the motor vehicle the Company sells. Sales discounts are charged to
earnings in the period which the sales discount is incurred. For the nine months
ended September 30, 2008 and 2007, the total sales discounts charged to
earnings were $184,208 and $66,079 respectively. The Company bears the cost of
any returns of the spare parts that are not covered by the manufacturer. The
costs are charged to earnings in the period which the returns are
incurred.




Reclassifications




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




NOTE
2. CONCENTRATION OF RISK




Concentration
of supplier risk




The Company
relies on supplies from numerous vendors. For the three months and nine months
ended September 30, 2008 and 2007, the Company had two vendors that each
accounted for more than 10% of total supply purchases. If any of the vendors
terminate their relationships with the Company or if the Company’s
supply from the vendors is interrupted or terminated for any reason, the
Company may not have sufficient time to replace the supply of products from
the remaining vendors. Any such interruption would negatively impact the
Company’s ability to sell and distribute its products. In addition,
the suppliers’ concentration of risk pose effect to the concentration of risk
with respect to trade payables as the Company has made certain of the purchases
through credits provided by vendors.




Concentration
of risk due to geographic location




The Company’s
business, assets and operations are currently focused on the sales of new
and used vehicles, provision of vehicle maintenance and repair services, and
sales of vehicle parts in Hong Kong and is currently expanding its operations to
People Republic of China (“PRC”), and accordingly, is affected to a significant
degree by any economic, political and legal developments in Hong Kong and
PRC.




NOTE
3. RECENT ACCOUNTING PRONOUNCEMENTS




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
157, Fair Value Measurements (“SFAS 157”), which provides guidance about how to
measure assets and liabilities that use fair value. SFAS 157 applies whenever
another US GAAP standard requires (or permits) assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also requires additional disclosures in both annual
and quarterly reports. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. In February 2008, the FASB
issued FASB Staff Position (“FSP”) 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 (“FSP 157-1”), which states that SFAS 157 does
not address fair value measurements for purposes of lease classification or
measurement. In February 2008, the FASB issued FSP 157-2, Effective Date of FASB
Statement No. 157 (“FSP 157-2”), which delays the effective date for
non-financial assets and non-financial liabilities to fiscal years beginning
after November 15, 2008, except for items that are measured at fair value
in the financial statements on a recurring basis (at least annually). The
Company adopted the provisions of SFAS 157 for its financial assets and
liabilities and those items for which it has measured on a recurring basis
effective January 1, 2008, and the adoption did not have a material impact
on its financial position and results of operations. As provided by FSP 157-2,
the Company has elected to defer the adoption of SFAS 157 for certain of its
non-financial assets and liabilities and is currently evaluating the impact of
adopting SFAS 157 on its non-financial assets and liabilities.





6




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




In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations
(“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141(R) will be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and will be adopted
by the Company beginning in the first quarter of 2009. The Company does not
expect there to be any significant impact of adopting SFAS 141(R) on its
financial position, cash flows and results of operations.




In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No.51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and will
be adopted by the Company beginning in the first quarter of 2009. The Company
does not expect there to be any significant impact of adopting SFAS 160 on its
financial position, cash flows and results of operations.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”). SFAS 161 is intended
to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. SFAS 161 achieves these improvements by
requiring disclosure of the fair values of derivative instruments and their
gains and losses in a tabular format. It also provides more information about an
entity’s liquidity by requiring disclosure of derivative features that are
credit risk-related. Finally, it requires cross-referencing within footnotes to
enable financial statement users to locate important information about
derivative instruments. SFAS 161 will be effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, and will be adopted by the Company beginning in the first quarter of
2009. The Company does not expect there to be any significant impact of adopting
SFAS 161 on its financial position, cash flows and results of
operations.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future financial
statements.





7





NOTE
4. EARNINGS PER SHARE




The
computations of basic and diluted earnings per share are as follows for the
three months and nine months ended September 30, 2008 and 2007:




Three months ended
                  September 30,
                
                
                Nine months ended
                  September 30,2008
                  (Restated)
                
                
                2007
                  (Restated)
                
                
                2008
                  (Restated)
                
                
                2007
                  (Restated)Numerator:Net
      earnings available to common stockholders
                
                $
                383,784
                
                
                $
                310,472
                
                
                $
                544,855
                
                
                $
                439,071Denominator:Weighted
      average common stock outstanding
                
                
                23,323,860
                
                
                
                19,785,836
                
                
                
                23,323,860
                
                
                
                19,785,836Basic
      net earnings per share
                
                $
                0.0165
                
                
                $
                0.0157
                
                
                $
                0.0234
                
                
                $
                0.0222Diluted
      net earnings per share
                
                $
                0.0165
                
                
                $
                0.0157
                
                
                $
                0.0234
                
                
                $
                0.0222




On
December 7, 2007, the Company effected a reverse stock split pursuant to which
each five outstanding shares of common stock, par value $0.001, were
automatically converted into one share of common stock, par value $0.005 (the
“Reverse Stock Split”). All of the share number, share prices and per-share
amounts have been adjusted, on a retroactive basis, to reflect the effect of the
Reverse Stock Split.




NOTE
5. INVENTORY, NET




Inventory
by major categories are summarized as follows:




September
                  30,
                
                
                December
                  31,2008
                
                
                2007New
      vehicles
                
                $
                7,044,169
                
                
                $
                3,364,857Used
      vehicles
                
                
                5,325,962
                
                
                
                4,179,732Parts,
      accessories and others
                
                
                3,716,890
                
                
                
                1,618,345$
                16,087,021
                
                
                $
                9,162,934




Vehicles
included in inventory of approximately $2,159,000 and $2,091,150 were pledged to
secure the stocking loan outstanding as of September 30, 2008 and December 31,
2007, respectively (See Note 6).




NOTE
6. BORROWINGS




The
Company's borrowings are summarized as follows:




September
                  30,
                
                
                December
                  31,2008
                
                
                2007Bank
      borrowings
                
                $
                4,791,552
                
                
                $
                3,307,597Stocking
      loans
                
                
                1,897,272
                
                
                
                1,967,241Obligations
      under finance lease
                
                
                -
                
                
                
                110,996Short-term
      borrowings
                
                $
                6,688,824
                
                
                $
                5,385,834




Vehicles
included in inventory of approximately $2,159,000 and $2,091,150 were pledged to
secure the stocking loan outstanding as of September 30, 2008 and December 31,
2007, respectively. The finance lease outstanding as of December 31, 2007 was
secured by motor vehicles included in property and equipment with a carrying
value of approximately $239,041.








8




NOTE
7. OTHER CURRENT LIABILITIES




Other
current liabilities by major categories are summarized as follows:




September
                  30,
                
                
                December
                  31,2008
                
                
                2007Accruals
                
                $
                1,098,702
                
                
                $
                1,067,884Other
      payables
                
                
                398,217
                
                
                
                6,020,545$
                1,496,919
                
                
                $
                7,088,429




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, 2008, is 100,000,000 shares
of common stock, par value $0.005. At September 30, 2008, 23,323,860 shares of
common stock were issued and outstanding.




NOTE
9. COMMITMENTS AND CONTINGENT LIABILITIES




Litigation,
Claims and Assessments




From time
to time the Company may be involved in various disputes and litigation matters
arising in the normal course of business. It is the Company's belief that the
resolution of these matters will not have a material adverse effect on its
financial position or results of operations, however, management cannot provide
assurance that damages that result in a material adverse effect on its financial
position or results of operations will not be imposed in these matters. The
Company accounts for contingent liabilities when it is probable that future
expenditures will be made and such expenditures can be reasonably
estimated.




Operating
Lease Commitments




The
Company leases its dealership facilities, service center facilities and office
space under non-cancellable operating leases in Hong Kong and PRC. Minimum
future rental payments required under non-cancellable operating leases in effect
as of September 30, 2008 are as follows:




2008
                
                $
                740,8082009
                
                
                3,192,4772010
                
                
                2,295,9742011
                
                
                745,2092012
                
                
                586,707$
                7,561,175




Rent
expenses for the three months and nine months ended September 30, 2008 and 2007
were $762,224, $317,974, $2,109,189 and $916,638, respectively.





9





Employment
Agreements




The
Company maintains employment agreements with its executive officers, which
extend through 2007 to 2008. The agreements provide for a base salary, annual
bonus to be determined by the Board of Directors, termination payments, stock
options, non-competition provisions, 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, 2008,
committed compensation to the executives and other key employees totaling
approximately $32,000 remain in effect.




NOTE
10. COMPREHENSIVE INCOME




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




Three months ended
                  September 30,
                
                
                Nine months ended
                  September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Comprehensive
      income:Net
      earnings
                
                $
                383,784
                
                
                $
                310,472
                
                
                $
                544,855
                
                
                $
                439,071Translation
      adjustments
                
                
                (49,938
                )
                
                
                70,201
                
                
                
                79,615
                
                
                
                162,403Total
      comprehensive income, net of taxes
                
                $
                333,846
                
                
                $
                380,673
                
                
                $
                624,470
                
                
                $
                601,474





10





NOTE
11. 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
                                                                      
                                                                      2008
                                                                      
                                                                      2007
                                                                      
                                                                      2008
                                                                      
                                                                      2007Sales
      to:-
      Affiliates
                                                                      (a)
                                                                      
                                                                      
                                                                      6,892
                                                                      
                                                                      191,174
                                                                      
                                                                      
                                                                      22,611
                                                                      
                                                                      200,084- A
      related company
                                                                      (b)
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      394,847Purchases
      from:-
      Affiliates
                                                                      (a)
                                                                      
                                                                      
                                                                      40,634
                                                                      
                                                                      110,422
                                                                      
                                                                      
                                                                      55,548
                                                                      
                                                                      115,981-
      An associate
                                                                      (a)
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      3,162,986
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      5,389,418- A
      director of Technorient
                                                                      (a)
                                                                      
                                                                      
                                                                      600,000
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      600,000
                                                                      
                                                                      172,926Interest
      received from:-
      Affiliates
                                                                      (c)
                                                                      
                                                                      
                                                                      154,525
                                                                      
                                                                      174,125
                                                                      
                                                                      
                                                                      443,307
                                                                      
                                                                      449,519Management
      fee income from:-
      Affiliates
                                                                      (d)
                                                                      
                                                                      
                                                                      46,146
                                                                      
                                                                      38,404
                                                                      
                                                                      
                                                                      138,519
                                                                      
                                                                      115,260Service
      fee from:-
      An associate
                                                                      (d)
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      238,593
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      498,917Rental
      income received from:-
      Affiliates
                                                                      (d)
                                                                      
                                                                      
                                                                      38,455
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      115,433
                                                                      
                                                                      -Rental
      paid to:-
      Affiliate
                                                                      (d)
                                                                      
                                                                      
                                                                      5,670
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      18,335
                                                                      
                                                                      -Building
      management fee paid to:-
      Affiliate
                                                                      (d)
                                                                      
                                                                      
                                                                      637
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      1,955
                                                                      
                                                                      -





Notes:


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





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





(c)
            The
      loans advance to an affiliates are unsecured, bear interest at 5.5% (2007:
      8.5%) per annum and repayable on
demand.





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





11





NOTE
12. RESTATEMENT OF FINANCIAL STATEMENTS




Background




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




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




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




The
following actions were also taken:




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




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




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




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




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




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




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





12





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




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




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




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




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




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




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




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




Restatements




Certain
items on the Company’s consolidated balance sheets, consolidated statements of
operations and consolidated statements of stockholders’ equity and comprehensive
income (loss) have been restated, based on the following:




·
            the
      Company’s determination that it was never authorized to issue any shares
      of any class or series of preferred stock, including the Exchange Shares,
      the Bern Noble Shares and the HEL
Shares;





13





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




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




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




·
            the
      settlement of the Federal Court
Action.




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




·
            on
      the condensed consolidated balance sheets, at September 30, 2008 and
      December 31, 2007, prepayments decreased by $1,468,930 to reflect the
      return for cancellation of the disputed shares of preferred stock and
      common stock in connection with the settlement of the Federal Court
      Action.  Accordingly, at September 30, 2008, preferred stock
      decreased by $248, common stock decreased by $28,902, additional
      paid-in-capital decreased by $1,439,780 and stockholders' equity
      decreased by $1,468,930. At December 31, 2007, preferred stock
      decreased by $496, common stock decreased by $6,053, additional
      paid-in-capital decreased by $1,462,381 and stockholders' equity
      decreased by $1,468,930. Further, all references to an authorized
      class or series of preferred stock and any issued and outstanding shares
      of preferred stock have been deleted from the restated balance sheets at
      September 30, 2008 and December 31,
2007;




·
            on
      the condensed consolidated statement of operations, for the three months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0033 and $0.0051, respectively, for the nine months
      ended September 30, 2008, basic and diluted earnings per share
      increased by $0.0037 and $0.0065, respectively, for the three months
      ended September 30, 2007, basic and diluted earnings per share increased
      by $0.0030 and $0.0065, respectively, and for the nine months ended
      September 30, 2007, basic earnings per share decreased by $0.0021 and
      diluted earnings per share increased by $0.0061;
  and




·
            for
      the three months ended September 30, 2008, the basic and diluted weighted
      average number of outstanding shares decreased by 5,780,250 and
      10,349,869, respectively, for the nine months ended September 30, 2008,
      the basic and diluted weighted average number of outstanding shares
      decreased by 4,396,022 and 8,965,641, respectively, for the three months
      ended September 30, 2007, the basic and diluted weighted average number of
      outstanding shares decreased by 4,748,607 and 13,887,843, respectively,
      and for the nine months ended September 30, 2007, the basic weighted
      average number of outstanding shares increased by 1,728,655 and the
      diluted weighted average number of outstanding shares decreased by
      7,410,581.




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





14





The
condensed consolidated balance sheets have been restated as
follows:




Condensed
Consolidated Balance Sheets




As of September 30,
      2008As Previously
                  Reported
                
                
                Adjustments
                
                
                As Restated$
                
                
                $
                
                
                $ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                
                8,682,702
                
                
                
                -
                
                
                
                8,682,702Restricted
      cash
                
                
                1,158,734
                
                
                
                -
                
                
                
                1,158,734Trade
      receivables, net of provision
                
                
                2,426,674
                
                
                
                -
                
                
                
                2,426,674Inventory,
      net
                
                
                16,087,021
                
                
                
                -
                
                
                
                16,087,021Prepayments
                
                
                3,008,559
                
                
                
                (1,468,930
                )
                
                
                1,539,629Other
      current assets
                
                
                5,571,107
                
                
                
                -
                
                
                
                5,571,107Amounts
      due from affiliates
                
                
                9,791,224
                
                
                
                -
                
                
                
                9,791,224Total
      current assets
                
                
                46,726,021
                
                
                
                (1,468,930
                )
                
                
                45,257,091Property
      and equipment, net
                
                
                1,846,761
                
                
                
                -
                
                
                
                1,846,761Goodwill
                
                
                39,644
                
                
                
                -
                
                
                
                39,644TOTAL
      ASSETS
                
                
                48,612,426
                
                
                
                (1,468,930
                )
                
                
                47,143,496LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                
                
                6,688,824
                
                
                
                -
                
                
                
                6,688,824Obligations
      due under finance lease – current portion
                
                
                -
                
                
                
                -
                
                
                
                -Bills
      payable
                
                
                809,131
                
                
                
                -
                
                
                
                809,131Trade
      payables
                
                
                3,562,236
                
                
                
                -
                
                
                
                3,562,236Deposits
      received
                
                
                21,567,102
                
                
                
                -
                
                
                
                21,567,102Other
      current liabilities
                
                
                1,496,919
                
                
                
                -
                
                
                
                1,496,919Amounts
      due to affiliates
                
                
                1,832,636
                
                
                
                -
                
                
                
                1,832,636TOTAL
      LIABILITIES
                
                
                35,956,848
                
                
                
                -
                
                
                
                35,956,848Minority
      interests
                
                
                6,717,997
                
                
                
                -
                
                
                
                6,717,997Commitments
      and ContingenciesStockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2008: 247,798 (note 1)
                
                
                248
                
                
                
                (248
                )
                
                
                -Common
      stockAuthorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 2008: 29,104,110 (note 2)
                
                
                145,521
                
                
                
                (28,902
                )
                
                
                116,619Additional
      paid-in capital
                
                
                5,558,888
                
                
                
                (1,439,780
                )
                
                
                4,119,108Accumulated
      other comprehensive income
                
                
                198,507
                
                
                
                -
                
                
                
                198,507Retained
      earnings
                
                
                34,417
                
                
                
                -
                
                
                
                34,417TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                5,937,581
                
                
                
                (1,468,930
                )
                
                
                4,468,651TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                
                48,612,426
                
                
                
                (1,468,930
                )
                
                
                47,143,496





15





As of December 31, 2007As Previously
                  Reported
                
                
                Adjustments
                
                
                As Restated$
                
                
                $
                
                
                $ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                
                6,583,566
                
                
                
                -
                
                
                
                6,583,566Restricted
      cash
                
                
                1,154,226
                
                
                
                -
                
                
                
                1,154,226Trade
      receivables, net of provision
                
                
                10,440,455
                
                
                
                -
                
                
                
                10,440,455Inventory,
      net
                
                
                9,162,934
                
                
                
                -
                
                
                
                9,162,934Prepayments
                
                
                1,602,793
                
                
                
                (1,468,930
                )
                
                
                133,863Other
      current assets
                
                
                2,931,877
                
                
                
                -
                
                
                
                2,931,877Amounts
      due from affiliates
                
                
                10,226,161
                
                
                
                -
                
                
                
                10,226,161Total
      current assets
                
                
                42,102,012
                
                
                
                (1,468,930
                )
                
                
                40,633,082Property
      and equipment, net
                
                
                2,050,850
                
                
                
                -
                
                
                
                2,050,850Goodwill
                
                
                39,436
                
                
                
                -
                
                
                
                39,436TOTAL
      ASSETS
                
                
                44,192,298
                
                
                
                (1,468,930
                )
                
                
                42,723,368LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                
                
                5,274.838
                
                
                
                -
                
                
                
                5,274,838Obligations
      due under finance lease – current portion
                
                
                110,996
                
                
                
                -
                
                
                
                110,996Bills
      payable
                
                
                2,659,191
                
                
                
                -
                
                
                
                2,659,191Trade
      payables
                
                
                1,063,265
                
                
                
                -
                
                
                
                1,063,265Deposits
      received
                
                
                16,306,698
                
                
                
                -
                
                
                
                16,306,698Other
      current liabilities
                
                
                7,088,429
                
                
                
                -
                
                
                
                7,088,429Amounts
      due to affiliates
                
                
                1,457,134
                
                
                
                -
                
                
                
                1,457,134TOTAL
      LIABILITIES
                
                
                33,960,551
                
                
                
                -
                
                
                
                33,960,551Minority
      interests
                
                
                4,918,636
                
                
                
                -
                
                
                
                4,918,636Commitments
      and ContingenciesStockholders’
      equityPreferred
      stockAuthorized:
      100,000,000 preferred stock, par value $0.001Issued
      and outstanding: 2007: 495,791 (note 1)
                
                
                496
                
                
                
                (496
                )
                
                
                -Common
      stock
                
                
                122,672
                
                
                
                (6,053
                )
                
                
                116,619Authorized:
      100,000,000 common stock, par value $0.005Issued
      and outstanding: 2007: 24,534,491 (note 2)Additional
      paid-in capital
                
                
                5,581,489
                
                
                
                (1,462,381
                )
                
                
                4,119,108Accumulated
      other comprehensive income
                
                
                118,892
                
                
                
                -
                
                
                
                118,892Accumulated
      deficit
                
                
                (510,438
                )
                
                
                -
                
                
                
                (510,438
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                5,313,111
                
                
                
                (1,468,930
                )
                
                
                3,844,181TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                
                44,192,298
                
                
                
                (1,468,930
                )
                
                
                42,723,368





Notes:




1.
            The
      Company did not have any authorized shares or any class or series of
      preferred stock at any of the dates referenced in the balance sheets. The
      references to an authorized class or series of preferred stock and any
      issued and outstanding shares of preferred stock have been deleted from
      the restated balance sheets at September 30, 2008 and December 31,
      2007.




2.
            At
      September 30, 2008 and December 31, 2007, giving effect to the
      transactions related to the restatements discussed in this Note 12, there
      were issued and outstanding 23,323,860 shares of common
    stock.




16


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





Condensed
Consolidated Statements of Operation





For the 3 months ended September 30, 2008As Previously
                  Reported
                
                
                Adjustments
                
                
                As RestatedSales:New
      and used vehicles
                
                $
                31,321,200
                
                
                $
                -
                
                
                $
                31,321,200Parts
      and services and others
                
                
                2,040,951
                
                
                
                -
                
                
                
                2,040,951Net
      sales
                
                
                33,362,151
                
                
                
                -
                
                
                
                33,362,151Cost
      of sales:New
      and used vehicles
                
                
                (27,544,207
                )
                
                
                -
                
                
                
                (27,544,207
                )Parts
      and services and others
                
                
                (512,122
                )
                
                
                -
                
                
                
                (512,122
                )Total
      cost of sales
                
                
                (28,056,329
                )
                
                
                -
                
                
                
                (28,056,329
                )Gross
      profit:New
      and used vehicles
                
                
                3,776,993
                
                
                
                -
                
                
                
                3,776,993Parts
      and services and others
                
                
                1,528,829
                
                
                
                -
                
                
                
                1,528,829Total
      gross profit
                
                
                5,305,822
                
                
                
                -
                
                
                
                5,305,822Selling,
      general and administrative expenses
                
                
                (4,301,541
                )
                
                
                -
                
                
                
                (4,301,541
                )Operating
      earnings
                
                
                1,004,281
                
                
                
                -
                
                
                
                1,004,281Other
      income (expenses)Interest
      expenses
                
                
                (150,640
                )
                
                
                -
                
                
                
                (150,640
                )Share
      of result of an associate
                
                
                -
                
                
                
                -
                
                
                
                -Other
      income
                
                
                327,101
                
                
                
                -
                
                
                
                327,101Total
      other income (expenses)
                
                
                176,461
                
                
                
                -
                
                
                
                176,461Earnings
      before minority interests and income taxes
                
                
                1,180,742
                
                
                
                -
                
                
                
                1,180,742Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -Earnings
      before minority interests
                
                
                1,180,742
                
                
                
                -
                
                
                
                1,180,742Minority
      interests
                
                
                (796,958
                )
                
                
                -
                
                
                
                (796,958
                )Net
      earnings
                
                $
                383,784
                
                
                $
                -
                
                
                $
                383,784Earnings
      per shareBasic
                
                $
                0.0132
                
                
                $
                0.0033
                
                
                $
                0.0165Diluted
                
                $
                0.0114
                
                
                $
                0.0051
                
                
                $
                0.0165Weighted
      average number of common shares outstandingBasic
                
                
                29,104,110
                
                
                
                (5,780,250
                )
                
                
                23,323,860Diluted
                
                
                33,673,729
                
                
                
                (10,349,869
                )
                
                
                23,323,860





17





For the 9 months ended September 30, 2008As Previously
                        Reported
                      
                      
                      Adjustments
                      
                      
                      As RestatedSales:New
      and used vehicles
                      
                      $
                      80,800,209
                      
                      
                      $
                      -
                      
                      
                      $
                      80,800,209Parts
      and services and others
                      
                      
                      5,256,699
                      
                      
                      
                      -
                      
                      
                      
                      5,256,699Net
      sales
                      
                      
                      86,056,908
                      
                      
                      
                      -
                      
                      
                      
                      86,056,908Cost
      of sales:New
      and used vehicles
                      
                      
                      (70,604,162
                      )
                      
                      
                      -
                      
                      
                      
                      (70,604,162
                      )Parts
      and services and others
                      
                      
                      (1,484,782
                      )
                      
                      
                      -
                      
                      
                      
                      (1,484,782
                      )Total
      cost of sales
                      
                      
                      (72,088,944
                      )
                      
                      
                      -
                      
                      
                      
                      (72,088,944
                      )Gross
      profit:New
      and used vehicles
                      
                      
                      10,196,047
                      
                      
                      
                      -
                      
                      
                      
                      10,196,047Parts
      and services and others
                      
                      
                      3,771,917
                      
                      
                      
                      -
                      
                      
                      
                      3,771,917Total
      gross profit
                      
                      
                      13,967,964
                      
                      
                      
                      -
                      
                      
                      
                      13,967,964Selling,
      general and administrative expenses
                      
                      
                      (12,544,791
                      )
                      
                      
                      -
                      
                      
                      
                      (12,544,791
                      )Operating
      earnings
                      
                      
                      1,423,173
                      
                      
                      
                      -
                      
                      
                      
                      1,423,173Other
      income (expenses)Interest
      expenses
                      
                      
                      (411,360
                      )
                      
                      
                      -
                      
                      
                      
                      (411,360
                      )Share
      of result of an associate
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Other
      income
                      
                      
                      1,332,403
                      
                      
                      
                      -
                      
                      
                      
                      1,332,403Total
      other income (expenses)
                      
                      
                      921,043
                      
                      
                      
                      -
                      
                      
                      
                      921,043Earnings
      before minority interests and income taxes
                      
                      
                      2,344,216
                      
                      
                      
                      -
                      
                      
                      
                      2,344,216Provision
      for income taxes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Earnings
      before minority interests
                      
                      
                      2,344,216
                      
                      
                      
                      -
                      
                      
                      
                      2,344,216Minority
      interests
                      
                      
                      (1,799,361
                      )
                      
                      
                      -
                      
                      
                      
                      (1,799,361
                      )Net
      earnings
                      
                      $
                      544,855
                      
                      
                      $
                      -
                      
                      
                      $
                      544,855Earnings
      per shareBasic
                      
                      $
                      0.0197
                      
                      
                      $
                      0.0037
                      
                      
                      $
                      0.0234Diluted
                      
                      $
                      0.0169
                      
                      
                      $
                      0.0065
                      
                      
                      $
                      0.0234Weighted
      average number of common shares outstandingBasic
                      
                      
                      27,719,882
                      
                      
                      
                      (4,396,022
                      )
                      
                      
                      23,323,860Diluted
                      
                      
                      32,289,501
                      
                      
                      
                      (8,965,641
                      )
                      
                      
                      23,323,860





18





For the 3 months ended September 30, 2007As Previously
                  Reported
                
                
                Adjustments
                
                
                As RestatedSales:New
      and used vehicles
                
                $
                24,819,562
                
                
                $
                -
                
                
                $
                24,819,562Parts
      and services and others
                
                
                1,941,571
                
                
                
                -
                
                
                
                1,941,571Net
      sales
                
                
                26,761,133
                
                
                
                -
                
                
                
                26,761,133Cost
      of sales:New
      and used vehicles
                
                
                (21,862,921
                )
                
                
                -
                
                
                
                (21,862,921
                )Parts
      and services and others
                
                
                (639,969
                )
                
                
                -
                
                
                
                (639,969
                )Total
      cost of sales
                
                
                (22,502,890
                )
                
                
                -
                
                
                
                (22,502,890
                )Gross
      profit:New
      and used vehicles
                
                
                2,956,641
                
                
                
                -
                
                
                
                2,956,641Parts
      and services and others
                
                
                1,301,602
                
                
                
                -
                
                
                
                1,301,602Total
      gross profit
                
                
                4,258,243
                
                
                
                -
                
                
                
                4,258,243Selling,
      general and administrative expenses
                
                
                (3,453,237
                )
                
                
                -
                
                
                
                (3,453,237
                )Operating
      earnings
                
                
                805,006
                
                
                
                -
                
                
                
                805,006Other
      income (expenses)Interest
      expenses
                
                
                (158,803
                )
                
                
                -
                
                
                
                (158,803
                )Share
      of result of an associate
                
                
                (71,615
                )
                
                
                -
                
                
                
                (71,615
                )Other
      income
                
                
                274,928
                
                
                
                -
                
                
                
                274,928Total
      other income (expenses)
                
                
                44,510
                
                
                
                -
                
                
                
                44,510Earnings
      before minority interests and income taxes
                
                
                849,516
                
                
                
                -
                
                
                
                849,516Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -Earnings
      before minority interests
                
                
                849,516
                
                
                
                -
                
                
                
                849,516Minority
      interests
                
                
                (539,044
                )
                
                
                -
                
                
                
                (539,044
                )Net
      earnings
                
                $
                310,472
                
                
                $
                -
                
                
                $
                310,472Earnings
      per shareBasic
                
                $
                0.0127
                
                
                $
                0.0030
                
                
                $
                0.0157Diluted
                
                $
                0.0092
                
                
                $
                0.0065
                
                
                $
                0.0157Weighted
      average number of common shares outstandingBasic
                
                
                24,534,443
                
                
                
                (4,748,607
                )
                
                
                19,785,836Diluted
                
                
                33,673,679
                
                
                
                (13,887,843
                )
                
                
                19,785,836





19





For the 9 months ended September 30, 2007As Previously
                  Reported
                
                
                Adjustments
                
                
                As RestatedSales:New
      and used vehicles
                
                $
                64,290,343
                
                
                $
                -
                
                
                $
                64,290,343Parts
      and services and others
                
                
                4,597,838
                
                
                
                -
                
                
                
                4,597,838Net
      sales
                
                
                68,888,181
                
                
                
                -
                
                
                
                68,888,181Cost
      of sales:New
      and used vehicles
                
                
                (57,008,236
                )
                
                
                -
                
                
                
                (57,008,236
                )Parts
      and services and others
                
                
                (1,408,830
                )
                
                
                -
                
                
                
                (1,408,830
                )Total
      cost of sales
                
                
                (58,417,066
                )
                
                
                -
                
                
                
                (58,417,066
                )Gross
      profit:New
      and used vehicles
                
                
                7,282,107
                
                
                
                -
                
                
                
                7,282,107Parts
      and services and others
                
                
                3,189,008
                
                
                
                -
                
                
                
                3,189,008Total
      gross profit
                
                
                10,471,115
                
                
                
                -
                
                
                
                10,471,115Selling,
      general and administrative expenses
                
                
                (9,066,006
                )
                
                
                -
                
                
                
                (9,066,006
                )Operating
      earnings
                
                
                1,405,109
                
                
                
                -
                
                
                
                1,405,109Other
      income (expenses)Interest
      expenses
                
                
                (580,783
                )
                
                
                -
                
                
                
                (580,783
                )Share
      of result of an associate
                
                
                (149,675
                )
                
                
                -
                
                
                
                (149,675
                )Other
      income
                
                
                759,760
                
                
                
                -
                
                
                
                759,760Total
      other income (expenses)
                
                
                29,302
                
                
                
                -
                
                
                
                29,302Earnings
      before minority interests and income taxes
                
                
                1,434,411
                
                
                
                -
                
                
                
                1,434,411Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -Earnings
      before minority interests
                
                
                1,434,411
                
                
                
                -
                
                
                
                1,434,411Minority
      interests
                
                
                (995,340
                )
                
                
                -
                
                
                
                (995,340
                )Net
      earnings
                
                $
                439,071
                
                
                $
                -
                
                
                $
                439,071Earnings
      per shareBasic
                
                $
                0.0243
                
                
                $
                (0.0021
                )
                
                $
                0.0222Diluted
                
                $
                0.0161
                
                
                $
                0.0061
                
                
                $
                0.0222Weighted
      average number of common shares outstandingBasic
                
                
                18,057,181
                
                
                
                1,728,655
                
                
                
                19,785,836Diluted
                
                
                27,196,417
                
                
                
                (7,410,581
                )
                
                
                19,785,836





[End
of condensed consolidated financial statements.]




20




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




FORWARD-LOOKING
STATEMENTS




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




RESTATEMENTS




The
Company is restating its consolidated financial statements as of September 30,
2008 and for the three and nine month periods ended September 30, 2008 and 2007
in this amendment to the Company’s Quarterly Report on Form 10-Q/A for
the period ended September 30, 2008. All amounts in Management’s Discussion and
Analysis of Financial Condition and Results of Operations that are the
subject of these restatements in the financial statements filed
herewith have been adjusted, as appropriate, for the effects of the
restatement. For a more detailed discussion of the restatements and their
underlying circumstances, please refer to the Explanatory Note at the beginning
of this Report and Note 12 of the Notes to the consolidated financial statements
included in this Report.




COMPANY
OVERVIEW AND HISTORY




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




The
Company was originally formed in the State of Nevada on April 19, 2004 under its
predecessor name, Xact Aid, Inc. (“Xact Aid”).  On April 30, 2004, the
Company issued 1,000 shares of its common stock (representing all of its issued
and outstanding shares) to Addison-Davis Diagnostics, Inc. (f/k/a QT5, Inc.), a
Delaware corporation (“Addison-Davis”), in consideration of Addison-Davis
advancing start-up and operating capital.





21





On
November 15, 2004, the Company acquired the Xact Aid line of first aid products
for minor injuries from Addison-Davis in accordance with an Agreement of Sale
and Transfer of Assets entered into between the Company and Addison-Davis. The
assets acquired were, including all goodwill appurtenant thereto: (a) inventory;
(b) confidential and proprietary information relating to the Xact Aid products;
(c) the Seller’s domain names including source codes, user name and passwords;
(d) all designs and copyrights in connection with Xact Aid’s trademark; and (e)
all records and materials relating to suppliers and customer list. In full
consideration for all the acquired assets, the Company agreed to: (i) repay
funds advanced by Addison-Davis for the Company’s operating expenses from
inception to September 30, 2004, which were repaid in November 2004 and December
2004; (ii) assume a promissory note issued to Xact Aid Investments; and (iii)
issue to Addison-Davis 2,000,000 shares of the Company’s common
stock.




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




On
December 22, 2005 the Company entered into a transaction divesting itself of
certain assets for which the Company, in management’s opinion, could not attract
capital to successfully exploit, in return for the assumption of certain
liabilities, a guarantee to pay another significant liability, and all of the
common stock of a development stage company. The Company acquired 100% of the
issued and outstanding shares of Brooke Carlyle Life Sciences, Inc., a Nevada
corporation (“Brooke Carlyle”), a development stage company with a business plan
to develop an online internet portal containing information on sexually
transmitted diseases, which was designed to generate revenue from advertising
from pharmaceutical companies. In accordance with the terms of the acquisition,
the Company agreed to: (i) sell, assign and transfer to Brooke Carlyle any and
all of its rights title and interests in connection with the License Agreement
and the Patent Pending Assignment; (ii) sell, assign and transfer the Xact Aid
line of first aid products for minor injuries, including all its related rights,
titles and inventory; (iii) transfer a rental security deposit receivable in the
amount of $225; and (iv) transfer certain notes receivable to Brooke Carlyle in
the aggregate amount of $20,000. In consideration, Brooke Carlyle: (i) assumed
various liabilities payable by the Company in the aggregate amount of $102,488;
(ii) guaranteed payment of the Company’s $950,000 promissory note payable in
connection with the Patent Pending Assignment; and (iii) issued to the Company
1,000,000 shares of Brooke Carlyle common stock.




The
Company’s management team then determined that it was no longer in the best
interests of the Company and its stockholders to continue pursuing sales and
marketing efforts for the wound-specific first aid kit line of products. In an
effort to bring revenues and profitable operations to the Company, management
sought to effect a transaction that would attract a viable business operation
and liquidate its liabilities. As a result of such decisions, on March 3, 2006,
the Company entered into a non-binding letter of intent with Technorient for a
proposed acquisition of an interest in Technorient via a share exchange by and
among the Company, Technorient and Technorient’s shareholders.




On May 4,
2006, in order to satisfy certain provisions in the Share Exchange Agreement
described below with Technorient, the Company entered into a Stock Purchase
Agreement with Nexgen Biogroup, Inc. (“Nexgen”), for the sale of the 1,000,000
shares of the common stock of Brooke Carlyle held by the Company, which, at
that time, represented all or substantially all of the assets of the Company,
for $1,000 cash, representing a consideration of $0.001 per share (the par
value). In accordance with the terms of the agreement, the Company agreed to:
(i) sell, assign and transfer to Nexgen any and all of its rights, title and
interests in Brooke Carlyle; and (ii) transfer to Nexgen 1,000,000 shares of
Brooke Carlyle common stock.




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





22





Prior to
the Exchange, Federico G. Cabo, one of our directors, owned 3,000,000 shares of
common stock, and Mr. De Luca, then our secretary and a director, owned
6,000,000 shares of common stock. Pursuant to the Exchange, the Company
cancelled the 9,000,000 shares of common stock owned by Messrs. De Luca and
Cabo.




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




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




As
discussed in the Explanatory Note at the beginning of this Report and as
previously disclosed in the Company’s Current Report on Form 8-K, as filed with
the SEC on May 11, 2009, the Company later determined that it was never
authorized to issue any shares of preferred stock.  As a result, on May 5,
2009, we entered into a reformation (“Reformation”) of the Amended Exchange
Agreement pursuant to which the parties agreed that the 17,937,977 shares of
common stock (on a post-Reverse Stock Split basis) underlying the Series A
Preferred Shares issued to Corich and Mr. Adamczyk were agreed to have been
issued in lieu of the Series A Preferred Shares themselves.  Pursuant to
the Reformation, the parties agreed that an aggregate of 14,400,000 shares of
our common stock (on a post-Reverse Stock Split basis) were deemed to have been
issued on the closing of the Exchange, and that upon the effectiveness of and
giving effect to the Reverse Stock Split, an aggregate of an additional
3,537,977 shares of common stock were deemed to have been issued.  For a
more detailed discussion of the Reformation, please refer to the Explanatory
Note at the beginning of this Report and the Company’s Current Report on Form
8-K, as filed with the SEC on May 11, 2009.




The
Company was previously engaged in litigation regarding the HEL Shares (the
“Federal Court Action”).  On March 1, 2010, we settled the Federal Court
Action.  Under the terms of the settlement, the defendants agreed to return
to us for cancellation all of the HEL Shares, including all shares of common
stock that were converted therefrom.  For a more detailed discussion of the
Federal Court Action and the settlement, please refer to the Explanatory Note at
the beginning of this Report and the Company’s Current Report on Form 8-K, as
filed with the SEC on March 5, 2010.




On
December 27, 2006, the Company effected a change of the Company’s name from
“Xact Aid, Inc.” to “China Premium Lifestyle Enterprise, Inc.”  The
Company name change and its new trading symbol (OTCBB: CPMM) became effective on
the OTC Bulletin Board on December 28, 2006.




In March
2007, the Company entered into an agreement with Falber Confezioni, S.R.L. to
become the sole importer and distributor of John Richmond, Richmond X and
Richmond Denim clothing for men and women in Hong Kong, Macau, Taiwan and in
China commencing in the Spring/Summer season of 2008 and ending in the
Fall/Winter season of 2012.




On April
3, 2007, the Company established CPMM Asia as a wholly owned subsidiary. CPMM
Asia is principally engaged in the distribution of luxury brand
apparel.




On July
10, 2007, the Company entered into a Non-binding Letter of Intent with Keyforce
(BVI) Limited (“Keyforce (BVI)”), a subsidiary of Wo Kee Hong (Holdings) Limited
of Hong Kong, to begin negotiations to acquire from Keyforce (BVI) its luxury
yacht distribution business. Wo Kee Hong (Holdings) Limited of Hong Kong wholly
owns Wo Kee Hong (B.V.I.) Limited, an intermediate holding company that, in
turn, wholly owns Corich Enterprises Inc., one of the Company’s largest
stockholders. Keyforce (BVI) is the sole shareholder of Keyforce Holdings
Limited (“Keyforce Holdings”) and Noble Brand Investments Limited (“Noble
Brand”). Keyforce Holdings is engaged in the distribution of luxurious Italian
“Ferretti” motor yachts in China while Noble Brand distributes Taiwanese
produced “Horizon” motor yachts in China, Hong Kong and Macau. The letter of
intent expired on January 9, 2008. As of March 30, 2009, no binding agreements
had been entered into, but discussions remain ongoing.





23





On
December 7, 2007, the Company effected a reverse stock split pursuant to which
each five outstanding shares of common stock, par value $0.001, were
automatically converted into one share of common stock, par value $0.005, and
the total number of shares of our common stock outstanding was reduced from
98,929,180 shares to 19,785,836 shares (the “Reverse Stock Split”). No change
was made in the number of the Company’s authorized shares. No scrip or
fractional share certificates were issued in connection with the Reverse Stock
Split. Stockholders received a number of shares of new common stock rounded up
to the nearest whole number in lieu of fractional interests resulting from the
Reverse Stock Split. Following the Reverse Stock Split, the Company’s
common shares began trading under a new ticker symbol (OTCBB: CPLY).  Each
stockholder’s percentage ownership interest in the Company and proportional
voting power remained unchanged after the Reverse Stock Split, except for minor
changes and adjustments resulting from rounding of fractional interests. The
rights and privileges of the holders of common stock were substantially
unaffected by the Reverse Stock Split.




On April
24, 2008, the Company adopted a Code of Business Conduct and Ethics applicable
to its employees, officers and directors.




TECHNORIENT
OVERVIEW




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




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




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




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




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





24





CPMM
(ASIA) OVERVIEW




On
January 18, 2008, CPMM Asia, a wholly-owned subsidiary of the Company, entered
into a License and Supply Agreement (the “Agreement”) with Akkurate Ltd.
(“Akkurate”) and Falber Confezioni S.R.L. (“Falber”) for a term of 10 seasons
through approximately January 31, 2013. The Agreement grants CPMM Asia the
exclusive right to sell men’s and women’s Ready-to-Wear John Richmond, Richmond
X, and Richmond Denim  (“Products”) and to open points of sale identified
by the signs of Products “John Richmond”, “Richmond”, “Richmond X”, and
“Richmond Denim” marks (collectively, the “Signs”) in China, Hong Kong, Macau
and Taiwan (the “Exclusivity Area”), which Products will be supplied by Falber.
In addition, CPMM Asia has the right to use the Signs, and open and manage in
the Exclusivity Area mono-brand shops identified by the Signs for the sale of
the Products and other articles identified by the Signs. CPMM Asia also has the
right to sublicense these rights to third parties. The first mono brand shop of
“Richmond X” was opened in Hong Kong at the end of 2007. In early May 2008, CPMM
Asia opened a second mono brand shop in Hong Kong.




EMPLOYEES




As of
September 30, 2008, we employed approximately 186 persons on a full-time basis
in Hong Kong and China. We believe we have good relationships with our employees
and no major disputes or work stoppages have occurred since our
inception.




CURRENCY
CONVERSION AND EXCHANGE




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




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




CRITICAL
ACCOUNTING POLICIES




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 financial statements and
the related notes thereto, for further discussion of our accounting
policies.





25





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 obligations, and record a provision
that reduces our trade receivables for that customer to the amount that is
reasonably believed will be collected. Additional provisions may be required in
the future if the financial condition of our customers or general economic
conditions deteriorate, thereby reducing net earnings. Historically our
provisions for bad debts have been sufficient to cover actual credit losses, and
we believe that the provisions recorded at the balance sheet dates are
sufficient.




Inventory,
net




Inventory
consists primarily of new and used vehicles held for sale, and vehicle parts and
accessories, and are stated at the lower of cost or market. The new and used
vehicles are valued using the specific identification method and the costs
include acquisition and transportation expenses. The value of the parts and
accessories are valued at the first-in, first-out method and are stated at the
lower of cost or market. 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.




Share-based
compensation




We has
adopted SFAS No. 123(R), Share-Based Payment, as amended and interpreted, for
its share-based compensation. We utilized the modified prospective method
approach, pursuant to which we have recorded compensation for all 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.




Revenue
recognition




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




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




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




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




Impairment
of long-lived assets




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





26





Income
taxes




We are
required to estimate income tax provisions and amounts ultimately payable or
recoverable in numerous jurisdictions, including Hong Kong. We accounts for
income taxes under the provision of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, (“SFAS 109”) and related interpretations
and guidance including FIN 58, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (“Fin 48”), resulting in two components
of income tax expenses: current and deferred. Current income tax expense
approximates taxes to be paid or refunded for the relevant periods. Deferred
income tax expense results from changes in deferred tax assets and liabilities
between periods. Deferred income tax assets and liabilities are computed for
differences between the financial statements carrying amounts and the tax bases
of existing assets and liabilities that will result in taxable or deductible
amount in the future, as well as from net operating loss and tax credit
carryforwards, and are measured at the enacted tax laws and rates applicable in
the years 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 earning trends and/or tax strategies may occur which could
warrant a need for establishing an additional valuation allowance or a
reserve.




RECENT
ACCOUNTING PRONOUNCEMENTS




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
157, Fair Value Measurements (“SFAS 157”), which provides guidance about how to
measure assets and liabilities that use fair value. SFAS 157 apply whenever
another US GAAP standard requires (or permits) assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new
circumstances. This standard also requires additional disclosures in both annual
and quarterly reports. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. In February 2008, the FASB
issued FASB Staff Position (“FSP”) 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 (“FSP 157-1”), which states that SFAS 157 does
not address fair value measurements for purposes of lease classification or
measurement. In February 2008, the FASB issued FSP 157-2, Effective Date of FASB
Statement No. 157 (“FSP 157-2”) , which delays the effective date for
non-financial assets and non-financial liabilities to fiscal years beginning
after November 15, 2008, except for items that are measured at fair value
in the financial statements on a recurring basis (at least annually). The
Company adopted the provisions of SFAS 157 for its financial assets and
liabilities and those items for which it has measured on a recurring basis
effective January 1, 2008, and the adoption did not have a material impact
on its financial position and results of operations. As provided by FSP 157-2,
the Company has elected to defer the adoption of SFAS 157 for certain of its
non-financial assets and liabilities and is currently evaluating the impact of
adopting SFAS 157 on its non-financial assets and liabilities.




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




In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations
(“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS 141(R) will be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and will be adopted
by the Company beginning in the first quarter of 2009. The Company does not
expect there to be any significant impact of adopting SFAS 141(R) on its
financial position, cash flows and results of operations.





27





In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No.51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and will
be adopted by the Company beginning in the first quarter of 2009. The Company
does not expect there to be any significant impact of adopting SFAS 160 on its
financial position, cash flows and results of operations.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”). SFAS 161 is intended
to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. SFAS 161 achieves these improvements by
requiring disclosure of the fair values of derivative instruments and their
gains and losses in a tabular format. It also provides more information about an
entity’s liquidity by requiring disclosure of derivative features that are
credit risk-related. Finally, it requires cross-referencing within footnotes to
enable financial statement users to locate important information about
derivative instruments. SFAS 161 will be effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, will be adopted by the Company beginning in the first quarter of 2009. The
Company does not expect there to be any significant impact of adopting SFAS 161
on its financial position, cash flows and results of operations.




Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force (“EITF”)), the American Institute of Certified Public
Accountants (“AICPA”), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future consolidated financial
statements.




RESULTS
OF OPERATIONS




Results
of operations comparison of nine months ended September 30, 2008 to nine months
ended September 30, 2007




SALES




Nine months ended
                    September 30, 2008
                  
                  
                  Nine months ended
                    September 30, 2007Total
                    Sales
                  
                  
                  % of
                    Total Sales
                  
                  
                  Total
                    Sales
                  
                  
                  % of
                    Total SalesSales:New
      vehicles
                  
                  $
                  66,767,000
                  
                  
                  
                  77.6
                  %
                  
                  $
                  47,649,000
                  
                  
                  
                  69.2
                  %Used
      vehicles
                  
                  $
                  14,033,000
                  
                  
                  
                  16.3
                  %
                  
                  $
                  16,641,000
                  
                  
                  
                  24.2
                  %Parts
      and services and others
                  
                  $
                  5,257,000
                  
                  
                  
                  6.1
                  %
                  
                  $
                  4,598,000
                  
                  
                  
                  6.6
                  %Total
                  
                  $
                  86,057,000
                  
                  
                  
                  100
                  %
                  
                  $
                  68,888,000
                  
                  
                  
                  100
                  %





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




Net total
sales for nine months ended September 30, 2008 increased by approximately
$17,169,000 or 24.9% to approximately $86,057,000, compared with approximately
$68,888,000 for the same period of 2007. The increase was primarily attributable
to the increased sales from our new vehicle trading segment.




New
vehicles sales increased approximately $19,118,000 or 40.1% from the first nine
months of 2007 to the same period of 2008 while the quantity of new vehicles
sold increased 42.1% for the same period. This was primarily due to the launch
of the Ferrari 8-cylinder sports car, the “430 Scuderia”, and an increase in
deliveries of the Maserati 8-cylinder two-door 2+2 coupe, the “GranTurismo”,
which was launched in the last quarter of 2007. The used vehicles sales
decreased approximately $2,608,000 or 15.7% from the first nine months of 2007
to the same period of 2008 while the quantity of used vehicles sold decreased
24.7% for the same period.





28





The
increase in parts and service sales was mainly attributed to the increase in
deliveries of Ferrari and Maserati cars to customers during the last few
years.




COST
OF SALES




Cost of
sales for the nine months ended September 30, 2008 increased to $72,089,000 from
$58,417,000 for the nine months ended September 30, 2007, a $13,672,000 or 23.4%
increase was in line with the increase in Company’s increase in revenues during
this period.




GROSS
PROFIT




Gross
profit margin for nine months ended September 30, 2008 increased by
1.0% from 15.2% for the same period of 2007 to 16.2% for the current period
and the gross profit increased by approximately $3,497,000 to approximately
$13,968,000 for the nine months ended September 30, 2008. This increase is
mainly attributed to the new and used vehicles trading segment. The gross profit
margin increase in the first nine months of 2008 was mainly due to deliveries of
the “GranTurismo” and sales of certain highly acclaimed used cars including
Ferrari 599 GTB Fiorano, F430 Spider and Maserati GranTurismo.




SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




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




S,G&A
for the nine months ended September 30, 2008 were approximately $12,545,000,
compared to approximately $9,066,000 for the same period of 2007. The
approximate $3,479,000 increase in S,G&A expenses was primarily due to the
growth of revenues as well as additional rent, staff and related costs incurred
in the course of our start-up of new business. The staffing expenses increased
from approximately $3,670,000 for the nine months ended September 30, 2007 to
approximately $5,081,000 for the same period of 2008. The aggregate of rent,
rate and building management fees increased from approximately $1,012,000 for
the nine months ended September 30, 2007 to approximately $2,574,000 for the
same period of 2008. The rental, staff and related cost incurred in the start-up
of new business was approximately $1,208,000.




OTHER
INCOME, NET




Other
income for the nine months ended September 30, 2008 were approximately $921,000,
compared to approximately $29,000 for the same period of 2007, a total increase
of $892,000. The increase was primarily due to the increased management fees,
interest and rental income charged to affiliate companies, decreased interest
expenses and approximately $130,000 gain on disposal of property and equipment.
The management fees, interest and rental income charged to affiliate companies
increased from approximately $565,000 for the nine months ended September 30,
2007 to approximately $697,000 for the same period of 2008. The interest
expenses decreased from approximately $581,000 in the first nine months of 2007
to approximately $411,000 for the same period of 2008.




MINORITY
INTERESTS




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





29





Results
of operations comparison of three months ended September 30, 2008 to three
months ended September 30, 2007




SALES




Three months ended
                    September 30, 2008
                  
                  
                  Three months ended
                    September 30, 2007Total
                    Sales
                  
                  
                  % of
                    Total Sales
                  
                  
                  Total
                    Sales
                  
                  
                  % of
                    Total SalesSales:New
      vehicles
                  
                  $
                  26,677,000
                  
                  
                  
                  80.0
                  %
                  
                  $
                  20,605,000
                  
                  
                  
                  77.0
                  %Used
      vehicles
                  
                  $
                  4,644,000
                  
                  
                  
                  13.9
                  %
                  
                  $
                  4,215,000
                  
                  
                  
                  15.7
                  %Parts
      and services and others
                  
                  $
                  2,041,000
                  
                  
                  
                  6.1
                  %
                  
                  $
                  1,941,000
                  
                  
                  
                  7.3
                  %Total
                  
                  $
                  33,362,000
                  
                  
                  
                  100
                  %
                  
                  $
                  26,761,000
                  
                  
                  
                  100
                  %





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




Net total
sales for three months ended September 30, 2008 increased by approximately
$6,601,000 or 24.7% to approximately $33,362,000, compared with approximately
$26,761,000 for the same period of 2007. The increase was primarily attributable
to the increased sales from our new vehicle trading segment.




New
vehicles sales increased approximately $6,072,000 or 29.5% from the third
quarter of 2007 to the same period of 2008 while the quantity of new vehicles
sold increased 12% for the same period. This increase in sales of vehicles was
primarily due to the launch of the Ferrari 8-cylinder sports car, the “430
Scuderia”, and an increase in deliveries of the Maserati 8-cylinder, two-door
2+2 coupe, the “GranTurismo”, which was launched in the last quarter of 2007.
The used vehicles sales increased approximately $429,000 or 10.2% from the third
quarter of 2007 to the same period of 2008 while the quantity of used vehicles
sold maintained at the same level for both periods.




The
increase in parts and service sales was mainly attributed to the increase in
deliveries of Ferrari and Maserati cars to customers during the last few
years.




COST
OF SALES




Cost of
sales for the three months ended September 30, 2008 increased to $28,056,000
from $22,503,000 for the three months ended September 30, 2007, a $5,553,000 or
24.7% increase was in line with the increase in Company’s increase in revenues
during this period.




GROSS
PROFIT




Gross
profit margin for three months ended September 30, 2008 and 2007 were 15.9%, and
the gross profit increased by approximately $1,048,000 to approximately
$5,306,000 for the three months ended September 30, 2008. This increase was
mainly attributed to the new and used vehicles trading segment.




SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




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




S,G&A
for the three months ended September 30, 2008 were approximately $4,302,000,
compared to approximately $3,453,000 for the same period of 2007. The
approximate $849,000 increase in S,G&A expenses was primarily due to the
growth of revenues as well as additional rent, staff and related cost incurred
in the course of our start-up of new business. The staffing expenses increased
from approximately $1,356,000 for the three months ended September 30, 2007 to
approximately $1,636,000 for the same period of 2008. The aggregate of rent,
rate and building management fees increased from approximately $350,000 for the
three months ended September 30, 2007 to approximately $933,000 for the same
period of 2008. The rental, staff and related cost incurred in the start-up of
new business was approximately $457,000.





30





OTHER
INCOME, NET




Other
income for the three months ended September 30, 2008 increased to approximately
$176,000 compared to approximately $45,000 for the same period of 2007, a total
increase of $131,000. The increase was primarily due to the decrease of share of
result of an associate. The Company had completed the disposal of 29% equity
interest in the Shanghai JV in December 2007, no share of loss of that associate
was incurred in 2008. In the third quarter of 2007, the share of loss of an
associate was approximately $72,000.




MINORITY
INTERESTS




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




LIQUIDITY
AND CAPITAL RESOURCES




CASH
FLOWS FROM OPERATING ACTIVITIES




Our
operations generated cash resources of approximately $2,083,000 for the nine
months ended September 30, 2008, compared to generating cash resources of
approximately $9,492,000 for the nine months ended September 30, 2007, primarily
as a net result of the following:




·
            For
      the nine months ended September 30, 2008, cash flow provided by sales net
      of operating expenses increased by approximately $636,000 to $2,844,000.
      The increase was primarily as a result of the increase in
      sales.




·
            For
      the nine months ended September 30, 2008, account receivables decreased by
      approximately $8,040,000, primarily due to the collection of account
      receivables relating to the sales recognized in the last three
      quarters.




·
            For
      the nine months ended September 30, 2008, our inventory increased by
      approximately $6,924,000. The increase was consistent with our business
      growth especially in the car trading
segment.




·
            For
      the nine months ended September 30, 2008, the increase or decrease of
      various current operating assets and liabilities, included in the
      aforementioned items, resulted in an aggregate decrease of cash inflow
      from operations of approximately
$761,000.




CASH
FLOWS FROM INVESTING ACTIVITIES




For the
nine months ended September 30, 2008, we expended net cash of approximately
$247,000 in investing activities that is the combined effect of the acquisition
and disposal of property and equipment. We had utilized approximately $579,000
for acquisition of property and equipment whereas we had received approximately
$332,000 proceeds from disposal of property and equipment. For the nine months
ended September 30, 2007, we utilized approximately $263,000 in investing
activities, mainly for acquisition of property and equipment.




CASH
FLOWS FROM FINANCING ACTIVITIES




During
the nine months ended September 30, 2008, we repaid approximately $547,000 of
our obligations owed on outstanding debt as compared to approximately $2,567,000
for the nine months ended September 30, 2007.




For the
nine months ended September 30, 2008, we received approximately $810,000
advances from affiliates. For the nine months ended September 30, 2007, we
provided approximately $5,746,000 and $394,000 advances to affiliates and
an associate, respectively. The advances to affiliates were made to
entities that are under common management, where Mr. Richard Man Fai Lee, the
Company’s Chief Executive Officer, is the common director of the Company and the
affiliates. These advances included interest bearing and non interest bearing
portions depending on the nature of the advances.





31





WORKING
CAPITAL REQUIREMENTS




Current
assets exceeded current liabilities at September 30, 2008 by approximately
$9,300,000, an increase of $2,628,000 from December 31, 2007. The ratio of our
current assets to our current liabilities was 1.26 to 1 at September 30, 2008
compared to 1.2 to 1 at December 31, 2007. At September 30, 2008, our
current assets of approximately $45,257,000 included approximately $16,087,000
in inventory that was funded by the operating cash flow and trade finance
facilities. Our current liabilities of approximately $35,957,000 included
customer deposits. Given the exclusive nature and extremely limited production
of Ferrari cars, our customers are willing to place material deposits in advance
to the Company in order to secure their new car orders. This resulted in
customer deposits of approximately $21,567,000.




SEASONALITY




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




EFFECT
OF FLUCTUATION IN FOREIGN EXCHANGE RATES




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




OFF-BALANCE
SHEET ARRANGEMENTS




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




Item 3. 
Quantitative and Qualitative Disclosures about Market Risk.




We
currently do not hold or use any derivative or other financial instruments that
expose us to substantial market risk and we have no foreign exchange contracts.
Our financial instruments consist of cash and cash equivalents, trade
receivables   and payables, bills payable, other current assets, other
current liabilities, and bank borrowings. We consider investments in highly
liquid instruments purchased with a remaining maturity of 90 days or less at the
date of purchase to be cash equivalents. However, in order to manage the foreign
exchange risks, we may engage in hedging activities to manage our financial
exposure related to currency exchange fluctuation. In these hedging activities,
we might use fixed-price, forward and option contracts when
feasible.




Interest Rates. Our exposure
to market risk for changes in interest rates relates primarily to our short-term
obligations; thus, fluctuations in interest rates would not have a material
impact on the fair value of the Company’s securities. At September 30, 2008, we
had approximately $8,683,000 in cash and cash equivalents. A hypothetical 10%
increase or decrease in interest rates would not have a material impact on our
earnings or loss, or the fair market value or cash flows of these
instruments.




Foreign Exchange Rates. While
our reporting currency is the U.S. dollar, to date virtually all of our revenues
and costs are denominated in Hong Kong Dollars and a significant portion of our
assets and liabilities is denominated in Hong Kong Dollars. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations may
be impacted by fluctuations in the exchange rate between U.S. Dollars and Hong
Kong Dollars. If the Hong Kong Dollar depreciates against the U.S. Dollar, the
value of our Hong Kong Dollar revenues and assets as expressed in our U.S.
Dollar financial statements will decline. Thus, our revenues and operating
results may be impacted by exchange rate fluctuations of the Hong Kong Dollar.
While we may choose to do so in the future, the availability and effectiveness
of any hedging transactions may be limited and we may not be able to
successfully hedge our exchange rate risks. Accordingly, we may experience
economic losses and negative impacts on earnings and equity as a result of
foreign exchange rate fluctuations. The effect of foreign exchange rate
fluctuation for the nine months ended September 30, 2008 was not material to
us.





32





Item
4T.  Controls and Procedures




NOTE:
This Item 4T. Controls and Procedures has been updated to reflect the
restatement of our audited financial statements for the years ended December 31,
2008, 2007 and 2006, the restatement of our unaudited interim financial
statements for the periods ended September 30, 2006 through September 30, 2009,
the amendment of certain Notes to our audited financial statements for our
former fiscal year ended June 30, 2006 and the amendment of certain Notes
to our unaudited interim financial statements for the period ended March 31,
2006, as discussed above in the Explanatory Note at the beginning of this Report
and in Note 12 of the Notes to the consolidated financial statements included in
this Report.




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




This Form
10-Q/A presents restatements of the financial statements for the covered
period.  In connection with this Form 10-Q/A, our management reevaluated
the effectiveness of our internal control over financial reporting and our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of
September 30, 2008.  In assessing whether our internal control over
financial reporting and disclosure controls and procedures were effective as of
such date, our management considered the impact of the restatements to our
consolidated audited financial statements for the period ended September 30,
2008, as outlined in Part I, Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the section heading “Restatements”,as well as our control
environment.  In connection with our reevaluation, we discovered material
weaknesses in our internal control over financial reporting and determined that
our disclosure controls and procedures were not adequate as of the end of the
period covered by this report.




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




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




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




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




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




During
the pendency of the Federal Court Action and preparing for our 2009 year end
evaluation of effectiveness of our system of internal control over financial
reporting based on the framework in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and SEC guidance on conducting such assessments, our
management concluded that our system of internal control over financial
reporting was not effective as of the period ended March 31, 2006 through the
period ended September 30, 2009, which resulted in restatements described in the
Explanatory Note at the beginning of this Report and Note 12 of the Notes to the
consolidated financial statements included in this Report.





33





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




Specifically,
the control deficiencies related to:




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




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




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




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




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




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




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




Based on
its assessment, including consideration of the aforementioned material
weaknesses, and the criteria discussed above, management has restated its
conclusion relative to the effectiveness of our internal control over financial
reporting and disclosure controls and procedures as of September 30, 2008. 
Accordingly, our management has concluded that our internal control over
financial reporting and our disclosure controls and procedures were not
effective as of September 30, 2008 to provide reasonable assurance that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, and summarized within the appropriate
periods.





34





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




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




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




Based on
its assessment, including consideration of the above-mentioned material
weakness, and the criteria discussed above, management has restated its
conclusion relative to the effectiveness of our internal control over financial
reporting and disclosure controls and procedures as of September 30, 2008. 
Accordingly, our management has concluded that our internal control over
financial reporting and that our disclosure controls and procedures were not
effective as of September 30, 2008 to provide reasonable assurance that
information required to be disclosed by us in the reports that we file under the
Exchange Act is recorded, processed, and summarized within the appropriate
periods.




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




Changes
in Internal Controls over Financial Reporting




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




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




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




·
            reviewing
      and instituting controls for each
weakness.





PART
II.  OTHER INFORMATION




Item
1.  Legal Proceedings.




None.




Item
1A.  Risk Factors.




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





35





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




None.




Item
3.  Defaults Upon Senior Securities.




None.




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




None.




Item
5.  Other Information.




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




Item 6.  Exhibits.




Exhibit Number
              
              Description31.1
              
              Certification
      of Chief Executive Officer pursuant to Rules 13A-14(A)/15D-15(E) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Certification
      of the Chief Financial Officer pursuant to Rules 13A-14(A)/15D-15(E) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, filed herewith.32.1
              
              Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed
      herewith.





36





SIGNATURES




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




CHINA
      PREMIUM LIFESTYLE ENTERPRISE, INC.
                (Registrant)Date:
      May 28, 2010
              By:
              /s/ Richard Man Fai LEERichard
      Man Fai LEEChief
      Executive Officer
                (Principal
      Executive Officer)




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





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