UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the quarterly period ended March 31, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission file number 000-28727

 LONG-E INTERNATIONAL, INC.

 (Exact name of small business issuer as specified in its charter)

Utah	87-0624752
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

C-6F, Huhan Chuangxin Block, Keyuan Road, Hi-Tech Industry Zone, Shenzhen, 518000, Guangdong, China

(Address of principal executive offices)

(86) 755 3396 5188

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

YesoNo x

As of December 31, 2007, there were 31,259,714 shares issued and outstanding of the registrant’s common stock.

Transitional Small Business Disclosure Format: YesoNo x

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Balance Sheet as of March 31, 2007 (unaudited)	3
	Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (unaudited)	4
	Consolidated Statement of Cash Flows for the three months ended March 31, 2007 and 2006 (unaudited)	5
	Notes to Unaudited Financial Statements	6
Item 2.	Management’s Discussion and Analysis or Plan of Operation	18
Item 3.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		39

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Long-E International Inc and Subsidiaries

Consolidated Balance Sheet

March 31, 2007

(Unaudited)

ASSETS:
Current Assets:
Cash and cash equivalent	$	6,268,312
Receivables, net of allowance for doubtful account $1,056,875		3,905,048
Value-added taxes (VAT) refundable		46,152
Due from related parties (Note 10)		8,387
Inventories, net of provision $344,274 (Note 4)		3,366,083
Prepaid expenses		639,584
Total current assets		14,233,566
Plant and equipment, net (Note 5)		1,469,619
Intangibles, net (Note 6)		83,969
Total Assets	$	15,787,154
LIABILITIES & SHAREHOLDERS' EQUITY:
Current Liabilities:
Payables and accrued liabilities	$	3,532,698
Short term loans (Note 7)		1,036,036
Various taxes payable		1,006,813
Wages payable		438,321
Corporate taxes payable		119,574
Due to related parties (Note 10)		443,658
Total current liabilities		6,577,100
Long-term Liabilities:
Convertible debt, net of debt discount of $5,263,783 (Note 8)		89,217
Total Liabilities		6,666,317
Commitments and Contingencies (Note 12)
Shareholders' Equity:
Common stock, Par $0.001 each, authorized 50,000,000, issued and outstanding 31,259,714 (Note 9)		31,260
Additional paid in capital		7,419,869
Accumulated other comprehensive income		(8,964	)
Statutory reserves		776,491
Retained earnings		902,181
Total Shareholders' Equity		9,120,837
Total Liabilities and Shareholders' Equity	$	15,787,154

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

3

Long-E International Inc and Subsidiaries

Consolidated Statements of Operations

	For the Three Months Ended
	March 31,
	2007			2006
	(Unaudited)			(Unaudited)
Sales Revenues	$	6,157,718		$	3,347,815
Assembling / Reprocessing Revenues		384,330			3,977
Total Revenues		6,542,048			3,351,792
Cost of Sales		4,431,596			2,644,340
Gross Profit		2,110,452			707,452
Operating Expenses
Selling expenses		1,338,266			1,074,393
General and administrative expenses		1,251,416			324,678
Research and development		66,185			77,611
Loss on disposal of assets		-			153,278
Total Operating Expenses		2,655,867			1,629,960
Loss from Operations		(545,415	)		(922,508	)
Other Income (Loss):
Other income		11,500			599
Interest incomes		1,937			-
Interest expenses		(95,353	)		(10,968	)
Gain on extinguistment of debts		15,715			-
Total Other Income (Loss)		(66,201	)		(10,369	)
Loss before income taxes		(611,616	)		(932,877	)
Provision for (benefit from) income taxes		84,615			(139,932	)
Net Loss		(696,231	)		(792,945	)
Foreign currency translation adjustment		(213,944	)		38,844
Comprehensive Loss	$	(910,175	)	$	(754,101	)
Net earnings (loss) per share, basic and diluted	$	(0.02	)	$	(0.04	)
Weighted average number of shares outstanding, basic and diluted		31,259,714			20,606,200

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

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Long-E International Inc and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended
	March 31,
	2007			2006
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net loss	$	(696,231	)	$	(792,946	)
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization		141,941			114,245
Loss on disposal of fixed asset		-			153,278
Amortization of debt discount		89,217			-
Chang in operating assets and liabilities:
(Increase) decrease in assets:
Due from related parties		(7,339	)		(387	)
VAT tax recoverable		9,555			(3,038	)
Corporate income tax recoverable		-			(140,290	)
Receivable, net		530,852			955,612
Prepaid expenses		(459,320	)		(128,011	)
Inventories, net		(1,227,413	)		(422,375	)
(Decrease) increase in liabilities:
Payables and accrued liabilities		1,056,313			(48,496	)
Various tax payable		4,149			146,458
Corporate tax payable		(3,252	)		82,537
Net cash used in operating activities		(561,528	)		(83,413	)
Cash flows from investing activities:
Purchase of plant and equipment		(500,473	)		(20,608	)
Net cash used in investing activities		(500,473	)		(20,608	)
Cash flows from financing activities:
Proceeds from bank loans		307,098			-
Proceeds from loans from individuals		24,984			-
Repayment of bank loans		(77,305	)		312,209
Repayment of government loans		(251,907	)		(283,225	)
Repayment of loans from individuals		(149,768	)		149,859
Proceeds from related party advances		55,864			-
Issuance of convertible promissory notes		5,353,000			-
Net cash provided by financing activities		5,261,966			178,843
Effect of exchange rate changes on cash		(244,733	)		9,513
Net increase in cash		3,955,232			84,335
Cash, beginning of period		2,313,080			409,437
Cash, end of period	$	6,268,312		$	493,772
Supplemental disclosure information:
Interest expense paid	$	95,353		$	(10,968	)
Income taxes paid	$	84,615		$	139,932

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

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Long-E International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts expressed in U.S. Dollars) 

1. DESCRIPTION OF BUSINESS AND ORGANIZATION

Long-e International, Inc. (formerly known as Inncardio, Inc.) (the “Company”) is a holding company of Long-e International Group Co., Ltd. (“LIG”), which, through its variable interest entity (“VIE”), Long-e Technology (Shenzhen) Co., Ltd. (formerly known as Shenzhen Agilon Science And Technology Co., Ltd prior to March 16, 2007) (“LTS”), engages in research, development, production, marketing and sales of automotive electronic products, including automotive safety and security systems. All current operations and assets of LTS are located in the PRC.

On November 30, 2006, Inncardio, Inc. (renamed Long-e International, Inc. on December 21, 2006 and hereinafter referred to as “Inncardio”) entered into a Share Exchange Agreement (the “Exchange Agreement”) with LIG and its shareholders. The Share Exchange was closed effective as of December 29, 2006. Pursuant to the Exchange Agreement, Inncardio issued 20,661,879 shares of its common stock to LIG’s shareholders and/or their designees in exchange for 100% of the outstanding equity interests of LIG (the “Share Exchange”).

The Share Exchange resulted in a change-in-control of Inncardio by prior LIG shareholders and/or their designees and the assumption of LIG’s operations and liabilities, including those of LTS (see below). In connection with the change-in-control, the Board of Directors and management of LIG have become the Board of Directors and management of Inncardio.

In accordance with the Accounting and Financial Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission (SEC), upon closing of the Share Exchange, Inncardio (the legal acquirer) has been considered the accounting acquiree and LIG (the legal acquiree) has been considered the accounting acquirer. The consolidated financial statements of the combined entity are in substance those of LIG, with the assets and liabilities, and revenues and expenses, of Inncardio being included effective from the date of consummation of the Share Exchange. Long-e has been deemed to be a continuation of the business of LIG. The outstanding stock of Inncardio prior to the Share Exchange has been accounted for at their net book value and no goodwill has been recognized.

LIG was incorporated in the British Virgin Islands on May 23, 2006. On June 22, 2006, LIG entered into an agreement to acquire 100% of the equity of LTS for a total cash consideration of $578,000 (RMB 4,800,000) from the former majority shareholders of LTS. To fund LIG’s acquisition of LTS, these former majority shareholders agreed to provide an interest-free loan to LIG of the same amount of $578,000 (RMB 4,800,000). For the purpose of this transaction, these former shareholders had established a majority ownership in the Company in May 2006. On May 23, 2006, they acquired new shares issued by the Company, and collectively established a 100% ownership in the Company. On June 29, 2006, the Company received approval from the Economic and Trade Bureau of Shenzhen, the People’s Republic of China (the “PRC”), on the acquisition of LTS. This transaction has been accounted for as recapitalization of LTS with no adjustment to the historical basis of the assets and liabilities of LTS and the operations were consolidated as though the transaction occurred as of the beginning of the first accounting period presented in these financial statements. For the purpose of presenting the financial statements on a consistent basis, the consolidated financial statements have been prepared as if LIG had been in existence since the beginning of the earliest period presented and throughout the whole periods covered by these financial statements.

LTS was established as a domestic limited liability company on December 21, 2000 upon the issuing of a license by the Administration for Industry and Commerce in Shenzhen, the PRC with an operating period of 10 years to December 21, 2010. Upon LIG’s acquisition of 100% of the equity of LTS in June 2006, approval was granted by the Economic and Trade Bureau of Shenzhen for LTS to become a Wholly Foreign Owned Enterprise.

LIG is an investment holding company and has not carried on any substantive operations of its own, except for the acquisition of LTS.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results Long-E International Inc. and its subsidiaries for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the consolidated financial statements and notes of Long-e International, Inc. for December 31, 2006 and the two years in the period ended December 31, 2006, which appear in the Company’s Report on Form 10-KSB/A which was filed on December 26, 2007.

b. Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries (collectively referenced throughout as the “Company”). Significant intercompany transactions have been eliminated on consolidation.

c. Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

d. Fair values of financial instruments

The Company values its financial instruments as required by Statement of Financial Accounting Standard (SFAS) No. 107, “Disclosures about Fair Value of Financial Instruments”. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exchange.

The Company’s financial instruments primarily consist of cash, accounts receivable, other receivables, accounts payable, receipt in advance, accrued expenses, other payables, short term loans, and short-term related party advances. As of the balance sheet date, the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments and that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective year ends.

e. Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less.

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f. Accounts Receivable

Accounts receivables are recognized and carried at original invoiced amount less an allowance for uncollectible accounts, as needed.

The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debts percentages determined by management based on historical experience as well as current economic climate are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The valuation allowance balance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that the amount provided as the allowance was incorrect, an adjustment which classified as a change in estimate is made.

g. Inventories

Inventories are stated at the lower of cost, as determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management writes down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.

h. Property and Equipment

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

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

Production Machinery and Equipment	8 years
Leasehold Improvements	10 years
Office and Other Equipment	5 years
Automobiles	5 years

i. Impairment of Long-Lived Assets

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

j. Comprehensive income

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

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k. Segment information

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

l. Revenue recognition

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

m. Government grants

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

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

n. Research and development costs

Research and development costs are expensed to operations as incurred.

o. Income taxes

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

p. Foreign currency translation

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

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

9

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

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:

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

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

q. Related parties

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

r. Recently issued accounting pronouncements

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

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

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

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

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

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

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

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

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

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

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

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

3. CONCENTRATIONS OF CREDIT RISK

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

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

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

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

4. INVENTORIES

Inventories consist of the following:

	March 31, 2007
Raw materials and packing materials	$	648,769
Raw materials on consignment at subcontractors		825,065
Finished goods		1,321,168
Work-in-progress		915,355
		3,710,357
Less: Allowance for obsolescence		(344,274	)
Total	$	3,366,083

5. PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	March 31, 2007
Production machinery and equipment	$	1,503,190
Leasehold improvements		147,287
Office and other equipment		622,640
Automobiles		112,463
		2,385,580
Less: Accumulated depreciation		(915,961	)
	$	1,469,619

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

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

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

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6. INTANGIBLE ASSETS

Intangible assets consist of the following, which is to be amortized over 2 years starting 2006:

	March 31, 2007
Computerized ERP System		109,246
Less: Accumulated amortization		(25,277	)
	$	83,969

The amortization expenses were $12,546 and $nil for the three months ended March 31, 2007 and 2006, respectively.

7. SHORT-TERM BANK LOANS

Short-term bank loans consist of the following:

	March 31, 2007
6.435% Bank loan, due by installments up to June 29, 2007 (a)		56,841
3.49% Bank loan, due by installments up to October 7, 2008		268,548
Interest-free, unsecured loans, no fixed terms of repayment		710,647
Total short-term bank loans	$	1,036,036

(a)The bank loan was secured by the Company’s automobiles. See Note 5.

For the three months ended March 31, 2007 and 2006, interest expense from these loans amounted to $6,136 and $10,968, respectively.

8. CONVERTIBLE DEBT

On January 25, 2007, the Company effected a second private placement transaction (the “Second Private Placement”). Pursuant to a Securities Purchase Agreement entered into with the investors, the Company sold and the investors purchased:

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

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

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

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

In accordance with Emerging Issues Task Force (‘‘EITF’’) 98-5 and EITF 00-27, the convertible debt was considered to have an embedded beneficial conversion feature (BCF) because the effective conversion price was less than the fair value of the Company’s common stock. This convertible notes were fully convertible at the issuance date, therefore the portion of proceeds allocated to the convertible debt of $896,002 was determined to be the value of the beneficial conversion feature and was recorded as a debt discount and is being amortized over the 120-month convertible debt term.

The investors also received Series A and Series B Warrants. The Series A and Series B Warrants have a term of 5 years after the issue date of January 25, 2007. These warrants were treated as a discount on the secured debt and were valued at $4,456,998 to be amortized over the 120-month convertible debt term. The fair market value of each stock warrant was estimated on the date of grant using the Black-Scholes option-pricing model in accordance with SFAS No. 123R using the following weighted-average assumptions: expected dividend yield 0%; risk-free interest rate of 4.63%; volatility of 79% and an expected term of five years.

For the three months ended March 31, 2007, amortization of debt discount amounted to $89,217 and is included in interest expense on the accompanying consolidated statement of operations.

The Company evaluated whether or not the secured convertible debentures contain embedded conversion options, which meet the definition of derivatives under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” and related interpretations. The Company concluded that since the secured convertible debentures had a fixed conversion rate of $1.00, the secured convertible debt was not a derivative instrument.

Pursuant to the terms of the Amended and Restated Registration Right Agreement in the Second Private Placement, the Company agreed to file, not later than 120 days after the closing date of the Securities Purchase Agreement, a registration statement registering a portion of the shares issuable upon conversion of the Notes and the Series A and Series B Warrants, and a portion of the shares issued in the Private Placement closed December 29, 2006. The Company failed to satisfy certain agreed deadlines during the registration process. The Company is obligated to pay the investors liquidated damages in cash equal to 2% of the investor’s initial investment in the company, up to 20% of such investment in the aggregate (See Note 13).

The convertible debenture liability is as follows at March 31, 2007:

Convertible debentures payable	$	5,353,000
Less: unamortized discount on debentures		(5,263,783	)
Convertible debentures, net	$	89,217

9. SHAREHOLDERS’ EQUITY

Warrants

In connection with the Second Private Placement transaction, the Company granted Series A Warrants entitling the investors to purchase up to an aggregate of 6,691,250 shares of the Company's common stock at a price of $0.48 per share and Series B Warrants to purchase up to an aggregate of 6,691,250 shares of the Company's common stock at a price of $0.60 per share (See Note 8).

On March 31, 2007 the Company entered into an engagement letter for investor relations services with CCG Investor Relations Partners, LLC (“CCG”) and issued to CCG, pursuant to that agreement, a warrant to purchase up to 125,000 shares of the Company’s common stock at an exercise price of $1.20 per share, vesting in four parts through early 2008. The fair market value of these stock warrants was $76,242 and was estimated on the date of grant using the Black-Scholes option-pricing model in accordance with SFAS No. 123R using the following weighted-average assumptions: expected dividend yield 0%; risk-free interest rate of 4.63%; volatility of 79% and an expected term of five years. The Company will amortize the fair value of these warrants over the vesting period beginning on April 1, 2007.

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A summary of the status of the Company's outstanding stock warrants as of March 31, 2007 and changes during the periods then ended is as follows:

	Number of Warrants		Weighted Average Exercise Price
Balance at December 31, 2006		6,807,141	$	0.49
Granted		13,507,500		0.54
Exercised		-		-
Forfeited		-		-
Balance at March 31, 2007		20,314,641	$	0.52
Options exercisable at end of period		20,314,641	$	0.52

The following information applies to all warrants outstanding at March 31, 2007:

	Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices	Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$0.28		1,000,000		4.65	$	0.28		1,000,000	$	0.28
0.40-048		9,859,106		4.75		0.48		9,330,535		0.48
0.60		9,330,535		4.75		0.60		9,330,535		0.60
$1.20		125,000		4.75	$	1.20		-		-
		20,314,641			$	0.52		20,189,641	$	0.52

As of March 31, 2007 and 2006, the Company did not have an approved equity incentive plan and had no options outstanding.

10. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

(a) Balances with related parties

In addition to the transactions detailed elsewhere in these financial statements, The Company had the following balances with related parties.

	March 31, 2007
Due from related parties:
Ms. Li Xiangdong, VP, Finance of LTS		748
Mr. Xu Rujiang, COO & GM of LTS		7,639
Due from related parties	$	8,387
Due to related parties:
Mr. Bu Shengfu, CEO	$	221,305
Shenzhen Chefu Co., Ltd., a stockholder		116,265
Mr. Chen Dong, a director		42,260
Mr. Wang Qing, VP, Administration of LTS		89
Mr. Li Huamin, a stockholder		31,120
Mr. Xu Jiafa, VP, Production of LTS		28,619
Mr. Yin Zhongjun, Chief Engineer of LTS		4,000
Due to related parties	$	443,658

The balances with the related parties represent advances to or loans from the respective related parties. These balances are interest-free, unsecured and have no fixed repayment date. It is expected that the balances will be received or repaid within one year.

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11. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company’s operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy.

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

12. COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

The Company has entered into tenancy agreements for the lease of factory premises and staff dorms. The Company’s commitments for minimum lease payments under these non-cancelable operating leases for the next five years and thereafter are as follows:

Year ending December 31,
2007	$	887,545
2008		524,478
2009		529,619
2010		363,360
2011 and thereafter		423,920
Total	$	2,728,922

Total rental expenses for the three months period ended March 31, 2007 and 2006 amounted to$45,749 and $3,978, respectively.

(b) Social insurances of LTS’s employees

According to the prevailing laws and regulations of the PRC, LTS is required to cover its employees with medical, retirement and unemployment insurance programs. Management believes that due to the transient nature of its employees, LTS does not need to provide all employees with such social insurances, and has paid the social insurances for its employees who have completed three months’ continuous employment with LTS.

In the event that any current or former employee files a complaint with the PRC government, LTS may be subject to making up the social insurances as well as administrative fines. As the Company believes that these fines would not be material, no provision has been made in this regard.

(c)Statutory Reserves

Based on the legal formation of the entities, LTS is required to set aside 10% of its net income as reported in its statutory accounts on an annual basis to the Statutory Surplus Reserve Fund Once the total Statutory Surplus Reserve reaches 50% of the registered capital of LTS, further appropriations are discretionary. The Statutory Surplus Reserve can be used to increase the registered capital and eliminate future losses of the respective companies under PRC GAAP. The Statutory Surplus Reserve is not distributable to shareholders except in the event of liquidation.

Before January 1, 2006, LTS is also required on an annual basis to set aside at least 5% of after-tax profit, calculated in accordance with PRC accounting standards and regulations, to the Statutory Surplus Welfare Fund, which can be used for staff welfare.

Effective from January 1, 2006, the appropriation to the Statutory Surplus Welfare Fund is no longer required. If LTS provide the Statutory Surplus Welfare Fund, such amount shall be determined at the discretion of its board of directors.

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The Reserve Fund can be used to increase the registered capital upon approval by relevant government authorities and eliminate future losses of the respective companies upon a resolution by the board of directors.

Appropriations to the above statutory reserves are accounted for as a transfer from retained earnings to statutory reserves and are performed once a year at the financial year end.

There are no legal requirements in the PRC to fund these statutory reserves by transfer of cash to any restricted accounts, and the Company does not do so. These reserves are not distributable as cash dividends.

13. SUBSEQUENT EVENTS

As of December 31, 2007, the registration has yet to be completed. In view of the penalty clause noted above, in June 2007, the Company has recorded registration rights penalty expense and a corresponding liability of $918,000 for the period from May 25, 2007 (the due date of the registration statement) to December 31, 2007.

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

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

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

Overview

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

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

Critical Accounting Policies and Estimates

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

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

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

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

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

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

Our net loss of $696,232 for the three months ended March 31, 2007 includes non-cash charges of $142,000 for depreciation and amortization and also non-cash discount on financial instruments of $89,217. Net cash used in our operating activities totaled $561,528 for the three months ended March 31, 2007, as compared to $83,000 during three months ended March 31, 2006, reflecting decreased cash flow from operating activities due to the expansion of our production and sales capacities, notwithstanding an increase in accounts receivables and inventories. During the three months ended March 31, 2007, our accounts receivable turned over approximately 2.5 times, and our inventories turned over approximately 3.5 times. Management feels that these turn rates reflect a reasonable amount of time during which our liquid assets are tied up from the purchase of raw materials, through production to product sales and payment on accounts receivable.

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

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

Over the remainder of fiscal 2007, we are seeking to achieve further growth by increasing our ongoing investment in research and development, launching the commercial sales of our TPMSs and digital parking reverse sensor systems, continuing to develop our marketing network, implementing stricter and more efficient quality controls, and increasing investment in our production management system. We expect our future capital requirements to be approximately $15 million during the 2007 fiscal year. We plan to meet our funding needs through a combination of debt and equity financing, including, but not limited to, our previously completed and announced private placements, the proceeds of which are being used as working capital.

Off-Balance Sheet Arrangements

None.

Recent Accounting Pronouncements

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

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

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

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

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

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

Interest Rate Risk

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

Foreign Currency Risk

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

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

Certain Factors That Could Affect Our Future Results

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

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

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

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Risks Related to Our Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to us Doing Business in China

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

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

· levying fines;

· revoking our business and other licenses;

· requiring that we restructure our ownership or operations; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

· a general slowdown in the Chinese economy.

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

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

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

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

Risks Related to our Corporate Structure and Capitalization

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

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

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

· Our financial position and results of operations;

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

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

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

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

· The development of litigation against us;

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

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

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

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

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

· Investor perceptions of us; and

· General economic and other national and international conditions.

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to U.S. Regulatory Requirements

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

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

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

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

Item 3. Controls and Procedures.

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

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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

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

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

Item 3. Defaults Upon Senior Securities

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

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

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

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

(a) Exhibits.

Exhibit	Item
4.1	Form of Convertible Note issued to purchasers listed in Securities Purchase Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by reference to Exhibit 4.1 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
4.2	Form of Series A Warrants issued to purchasers listed in Securities Purchase Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by reference to Exhibit 4.2 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
4.3	Form of Series B Warrants issued to purchasers listed in Securities Purchase Agreement dated January 25, 2007 (Exhibit 10.1) (incorporated by reference to Exhibit 4.2 in registrant’s Current Report on Form 8-K filed on January 31, 2007)

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10.1	Securities Purchase Agreement dated January 25, 2007 (incorporated by reference to Exhibit 10.1 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
10.2	Amended and Restated Registration Rights Agreement dated January 25, 2007 (incorporated by reference to Exhibit 10.2 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
10.3	Escrow Agreement dated January 17, 2007 (incorporated by reference to Exhibit 10.3 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
10.4	Amendment No. 1 to Escrow Agreement dated January 17, 2007 (incorporated by reference to Exhibit 10.4 in registrant’s Current Report on Form 8-K filed on January 31, 2007)
10.5	Lease Agreement for Manufacturing and Office Space in Seaside Industrial Zone, Bao’an District, Shenzhen dated January 1, 2007 (translated) (incorporated by reference to Exhibit 10.8 in registrant’s Form 10-KSB filed on October 16, 2007)
31.1	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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SIGNATURES

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

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

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