8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): May 9, 2007 (May 3, 2007)

MILLENNIUM QUEST, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-51908	87-0578370
(State of Incorporation)	(Commission File No.)	(IRS Employer ID No.)

Beihuan Zhong Road

Junan County

Shandong, China 276600

(Address of Principal Executive Offices)

(86) 539-7318818

Registrant’s Telephone Number, Including Area Code:

12890 Hilltop Road

Argyle, Texas 76226

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words “anticipates”, “believes”, “estimates”, “expects”, “plans”, “projects”, “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that may cause actual results to differ from those projected include the risk factors specified below.

USE OF DEFINED TERMS

Except as otherwise indicated by the context, references in this report to “Millennium Quest” or "Company" are references to Millennium Quest, Inc., a Delaware corporation and references to “Lorain Holding” are references to International Lorain Holding, Inc., a Cayman Islands corporation that is wholly-owned by Millennium Quest, and Lorain Holding’s direct and indirect Chinese subsidiaries. References to “we,” “us” or “our” are references to the combined business of Millennium Quest, Inc., its wholly-owned subsidiary, Lorain Holding, and the direct and indirect Chinese subsidiaries of Lorain Holding. The terms “Lorain Holding,” “we,” “us” or “our” do not include the selling stockholders. Unless the context otherwise requires, the term “Junan Hongrun” means Junan Hongrun Foodstuff CO.,LTD. and its Chinese operating subsidiaries. The term “Luotian Lorain” means Luotian Green Foodstuff CO.,LTD and its Chinese subsidiaries. The term “Beijing Lorain” means Beijing Green Foodstuff CO.,LTD. and its Chinese subsidiaries. The term “Shandong Lorain” means Shandong Green Foodstuff CO.,LTD. and its Chinese subsidiaries. The term “Securities Act” means the Securities Act of 1933, as amended, and the term “Exchange Act” means the Securities Exchange Act of 1934, as amended, the term “RMB” means Renminbi, the legal currency of China and the terms “U.S. dollar,” “$” and “US$” mean the legal currency of the United States. For all U.S. dollar amounts reported, the company has calculated the dollar amount on the basis that $1 = RMB 7.8175 for 2006 in its balance sheet, $1 = RMB 8.0734 for its 2005 balance sheet, and $1 = RMB 8.2865 for its 2004 balance sheet, which was determined based on the currency conversion rate at the end of each such year. The conversion rate of $1 = RMB 7.98189 is used for it 2006 income statement and cash flow items, $1 = RMB 8.20329 for its 2005 income statement and cash flow items, and $1 = RMB 8.28723 for its 2004 income statement and cash flow items, which is based on the average currency conversion rate for each year. The detailed description of currency conversion is indicated in the audit report. References to “China” and “PRC” are references to “People’s Republic of China.” References to “Cayman” or “Cayman Islands” are references to the “Cayman Islands.”

ITEM 1.01ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On May 3, 2007, we entered into a share exchange agreement with International Lorain Holding, Inc., a Cayman Islands company, and its sole shareholder, Mr. Hisashi Akazawa (the “Share Exchange Agreement”). Pursuant to the Share Exchange Agreement, Mr. Akazawa agreed to transfer all of the shares of the capital stock of International Lorain Holding, Inc. held by him, constituting all of the issued and outstanding stock of International Lorain Holding, Inc., in exchange for a number of newly issued shares of our Series B Voting Convertible Preferred Stock that would, in the aggregate, constitute at least 65.43 % of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement and after giving effect to a financing transaction that resulted in gross proceeds to us of approximately $19.8 million. In connection with the Share Exchange Agreement, Mr. Akazawa agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of his shares of our Series B Voting Convertible Preferred Stock for a period of 12 months from the date of issuance of such stock.

On May 3, 2007 Mr. Akazawa, granted an option to Mr. Si Chen, Our Chief Executive Officer, for the purchase of up to 627,897 of his shares of our Series B Voting Convertible Preferred Stock along with any shares of Common Stock that such Series B Preferred Stock may be converted into, pursuant to the terms of an Option Agreement, dated as of May 3, 2007, between Mr. Akazawa and Mr. Chen (the “Option Agreement”). Pursuant to the Option Agreement, if Mr. Chen exercises his option to purchase such shares he will be bound to the lock-up provisions of the Share Exchange Agreement mentioned above to the same extent to which Mr. Akazawa is bound as if the Mr. Chen had been an original party to the Share Exchange Agreement.

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On May 3, 2007, we entered into a securities purchase agreement with certain accredited investors (the “Securities Purchase Agreement”), pursuant to which we issued and sold to these investors 299,055.78 shares of our Series B Voting Convertible Preferred Stock and warrants for the purchase of up to an aggregate of 1,398,065 shares of our Common Stock for approximately $19.8 million. At the same time, we entered into a registration rights agreement (the “Registration Rights Agreement”), with these investors under which, among other things, we agreed to register the shares of our common stock issuable upon conversion of our Series B Voting Convertible Preferred Stock as well as shares of our common stock issuable upon exercise of the warrants we issued to the investors within a pre-defined period. The number of underlying shares and the stated exercise price reflects the contemplated 1-for-32.84 reverse stock split of our outstanding common stock.

In connection with the Securities Purchase Agreement, our controlling stockholder Hisashi Akazawa and Chief Executive Officer Si Chen entered into a make good escrow agreement whereby Mr. Akazawa and Mr. Chen pledged a certain number of shares of our Series B Voting Convertible Preferred Stock to the investors in order to secure the company’s make good obligations. See Item 2.01 of this report below for more details.

In connection with the Securities Purchase Agreement, we agreed to issue warrants to Sterne Agee & Leach, Inc. and its potential designee(s) for the purchase of up to an aggregate of 16,069,594 shares of our common stock (or 489,330 shares on a post-reverse-split basis), which warrants are for a term of 3 years and have an exercise price of $0.1294153 per share(or $4.25 per share on a post-reverse-split basis), and include piggyback registration rights to register such shares (the "Warrants").

In connection with the above transactions, on May 3, 2007 we entered into a cancelled and escrow agreement with Halter Financial Investments, L.P. (“HFI”), Halter Financial Group, L.P. (“HFG”) and Securities Transfer Corporation (the “Cancellation and Escrow Agreement”), whereby HFI and HFG agreed to deposit into escrow 229,227 shares of our common stock that they will hold upon conversion of their Series A Voting Convertible Preferred Stock into common stock (taking into account the contemplated 1-for-32.84 reverse stock split and the conversion of Series B Voting Convertible Preferred Stock into common stock) and agreed that if we report, on a consolidated basis, in our Annual Report filed with the U.S. Securities and Exchange Commission, net income of $12.5 million for fiscal 2008, HFI and HFG will transfer to us for cancellation such shares in order to reduce the ownership of a certain group of stockholders. If this performance threshold is not met, such shares will be returned to HFI and HFG.

Copies of the Share Exchange Agreement and Option Agreement are filed as Exhibits 2.1 and 3.4, respectively, to this report. Forms of the Securities Purchase Agreement and Registration Rights Agreement are filed as Exhibits 10.1 and 4.4, respectively, to this report.

ITEM 2.01COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On May 3, 2007, we completed an acquisition of Lorain Holding pursuant to the Share Exchange Agreement. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Lorain Holding is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.

FORM 10 DISCLOSURE

As disclosed elsewhere in this report, we acquired Lorain Holding in a reverse acquisition transaction. Item 2.01(f) of Form 8-K states that if the registrant was a shell company like we were immediately before the reverse acquisition transaction disclosed under Item 2.01, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities on Form 10.

Accordingly, we are providing below the information that would be included in a Form 10 if we were to file a Form 10. Please note that the information provided below relates to the combined enterprises after the acquisition of Lorain Holding, except that information relating to periods prior to the date of the reverse acquisition only relate to Millennium Quest, Inc. unless otherwise specifically indicated.

DESCRIPTION OF BUSINESS

Our History

Overview

We are a Delaware corporation that was incorporated on February 4, 1986 and we are headquartered in Shandong Province, China. From our inception in 1986 until May 3, 2007, when we completed a reverse acquisition transaction with Lorain Holding, we were a blank check company and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

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We develop, manufacture and sell convenience foods (foods like cut fruit and premixed salads, which are known as lightly processed -- our convenience foods include ready-to-cook (or RTC) meals, ready-to-eat (or RTE) meals and meals ready-to-eat (or MREs), chestnut products, and frozen, canned and bulk foods, in hundreds of varieties. We operate through our indirect Chinese subsidiaries. Our products are sold in 19 provinces and administrative regions in China and 23 foreign countries.

Background and History of Lorain Holding and its Operating Subsidiaries and Affiliates

Lorain Holding was incorporated in the Cayman Islands in August 2006. Lorain Holding presently has two direct, wholly-owned Chinese operating subsidiaries: Luotian Lorain and Junan Hongrun, one indirect wholly owned operating subsidiary: Beijing Lorain, and one majority-owned subsidiary, Shandong Lorain, which is 80.2% owned by us (with Shandong Economic Development Investment Co. Ltd. owning the remaining 19.8% interest). We sometimes refer to these four Chinese operating subsidiaries as the Lorain Group Companies.

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Shandong Lorain was formed in 1995; Junan Hongrun was formed in 2002, and Luotian Lorain and Beijing Lorain were both formed in 2003.

Acquisition of International Lorain Holding, Inc. and Related Financing

Through the reverse acquisition of Lorain Holding we acquired all of the issued and outstanding capital stock of Lorain Holding, which became our wholly-owned subsidiary, and in exchange for that capital stock we issued to the former stockholder of Lorain Holding, Mr. Hisashi Akazawa, 697,663 shares of our Series B Voting Convertible Preferred Stock, which shares of preferred stock will be converted into 16,307,872 shares of our common stock, immediately following the effectiveness of an amendment and restatement of our charter that will, among other things, increase the number of our authorized shares of common stock from 20,000,000 to 200,000,000 shares and effectuate a 1-for-32.84 reverse stock split.We expect to file this amendment and restatement of our Restated Certificate of Incorporation within the next forty-five days. Upon the consummation of the reverse acquisition, the former stockholder of Lorain Holding, Mr. Akazawa, become our controlling stockholder. In connection with the reverse acquisition, Mr. Akazawa agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of his shares of our Series B Voting Convertible Preferred Stock for a period of 12 months from the date of issuance of such stock.

On May 3, 2007 Mr. Akazawa, granted an option to Mr. Si Chen, our Chief Executive Officer, for the purchase of up to 627,897 of his shares of our Series B Voting Convertible Preferred Stock along with any shares of Common Stock that such Series B Preferred Stock may be converted into, pursuant to the terms of an Option Agreement, dated as of May 3, 2007, between Mr. Akazawa and Mr. Chen. Pursuant to the Option Agreement, if Mr. Chen exercises his option to purchase such shares he will be bound to the lock-up provisions of the Share Exchange Agreement to the same extent to which Mr. Akazawa is bound as if the Mr. Chen had been an original party to the Share Exchange Agreement.

Upon the closing of the reverse acquisition, Timothy P. Halter, our sole director and officer, submitted his resignation letter pursuant to which he resigned from all offices of Millennium Quest that he held effective immediately and from his position as our director effective on the tenth day following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14f-1 of the Securities Exchange Act of 1934. We expect that Mr. Halter’s resignation will become effective on or about May 19, 2007. Si Chen was appointed as our director and Chairman at the closing of the reverse acquisition of Lorain Holding.

Contemporaneous with the reverse acquisition, we also completed a private placement transaction in which we issued and sold to accredited investors 299,055.78 shares of our Series B Voting Convertible Preferred Stock and warrants for the purchase of up to an aggregate of 1,398,065 shares of our Common Stock for gross proceeds of approximately $19.8 million. These shares of Series B Voting Convertible Preferred Stock will convert into 6,990,401 shares of our common stock at the effective time of an amendment and restatement of our Restated Certificate of Incorporation that will, among other things, increase the number of shares of our authorized common stock from 20,000,000 to 200,000,000 shares and effectuate a 1-for-32.84 reverse stock split. We have to increase our authorized common stock so that there will be enough shares of authorized common stock available for issuance upon conversion of our Series B Voting Convertible Preferred Stock.

In connection with the private placement mentioned above, our majority stockholder, Mr. Hisashi Akazawa, and our Chief Executive Officer, Mr. Si Chen, entered into an escrow agreement with the private placement investors. Pursuant to the escrow agreement, Mr. Akazawa and Mr. Si Chen agreed to certain “make good” provisions. In the make good escrow agreement, we established minimum after tax net income thresholds of $9.266 million for the fiscal year ending December 31, 2007 and $12.956 million for the fiscal year ending December 31, 2008. If the minimum after tax net income thresholds for the fiscal year 2007 or for the fiscal year 2008 are not achieved, then the investors will be entitled to receive additional shares of our common stock based upon a pre-defined formula agreed to between the investors and Mr. Akazawa. Mr. Akazawa deposited a total of 302,336 shares of our Series B Voting Convertible Preferred Stock, which are convertible into 7,067,104 shares of our common stock after reverse stock split, into escrow with Securities Transfer Corporation under the escrow agreement.

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In connection with the Securities Purchase Agreement, we agreed to issue warrants to Sterne Agee & Leach, Inc. and its potential designee(s) for the purchase of up to an aggregate of 16,069,594 shares of our common stock (or 489,330 shares on a post-reverse-split basis), which warrants are for a term of 3 years and have an exercise price of $0.1294153 per share(or $4.25 per share on a post-reverse-split basis), and include piggyback registration rights to register such shares (the "Warrants").

In connection with the acquisition of Lorain Holding, on May 3, 2007 we entered into a cancelled and escrow agreement with HFI, HFG and Securities Transfer Corporation, whereby HFI and HFG agreed to deposit into escrow 229,227 shares of our common stock that they will hold upon conversion of their Series A Voting Convertible Preferred Stock into common stock (taking into account the contemplated 1-for-32.84 reverse stock split and the conversion of Series B Voting Convertible Preferred Stock into common stock) and agreed that if we report, on a consolidated basis, in our Annual Report filed with the U.S. Securities and Exchange Commission, net income of $12.5 million for fiscal 2008, HFI and HFG will transfer to us for cancellation such shares in order to reduce the ownership of a certain group of stockholders. If this performance threshold is not met, such shares will be returned to HFI and HFG.

Our Industry

General

According to the USDA Economic Research Service, global food retail sales exceed $2 trillion annually, with supermarkets and hypermarkets (combination supermarket and department store) accounting for 53% of sales in 2003. The global food industry is fragmented with the world’s top 50 food manufacturers’ share of packaged food retail sales at less than 30% of the total market as of 2003 according to the Euromonitor (2004).

Global Food Market Trend

As disposable income of consumers has increased in many countries during the past few decades, consumers have begun to purchase fewer staples and more high-value food items, which are products such as meat, dairy, pasta, and frozen vegetables (as opposed to lower value items like rice or wheat). According to USDA, global sales of high-value products have been growing, with sales increasing by 25% since 1998. Food manufactures and suppliers responding to the trend have increased their investment in processing facilities or purchase of high-value foods. The decision of whether locally producing or purchasing often depends on the nature of products, regulation, environment and transaction cost comparison. Our products have been developed and are being developed to cater to the growing high-value food market.

Global Consumption Trend

According to the USDA, packaged foods account for a large share of total food expenditures among customers in high-income countries and the demand for convenience is growing. The United States, European Union and Japan account for over 50% of global sales of packaged foods. In developing countries, market retail trends also indicate strong growth in sales of packaged foods and demand for convenience. We hope to capitalize on the increasing sales of convenience foods and other high-value foods by increasing our production as the demand grows.

China’s Food Market

As incomes rise and urbanization increases within China, Chinese consumers are changing their diets and increasing demand for greater quality, convenience and safety in food. China’s food market is becoming segmented and demand for quality food by high-income households has fueled recent growth in the availability of such foods within the Chinese retail market. China’s urban per capita food expenditure in 2004 was RMB 2,710 (approximately $327), up 12% from that of 2003 (USDA, Economic Research Report No. ERR-32).

Convenience Food Industry

There is an increasing demand for convenience foods in developed countries, as well as among wealthy segments in developing countries. According to the USDA, the changes in food consumption patterns are largely driven by income growth and demographic factors, particularly lifestyle changes brought about by urbanization and similar forces.

According to a global online AC Nielsen Consumer Survey of 22,000 internet users around the world conducted in June 2006:

20% of all respondents frequently buy convenience food while 45% of all respondents buy convenience food occasionally;

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56% of all respondents do not have enough time to cook (55% of respondents in the Asia Pacific region did not have enough time to cook);

25% of consumers who eat convenience food prefer all-in-one meals; and

44% of consumers make their purchases at a supermarket.

Chestnut Industry

The chestnut belongs to the Fagaceae family, along with oaks and beech trees. The chestnut, in contrast to many other tree nuts, contains small quantities of oil and is very high in complex carbohydrates. This makes them useful for a wider food range than other common ‘oily’ type nuts. They are very wholesome and nutritive food.

The following table compares the nutritional composition of chestnuts to apples:

Nutritional composition of Chestnut compared with Apple (per 100 g fresh fruit)
Constituent	Chestnut		Apple
Water (%)		52.5		84.8
Protein (g)		2.9		0.2
Fat (g)		1.5		0.6
Carbohydrate, total (g)		42.1		14.1
Thiamine (mg)		0.22		0.03
Riboflavin (mg)		0.22		0.02
Niacin (mg)		0.6		0.1
Calcium (mg)		27		7
Phosphorus (mg)		88		10
Iron (mg)		1.7		0.3
Sodium (mg)		6		1
Potassium (mg)		454		110

Source: USDA 1964, Handbook No. 8

According to the United Nation FAO Statistics Division (2006), China is the largest grower of chestnuts followed by Korea and Japan. In 2004, China’s production accounted for approximately 72% of the world’s total chestnut production. Japan, Korea, China and the European Union are also large consumers of chestnuts. The total consumption in these areas accounted for 89.8% of the world’s total consumption in 2004. The compound annual growth rate of world consumption of chestnuts is approximately equal to the compound annual growth rate of world production of chestnuts in the period of 2000 to 2004, which was 3.6%.

In recent years, chestnut production in Korea and Japan has declined. This has been attributed to the increasing labor costs and operational costs incurred in growing chestnuts. Because of the slowing domestic production, Korean and Japanese customers have grown to rely more on imported chestnut products.

Chestnuts are harvested in the fall. Traditionally, people eat chestnuts in the fall and winter. Chestnuts are commonly steamed, boiled, sugar stir-fried, roasted or added into dishes or desserts as an ingredient. Chestnut fruit is covered in a red inner skin and an outer hard shell. Chestnuts are typically peeled after being processed by traditional approaches.

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Frozen, Canned and Bulk Food Industry

Frozen, canned and bulk foods are a large portion of the food industry. In 2006, China exported 4.42 metric tons of frozen vegetables, an increase of 8.55% over 2005 levels.

Our Products, Production Processes and Services

Our products are categorized into the following three types: convenience food, chestnut products, and frozen, canned and bulk food.

Convenience Foods

Our convenience food products are: ready-to-cook (or “RTC”) food products, ready-to-eat (or “RTE”) food products and meals ready-to-eat (or “MRE”) food products. Our convenience food products are seasoned foods. RTCs can be served after a couple of easy preparatory steps. RTEs can be consumed immediately and MREs are basically meal kits with self heating devices. Our convenience food products fit the modern food demands of consumers who require safe, wholesome, and tasty food that requires very little time or preparation.

Our best selling RTCs are Oden eggs and Cattle Bone Soup. Typically, when preparing an RTC, customers only need to heat the food in microwaves, or boil it for several minutes before enjoying the meal.

We also produce RTEs, the best selling of which is Smoked Fish and Stewed Beef with Sauce. Other RTEs include spiced beltfish, cherry tomato, spicy pork fillet, pork and egg roll, spicy source, pears and pineapples.

Our MREs are meal kits with self-heating devices (thus differing from the MRE food products which US customers associate with the phrase MRE). We produce various MREs focused on Chinese cuisine, the best sellers of which are our stir fried rice and stir fried noodles. Other MREs are based on other styles of food, such as Italian cuisine.

Our MREs are used in both military and civilian uses, such as camping, traveling, meals on trains, and other situations where a person does not have access to traditional cooking supplies and equipment, such as a stove or microwave.

Chestnut Products

We produce approximately 45high value-added processed chestnut products, the best selling of which are our aerated open-bottom chestnuts (chestnuts packaged with nitrogen), sweet heart chestnuts (which are sweet preserved chestnuts), chestnuts in syrup (which is very popular in Japan and Korea), and chopped chestnut kernels. In addition, we have begun preliminary production of a chestnut extract that is produced from the chestnut’s inner skin (the extract had previously been discarded in the production process). We plan to sell this extract to Japanese food processors who sell the extract for use as an additive to foods and beverages.

Frozen, Canned and Bulk Food

We produce various frozen, canned and bulk foods, including frozen vegetables, frozen fruits, frozen fish, and frozen meats. The best selling frozen, canned and bulk foods are our chestnut in syrup, frozen peas and frozen chestnuts. Although they contributed 33.7% of the total revenue in 2006, the frozen, canned and bulk products’ gross margins are lower than the margins for chestnut products and convenience foods. However, the frozen, canned and bulk food portion of our business is able to mitigate the significant production seasonality of chestnut products and increase the utilization rate of our production capacity.

We are presently operating four facilities two of which are located in Junan County, Shandong Province, one in Luotian county, Hubei Province, and one in Miyun county, Beijing. The following table provides the name of our facilities, the year that operations commenced at the facilities and the size of the facilities.

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Facility	Year Operations Commenced		Construction Size (square meter)
Junan Hongrun		2002		25,665
Shandong Lorain		1995		15,392
Luotian Lorain		2003		9,558
Beijing Lorain		2003		20,290

Current Production Lines

We currently manufacture our products using 13 production lines, including deep-freezing lines (which are used to freeze raw materials for year-round production and to produce frozen food), canning lines (which are used to produce canned food and canned chestnut products) and convenience food lines (which are used for producing RTCs, RTEs and MREs, all of which have nitrogen preservation capacity).

The following table shows the types of production lines at each facility, the product produced and the production capacity:

Facility	Production Lines	Amount	Capacity (metric tons per line per year)	Product
Shandong Lorain	Deep-freezing line	1	9912	Chestnut products
	Convenience food line	1	1425	Canned and frozen food Convenience food
Junan Hongrun	Deep-freezing line	1	9912	Chestnut products
	Canning line	4	5767	Canned and frozen food
Beijing Lorain	Deep-freezing line	1	9912	Chestnut products
	Convenience food line	3	1425	Frozen and canned food Convenience food
Luotian Lorain	Deep-freezing line	1	9912	Chestnut products
	Convenience food line	1	600	Frozen and canned food RTC & RTE (mainly fish)

We allocate the production lines for our various products among our facilities based upon the location of the facilities to take advantage of efficiencies in transportation of required raw materials. For example, all of our fish products are manufactured by Luotian Lorain, because the Luotian region is an area that has an abundance of the fish that we use as a raw material.

Although our production lines are multi-functional, we only have regulatory approvals to produce the products at our facilities that are currently being produced there. If we desire to produce other products at these facilities in the future, we would have to obtain additional regulatory approvals.

With limited exception, we produce our products all year round. Some of our chestnut products, however, are not produced year round and, therefore, there are times that our production lines are operating at less than full capacity.

Proposed Production Lines

We expect that our convenience food and chestnut products will be our main profit centers in 2007. Convenience food is the fastest growing portion of our business and the main catalyst of our growth. We currently have enough capacity for our chestnut products; however, we do not have enough capacity to satisfy existing demand for our convenience food products. Therefore, in 2007, we plan to construct three new production facility additions to existing plants, some with multiple production lines (for a total of six new lines) for the production of our convenience food products. In 2008, we plan to construct another new production facility addition at a new facility in Luotian County, China with three production lines for the production of our convenience food products and deep freezing. Each new facility addition in 2007 will contain a convenience food line that that also allows for nitrogen preservation of products. Finally, we plan to add additional frozen storage to complement the additional production lines. We estimate that the cost of constructing these new facility additions will be approximately $17,525,000.

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The following table describes the proposed new production lines for our convenience food products.

Facility	Production Lines	Amount	Capacity (metric tons per line per year)	Proposed Year of Expansion
Junan Hongrun	Convenience food line	2	1500	2007
Beijing Lorain	Convenience food line	3	1500	2007
Luotian Lorain	Convenience food line	2	1500	2007
New Facility	Deep Freezing Line	1	9912	2008
	Convenience food line	2	1500	2008

Current Storage Capacity

Storage of our raw materials and inventory is a critical element of our business. Our raw materials, half-done and partially finished products need to be preserved in frozen storages (-18ºC to -20ºC) or constant temperature storages (-5ºC to 5ºC).

The following table illustrates on a facility by facility basis the type and capacity of our storage resources.

Facility	Storage	Number of Storage Units	Capacity (metric tons)
Junan Hongrun	Frozen Storage	5	2000
	Constant Temperature	8	4800
Shandong Lorain	Frozen Storage	5	2000
	Constant Temperature	3	1500
Luotian Lorain	Frozen Storage	8	4500
Beijing Lorain	Frozen Storage	4	1850
	Constant Temperature	3	1800
TOTAL			18,450

Future Storage Capacity

We plan to enlarge our storage capacity along with the planned expansion of our production capacity. By the end of 2007, we expect that our total storage capacity will reach 22,450 metric tons, and by the end of 2008, we expect that our total storage capacity will reach 25,450 metric tons.

The following table illustrates our planned additional frozen and constant temperature storage capacity.

Facility	Storage	Capacity (metric ton)	Year of Expansion
Junan Hongrun	Frozen Storage	1000	2007
Luotian Lorain	Frozen Storage	2000	2007
Beijing Lorain	Frozen Storage	1000	2007
New Facility	Frozen Storage	3000	2008

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Chestnut Harvesting Operations

Since 2003 we have grown our own chestnut trees in an attempt to reduce operating costs and ensure the availability of raw material supplies and quality of our products. Although we have self-supplied a large portion of our fresh vegetable needs, our agricultural operations to date have not been a significant source of raw materials.

We believe the development of agricultural facilities is a good strategy for long-term cost-savings. For instance, by growing Korean superior cultivar chestnuts domestically, we will be able to use our Korean-style chestnuts grown in China as a substitute for those imported from Korea. Unlike most vegetables and fruits, chestnut trees have a 3-5 year growing phrase before they can be harvested. Our current chestnut planting base is expected to start supplying chestnuts in 2007. By 2010, our current chestnut agricultural operations are projected to harvest around 700 metric tons of high-end chestnuts based on the number of tress currently planted and planned expansion of our chestnut agricultural operations.

Our current agricultural operations are illustrated by the following table.

Harvest	Area (Acre)	Location
Chestnut (Korean, Japanese, Australian cultivar)	329	Shandong
Chestnut (Japanese cultivar)	165	Beijing
Sticky Corn	329	Beijing
Green Pea &Sweet Corn	297	Beijing
Pumpkin	82	Heilongjiang

We plan to expand our agricultural operations this year. Among other things, we plan to develop an 824 acre Korean-type chestnut farm, located in China. The following table illustrates the proposed expansion of our agricultural operations.

Harvest	Area (Acre)	Location
Organic Chestnut	165	Beijing
Mixed Vegetables	494	Hebei
Japanese Pumpkin	329	Inner Mongolia

Production Seasonality

Our raw materials are mostly fresh agricultural products. Therefore, we are subject to production seasonality by product, though we are able to maintain overall year-round production by altering the product in production to match the seasonally available raw materials. For example, the main processing season for chestnut products is from the latter half of August to the next January. During the busy season, our chestnut production lines are running with full capacity. In other periods, we still maintain a small amount of chestnut production by utilizing frozen chestnuts.

The typical production seasons for our products are as follows:

1.   We produce convenience foods year round.

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2.   We produce frozen, canned and bulk vegetables & fruits primarily from April through August, our peak season, although we do produce some frozen, canned and bulk vegetables & fruits throughout the year.

3.   We produce our chestnut products from August through January of the following year.

Our Suppliers of Raw Materials

In 2006 about 85 percent of our raw materials consisted of agricultural products; 12 percent consisted of packaging materials and 3 percent consisted of condiments.

Our business depends on obtaining a reliable supply of various agricultural products, including fresh produce, red meat, fish, eggs, rice, flour and chestnuts. We self-supplied less than 5% of our total raw material needs in 2006 (by value). In addition, we also purchased packaging materials, sugar, condiments and other products we need for production. We believe our raw materials to be in adequate supply and generally available from numerous sources.

In order to control procurement costs, we located our facilities near our raw material suppliers. For example Junan Hongrun and Shandong Lorain are located in Shandong Province, which, the National Bureau of Statistics of China reports is China’s largest supplier of fresh produce in volume terms. Shandong Providence is also a major chestnut producing region.

By using local procurement, we reduce our costs, especially transportation costs, and are able to acquire first-hand harvest and market information. However, despite our efforts some raw materials with special properties must be imported. For example, we have to use South Korean chestnuts and sugar to manufacture some chestnut products at the required quality level. To reduce our dependence on imports, we have begun to grow Korean-style chestnuts in China and will expand the growing area in 2007, which will provide us with a substitute for these expensive imported chestnuts in the future.

Our raw materials presently come from three sources: markets overseas, domestic procurement (excluding self-supply), and self-supply. Domestic procurement (including self-supply) is the biggest source of our raw materials in value terms and accounted for 90.5% of our total raw material costs in 2006 (self-supply has not been a significant source to date -- accounting for less than 5% of our total raw material costs in 2006). In 2006, overseas procurement accounted for 9.5% of our total raw material costs.

We generally purchase the raw materials that we use to produce our products from wholesalers, who collect agricultural products directly from farmers. However, we do occasionally work directly with farmers. For instance, we operate an initiative we refer to as “Green-moist base” which involves a series of cooperation and lease agreements between Shandong Lorain, Beijing Lorain and local farmers. The Green-moist base involves approximately 6,000 mu (approximately 1,000 acres) of land which is used primarily to produce Japanese and Korean style chestnuts, sticky corns, and pumpkins for our operations.

We have a long-term relationship with many international and domestic suppliers. Each year we select those who can offer us the best prices without compromising on quality. We typically rely on many suppliers each year. The top 10 suppliers accounted for 17.22% of the total procurement in 2006 in value terms.

The following table lists the name of our top ten suppliers, the dollar value of the raw materials supplied and the percentage of total raw materials (by cost) supplied.

Top 10 Suppliers (2006)

Supplier	Supply Value $ 1USD=7.8RMB		Percentage of Total Raw Material Cost
Youli Duan		856,300		2.99	%
Youcun Min		783,192		2.74	%
Fuzhou Jinlingsheng Food Company		698,401		2.41	%
Guo Qi		511,085		1.79	%
Guangquan Wang		432,039		1.51	%
Hyup Sung Nongsan Agricultural		376,580		1.32	%
Jianjiang Xu		339,333		1.19	%
Shuaishuai Zhang		322,928		1.13	%
Jinbao Yuan		315,887		1.1	%
Hainong Co. Ltd.		302,651		1.06	%

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To ensure high quality, we have strict standards for our suppliers. We have an internal procurement employee who travels to the harvest location during harvest season to select high quality materials and supervise the harvest process.

The prices of agricultural materials reflect external factors such as weather conditions, and commodity market fluctuations. We are unable to control these external factors; however we strive to get the best prices each year for each product. We have a procurement employee who stays at the harvest market during harvest season and sends back daily price information to us so that we can purchase raw materials at the best available prices. Internationally, we collect daily reported price information and utilize it in our decision making process. In addition, each year we predict the expected harvest yields. If the harvest is expected to be good, we anticipate that the raw material price will decrease and we will use that information to lock in the best price.

Our Customers

In China, we sell our products to supermarket chains, large wholesalers, and others. We are long-term suppliers of approximately 40 Wal-Mart stores and more than 30 Metro stores. We also supply to Carrefour, Hualian, Nong-gong-shan, Suguo, Jusco,Lianhua, and RT-mart. We also sell to small customers through our contract sales representatives in order to reduce sale effort. We plan to gradually increase the portion of direct sales to our supermarket and chain store clients by reducing the amount sales that are made through wholesalers.

Internationally, we sell directly to wholesalers, food processors and mass merchandisers. Being in the food business for more than a decade, we have established long-term relationships with many international customers, especially in Japan and Korea. Many of our customers are well known in their national food market. We are a major chestnut product supplier to several customers, including Shinsei Foods Co. Ltd., Yamato and Traders Co., and Tokai Denpun Co.

Our top ten customers contributed 50.7% of the total revenue in 2006. The following table names our largest customers and provides the dollar value of sales to these customers and the percentage contribution to revenues made by these customers.

2006 Top 10 Customers

Customers	Value		Contribution
Shandong Lvan Import & Export Co., Ltd.	$	6,587,174.76		13.46	%
Shinsei Foods	$	5,584,708.14		11.41	%
Wal-Mart (China)	$	3,076,351.50		6.29	%
Tokaid Denpun. Co.	$	2,882,773.68		5.89	%
Yamato and Traders Co.	$	2,890,676.68		5.91	%
The Sultan Center CO.P.	$	1,453,985.67		2.97	%
NC Sogo Kaihatsu Co., Ltd	$	629,290.69		1.29	%
Daiichi Metax Co.	$	569,136.15		1.16	%
Al Rabah Trading	$	568,881.64		1.16	%
Korea New Oriental	$	557,955.37		1.14	%
Total	$	24,800,934.27		50.69	%

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Our Sales and Marketing Efforts

We seek to expand our client base by:

1.   Direct sales communications with our larger customers, such as Wal-Mart;

2.   Referrals from existing customers; and

3.   Participating in domestic and international food exhibitions and trade conferences.

Domestically, in 2006, we sold 86.5%of our products directly to our customers with the remaining 13.5%being sold through Shandong Loan, a food trading company that we have contracted with. Our sales area covers 19 provinces and administrative regions in China and 23 countries globally.

About 59% of our total export sales are to Japan and South Korea, about 7% of our total export sales are to the European Union; 33% of our total export sales are to Asia (outside of Japan and South Korea) and about 1% of our total export sales are to North America.

Our export sales destinations include:

1.   Asian and Middle Eastern countries including Japan, South Korea, Singapore, the Philippines, Malaysia, Kuwait, the United Arab Emirates, Saudi Arabia, Yemen, Israel, and Qatar;

2.   European countries, including Belgium, Germany, France, Netherlands, Spain, and Sweden; and

3.   North American countries, including the U.S. and Canada.

Japan and South Korea are our largest foreign markets, accounting for approximately 59% of our 2006 total exports, followed by Asia (other than Japan or Korea) and Europe.

We sell our products both under the “Lorain” and “Yimeng Lorain” brand and under private labels. We have not spent a significant amount of capital on advertising in the past. However, we plan to commence a branding and advertising strategy in the second half of 2007 that will reinforce our domestic branding using customer promotions and media advertising, and establishing international branding by increasing our market presence, attending more international exhibits and similar activities.

Our Competition and Our Market Position

The overall food market is fragmented. According to USDA, the world’s top 50 food manufacturers’ shares of packaged food retail sales was less than 30% of the total in 2003. We do not have a significantly large market share, and are subject to different competitive conditions in each business division.

Chestnut Products

The world market for chestnut products is highly fragmented. The total world-wide consumption of chestnuts was around 1 million metric tons in 2004, according to the UDSA.

We compete primarily on the basis of the uniqueness of our products, quality, price and market recognition. We utilize proprietary and patented technology in the production of our chestnut products. We believe that the use of this technology gives us an advantage over our Chinese competitors by allowing us to produce chestnut products that are superior in quality and to offer more varieties of products than those of our Chinese competitors. We believe that we enjoy cost advantages over our foreign competitors due to the lower labor and procurement costs in China.

Our strongest competitors in the Chestnut product market are Hebei Liyun and Foodwell (a Korean company).

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Convenience Food Products

The production and sale of convenience food products is currently only a small portion of our total production, but we expect convenience foods to be an important growth area for us in the future.

Convenience food products market competition is based mostly upon quality and product variety.

We use modern food processing technology, such as nitrogen preservation and self heating devices, in the production of our convenience food products. Nitrogen preservation is an innovative technology which has not been widely applied in China. With an increasing demand for wholesome, tasty and safety convenience food we can utilize our established relationship with numerous customers, especially large supermarket chains, to market our convenience foods. We have determined that our marketing efforts for convenience food will mainly focus on the domestic Chinese market.

The convenience food market in China is highly fragmented and we do not face competitive pressure from any single competitor or small group of competitors.

Frozen, Canned and Bulk Food Products

Our frozen, canned and bulk food division was previously a crucial portion of our business. Despite its historical importance, because of its relatively low gross margin, we expect that the contribution of this business sector to our total revenues will gradually decline.

In the frozen, canned and bulk food product market competition is based mostly upon quality, ability to provide a reliable product supply and customer relationships.

Our strongest competitors in the frozen, canned and bulk food products market are Weitang Langdong, Yuyao Hongji Food Co. Ltd. and YantaiPengshun Food Co. Ltd.

Competitive Advantages

We believe that we have a lower cost and more abundant labor supply than our international competitors. Labor cost is a large portion of total operating costs for food companies, so keeping labor cost low provides us with a competitive advantage over our international peers.

We seek to manage our raw material costs by partially self-supplying various raw materials to our operations. We also locate our production facilities in locations that are close to our main sources of raw materials used in the production of our products at those facilities. This emphasis on location provides us with first-hand market awareness and lower transportation costs. We believe this location strategy provides us with an advantage over our competitors who do not similarly locate their production facilities in the vicinity of their raw material suppliers.

We seek to use modern food processing technology and innovation in our formulations and manufacturing processes to create high quality products. We regularly test our products with customers to ensure that we are providing high quality products. We maintain high food safety standards, which satisfy both domestic and international requirements.

We offer a large variety of products, numbering in the hundreds. We are the sole supplier of some products in China, such as bottom-open chestnuts and chestnut inner-skin extract. We believe that we are able to provide our customers with greater selection and a more reliable supply than many of our customers, which is especially important for our supermarket chain and large wholesaler customers.

Our Research and Development

Our research and development efforts are focused on three objectives:

1.Superior product safety and quality;

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2.The reduction of operating costs; and

3. Sustaining growth through the development of new products.

We have research and development staff at each of our facilities. In total, about 30 of our personnel are dedicated to research and development.

We rely heavily on customer feedback to assist us in the modification and development of our products. We also utilize customer feedback to assist us in the development of new varieties of products. On average, we add ten to twenty new varieties to our product portfolio each year. We also phase out about 3 to 5 products each year.

The amount we spent on research and development activities during the fiscal years ended December 31, 2006, 2005 and 2004 was not a material portion of our total expenses for those years.

Our Intellectual Property

Trademarks

We use the trademarks “” and “”on all of our domestically sold products and international sales throughout Asia.

Patents

We do not have any patented technology. However, we have developed three proprietary technologies that we have filed patent applications for.

The first proprietary technology that we are in the process of patenting relates to the production of Oden egg packages. Oden is a Japanese style dish consisting of several ingredients such as boiled eggs, daikon radish, konnyaku and processed fish cakes stewed in a light, soy-flavored dashi broth. Ingredients vary according to region and between each household. Our technology relates to the process we use to control the sterilization of the packages that contain the Oden eggs and related food products.

The second technology that we have filed a patent application for relates to the production of our sweetheart chestnut products, which are preserved chestnut products. The proprietary technology relates to the process that we use to distribute the syrup used in the processing of these preserved chestnuts evenly throughout the chestnuts. The process also enhances the texture and preserves the natural form of the chestnut.

The third technology that we have filed a patent application for relates to the method and process that we use to produce an extract from the chestnut’s inner skin. In the past, the chestnut inner skin had been discarded as a waste product. This method allows us to produce an extract that can then be sold to other food processors (all of whom are currently based in Japan) who package and sell the extract for use in combination with other foods or drinks.

Our Employees

As of February 28, 2007, we had a total of 1,253 full-time employees and 227 part-time employees. Among 1,253 full-time employees, 282 of them have signed the employment contracts with Shandong Lorain, and the remaining have signed their employment contracts with Linyi Zhifu Labor Service Company, an outside company that provides employees to meet our staffing needs. We compensate the employees of Linyi Zhifu Labor Service Companydirectly for the services of the employees rendered to us, paying Linyi Zhifu Labor Service Companya service fee. The following table illustrates the allocation of these personnel (both direct employees and leased employees) among the various job functions conducted at our company.

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Department	Number of Employees
Production		1,091
Quality Control		19
Domestic Sales		19
Human Resources		4
Research and Development		26
International Sales		25
Finance		15
Sourcing		14
Admin		22
Strategic planning		4
Storage and Distribution		12
Trade Union		2
Total		1,253

We believe that our relationship with our employees is good. We compensate our production line employees by unit produced (piece work) and compensate other employees by salaries and bonus based on performance. We also provide training for our staff from time to time to enhance their technical and product knowledge as well as their knowledge of industry quality standards.

We have not experienced any significant problems or disruption to our operations due to labor disputes, nor have we experienced any difficulties in recruitment and retention of experienced staff.

One of our Chinese subsidiaries, Shandong Lorain has a trade union which protects employees’ rights, aims to assist in the fulfillment of its economic objectives, encourages employee participation in management decisions and assists in mediating disputes between us and union members.

As required by applicable Chinese laws, we have entered into employment contracts with all of our officers, managers and employees.

Our employees in China participate in a state pension scheme organized by Chinese municipal and provincial governments. We are required to contribute to the scheme at a rate of 20%, 19% and 19% of the average monthly salary for the fiscal years ended December 31, 2006, 2005 and 2004, respectively. Most of the personnel that provide labor to our company are employed by an outside company. We compensate the employees of that company directly for the services rendered to us and that company pays the employee’s contribution to the pension scheme.

In addition, we are required by Chinese laws to cover employees in China with various types of social insurance. We have purchased social insurance for all of our employees. We are required to contribute to the scheme at a rate of 4%, 4% and 3% of the average monthly salary. As is the case with pension scheme payments, most of the personnel that provide labor to our company are employed by an outside company. We compensate the employees of that company directly for the services rendered to us and that company pays the employee’s social insurance.

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Our Facilities

All land in China is owned by the Chinese government. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, land use rights are granted for a period of up to 50 years. Granted land use rights are transferable and may be used as security for borrowings and other obligations. We currently have land use rights to 10 parcels of land with approximately 257,641.9 square meters in aggregate (excluding 78,670.6 square meters pending land use right of Beijing Lorain), consisting of manufacturing facilities, office buildings and land reserved for future expansion. Our land is located in Junan county, Shandong Providence and Luotain county, Hubei Providence. We have fully paid for these land use rights. We are in the process of acquiring land use rights for our property in Beijing Providence, and currently occupy such lands pursuant to a grant of authority by the government.

We also own approximately 54 buildings with approximately 43,137 square meters of space in the aggregate outside of Beijing. In Beijing we have 6 buildings, totaling approximately 65,767.24 square meters, are undergoing the application of real property rights. Some of our real property is subject to liens that are security for our bank borrowings.

We currently operate the following manufacturing plants:

Shandong Lorain operates a manufacturing plant that consists of a deep freezing line and two convenience food lines, with capacities of 9,912 and 1,425 metric tons per line per year each, respectively.

Junan Hongrun operates a manufacturing plant consisting of a deep freezing line and three canning lines with capacities of 9,912 and 5,767 metric tons per line per year, respectively.

Beijing Lorain operates a manufacturing plant consisting of a deep freezing line and four convenience food lines with production capacities of 9,912 and 1,425 metric tons per line per year each, respectively.

Luotian Lorain operates a manufacturing plant consisting of a deep freezing line and a convenience food line with capacity of 9,912 and 1,425 metric tons per line per year each, respectively.

We also plan to add additional lines in the future at three of our manufacturing plants, and to add an additional plant.

We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business needs.

Regulation

We are subject to national and local laws of China, including China’s environmental laws and regulations. Under the relevant Chinese environmental laws, all manufacturing enterprises must submit an environmental impact report to the relevant environmental protection authority before starting production operations. In addition, manufacturing enterprises must engage professional environmental organizations to monitor and report on pollutants and emission regularly. The main pollutants generated by our plants are solid waste and waste water. We have taken the necessary measures to control the discharge of these pollutants. We are in material compliance with the Chinese environmental laws and regulations as of December 31, 2006.

Moreover, under the relevant PRC Provisions on Sanitation of Food for Export (for Trial Implementation), unless an exporters products are exempted from inspection, an inspection is conducted by PRC’s entry-exit inspection and quarantine authorities in accordance with the PRC Law on Import and Export Commodity Inspection. We have not been exempted from inspection, however, we have been authorized by the relevant authorities to conduct self-inspection of our certain export products, and all of products that we export have been inspected and are qualified for exportation.

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Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

RISK FACTORS

You should carefully consider the risks described below, which constitute all of the material risks facing us. If any of the following risks actually occur, our business could be harmed. You should also refer to the other information about us contained in this report, including our financial statements and related notes.

RISKS RELATED TO OUR BUSINESS

We may not be able to obtain sufficient raw materials to satisfy our production requirements and any decline in the amount or quality of raw materials could reduce our sales and negatively affect our financial prospects.

In 2006, we procured approximately 16,181 metric tons of chestnuts and approximately 23,300 metric tons of vegetables and other raw materials from a number of third party suppliers and produced approximately 220 metric tons of chestnuts and approximately 1,980 metric tons of vegetables and other raw materials from our own agricultural operations. We may have to increase the number of our suppliers of raw materials and expand our own agricultural operations in the future to meet growing production demands. We may not be able to locate new suppliers who could provide us with sufficient materials to meet our needs and we may not be able to expand our own agricultural operations in a timely manner to satisfy our needs. Any interruptions to or decline in the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects.

The average price we paid for our raw materials experienced significant fluctuation during the three years ended December 31, 2004, 2005 and 2006. These price fluctuations could result in fluctuations in our profit margins and could materially adversely affect our financial condition.

The average prices we paid for chestnuts in 2004, 2005 and 2006 were approximately $805 per metric ton, $884 per metric ton, and $713 per metric ton respectively, excluding any value added tax assessed on the purchased chestnuts. The prices that we pay for our raw materials may not be stable in the future. Price changes may result in unexpected increases in production costs, and we may be unable to increase the prices of our products to offset these increased costs and therefore may suffer a reduction to our profit margins. We do not currently hedge against changes in our raw material prices.If the costs of raw materials or other costs of production and distribution of our products increase further, and we are unable to entirely offset these increases by raising the prices of our products, our profit margins and financial condition could be adversely affected.

Our sales and reputation may be affected by product liability claims, litigation, product recalls, or adverse publicity in relation to our products.

The sale of products for human consumption involves an inherent risk of injury to consumers. We face risks associated with product liability claims, litigation, or product recalls, if our products cause injury, or become adulterated or misbranded. Our products are subject to product tampering, and to contamination risks, such as mold, bacteria, insects and other pests, shell fragments and off-flavor contamination during the various stages of the procurement, production, transportation and storage processes. If any of our products were to be tampered with, or become tainted in any of these respects and we were unable to detect this, our products could be subject to product liability claims or product recalls. Our ability to sell products could be reduced if certain pesticides, herbicides or other chemicals used by growers have left harmful residues on portions of the crop or that the crop has been contaminated by other agents.

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Although we have never had a product recall in the past, we have experienced product liability claims that were made by our customers. On average, we experience and expect to continue to experience product liability claims in the amount of approximately $30,000 to $40,000 per year. However, we have no control over the amount of claims made in any year and larger claims of product defect or product liability may be made in the future.

We would be liable for the full amount of any damages awarded against us in any product liability claim. As the insurance industry in China is still in an early stage of development, business insurance is not readily available in China. To the extent that we suffer a loss of a type which would normally be covered by insurance in the United States, such as product liability and general liability insurance, we would incur significant expenses in both defending any action and in paying any claims that result from a settlement or judgment. Product liability claims and product recalls could have a material adverse effect on the demand for our products and on our business goodwill and reputation. Adverse publicity could result in a loss of consumer confidence in our products.

We may be unable to manage future rapid growth.

We have grown rapidly over the last few years. Our sales increased by 77% from $27,735,833 in 2004 to $49,560,957 in 2006. The number of product types we sold increased from approximately 100 in 2004 to approximately 192 in early 2007. We intend to continue to expand the volume and variety of products we offer, as well as the geographical scope of our sales and production facilities. Our business growth could place a significant strain on our managerial, operational and financial resources. Our ability to manage future growth will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our workforce. We cannot assure you that our personnel, systems, procedures and controls will be adequate to support our future growth. Failure to effectively manage our expansion may lead to increased costs, a decline in sales and reduced profitability.

Our expansion strategy may not prove successful and could adversely affect our existing business.

Our growth strategy includes the expansion of our manufacturing operations including new production lines and agricultural operations. In the past few years, we have expanded rapidly. In 2003, Luotian Lorain set up one production line with a production of 600 metric tons per year, and in 2004, a second production line with a production of 9,912 metric tons per year. In 2003, Beijing Lorain set up one production line with a production of 9,912metric tons per year, and in 2004, three additional production lines with a production of 1,425 metric tons per year per line. In both 2005 and 2006, Shandong Lorain establish Chestnut planting bases. Beijing Lorain established a Chestnut planting base in 2005, a sticky corn and sweet corn planting base in 2004 and pumpkin planting base in 2005. We also plan to expand our sales in China and internationally. We will need to engage in various forms of promotional and marketing activities in order to develop branding of our products and increase our market share in new and existing markets.

The implementation of this strategy may involve large transactions and present financial, managerial and operational challenges. We could also experience financial or other setbacks if any of our growth strategies incur problems of which we are not presently aware. We may have difficulty in successfully expanding the sale of our products in areas that have not traditionally experienced high levels chestnut consumption due to lack of chestnut familiarity. If we fail to generate sufficient sales in new markets or increase our sales in existing markets, we may not be able to recover the production, distribution, promotional and marketing expenses, as well as administrative costs, we have incurred in developing such markets.

The acquisition of other businesses could pose risks to our profitability.

We may try to grow through acquisitions in the future. Any proposed acquisition could result in accounting charges, potentially dilutive issuances of equity securities, and increased debt and contingent liabilities, any of which could have a material adverse effect on our existing business and the market price of our common stock. Acquisitions, in general, entail many risks, including risks relating to the failed integration of the acquired operations, diversion of management’s attention, and the potential loss of key employees of the acquired organizations. We may be unable to integrate successfully businesses or the personnel of any business that might be acquired in the future, and our failure to do so could have a material adverse effect on our business and on the market price of our common stock.

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We are subject to risks of doing business internationally. If the international market does not grow as we expect, our business and financial condition may be adversely affected.

We conduct a substantial amount of business with overseas distributors primarily from Japan, Korea, countries in Asia and western countries. During the year ended 2004, 2005 and 2006, sales outside China accounted for 45%, 44% and 52% of our total sales, respectively. Our international operations are subject to a number of inherent risks, including:

·   chestnut products may not be widely recognized internationally, especially in western countries;

·   local economic and political conditions, including disruptions in trading markets;

·   restrictive foreign governmental actions, including restrictions on transfers of funds and trade;

·   protection measures, including export duties and quotas and customs duties and tariffs;

·   currency exchange rate fluctuations; and

·   earthquakes, tsunamis, floods or other major disasters may limit the imported food products.

Any of the foregoing risks could have a material and adverse effect on our operating results. As a result, our products and our revenues would be decreased and we may need to adjust our market strategy.

We mainly rely on distributors to sell our products. Any delays in delivery or poor handling by distributors and third-party transport operators may affect our sales and damage our reputation.

In 2006, we sold over 81% of our products through over 180 distributors. We rely on these distributors for the distribution of our products. A significant portion of our revenues historically have been derived from a limited number of domestic supermarkets and international distributors, particularly in our chestnut processing business. The sales to our five largest customers and overseas retailers accounted for approximately 27%, 37%, and 43% of our total revenue in 2004, 2005 and 2006 respectively. The loss of any of these customers and international distributors or a material decrease in purchases could result in decreased sales and adversely impact our revenues.

Additionally, the distribution service provided by these distributors could be suspended and could cause interruption to the supply of our products to overseas retailers in the case of unforeseen events. Delivery disruptions may occur for various reasons beyond our control, including poor handling by distributors or third party transport operators, transportation bottlenecks, natural disasters and labor strikes, and could lead to delayed or lost deliveries. Poor handling by distributors and third-party transport operators could also result in damage to our products. If our products are not delivered to retailers on time, or are delivered damaged, or our products are contaminated during the stage of transportation or storage, we would be liable for the compensation, and we could lose business and our reputation could be harmed.

The development and introduction of new products is key to our expansion strategy. Failure to do so may cause us to lose our competitiveness in the food industry and may cause our profits to decline.

If we are unable to gain market acceptance or significant market share for the new products we introduce, then we will incur development, production and marketing costs which we would not be able to recover. We constantly introduce new packaging and new flavors for our products. For example, we have introduced 15 new products in 2006, and we will be introducing about 20 new products in 2007.The success of the new products we introduce depends on our ability to anticipate the tastes and dietary habits of consumers and to offer products that appeal to their preferences. We intend to introduce new product lines including different flavors, different sizes and packaging. We may not be able to gain market acceptance or significant market share for our new products. Consumer preferences change, and any new products that we introduce may fail to meet the particular tastes or requirements of consumers, or may be unable to replace their existing preferences. Our failure to anticipate, identify or react to these particular tastes or changes could result in reduced demand for our products, which could in turn cause us to be unable to recover our development, production and marketing costs, thereby leading to a decline in our profitability.

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We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our research and development, operations and revenue.

The Lorain Group Companies were founded in 1995 by Mr. Si Chen, our chairman and chief executive officer. Since then, Mr. Chen and our senior management team have developed us into a leading food production company. Mr. Chen, together with other senior management, has been the key driver of our strategy and has been fundamental to our achievements to date. The successful management of our business is, to a considerable extent, dependent on the services of Mr. Chen and other senior management. The loss of the services of any key management employee or failure to recruit a suitable or comparable replacement could have a significant impact upon our ability to manage our business effectively and our business and future growth may be adversely affected.

We compete for qualified personnel with other food processing companies, food retailers and research institutions. Intense competition for these personnel could cause our compensation costs to increase significantly, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals.

We face increasing competition from both domestic and foreign companies, which may affect our market share and profit margins.

The food industry in China is fragmented. Our ability to compete against other national and international enterprises is, to a significant extent, dependent on our ability to distinguish our products from those of our competitors by providing large volumes and high quality products at reasonable prices that appeal to consumers’ tastes and preferences. Some of our competitors may have been in business longer than we have, may be better established in their markets. Our current or future competitors may provide products comparable or superior to those we provide or adapt more quickly than we do to evolving industry trends or changing market requirements. Increased competition may result in price reductions, reduced margins and loss of market share, any of which could materially adversely affect our profit margins. We cannot assure you that we will be able to compete effectively against current and future competitors.

We may be adversely affected by a change in consumer preferences, which may result in decreased demand for our products.

Consumer tastes can change rapidly due to many factors, including shifting consumer preferences, and spending habits. A general decline in the consumption of our chestnuts products and other products could occur as a result of a change in consumer preferences, perceptions and spending habits at any time and future success will depend partly on our ability to anticipate or adapt to such changes and to offer, on a timely basis, new products that meet consumer preferences. Our failure to adapt our products offering to respond to such changes, may result in reduced demand and lower prices for our products and a decline in the market share of our products. Any changes in consumer preferences could result in lower sales of our products, put pressure on pricing or lead to increased levels of selling and promotional expenses, resulting in a material adverse effect on our sales volumes, sales and profits.

An increase in the cost of energy could affect our profitability.

Recently, we have experienced significant increases in energy costs, and energy costs could continue to rise, which would result in higher distribution, freight and other operating costs. Our future operating expenses and margins will be dependent on our ability to manage the impact of cost increases.

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Our chestnut products and brand names may be subject to counterfeiting or imitation, which could impact upon our reputation and brand name as well as lead to higher administrative costs.

While we sell our products both under our brand name and under private labels, we regard brand positioning as the core of our competitive strategy, and intend to position our "Lorain" and “Yimeng Lorain” brand to promote the consumption of our products by our customers. We believe our advanced processing technology makes it difficult for illegal manufacturers to counterfeit our products. Although we have experienced limited counterfeiting and imitation of our chestnut products, we cannot guarantee that counterfeiting or imitation of our products will not occur in the future or that we will be able to detect it and deal with it effectively. Any occurrence of counterfeiting or imitation could impact negatively upon our corporate and brand image, particularly if the counterfeit or imitation products cause sickness, or injury to consumers. In addition, counterfeit or imitation products could result in a reduction in our market share, a loss of revenues or an increase in our administrative expenses in respect of detection or prosecution.

We rely on an outside contractor to provide a majority of our labor.

We hire Linyi Zhifu Labor Service Company to provide employees to our production facilities. During normal production times Linyi Zhifu Labor Service Company provides about 5 out of every 6 of our production line personnel. During times of peak production Linyi Zhifu Labor Service Company usually provides the additional personnel needed to meet the additional production demands which increases the ratio of Linyi Zhifu Labor Service Company employees to our employees above the 5 out of every 6 mark. Under our arrangement with Linyi Zhifu Labor Service Company we pay their employees directly for services rendered to our Company and we pay Linyi Zhifu Labor Service Company a fee for their services related to providing employees to our business. Linyi Zhifu Labor Service Company pays for state pension contribution and social insurance for its employees.

Should Linyi Zhifu Labor Service Company be unable continue to provide the number of employees we need for our facilities our production could be disrupted. Linyi Zhifu Labor Service Company could raise their service fees or terminate their relationship with us in the future which may result in increased production costs which we may not be able to pass on to our customers.

REGULATORY RISKS

Government regulation could increase our costs of production and increase our legal and regulatory expenditures.

The food industry is subject to extensive regulation by Chinese government agencies. Among other things, these regulations govern the manufacturing, importation, processing, packaging, storage, exportation, distribution and labeling of our products. New or amended statutes and regulations, increased production at our existing facilities, and our expansion into new operations and jurisdictions may require us to obtain new licenses and permits and could require us to change our methods of operations at costs that could be substantial. If the relevant regulatory authorities set standards with which we are unable to comply or which increase our production costs, our ability to sell products may be limited.

Changes in the existing laws and regulations or additional or stricter laws and regulations on environmental protection in China may cause us to incur capital expenditures.

We carry on our business in an industry that is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to control and properly dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well as fee payments from producers discharging waste substances. Fines may be levied against producers causing pollution. If failure to comply with such laws or regulations results in environmental pollution, the administrative department for environmental protection can levy fines. If the circumstances of the breach are serious, it is at the discretion of the central government of the PRC including all governmental subdivisions to cease or close any operation failing to comply with such laws or regulations. The Chinese government may also change the existing laws or regulations or impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital expenditures, which we may be unable to pass on to our customers through higher prices for our products.

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Changes in existing PRC food hygiene laws may cause us to incur additional costs to comply with the more stringent laws and regulations, which could have an adverse impact on our financial position.

Manufacturers in food industry operating in China are subject to compliance with PRC food hygiene laws and regulations. These food hygiene laws require all enterprises engaged in the production of chestnut and other various vegetables and fruits to obtain a hygiene license for each of their production facilities. They also set out hygiene standards with respect to food and food additives, packaging and containers, information to be disclosed on packaging as well as hygiene requirements for food production and sites, facilities and equipment used for the transportation and sale of food. Failure to comply with PRC food hygiene laws may result in fines, suspension of operations, loss of hygiene licenses and, in more extreme cases, criminal proceedings against an enterprise and its management. Although we are in compliance with current food hygiene laws, in the event that the PRC government increases the stringency of such laws, our production and distribution costs may increase, and we may be unable to pass these additional costs on to our customers.

FINANCIAL RISKS

We are subject to credit risk in respect of account receivables.

We offer credit terms of between 90 to 180 days to most of our international distributors and between 30 to 120 days for many of our domestic distributors. For each of the three years ended December 31, 2004, 2005 and 2006, our third party trade receivables outstanding were $7,611,531, $7,992,923 and $11,805,229, which accounted for 16.6%, 14.7%, and 24.8%, of our total assets, respectively. Should a significant number of our customers fail to settle the account receivables in full for any reasons, our financial conditions and profitability could be adversely effected.

Our operations are cash intensive, and our business could be adversely affected if we fail to maintain sufficient levels of working capital.

We spent a significant amount of cash in our operations, principally to fund our raw material procurement. Our suppliers, in particular farmers of chestnuts, vegetables and fruits, and suppliers of packaging materials usually grant us a credit period. In turn, we require our customers and distributors to make payment either prior to or shortly after delivery, although we offer some of our long-standing customers credit terms. We generally fund most of our working capital requirements out of cash flow generated from operations. If we fail to generate sufficient sales, or if we suffer decreasing sales to customers as a result of failing to offer credit terms, if our suppliers stop to offer us credit terms, or if we were to experience difficulties in collecting our accounts receivables, we may not have sufficient cash flow to fund our operating costs and our business could be adversely affected.

Our borrowing levels and significant interest payment obligations could limit the funds we have available for various business purposes.

We have relied mainly on a high level of short-term borrowings to fund a portion of our capital requirements, and expect to continue to do so in the future. As of December 31, 2006, we had total borrowings of $23,248,325. Our ratio of total indebtedness to total assets stood at 48.88% as at December 31, 2006. As at December 31, 2006, 94.04%, of such borrowings was due within one year, primarily from our use of short-term loans from Chinese banks to satisfy our working capital needs. Historically, we have repaid a significant portion of such short-term loans by rolling over the loans on an annual basis. In addition, we may not have sufficient funds available to pay all of our borrowings upon maturity. Failure to roll over our short-term borrowings at maturity or to service our debt could result in the imposition of penalties, including increases in rates of interest that we pay on our debt and legal actions against us by our creditors, or even insolvency.

The discontinuation of any preferential tax treatment or other incentives currently available to us in the PRC could materially and adversely affect our business, financial condition and results of operations.

Our subsidiaries enjoy certain special or preferential tax treatments regarding foreign enterprise income tax in accordance with the “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises” and its implementing rules. Accordingly, they have been entitled to tax concessions whereby the profit for the first two financial years beginning with the first profit-making year (after setting off tax losses carried forward from prior years) is exempt from income tax in the PRC and the profit for each of the subsequent three financial years is taxed at 50% of the prevailing tax rates set by the relevant tax authorities. However, on March 16, 2007, the PRC’s National People’s Congress passed a new corporate income tax law, which will be effective on January 1, 2008. This new corporate income tax unifies the corporate income tax rate, cost deduction and tax incentive policies for both domestic and foreign-invested enterprises. According to the new corporate income tax law, the applicable corporate income tax rate of our operating subsidiary will be moved up to a rate of 25% over a five-year grandfather period. We expect the measures to implement this grandfather period to be enacted by the PRC government in the coming months and we will make an assessment of what the impact of the new unified tax law is expected to be in the grandfather period. The discontinuation of any such special or preferential tax treatment or other incentives could have an adverse affect our business, financial condition and results of operations.

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Under current PRC tax law, regulations and rulings, dividends from our operations in China paid to us (as a foreign legal person) are not currently subject to PRC income tax. If these distributions become subject to tax in the future, our net income would be adversely affected.

RISKS RELATING TO OUR CORPORATE GOVERNANCE STRUCTURE

The concentration of ownership of our securities by our controlling stockholder who does not participate in the management of our business and who may have conflicting interests can result in stockholder votes that are not in our best interests or the best interests of our minority stockholders.

Mr. Akazawa, is the record owner of approximately 65.43% of our outstanding voting securities, giving him a controlling interest in the Company. However, Mr. Akazawa is not an executive officer or director of the Company and is not a participant in any way in the day to day affairs of the Company. Mr. Akazawa may have little to no knowledge of the details of the Company’s operations and does not participate in the corporate governance of the Company. To the extent that Mr. Akazawa does participate as a stockholder in the governance of the Company's affairs, his interests may be conflicted since he is an affiliate of one of our largest customers and he may act in his best interests or in our customer’s best interest instead of our best interests. Additionally, Mr. Akazawa may act as if he has little or no economic interest in the Company in his role as stockholder since he has granted an option to our sole director and Chief Executive Officer, Mr. Chen, allowing Mr. Chen to buy 90% of Mr. Akazawa's interest in the Company at a fixed price at a future time in accordance with the terms of an option agreement between the two parties. The result of this option agreement is that Mr. Akazawa has only limited economic benefit if our financial performance excels as he will have only limited benefit from any upward movement in our stock price since most of the stock that he currently owns is subject to the option in favor of Mr. Chen.

We do not have any independent directors and may be unable to appoint any qualified independent directors.

We currently do not have any independent directors. We plan to appoint a number of independent directors which will constitute a majority of our board of directors before our common stock is listed on a national securities exchange, but we may not be able to identify independent directors qualified to be on our board that are willing to serve on our board.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the Company’s internal controls over financial reporting in their annual reports, including Form 10-K. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting as well as the operating effectiveness of the Company’s internal controls. We were not subject to these requirements for the fiscal year ended December 31, 2006. Accordingly, we have not evaluated our internal control systems in order to allow our management to report on, and our independent auditors to attest to, our internal controls as required by these requirements of SOX 404. Under current law, we will be subject to these requirements beginning with our annual report for the fiscal year ending December 31, 2007. We can provide no assurance that we will comply with all of the requirements imposed thereby. There can be no assurance that we will receive a positive attestation from our independent auditors. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.

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We may be exposed to potential risks relating to Lorain Holding’s acquisition of certain interests in Lorain Group Companies from a British Virgin Islands company.

Lorain Holding acquired certain interests in the Lorain Group Companies from a British Virgin Islands company controlled by Mr. Chen. According to a notice promulgated by SAFE in October 2005 (?otice No. 75?, Mr. Chen is required to register with and obtain approvals from SAFE or its agency in connection with his direct offshore investment activities before March 31, 2006. Pursuant to the Notice No. 75, if a PRC shareholder with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the PRC subsidiaries of such offshore parent company may be prohibited from making distribution of profit to the offshore parent and from paying the offshore parents proceeds from any redirection in capital, share transfer or liquidation in respect of the PRC subsidiaries. Because Mr. Chen did not register with relevant authorities to disclose his offshore investment before March 31, 2006, it is uncertain whether it will affect our acquisition of interests in Lorain Group Companies from this British Virgin Island company and what types of actions those authorities might take, including potential action against British Virgin Islands company, Lorain Holding and the Lorain Group Companies.

RISKS RELATED TO DOING BUSINESS IN CHINA

Changes in China’s political or economic situation could harm us and our operating results.

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:

· Level of government involvement in the economy;

· Control of foreign exchange;

· Methods of allocating resources;

· Balance of payments position;

· International trade restrictions; and

· International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. For example, state-owned enterprises still constitute a large portion of the Chinese economy, and weak corporate governance traditions and a lack of flexible currency exchange policy continue to persist. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.

Our business is largely subject to the uncertain legal environment in China and your legal protection could be limited.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of China and not of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against our Chinese operations and subsidiaries.

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The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

Only recently has China permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Future inflation in China may inhibit our ability to conduct business profitably in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 20.7% and as low as -2.2%. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation in the future may cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products. Likewise, negative inflation could have an unfavorable effect on our business profitability in China. Negative inflation may cause a period where consumers are reluctant to spend, as consumers anticipate lower prices for products in the future. In the event of negative inflation, the Chinese government may impose controls on credit and/or prices, or take other actions, which could inhibit economic activity, harming the market for our products.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The majority of our revenues will be settled in Renminbi and U.S. Dollars, and any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.

We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations implemented on September 8, 2006.

On September 8, 2006, the PRC Ministry of Commerce, or “MOFCOM,” together with several other government agencies, promulgated a comprehensive set of regulations governing the approval process by which a Chinese company may participate in an acquisition of its assets or its equity interests and by which a Chinese company may obtain public trading of its securities on a securities exchange outside of the PRC. Depending on the structure of the transaction, these regulations will require the Chinese parties to make a series of applications and supplemental applications to the governmental agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Governmental approvals will have expiration dates by which a transaction must be completed and reported to the governmental agencies. Compliance with the regulations is likely to be more time consuming and expensive than in the past and the government now can exert more control over the combination of two businesses. Accordingly, due to these new regulations, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.

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The new regulations allow PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to MOFCOM and the other government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the Chinese business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulations also limit our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulations may impede our ability to negotiate and complete a business combination transaction on financial terms which satisfy our investors and protect our stockholders’ economic interests and we may not be able to negotiate a business combination transaction on terms favorable to our stockholders.

The value of our securities will be affected by the foreign exchange rate between U.S. dollars and Renminbi.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the Company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

Our strategy to procure raw ingredients supply is to diversify our suppliers both in the PRC and overseas. Currently, some of our raw materials and major equipment are imported. In the event that the U.S. dollars appreciate against Renminbi, our costs will increase. If we cannot pass the resulting cost increase on to our customers, our profitability and operating results will suffer. In addition, since our sales to international customers grew rapidly, we are subject to the risk of foreign currency depreciation.

Our licenses are subject to governmental control and renewal, failure to obtain renewal will cause all or part of our operations to be suspended or terminated.

In accordance with PRC laws and regulations, we are required to maintain various licenses and permits in order to operate our business at each of our production facilities including, without limitation, hygiene permits, and industrial products production permits. We are required to comply with applicable hygiene and food safety standards in relation to our production processes. Our premises and transportation vehicles are subject to regular inspections by the regulatory authorities for compliance with the Detailed Rules for Administration and Supervision of Quality and Safety in Food Producing and Processing Enterprises. Failure to pass these inspections, or the loss of or failure to renew our licenses and permits, could require us to temporarily or permanently suspend some or all of our production activities, which could disrupt our operations and adversely affect our business.

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RISKS RELATED TO THE MARKET FOR OUR STOCK

Certain of our stockholders hold a significant percentage of our outstanding voting securities.

Mr. Akazawa, is the record owner of approximately 65.43% of our outstanding voting securities. As a result, he possesses significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

Our common stock is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

We are subject to penny stock regulations and restrictions.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As of May 4, 2007, the closing price for our common stock was $.55 per share and, therefore, it is designated a “penny stock.” As a “penny stock,” our common stock may become subject to Rule 15g-9 under the Exchange Act of 1934, or the “Penny Stock Rule.” This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Securities Exchange Act of 1934, or “Exchange Act”, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

Certain provisions of our Certificate of Incorporation may make it more difficult for a third party to effect a change- in-control.

Our Certificate of Incorporation authorizes our board of directors to issue up to 5,000,000 shares of preferred stock without stockholder approval. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights and redemption rights provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent the stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

This subsection of MD&A is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance, our overall business strategy and our earnings for the periods covered.

General

We are a Delaware corporation that was incorporated on February 4, 1986 and we are headquartered in Shandong Province, China. From our inception in 1986 until May 3, 2007, when we completed a reverse acquisition transaction with Lorain Holding, we were a blank check company and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

On May 3, 2007, we completed a reverse acquisition of Lorain Holding through a share exchange with Lorain Holding’s former stockholder. Upon completion of the reverse acquisition, Lorain Holding became our wholly-owned direct subsidiary and we have assumed the business operations and strategy of Lorain Holding and its Chinese subsidiaries.

We are engaged in the development, manufacture and sale of convenience foods, chestnut products, and frozen, canned and bulk foods and we generate revenues through the sale of our products, and we also make small amounts of revenues from government grants, sales of scrap and subcontractor fees. We operate through our indirect Chinese subsidiaries. Our products are sold in 19 provinces and administrative regions in China and 23 foreign countries.

Acquisition of Lorain Holding and Our Related Equity Financing Transaction

Through the reverse acquisition of Lorain Holding we acquired all of the issued and outstanding capital stock of Lorain Holding, which became our wholly-owned subsidiary, and in exchange for that capital stock we issued to the former stockholder of Lorain Holding, Mr. Hisashi Akazawa, 697,663 shares of our Series B Voting Convertible Preferred Stock, which shares of preferred stock will be converted into 16,307,872 shares of our common stock, immediately following the effectiveness of an amendment and restatement of our charter that will, among other things, increase the number of our authorized shares of common stock from 20,000,000 to 200,000,000 shares and effectuate a 1-for-32.84 reverse stock split.We expect to file this amendment and restatement of our Restated Certificate of Incorporation within the next forty-five days. Upon the consummation of the reverse acquisition, the former stockholder of Lorain Holding, Mr. Akazawa, become our controlling stockholder. In connection with the reverse acquisition, Mr. Akazawa agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of his shares of our Series B Voting Convertible Preferred Stock for a period of 12 months from the date of issuance of such stock.

On May 3, 2007 Mr. Akazawa, granted an option to Mr. Si Chen, our Chief Executive Officer, for the purchase of up to 627,897 of his shares of our Series B Voting Convertible Preferred Stock along with any shares of Common Stock that such Series B Preferred Stock may be converted into, pursuant to the terms of an Option Agreement, dated as of May 3, 2007, between Mr. Akazawa and Mr. Chen. Pursuant to the Option Agreement, if Mr. Chen exercises his option to purchase such shares he will be bound to the lock-up provisions of the Share Exchange Agreement to the same extent to which Mr. Akazawa is bound as if the Mr. Chen had been an original party to the Share Exchange Agreement.

Upon the closing of the reverse acquisition, Timothy P. Halter, our sole director and officer, submitted his resignation letter pursuant to which he resigned from all offices of Millennium Quest that he held effective immediately and from his position as our director effective on the tenth day following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14f-1 of the Securities Exchange Act of 1934. We expect that Mr. Halter’s resignation will become effective on or about May 19, 2007. Si Chen was appointed as our director and Chairman at the closing of the reverse acquisition of Lorain Holding.

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Contemporaneous with the reverse acquisition, we also completed a private placement transaction in which we issued and sold to accredited investors 299,055.78 shares of our Series B Voting Convertible Preferred Stock and warrants for the purchase of up to an aggregate of 1,398,065 shares of our Common Stock for gross proceeds of approximately $19.8 million. These shares of Series B Voting Convertible Preferred Stock will convert into 6,990,401 shares of our common stock at the effective time of an amendment and restatement of our Restated Certificate of Incorporation that will, among other things, increase the number of shares of our authorized common stock from 20,000,000 to 200,000,000 shares and effectuate a 1-for-32.84 reverse stock split. We have to increase our authorized common stock so that there will be enough shares of authorized common stock available for issuance upon conversion of our Series B Voting Convertible Preferred Stock.

In connection with the private placement mentioned above, our majority stockholder, Mr. Hisashi Akazawa, and our Chief Executive Officer, Mr. Si Chen, entered into an escrow agreement with the private placement investors. Pursuant to the escrow agreement, Mr. Akazawa and Mr. Si Chen agreed to certain “make good” provisions. In the make good escrow agreement, we established minimum after tax net income thresholds of $9.266 million for the fiscal year ending December 31, 2007 and $12.956 million for the fiscal year ending December 31, 2008. If the minimum after tax net income thresholds for the fiscal year 2007 or for the fiscal year 2008 are not achieved, then the investors will be entitled to receive additional shares of our common stock based upon a pre-defined formula agreed to between the investors and Mr. Akazawa. Mr. Akazawa deposited a total of 302,336 shares of our Series B Voting Convertible Preferred Stock, which are convertible into 7,067,104 shares of our common stock after reverse stock split, into escrow with Securities Transfer Corporation under the escrow agreement.

In connection with the Securities Purchase Agreement, we agreed to issue warrants to Sterne Agee & Leach, Inc. and its potential designee(s) for the purchase of up to an aggregate of 16,069,594 shares of our common stock (or 489,330 shares on a post-reverse-split basis), which warrants are for a term of 3 years and have an exercise price of $0.1294153 per share(or $4.25 per share on a post-reverse-split basis), and include piggyback registration rights to register such shares (the "Warrants").

In connection with the acquisition of Lorain Holding, on May 3, 2007 we entered into a cancelled and escrow agreement with HFI, HFG and Securities Transfer Corporation, whereby HFI and HFG agreed to deposit into escrow 229,227 shares of our common stock that they will hold upon conversion of their Series A Voting Convertible Preferred Stock into common stock (taking into account the contemplated 1-for-32.84 reverse stock split and the conversion of Series B Voting Convertible Preferred Stock into common stock) and agreed that if we report, on a consolidated basis, in our Annual Report filed with the U.S. Securities and Exchange Commission, net income of $12.5 million for fiscal 2008,, HFI and HFG will transfer to us for cancellation such shares in order to reduce the ownership of a certain group of stockholders. If this performance threshold is not met, such shares will be returned to HFI and HFG.

Industry Wide Factors that are Relevant to Our Business

Management believes that the rapid growth of China’s economy, will drive demand for our products. We believe the growth of China’s economy will cause an increased demand for our products as consumers become busier and busier and increasingly demand prepared foods which fit into their active lifestyle. With the continuing growth of the economy, the upcoming Beijing Olympic Games in 2008 and the Shanghai World Exposition in 2010, management believes that there will be a large packaged food market in China in the next a few years.

According to the USDA, as incomes have risen in many countries during the past few decades, consumers have begun purchasing fewer staples (like rice and wheat) and more high-value food items (such as meat, dairy, pasta, and frozen vegetables). According to USDA, global sales of high-value products have been growing, with sales increasing by 25% since 1998. Food manufactures and suppliers responding to the trend have increased their investment in processing facilities or purchase of high-value foods. The decision of whether locally producing or purchasing often depends on the nature of products, regulation environment and transaction cost comparison. Our products have been developed and are being developed to cater to this market.

According to the USDA, packaged foods account for a large share of total food expenditures among customers in high-income countries and the demand for convenience is growing. The United States, European Union and Japan account for over 50% of global sales of packaged foods. In developing countries, market retail trends also indicate strong growth in sales of packaged foods and demand for convenience. We hope to increase our production in the future as the demand for our product grows.

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As incomes rise and urbanization increases within China, Chinese consumers are changing their diets and increasing demand for greater quality, convenience and safety in food. China’s food market is becoming segmented. The demand for quality food by high-income households has fueled recent growth in the availability of such foods for the Chinese retail market. China’s urban per capita food expenditure in 2004 was RMB 2,710 (approximately $327), up 12% from that of 2003 (USDA, Economic Research Report No. ERR-32).

Uncertainties that Affect our Financial Condition

Our efforts are currently concentrated on only a small variety of products, including a large reliance on chestnut products. Should consumers continue to enjoy chestnut products our market will continue to grow. However, should consumer preferences change and chestnut products somehow become unpopular, our sales will decrease.

The chestnut market has been strong in recent years. The strength of the chestnut market will likely attract new competitors into the market. This increased competition may affect our pricing and reduce the demand for our chestnut products.

We rely on a steady supply of chestnuts in order to make our chestnut related products. Should the market for chestnuts change and chestnuts become more expensive the cost of our ingredients would increase which would increase the costs of our production. We may be unable to pass these additional costs onto consumers in which case our financial condition would suffer.

Cost of Raw Materials

While we have begun our own agricultural operations to supply a portion of the raw materials we require for our operations we are still dependent on our suppliers to supply a majority of the raw materials we require. Our suppliers generally charge us a price based on the existing commodities market price for the raw materials. We do not have any control over the raw materials commodity market and prices for raw materials may increase with or without notice for a variety of reasons, including weather patterns, crop failures and natural disasters. Raw material price increases may result in increases in the costs of our operations. While we may be able to pass the higher costs onto our customers in the form of higher prices for our finished products, the higher price for our finished products could reduce the volume of our sales.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues.

(in thousands of U.S. dollars)	For the Year Ended on 12/31/06			For the Year Ended on 12/31/05			For the Year Ended on 12/31/04
Revenue	$	49,561		$	30,195		$	27,736
Cost of Revenue		(37,423	)		(22,250	)		(21,082	)
Gross profit	$	12,138		$	7,945		$	6,653
Operating Expenses:
Selling		(1,454	)		(1,089	)		(1,663	)
General and administrative		(1,909	)		(1,227	)		(1,184	)
Income from continuing operations	$	8,775		$	5,627		$	3,807
Non-operating Income(Expenses):
Finance costs, net		(1,851	)		(1,518	)		(1,378	)
Government grant		476			123			439
Other income		100			307			174
Other expense		(53	)		(8	)		(44	)
Income before taxes	$	7,447		$	4,531		$	2,998
Income Taxes		(1,074	)		(325	)		(214	)
Minority interest		(414	)		(404	)		-
Net Income	$	5,959		$	3,802		$	2,783

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	For the Year Ended on 12/31/06			For the Year Ended on 12/31/05			For the Year Ended on 12/31/04
Net Revenue		100.00	%		100.00	%		100.00	%
Cost of Revenue		75.51	%		73.69	%		76.01	%
Gross profit		24.49	%		26.31	%		23.99	%
Operating Expenses:
Selling		2.93	%		3.61	%		6.00	%
General and administrative		3.85	%		4.07	%		4.27	%
Income from continuing operations		17.71	%		18.64	%		13.73	%
Non-operating Income(Expenses):
Finance costs, net		-3.74	%		-5.03	%		-4.97	%
Government grant		0.96	%		0.41	%		.95	%
Other income		0.20	%		1.02	%		1.26	%
Other expense		-0.11	%		-0.03	%		-0.16	%
Income before taxes		15.03	%		15.01	%		10.81	%
Income Taxes		2.17	%		1.07	%		0.77	%
Minority interest		0.99	%		1.34	%		0.00	%
Net Income		12.86	%		13.93	%		10.04	%

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 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Net Revenue. Net revenues increased $19.4 million, or approximately 64.1% to $49.6 million in fiscal year 2006 from $30.2 million in fiscal year 2005. This increase was mainly attributable to the increased market demand for our products domestically. We put more effort on marketing our products in our domestic market in fiscal year 2006, resulting in a dramatic increase in domestic sales. In addition, we increased our attention to selling convenience foods in 2006, which had a positive impact on revenues.

Cost of Revenues. Our cost of revenue increased $15.2 million to $37.4 million in fiscal year 2006 from $22.3 million in fiscal year 2005. The increased cost of revenue is mainly due to the increased sales volume in 2006 compared to 2005. As a percentage of revenues, the cost of revenue increased to 75.51% of revenues in fiscal year 2006 from 73.69% of revenues in fiscal year 2005. The decrease of gross margin was mainly due to the increased sales in domestic market and the diversification of our products (the gross margin of our products sold in domestic market was much lower than our exported products). In addition, as our products diversification development strategy was implemented in 2006, our sales in convenience food and frozen, canned and bulk food, which have relatively lower gross margin as compared our chestnut products, has increased dramatically.

Gross Profit. Our gross profit increased $4.19 million, or 52.8%, to $12.1 million in fiscal year 2006 from $7.9 million in fiscal year 2005. Gross margin was 24.5% in fiscal year 2006, as compared to 26.3% in fiscal year 2005. The gross margin decrease was due to the increased cost of revenues described above.

Selling and Marketing Expenses. Our selling and marketing expenses increased $0.36 million, or 33.5%, to $1.5 million in fiscal year 2006 from $1.1 million in fiscal year 2005. The increase in selling and marketing expenses was primarily attributable to additional marketing efforts for our products in domestic market in 2006. As a percentage of revenues, our selling and marketing expenses decreased to 2.9% in fiscal year 2006 from 3.6% in fiscal year 2005. The percentage decrease is mainly due to the decreased transportation costs as a percentage of revenues in 2006 as transportation costs as a percentage of revenues for the domestic sales are typically lower than for export sales.

General and Administrative Expenses. Our general and administrative expenses increased $0.68 million, or 55.5%, to $1.9 million in fiscal year 2006 from $1.2 million in fiscal year 2005. As a percentage of revenues, the general and administrative expenses decreased to 3.9% in fiscal year 2006 from 4% in fiscal year 2005. This percentage decrease was primarily attributable to more efficient controls of our general and administrative expenses.

Financial Costs. Our financial cost mainly refers to our interest expenses, net of the interest income. Our financial costs increased $0.33 million to $1.9 million in fiscal year 2006 from $1.52 million in fiscal year 2005. As a percentage of revenue, the financial cost decreased to 3.7% of total revenue for fiscal year 2006 from 5.03% of total revenue for fiscal year 2005. The dollar increase in financing cost is mainly attributable to an increase of short term bank loan balances in the fiscal year 2006 as compared to fiscal year 2005.

Income before Tax. Income before taxation increased $2.9 million, or 64.4%, to $7.4 million in fiscal year 2006 from $4.5 million in fiscal year 2005. Income before taxation as a percentage of revenues increased to 15.03% in fiscal year 2006 from 15.01% in fiscal year 2005. The increase was mainly attributable to the percentage decreases of financial expenses, selling expenses and general and administrative expenses in 2006, as compared to the year of 2005.

Income taxes. We incurred income taxes of $1.1 million in fiscal year 2006, an increase of $0.75 million, compared to $0.3 million in fiscal year 2005. We operate through our three directly or indirectly wholly-owned subsidiaries Junan Hongrun, Luotian Lorain, and Beijing Lorain and one majority-owned subsidiary Shandong Lorain of which we own 80.2% of the equity (directly and indirectly). As approved by local tax authority in the PRC, all the four companies were granted a “tax holiday” that allows them to be exempt from both the national and local income taxes for the first two profitable years followed by a 50% tax exemption in the next three years. The four companies started to enjoy the preferential tax policy from 2001, 2004, 2006 and 2007 respectively. The table below shows the detailed income tax rate for the four companies.

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Income Tax Rate	2004			2005			2006			2007			2008			2009
Junan Hongrun		0	%		0	%		15	%		15	%		15	%		30	%
Luotian Lorain		33	%		33	%		0	%		0	%		15	%		15	%
Beijing Lorain		33	%		33	%		33	%		33	%(1)		33	%(1)		33	%(1)
Shandong Lorain		15	%		15	%		30	%		30	%		30	%		30	%

(1) We are attempting to get a tax holiday on Beijing Lorain that would bring our tax rate to 0%, 0% and 15% for Beijing Lorain for the tax years to end December 31, 2007, 2008 and 2009.

Minority Interest.The Company holds 80.2% of the equity of its subsidiary Shandong Lorain. Therefore, in calculating minority interest according to this proportion against the Shandong Lorain’s historical financial data, the minority interest of the Company was $0.4 million in 2005 and $0.41 million in 2006.

Net income. Net income increased $2.2 million, or 56.7%, to $5.96 million in fiscal year 2006 from $3.8 million in fiscal year 2005, as a result of the factors described above.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Net Revenues. Net Revenues increased $2.5 million, or 8.9%, to $30.2 million in fiscal year 2005 from $27.7 million in fiscal year 2004. This slight increase was mainly attributable to the increased market demands for our products in both domestic market and international markets. On June 2004, one of our former subsidiaries, Shandong Green Safety Import & Export Co., Ltd (“Green Safety”), a food trading company was spun off. Based on this fact, the revenues in 2004 in the above financial statement include the revenues generated by both our company and Green Safety, whereas the revenues in 2005 only include our company’s revenue, not including the revenue generated by Green Safety. Even with the spin-off, our company still realized slightly increased revenue in 2005, as a result of a successful marketing strategy and huge market demand for our products in fiscal year 2005.

Cost of Revenue. Our cost of revenue increased $1.2 million to $22.2 million in fiscal year 2005 from $21.1 million in fiscal year 2004. This increase was mainly due to the increase in sales volume. As a percentage of revenues, the cost of revenues decreased to 73.7% in fiscal year 2005 from 76% in fiscal year 2004. The increased gross margin was mainly attributable to the spin-off of our former subsidiary, Green Safety. The gross margin for Green Safety was much lower than the gross margin of our on-going operations. Due to the spin-off of the low gross margin subsidiary, our gross margin for our company increased in fiscal year 2005.

Gross Profit. Our gross profit increased $1.3 million to $7.9 million in fiscal year 2005 from $6.7 million in fiscal year 2004. Gross profit as a percentage of revenues was 26% in fiscal year 2005, as compared to 24% in fiscal year 2004. Such increase was due to the changes in cost of revenue described above.

Selling and Marketing Expenses. Our selling and marketing expenses decreased $0.57 million to $1.1 million in fiscal year 2005 from $1.7 million in fiscal year 2004. As a percentage of revenues, our selling and marketing expenses decreased to 3.6% in fiscal year 2005 from 6% in fiscal year 2004. These decreases were due to additional promotional fees associated with the new products launched in 2004 (such as the Bottom-up Chestnut and Nitrogen Preserved Peeled Chestnut) being included in the 2004 numbers.

General and Administrative Expenses. Our general and administrative expenses increased $0.04 million or 3.7%, to $1.18 million in fiscal year 2005 from $1.22 million in fiscal year 2004. As a percentage of revenues, general and administrative expenses decreased to 4.07% in fiscal year 2005 from 4.27% in fiscal year 2004. This percentage decrease was primarily attributable to more efficient controls of our general and administrative expenses.

Financial costs. Financial costs increased $0.14 million to $1.52 million in fiscal year 2005 from $1.38 million in fiscal year 2004. As a percentage of revenue, the financial costs increased to 5.03% in fiscal year 2005 from 4.97% in fiscal year 2004. The increase was primarily a result of increased use of short term bank loans.

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Income before Taxation. Income before taxation was $4.5 million in fiscal year 2005, while the income before taxation was $3 million in fiscal year 2004. The increase can be attributed to the reasons discussed above.

Income taxes. We incurred income tax of $0.32 million in fiscal year 2005, an increase of $0.11 million, compared to $0.21 million in fiscal year 2004.

Minority Interest. The Company holds 80.2% shares of its subsidiary Shandong Lorain. The remaining 19.8% shares were held by Shandong Economic Development Investment Co. Ltd. Shandong Economic Development Investment Co. Ltd. acquired the 19.8% shares of Shandong Lorain in 2005, which results in an allocation to minority interest of $0.4 million in 2005.

Net income. Net income was $3.8 million in fiscal year 2005, an increase of $1 million, compared to the net income of $2.8 million in fiscal year 2004, as a result of the items previously described.

Liquidity and Capital Resources

As of December 31, 2006, we had cash and cash equivalents of $2.3 million and pledged deposits $2.5 million, respectively.

Our trade accounts receivable balance was $11.8 million as of December 31, 2006, which was approximately 23.8% of total revenues. As of December 31, 2005, our trade accounts receivables balance was $8 million, which was approximately 26.5% of total revenues. In 2004, our trade accounts receivable balance was $7.6 million, which was approximately 27.4% of revenues. The annual trade account receivable balance as a percentage of sales has decreased for the past 3 years due to our implementation of strict policies with regard to collecting receivables.

The following table provides detailed information about our net cash flow for all financial statement periods presented.

Pro Forma Consolidated Statements of Cash Flows

	Years Ended December,
	2006		2005		2004
	In thousands of dollars
Net cash provided by (used in) operating activities		-879		1,754		177
Net cash provided by (used in) investing activities		-4,152		2,981		4,654
Net cash provided by (used in) financing activities		-167		3,738		3,939
Net cash Flow		-5,199		2,511		538

Operating Activities:

Net cash used by operating activities was $.88 million for the fiscal year ended December 31, 2006 which is an increase of $2.63 million from the $1.75 million net cash provided by operating activities for the same period in 2005. During 2006, the company’s decreased inventories of $3.62 million caused by our efficient inventories control was more than offset by the decreased accounts and other payables of $10.22 million, which generated negative cash flows from operating activities.

Net cash provided by operating activities was $1.75 million in fiscal year 2005, and the net cash provided by operating activities was $0.18 million in fiscal year 2004. The increase of net cash provided by operating activities was mainly due to the increased sales and increased minority interest in the fiscal year 2005. The increased sales and increased minority interest during 2005 was partially offset by the increased accounts and other receivable of $1.59 million and the decreased accounts and other payables of $3.06 million, which resulted in the increase of $1.57million of net cash provided by operations in 2005 as compared to the net cash provided by operations in 2004.

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Investing Activities:

Our main uses of cash for investing activities are payments for the acquisition of plant and equipment, restricted cash pledged as deposit for bankers’ acceptance bills, investment in securities and payment of cost of lease prepayment.

Net cash used in investing activities in the fiscal year ended December 31, 2006 was $4.15 million, which is an increase of $1.17 million from net cash used in investing activities of $2.98 million in the same period of 2005. Such increase was primarily due to a $3.11 million payment for the purchase of plant and equipment and $1.41 million payment of cost of lease prepayments.

Net cash used in investing activities in fiscal year 2005 was $2.98 million, while the net cash used in investing activities in fiscal year 2004 was $4.65 million. Such decrease was primarily due to the deceased payments for the purchase of plant and equipment in 2005. The payment for purchase of plant and equipment in 2005 was $1.76 million, which is a decrease of $2.19.8 million from the payments for the purchase of plant and equipment of $3.85 in 2004.

Financing Activities:

Net cash used in financing activities for the fiscal ended December 31, 2006 totaled $0.17 million, which is an increase of $3.91 million from the net cash provided by financing activities of $3.74 million in the same period of 2005. Such increase was mainly due to the decrease in bank borrowings, net of repayment in the fiscal year 2006.

Net cash provided by financing activities in fiscal year 2005 totaled $3.74million, while the net cash provided by financing activities in fiscal year 2004 was $3.94 million. The net cash in fiscal year 2004 was mainly provided by the net proceeds of $3.94 million from the new bank loans in 2004.

We believe that we maintain a good relationship with many banks. As of December 31, 2006, the amounts and maturity dates for our bank loans were as follows.

Short-term Bank Loan	Dec 31, 2006		Dec 31, 2006		Maturity Date
Bank	RMB		USD
Junan County Agriculture Bank		200,000.00	$	25,584		1-19-2007
Junan County Agriculture Bank		17,500.00	$	2,239		6-29-2007
Junan County Agriculture Bank		17,500.00	$	2,239		6-29-2007
Junan County Agriculture Bank		4,000,000.00	$	511,673		1-10-2007
Junan County Agriculture Bank		3,700,000.00	$	473,297		2-6-2007
Junan County Agriculture Bank		36,000.00	$	4,605		2-5-2007
Junan County Agriculture Bank		800,000.00	$	102,335		5-30-2007
Junan County Agriculture Bank		2,000,000.00	$	255,836		6-29-2007
Junan County Agriculture Bank		2,530,000.00	$	323,633		3-5-2007
Junan County Agriculture Bank		1,200,000.00	$	153,502		3-12-2007
Junan County Agriculture Bank		3,170,000.00	$	405,500		3-26-2007
Junan County Agriculture Bank		220,000.00	$	28,142		10-09-2007
Junan County Agriculture Bank		4,500,000.00	$	575,632		10-30-2007
Junan County Agriculture Bank		2,000,000.00	$	255,836		11-2-2007
Junan County Agriculture Bank		5,100,000.00	$	652,382		11-15-2007
Junan County Agriculture Bank		900,000.00	$	115,126		5-12-2007

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Junan County Agriculture Bank	300,000.00	$	38,375	5-12-2007
Junan County Agriculture Bank	1,130,000.00	$	144,547	2-4-2007
Junan County Agriculture Bank	1,850,000.00	$	236,649	2-4-2007
Junan County Agriculture Bank	3,600,000.00	$	460,505	12-5-2007
Junan County Agriculture Bank	3,800,000.00	$	486,089	12-5-2007
Junan County Agriculture Bank	60,000.00	$	7,675	1-10-2007
Junan County Agriculture Bank	300,000.00	$	38,375	1-10-2007
Junan County Agriculture Bank	2,000,000.00	$	255,836	2-22-2007
Junan County Construction Bank	3,000,000.00	$	383,754	5-9-2007
Junan County Construction Bank	2,566,117.32	$	328,253	1-11-2007
Junan County Construction Bank	3,000,000.00	$	383,754	8-31-2007
Junan County Construction Bank	2,510,000.00	$	321,075	9-7-2007
Junan County Construction Bank	791,030.00	$	101,187	1-10-2007
Junan County Construction Bank	2,601,031.71	$	332,719	1-13-2007
Junan County Construction Bank	5,420,000.00	$	693,316	1-30-2007
Junan County Construction Bank	1,900,000.00	$	243,044	1-20-2007
Junan County Construction Bank	1,716,418.00	$	219,561	1-20-2007
Junan County Construction Bank	4,364.36	$	558	1-10-2007
Junan County Construction Bank	4,000,000.00	$	511,673	1-11-2007
Junan County Industrial and Commercial Bank	7,500,000.00	$	959,386	1-23-2007
Junan County Industrial and Commercial Bank	1,700,000.00	$	217,461	12-15-2007
Junan County Industrial and Commercial Bank	4,740,000.00	$	606,332	12-10-2007
Junan County Industrial and Commercial Bank	5,530,000.00	$	707,387	11-15-2007
Junan County Agricultural Financial Institution	420,000.00	$	53,726	5-22-2007
Junan County Agricultural Financial Institution	100,000.00	$	12,792	1-13-2007
Junan County Agricultural Financial Institution	900,000.00	$	115,126	1-22-2007
Junan County Construction Bank	598,796.85	$	76,597	1-28-2007
Junan County Construction Bank	20,665.76	$	2,644	3-1-2007
Junan County Agriculture Bank	1,870,000.00	$	239,207	5-15-2007
Linyi Commercial Bank, Yintong Branch	2,400,000.00	$	307,004	10-20-2007
China Industrial and Commercial Bank, Junan Branch	3,710,000.00	$	474,576	4-26-2007
Agricultural Development Bank, Junan Branch	5,500,000.00	$	703,550	9-4-2007
Agricultural Development Bank, Junan Branch	4,500,000.00	$	575,632	7-19-2007
China Agricultural Bank, Junan Branch	6,000,000.00	$	767,509	3-16-2007
China Agricultural Bank, Junan Branch	2,440,000.00	$	312,120	1-31-2007
China Agricultural Bank, Junan Branch	910,000.00	$	116,406	1-11-2007
Linyi Commercial Bank,Yintong Branch	4,800,000.00	$	614,007	1-16-2007
Linyi Commercial Bank,Yintong Branch	4,500,000.00	$	575,632	1-9-2007
Linyi Commercial Bank,Yintong Branch	1,500,000.00	$	191,877	11-29-2007
China’s Industrial and Commercial Bank Linyi Branch	8,350,000.00	$	1,068,116	3-22-2007

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Linyi Construction Bank	2,447,261.59	$	313,049	1-19-2007
China Agricultural Bank, Junan Branch	33,333.33	$	4,264	7-20-2007
China Agricultural Bank, Junan Branch	18,544.64	$	2,372	3-22-2007
Beijing Agricultural Commercial Bank, Shilipu Branch	14,850,000.00	$	1,899,584	9-27-2007
Beijing Agricultural Commercial Bank, Shilipu Branch	5,000,000.00	$	639,591	9-26-2007
Beijing Bank, Xuezhi Branch	2,000,000.00	$	255,836	7-18-2007
China Agricultural Bank, Luotian County Square Branch	5,000,000.00	$	639,591	9-5-2007
China Agricultural Bank, Luotian County Square Branch	2,600,000.00	$	332,587	9-15-2008
Total Short-term Bank Loan	170,878,563.56	$	21,858,467

On May 3, 2007, through a private placement, we raised approximately $19.8 million in gross proceeds, which left us with approximately $18 million in net proceeds after the deduction of offering expenses in the amount of approximately $ 1.8 million. We plan to use part of the proceeds to build new production lines and purchase new equipment for the expansion of our production capacity. This financing resulted in an increase of our net cash flow and a decrease of our asset/liability ratio and financial risks.

Our material capital expenditure requirements for the remaining period of fiscal year 2007 are approximately $12 million, which will be used for the purposes of the updating and expansion of our production lines, equipment and facilities. In addition, we expect that we will need to borrow an additional $2.25 million for working capital (to maintain our business operations) for the remainder of 2007 (the amount does not include existing borrowings which will be rolled over into new loans). We expect that amount to be raised through bank loans. From April 1, 2007 to March 31, 2008, we have $16.3 million in bank loans that will mature. We plan to replace these loans with new banks loan in the same amount.

We believe that our currently available working capital after receiving the aggregate proceeds of Lorain’s capital raising activities, the credit facilities referred to above and the expected additional credit facility should be adequate to sustain our operations at our current levels through at least the next twelve months.

Obligations Under Material Contracts

Below is a table setting forth our contractual obligations as of December 31, 2006:

Payments in thousands of U.S. dollars

	Total		Less than one year		1-3 years		3-5 years		More than 5 years
Long term debt obligations		1,384		5		1,384		0		0
Capital Lease obligations		0		0		0		0		0
Operating lease obligations		1,825		64		128		128		1,505
Purchase obligations		0		0		0		0		0
Other Long-term Liabilities Reflected on Registrant’s Balance Sheet under GAAP		0		0		0		0		0
Total		3,214		69		1,512		128		1,505

Below is a brief summary of the payment obligations under materials contracts to which we are a party.

On September 28, 2006, our subsidiary Beijing  Green Foodstuff Co., Ltd. enter into a credit facility agreement with the Shilibao Branch of Beijing Rural Commercial Bank Co., Ltd., for a loan in the principal amount of $1,903,846. The company has returned the amount of $ 5,117 and the balance due is $1,384,741. The interest rate for this loan is 0.765 % and the loan has a maturity date of September 27, 2007.

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

·   Method of Accounting -- We maintain our general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by us conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

·   Use of estimates -- The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

·   Principles of consolidation -- The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its commonly controlled entity. All significant inter-company balances and transactions are eliminated in combination.

As of December 31, 2006, the particulars of the commonly controlled entities are as follows:

Name of company	Place of incorporation		Attributable equity interest %			Registered capital
Shandong Green Foodstuff CO.,LTD.		PRC		80.2	%		RMB 100,860,000
Luotian Green Foodstuff CO.,LTD.		PRC		100	%		RMB 10,000,000
Junan Hongrun Foodstuff CO.,LTD.		PRC		100	%		RMB 19,000,000
Beijing Green Foodstuff CO.,LTD.		PRC		100	%		RMB 10,000,000

Accounting for the Impairment of Long-Lived Assets -- The long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting years, there was no impairment loss.

Revenue recognition -- Our revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, we have no other significant obligations and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

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Our revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our raw materials are mostly fresh agricultural products. Therefore, we are subject to production seasonality by product, though we are able to maintain overall year-round production. Specifically, the main processing season for chestnut products is from the latter half of August to the next January. During the busy season, our chestnut production lines are running with full capacity. Other than this period, we still maintain a small amount of chestnut production by using frozen chestnuts. However, this pattern may change, as a result of new market opportunities or new product introductions.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates are fixed for the terms of the loans, the terms are typically 12 months and interest rates are subject to change upon renewal. Since April 28, 2006, China People’s Bank has increased the interest rate of RMB bank loans with a term of 6 months or less by 0.27%, and loans with a term of 6 to 12 months by 0.54%. The new interest rates are 5.67% and 6.39% for RMB bank loans with a term 6 months or less and loans with a term of 6-12 months, respectively. The change in interest rates has no impact on our bank loans that were made before April 28, 2006. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities at December 31, 2006 would decrease net income before provision for income taxes by approximately $230,000 for the six months ended December 31, 2006. Management monitors the banks’ interest rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

While our reporting currency is the U.S. Dollar, all of our consolidated revenues and consolidated costs and expenses are denominated in Renminbi. All of our assets are denominated in RMB except for cash. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues, if the selling prices of our products do not increase with these increased costs.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our voting stock as of May 8, 2007 (i) by each person who is known by us to beneficially own more than 5% of any class of our voting stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

Unless otherwise specified, the address of each of the persons set forth below is in care of Lorain International, Beihuan Zhong Road, Junan County, Shandong, China 276600.

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			Shares Beneficially Owned1
			Common Stock2					Series A Voting Convertible Preferred Stock3					Series B Voting Convertible Preferred Stock4					% Total
Name & Address of Beneficial Owner	Office, If Any		Shares		% of Class			Shares		% of Class			Shares		% of Class			Voting Power5
Officers and Directors
Si Chen6		CEO and Secretary		0		*			0		*			627,897		63.00	%		58.89	%
Xiaodong Zhou		President and COO		0		*			0		*			0		*			*
Huanxiang Sheng		CFO and Treasurer		0		*			0		*			0		*			*
Timothy P. Halter7 12890 Hill Top Road Argyle, TX 76226		Director		0		*			100,000		100	%		0		*			5.24	%
All Officers and Directors as a group (4 persons named above)				0		*			100,000		100	%		627,897		63.00	%		64.13	%
5% Security Holder
Hisashi Akazawa				0		*			0		*			697,663		70.00	%		65.43	%
Jeffrey L. Feinberg c/o JLF Asset Management, LLC8 2775 Via De La Valle, Suite 204 Del Mar, CA 92014				0		*			0		*			68,027.21		6.83	%		6.39	%
Jayhawk Private Equity Fund, L.P. 5410 West 61st Place, Suite 100 Mission, KS 66205				0		*			0		*			56,886.92		5.71	%		5.34	%
Kent C. McCartthy9 5410 West 61st Place, Suite 100 Mission, KS 66205				0		*			0		*			60,468.63		6.07	%		5.68	%
Halter Financial Investments, L.P. 12890 Hill Top Road Argyle, TX 76226				0		*			50,000		50	%		0		*			2.52	%
Halter Financial Group, L.P. 12890 Hill Top Road Argyle, TX 76226				0		*			50,000		50	%		0		*			2.72	%
David Brigante10 12890 Hill Top Road Argyle, TX 76226				0		*			100,000		100	%		0		*			5.24	%
George Diamond11 12890 Hill Top Road Argyle, TX 76226				0		*			100,000		100	%		0		*			5.24	%
Marat Rosenberg12 12890 Hill Top Road Argyle, TX 76226				0		*			100,000		100	%		0		*			5.24	%
Dimitri W. Cocorinis 1200 South Bonneville Drive Salt Lake City, UT 84108				1,486,925		14.15	%		0		*			0		*			*
Terry Cononelos 4089 Mount Olympus Way Salt Lake City, UT 84124				1,875,456		17.85	%		0		*			0		*			*
Heritage Management Consultants, Inc. 101 Watersedge Hilton Head Island, SC, 29928				1,642,000		15.63	%		0		*			0		*			*
Chunhua Xiong Floor 7, Room 702 128 Prinsep Street, Singapore 188647				4,105,000		39.06	%		0		*			0		*			*

* Less than 1%

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¹Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. For each Beneficial Owner above, any options exercisable within 60 days have been included in the denominator.

²A total of 10,508,643 shares of our Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1).

³ Shares of Series A Voting Convertible Preferred Stock, which are convertible into shares of our common stock on the basis of one share of Series A Voting Convertible Preferred Stock for 428.56 shares of common stock. Holders of Series A Preferred Stock vote with the holders of Common Stock on all matters on an as converted to common stock basis. Each share of Series A Preferred Stock is entitled to 428.56 votes per share whereas each share of common stock is entitled to one vote per share. It is expected that all Series A Voting Convertible Preferred Stock will be converted into our common stock immediately following the filing of an amendment and restatement of our Certificate of Incorporation that will, among other things, effect a 1-for-32.84 reverse stock split. A total of 100,000 shares of our Series A Voting Convertible Preferred Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1).

⁴Shares of Series B Voting Convertible Preferred Stock will be converted into shares of our common stock on the basis of one share of Series B Voting Convertible Preferred Stock for 23.375 shares of our common stock upon the effectiveness of our planned 1-for-32.84 reverse stock split. Holders of Series B Voting Convertible Preferred Stock vote with the holders of common stock on all matters on an as converted to common stock basis. A total of 996,718.78 shares of our Series B Voting Convertible Preferred Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1).

⁵Percentage total voting power represents voting power with respect to all shares of our common stock, Series A Voting Convertible Preferred Stock and Series B Voting Convertible Preferred Stock, as a single class.

⁶Mr. Akazawa has granted Mr. Chen the right to purchase a total of 627,867 shares of his Series B Voting Convertible Preferred Stock in accordance with the terms of an option agreement between Mr. Akazawa and Mr. Chen.

⁷Includes 48,000 shares owned by Halter Financial Investments, L.P. (“HFI”) and 52,000 shares owned by Halter Fincial Group, L.P. (“HFG”). TPH, L.P. is a limited partner of both HFI and HFG, of which TPH GP, LLC is the sole general partner, of which Timothy P. Halter is the sole member.  

⁸Includes 29,811.04 shares owned by JLF Partners I, LP, 2,101.28 shares owned by JLF Partners II, LP and 36,114.89 shares owned by JLF Offshore Fund, Ltd. Jeffrey L. Feinberg is the managing member of JLF Asset Management, LLC, which serves as the management company and/or investment manager to JLF Partners I, LP, JLF Partners II, LP and JLF Offshore Fund, Ltd.

⁹Includes 56,886.92 shares owned by Jayhawk Private Equity Fund, L.P. and 3,581.71 shares owned by Jayhawk Private Equity Co-Invest Fund, L.P. Kent McCarthy is the Managing Member of Jayhawk Capital Management LLC, which is the General Partner of Jayhawk Private Equity GP, LP, which is the General Partner of both Jayhawk Private Equity Fund, L.P. and Jayhawk Private Equity Co-Invest Fund, L.P.

¹⁰Includes 48,000 shares owned by HFI and 52,000 shares owned by HFG. Bellfield Capital, L.P. is a limited partner of both HFI and HFG, of which Bellfield Capital Management, LLC is the sole general partner of which David Brigante is the sole member.

¹¹Includes 48,000 shares owned by HFI and 52,000 shares owned by HFG. Colhurst Capital, L.P. is a limited partner of both HFI and HFG, of which Colhurst Capital GP, LLC is the sole general partner of which George L. Diamond is the sole member.

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¹²Includes 48,000 shares owned by HFI and 52,000 shares owned by HFG. Rivergreen Capital, L.L.C. is a limited partner of both HFI and HFG, of which Marat Rosenberg is the sole member.

DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following sets forth the name and position of each of our current executive officers and directors.

Name	Age	Position
Timothy P. Halter (1)	40	Director
Si Chen	44	Director, Chief Executive Officer and Secretary
Xiaodong Zhou	36	President and Chief Operating Officer
Huanxiang Sheng	36	Chief Financial Officer and Treasurer

(1) Former President, Secretary, Treasurer, Chief Executive Officer and Chief Financial Officer prior to May 3, 2007 and current director until the 10^th day following the mailing of an information statement complying with Rule 14f-1 of the Securities Exchange Act.

Timothy P. Halter. Timothy P. Halter, age 40, has been the president and the sole stockholder of Halter Financial Group, Inc., a Dallas, Texas based consulting firm specializing in the area of mergers, acquisitions and corporate finance, since 1995. Mr. Halter currently serves as a director of the following public companies:  DXP Enterprises, Inc. (a Texas corporation), Nevstar Corporation (a Nevada corporation), Point Acquisition Corporation (a Nevada corporation), Marketing Acquisition Corporation (a Nevada corporation), BTHC VI, Inc. (a Delaware corporation), BTHC VII, Inc. (a Delaware corporation), BTHC VIII, Inc. (a Delaware corporation), and BTHC X, Inc. (a Delaware corporation). Mr. Halter will devote as much of his time to the Company’s business affairs as may be necessary to implement its business plan.

Si Chen. Mr. Chen became a director and our Chief Executive Officer and Secretary on May 3, 2007 when we completed our reverse acquisition of Lorain Holding. Mr. Chen is the founder of the Lorain Group Companies and served as the chairman of the Lorain Group Companies at all times since their founding and until the Lorain Group Companies were acquired in August, 2006. After the acquisition in August, 2006, Mr. Chen served as a director of Shandong Lorain until the reverse acquisition of Lorain Holding. He established Shandong Lorain in 1995. Before establishing our business, he worked for the county government and was responsible for the local agricultural economic development. Since 1995, Mr. Chen has been in charge of our strategic decisions and operational management.

Xiaodong Zhou.Mr. Zhou became our President and Chief Operating Officer on May 3, 2007 when we completed our reverse acquisition of Lorain Holding. Mr. Zhou joined the Lorain Group Companies in 1995 as a manager. He has been the CEO of the Lorain Group Companies since 2000. Before he joined the Lorain Group Companies, he worked for the county government as an economic official.

Huanxiang Sheng.Mr. Sheng became our Chief Financial Officer and Treasurer on May 3, 2007 when we completed our reverse acquisition of Lorain Holding. Mr. Sheng has been the chief financial officer of the Lorain Group Companies since August 2004. He has 16-years of experience in corporate accounting and finance. Before joining our company, he served as the chief executive officer and chief financial officer of Linyi Jiangxin Steel Co., Ltd, a steel manufacturer, from 2002 until 2004. Between 1990 and 2001, he worked in the accounting department of Shandong Gold Group, a gold mining company

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Directors are elected until their successors are duly elected and qualified.

Board Composition and Committees

The board of directors is currently composed of two persons, Mr. Timothy P. Halter and Mr. Si Chen. Mr. Halter has submitted his resignation as the sole director of the Company, which will become effective on the 10^th day following the mailing of an information statement complying with Rule 14f-1 of the Securities Exchange Act.

We currently do not have standing audit, nominating or compensation committees, although we may form such committees in the future as the membership of the board of directors increases. Since we do not currently have an audit committee, we do not have an audit committee financial expert. Our board of directors handles the functions that would otherwise be handled by an audit committee. Upon the establishment of an audit committee, the board of directors will determine whether any of the directors qualify as an audit committee financial expert.

We have not implemented a process for stockholders to send communications to the board of directors because we have not had significant operations until recently. We intend to establish a reporting mechanism as soon as practicable.

Director Compensation

Historically, we have not paid our directors fees for attending scheduled and special meetings of our board of directors. In the future, we may adopt a policy of paying independent directors a fee for their attendance at board and committee meetings. We do reimburse our directors for reasonable travel expenses related to attendance at board of director meetings.

Family Relationships

There are no family relationships among our director or officers.

Code of Ethics

On April 30, 2007, our board of directors adopted a new code of ethics that applies to our director and all of our officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The new code addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of the Code of Ethics has been filed as Exhibit 14 to this report.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

The following is a discussion of our program for compensating our named executive officers and director. Currently, we do not have a compensation committee, and as such, our board of directors is responsible for determining the compensation of our named executive officers.

Compensation Program Objectives and Philosophy

The primary goals of our policy of executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that our executives are compensated effectively in a manner consistent with our strategy and competitive practice and to align executives compensation with the achievement of our short- and long-term business objectives.

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The board of directors considers a variety of factors in determining compensation of executives, including their particular background and circumstances, such as their training and prior relevant work experience, their success in attracting and retaining savvy and technically proficient managers and employees, increasing our revenues, broadening our product line offerings, managing our costs and otherwise helping to lead our company through a period of rapid growth.

In the near future, we expect that our board of directors will form a compensation committee charged with the oversight of executive compensation plans, policies and programs of our company and with the full authority to determine and approve the compensation of our chief executive officer and make recommendations with respect to the compensation of our other executive officers. We expect that our compensation committee will continue to follow the general approach to executive compensation that we have followed to date, rewarding superior individual and company performance with commensurate cash compensation.

Elements of Compensation

Our compensation program for the named executive officers consists of two elements: base salary and bonus. The base salary we provide is intended to equitably compensate the named executive officers based upon their level of responsibility, complexity and importance of role, leadership and growth potential, and experience. We offer bonuses as a vehicle by which the named executive officers can earn additional compensation depending on individual, business unit and Company performance. The Company did not provide any other type of compensation to our named executive officers in 2006.

Base Salary. Our named executive officers receive base salaries commensurate with their roles and responsibilities. Subject to any applicable employment agreements, base salaries and subsequent adjustments, if any, are reviewed and approved by our board of directors annually, based on an informal review of relevant market data and each executive’s performance for the prior year, as well as each executive’s experience, expertise and position. The base salaries paid to our named executive officers in 2006 are reflected in the Summary Compensation Table below.

Incentive Bonus. Our named executive officers are eligible for an annual performance-based cash bonus in accordance with the Company’s unwritten incentive bonus plan. We provide this bonus opportunity as a way to attract and retain highly skilled and experienced executive officers and to motivate them to achieve annual corporate, departmental and individual goals which consist of various revenue, cost and operational targets established by the board of directors. The bonus amounts are determined following the end of the fiscal year based on our performance and the performance of our executives. The bonus amounts paid to our named executive officers in 2006 are reflected in the Summary Compensation Table below.

Stock-Based Awards under the Equity Incentive Plan.

Historically, we have not granted equity awards as a component of compensation, and we presently do not have an equity-based incentive program. In the future, we will likely adopt and establish an equity incentive plan pursuant to which equity awards may be granted to eligible employees, including each of our named executive officers, if our board of directors determines that it is in the best interest of Lorain Holding and our stockholders to do so.

Retirement Benefits

Currently, we do not provide any company sponsored retirement benefits to any employee, including the named executive officers.

Perquisites

Historically, we have provided certain of our named executive officers with minimal perquisites and other personal benefits. We do not view perquisites as a significant element of our compensation structure, but do believe that perquisites can be useful in attracting, motivating and retaining the executive talent for which we compete. It is expected that our historical practices regarding perquisites will continue and will be subject to periodic review by our by our board of directors.

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SUMMARY COMPENSATION TABLE

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the following persons for services performed for us and our subsidiaries during 2006 in all capacities. No executive officers received compensation of $100,000 or more in 2006.

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)			Option Awards ($)		Non- Equity Incentive Plan Compensation Earnings ($)		Non- qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Dimitri Cocorinis, former Director and CEO (1)		2006		-		-		1,500	(2)								-		1,500
Terry Cononelos, former Director, Secretary, Treasurer and CFO (3)		2006		-		-		1,500	(2)								-		1,500
Hisashi Akazawa (4)		2006		0		0		0			0		0		0		0		0
Si Chen, principal executive officer (5)		2006		6,300		50,000		0			0		0		0		0		0
Huanxiang Sheng, CFO and Treasurer (6)		2006		12,308		0		0			0		0		0		0		0

(1) Mr. Cocorinis served as our chief executive officer from 1994 until his resignation on April 12, 2007.At such time, Timothy P. Halter became our chief executive officer.

(2) On February 17, 2006, our board of directors approved the issuance of 150,000 shares of our common stock each to Dimitri Cocorinis and Terry Cononelos, who were officers of Millennium Quest. The issuance of this stock was authorized in consideration of services rendered by Messrs. Cocorinis and Cononelos to Millennium Quest. The transaction was valued at $1,500 per officer ($0.01 per share) in accordance with FAS-123R.

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(3) Mr. Cononelos served as our chief financial officer from 1994 until his resignation onApril 5, 2007.

(4) Mr. Hisahsi Akazawa served as the chairman and CEO or Lorain Holding from the time of formation of Lorain Holding in August, 2006 until the completion of the reverse acquisition of Lorain Holding on May 3, 2007.

(5) On May 3, 2007, we acquired Lorain Holding in a reverse acquisition transaction that was structured as a share exchange and in connection with that transaction, Mr. Chenbecame our chief executive officer and a director. Prior to the effective date of the reverse acquisition, Mr. Chen served the Lorain Group Companies as a director of one of its subsidiaries, Shandong Lorain. Prior to Lorain Holdings acquiring the Lorain Group Companies in August, 2006, Mr. Chen served as the chairman and principal executive officer of the Lorain Group Companies. The annual, long term and other compensation shown in this table includes the amount Mr. Chen received in 2006 from the Lorain Group Companies.

(6) On May 3, 2007, we acquired Lorain Holding in a reverse acquisition transaction that was structured as a share exchange and in connection with that transaction, Mr. Huanxiang Shengbecame our chief financial officer. Prior to the effective date of the reverse acquisition, Mr. Huanxiang Sheng served the Lorain Group Companies as chief financial officer of our subsidiary, Shandong Lorain. Prior to Lorain Holdings acquiring the Lorain Group Companies in August, 2006, Mr. Sheng served as the chief financial officer of the Lorain Group Companies. The annual, long term and other compensation shown in this table includes the amount Mr. Huanxiang Sheng received in 2006 from the Lorain Group Companies.

Bonuses and Deferred Compensation

We do not have any bonus, deferred compensation or retirement plan. We do not have a compensation committee. All decisions regarding compensation are determined by our entire board of directors.

Stock Option and Stock Appreciation Rights

We do not currently have a stock option plan or stock appreciation rights plan. No stock options or stock appreciation rights were awarded during the fiscal year ended December 31, 2006.

Director Compensation

No cash compensation or other compensation was paid to our director for services as a director during the fiscal year ended December 31, 2006 and we have no standard arrangement pursuant to which any director is compensated for services as a director.

Employment Agreements

Our subsidiary, Shandong Lorain, has employment agreements with the following three executive officers:

Mr. Si Chen - our CEO’s employment agreement with Shandong Lorain became effective as of March 2, 2005. Mr. Chen is an employee-at-will of Shandong Lorain.

Mr. Xiandong Zhou - our COO’s employment agreement with Shandong Lorain became effective as of July 2, 2002. Mr. Zhou is an employee-at-will of Shandong Lorain.

Mr. Huanxianian Sheng - our CFO’s employment agreement with Shandong Lorain became effective as of December 7, 2004. Mr. Sheng is an employee-at-will of Shandong Lorain.

Each of the employment agreements provide that the executives will be provided cash compensation. The employment agreements provide that ten thousand RMB (approximately $1250) will be paid to the non-breaching party if there is a breach of contract. The employment agreements do not provide any change in control or severance benefits to the executives, and we do not have any separate change-in-control agreements with any of our executive officers.

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Indemnification of Directors and Executive Officers and Limitation of Liability

Our bylaws provide for the indemnification of our present and prior directors and officers or any person who may have served at our request as a director or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them, are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Exchange Act may be permitted to our directors, officers and controlling persons pursuant to provisions of the Certificate of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Exchange Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On May 3, 2007, we consummated the transactions contemplated by a share exchange agreement with the owners of the issued and outstanding capital stock of Lorain Holding. Pursuant to the share exchange agreement, we acquired 100% of the outstanding capital stock of Lorain Holding in exchange for 697,663 shares of our Series B Voting Convertible Preferred Stock, which shares of preferred stock will be converted into 16,307,872 shares of our common stock when an amendment to our certificate of incorporation increasing the total authorized shares and effectuating a reverse stock split becomes effective. As a result of this transaction, Mr. Akazawa, a Japanese citizen, became the beneficial owner of approximately 65.43% of our outstanding capital stock.

On April 10, 2007, we completed the sale of an aggregate of 100,000 restricted shares of our Series A Preferred Stock to HFI for a cash purchase price of $455,000 pursuant to a Stock Purchase Agreement entered into between us and HFI dated as of April 5, 2007.  The Series A Preferred Stock is entitled to 428.56 votes per share and represents approximately 90% of the voting control of the Company as of the date of such acquisition. The transaction resulted in a change in control of the Company.  HFI used its own funds to acquire the Series A Preferred Stock which is convertible into Common Stock at the option of the holder at any time on or after the earliest to occur of: (a) September 30, 2007; (b) the date on which we complete a business combination with a corporation or business entity with current business operations; or (c) the date such conversion is approved by our board of directors. The Preferred Stock is also convertible at our option upon five days advance notice to the holder.

On May 3, 2007 we entered into a cancellation and escrow agreement with HFI, HFG and Securities Transfer Corporation, whereby HFI and HFG agreed to deposit into escrow 229,227 shares of our common stock that they will hold upon conversion of their Series A Voting Convertible Preferred Stock into common stock (taking into account the contemplated 1-for-32.84 reverse stock split and the conversion of Series B Voting Convertible Preferred Stock into common stock) and agreed that if we report, on a consolidated basis, in our Annual Report filed with the U.S. Securities and Exchange Commission, net income of $12.5 million for fiscal 2008, HFI and HFG will transfer to us for cancellation such shares in order to reduce the ownership of a certain group of stockholders. If this performance threshold is not met, such shares will be returned to HFI and HFG. Our director Timothy P. Halter is the Chairman of both HFI and HFG.

On February 14, 2007 our subsidiary Shandong Lorain entered into a financial advisory agreement with HFG International, Limited, a Hong Kong corporation, whereby HFG agreed to provide certain financial advisory and consulting services in implementing a restructuring plan, advising us on matters related to a capital raising transaction and facilitating Lorain Holding’s going public transaction. In consideration for these services, HFG International, Limited was paid a fee of $450,000 upon the closing of the going public transaction. Our director Timothy P. Halter is the principal stockholder and the chief executive officer of HFG International, Limited.

On February 17, 2006, our board of directors approved the issuance of 150,000 shares of our common stock each to Dimitri Cocorinis and Terry Cononelos, our former officers, or a total of 300,000 shares of common stock. The issuance of this stock was authorized in consideration of services rendered by Messrs. Cocorinis and Cononelos to Millennium Quest. The transaction was valued at $3,000 ($0.01 per share).

On or about February 1, 2006, C&C Investment Partnership, a partnership owned by Messrs. Cocorinis and Cononelos, loaned the Company the sum of $20,000, to cover business operations and outstanding payables. The loan was repayable, with interest at 7% per annum, on or before August 1, 2006 or the date on which the Company entered into a merger, reorganization or acquisition transaction, whichever occurred first. At the time of this loan the board of directors of the Company consisted of Messrs. Cocorinis and Cononelos, so this transaction cannot be considered the result of arms’ length negotiations. On August 11, 2006, C&C Investment Partnership agreed to extend the due date of this note for an additional 120 days. Pursuant to a Settlement and Stock Issuance Agreement dated on or about April 5, 2007, C&C Investment Partnership agreed to accept 2,500,000 shares of restricted common stock in the Company in payment and satisfaction of all amounts owed to C&C Investment Partnership by the Company.

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DESCRIPTION OF SECURITIES

Common Stock

We are authorized to issue up to 20,000,000 shares of common stock, par value $0.001 per share.

Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that the persons receiving the greatest number of votes shall be the directors. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock. Upon our liquidation, dissolution or winding up, and after payment of creditors and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock.

The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Pursuant to a Preferred Stock Purchase Agreement with Halter Financial Investments, L.P., dated April 5, 2007, we paid a special cash dividend in the aggregate amount of $415,000, or $0.18 per share, to holders of common stock outstanding on April 16, 2007. Other than this special dividend, our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors.

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

We have obtained the written consent of a majority in interest of our stockholders approving an amendment and restatement of our Restated Certificate of Incorporation that, among other things, increases our authorized common stock from 20 million to 200 million shares and effectuates a 1 for 32.84 reverse stock split of our common stock. We expect to file this amendment with the Delaware Secretary of State within 45 days. We must comply with the requirements of Regulation 14C of the Securities Exchange Act of 1934, before we file such amendment.

Preferred Stock

We are authorized to issue 5,000,000 shares of preferred stock. We may issue shares of preferred stock in one or more classes or series within a class as may be determined by our board of directors, who may establish the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock so issued by the board of directors may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both. Moreover, under certain circumstances, the issuance of preferred stock or the existence of the un-issued preferred stock might tend to discourage or render more difficult a merger or other change in control.

Series A Voting Convertible Preferred Stock

As of May 3, 2007, we have 100,000 shares of Series A Voting Convertible Preferred Stock issued and outstanding, which are owned by Halter Financial Investments, L.P. and Halter Financial Group, L.P. Each share of Series A Voting Convertible Preferred Stock is entitled to 428.56 votes and can be converted into 428.56 shares of our common stock. We expect that the 100,000 shares of Series A Voting Convertible Preferred Stock will be converted 1,304,992 shares of common stock upon the effectiveness of a 1-for-32.84 reverse stock split which is expected to occur immediately following the filing of an amendment and restatement of our Restated Certificate of Incorporation in or about June 2007. The issuance of preferred stock while providing desirable flexibility in connection with possible acquisitions and other corporate purposes could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.

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Series B Voting Convertible Preferred Stock

On May 3, 2007, in connection with the reverse acquisition of Lorain Holding, we issued 697,663 shares of our Series B Voting Convertible Preferred Stock to holders of capital stock of Lorain Holding in exchange for all issued and outstanding share of capital stock of Lorain Holding. On May 3, 2007, we also completed a private placement pursuant to which we issued and sold to certain accredited investors 299,055.78 shares of our Series B Voting Convertible Preferred Stock for $19.8 million. As a result, as of May 8, 2007 we have 996,718.78 shares of Series B Voting Convertible Preferred Stock issued and outstanding.

The shares of Series B Voting Convertible Preferred Stock vote on all matters together with all other classes of stock on an as-converted to common stock basis. Holders of Series B Convertible Preferred Stock have protective class voting veto rights on matters, such as business combination transactions, payment of dividends, the issuance of other classes of stock with senior rights, changes to our charter documents and stock redemptions. Shares of Series B Voting Convertible Stock have a senior liquidation payment preference in the event of a liquidation or sale of the company. Shares of Series B Voting Convertible Preferred Stock will be automatically converted into common stock at the rate of 23.375 shares of common stock for each share of Series B Voting Convertible Preferred Stock on the date we file an amendment and restatement of our Restated Certificate of Incorporation that will, among other things, effect a 1-for-32.84 reverse stock split. Adjustments to the conversion ratio of the Series B Voting Convertible Preferred Stock are made upon events such as stock dividends, stock splits and recapitalizations.

Warrants

We have granted a group of accredited investors three-year warrants to purchase 1,398,065 shares of our Common Stock exercisable at $4.25 per share. The number of underlying shares and the stated exercise price reflect the contemplated 1-for-32.84 reverse stock split of our outstanding common stock.

We have agreed to issue warrants to Sterne Agee & Leach, Inc. and its potential designee(s), for the purchase of up to an aggregate of 16,069,594 shares of our common stock (or 489,330 shares on a post-reverse-split basis), which warrants are for a term of 3 years and have an exercise price of $0.1294153 per share (or $4.25 per share on a post-reverse-split basis), and include piggyback registration rights to register such shares.

The exercise price of the foregoing warrants was determined based on the offering price of our common stock sold in the private placement transaction completed on May 3, 2007.

Transfer Agent and Registrar

Our independent stock transfer agent is Progressive Transfer, Inc. Their mailing address is 1981 East Holladay Blvd., Salt Lake City, UT 84117. Their phone number is (801) 272-9294.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

Reference is made to the disclosure set forth under Item 4.01 of this report, which disclosure is incorporated herein by reference.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol “MLQT.OB” but has not been traded in the Over-The-Counter market except on a limited and sporadic basis. The CUSIP number is 600375109.

The following table sets forth, for the periods indicated, the high and low bid prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

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	Closing Bid Prices (1)
	High		Low
TYD Through March, 2007
1st Fiscal Quarter (1/1/07-3/31/07)		1.10		1.10
Fiscal Year Ended December 31, 2006
1st Fiscal Quarter (1/1/06-3/31/06)		1.05		1.05
2nd Fiscal Quarter (4/1/06-6/30/06)		1.05		1.05
3rd Fiscal Quarter (7/1/06-9/30/06)		1.05		1.05
4th Fiscal Quarter (10/1/06-12/31/06)		1.10		1.10
Year Ended December 31, 2005
1st Fiscal Quarter (1/1/05-3/31/05)		N/A		N/A
2nd Fiscal Quarter (4/1/05-6/30/05)		N/A		N/A
3rd Fiscal Quarter (7/1/05-9/30/05)		N/A		N/A
4th Fiscal Quarter (10/1/05-12/31/05)		N/A		N/A

(1)The above tables set forth the range of high and low closing bid prices per share of our common stock as reported by www.quotemedia.com for the periods indicated.

Reports to Stockholders

We plan to furnish our stockholders with an annual report for each fiscal year ending December 31 containing financial statements audited by our independent certified public accountants. We intend to comply with the periodic reporting requirements of the Exchange Act.

Approximate Number of Holders of Our Common Stock

On May 7, 2007, there are approximately 155 stockholders of record of our Common Stock.

Dividends

Pursuant to a Preferred Stock Purchase Agreement with Halter Financial Investments, L.P., dated April 5, 2007, we paid a special cash dividend in the aggregate amount of $415,000, or $0.18 per share, to holders of common stock outstanding on April 16, 2007. Other than noted above, we have never declared or paid cash dividends. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

RESENT SALE OF UNREGISTERED SECURITIES

Reference is made to the disclosure set forth under Item 3.02 of this report, which disclosure is incorporated by reference into this section.

ITEM 3.02UNREGISTERED SALES OF EQUITY SECURITIES

On May 3, 2007, we consummated the transactions contemplated the Share Exchange Agreement with the owners of the issued and outstanding capital stock of Lorain Holding. Pursuant to the Share Exchange Agreement, we acquired 100% of the outstanding capital stock of Lorain Holding in exchange for 697,663 shares of our Series B Voting Convertible Preferred Stock, which shares of our preferred stock will be converted into 16,307,872 shares of our common stock when an amendment and restatement of our Restated Certificate of Incorporation increasing the total authorized shares and effectuating a reverse stock split becomes effective. As a result of this transaction, Mr. Akazawa, a Japanese citizen, became the beneficial owner of approximately 65.43% of our outstanding capital stock.

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On April 10, 2007, we completed the sale of an aggregate of 100,000 restricted shares of our Series A Voting Convertible Preferred Stock to Halter Financial Investments, L.P. (the “Purchaser”) for a cash purchase price of $455,000 pursuant to the Stock Purchase Agreement entered into between us and the Purchaser and dated as of April 5, 2007. We reported the signing of the Stock Purchase Agreement in our Annual Report on Form 10-KSB filed with the Commission on April 9, 2007 and the Stock Purchase Agreement was included as an exhibit to such report. The Preferred Stock is entitled to 428.56 votes per share and represented approximately 90% of the voting control of the Company (after giving effect to the issuance of stock to two former officers in cancellation of debt as described below). The foregoing transfers were made in reliance upon exemptions provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering and Regulation D promulgated thereunder.

On February 17, 2006, our board of directors approved the issuance of 150,000 shares of common stock each to Dimitri Cocorinis and Terry Cononelos, our former officers, or a total of 300,000 shares of common stock. The issuance of this stock was authorized in consideration of services rendered by Messrs. Cocorinis and Cononelos to us. The transaction was valued at $3,000 ($0.01 per share).

On or about February 1, 2006, C&C Investment Partnership, a partnership owned by Messrs. Cocorinis and Cononelos, loaned Millennium Quest $20,000 to cover business operations and outstanding payables. The loan was repayable, with interest at 7% per annum, on or before August 1, 2006 or the date on which the Company entered into a merger, reorganization or acquisition transaction, whichever occurred first. At such time, the board of directors of the Company consisted of Messrs. Cocorinis and Cononelos, so this transaction cannot be considered the result of arms’ length negotiations. On August 11, 2006, C&C Investment Partnership agreed to extend the due date of this note for an additional 120 days. Pursuant to a Settlement and Stock Issuance Agreement dated on or about April 5, 2007, C&C Investment Partnership agreed to accept 2,500,000 shares of restricted common stock in the Company in payment and satisfaction of all amounts owed to C&C Investment Partnership by the Company.

In instances described above where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D of the Securities Act. These stockholders who received the securities in such instances made representations that (a) the stockholder is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the stockholder agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the stockholder has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the stockholder had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the stockholder has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are accredited investors (as defined in Regulation D) based upon management’s inquiry into their sophistication and net worth. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.

ITEM 4.01 CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

(a) Dismissal of Previous Independent Registered Public Accounting Firm

On April 30, 2007, our board of directors approved the dismissal of Michael J. Larsen, PC as our independent auditor, effective upon the filing of the Company’s Quarterly Report on Form 10-QSB for the first quarter of 2007. Upon the effective date of the dismissal, we will file a separate current report on Form 8-K to disclose the effectiveness of the dismissal in accordance with Item 304(a) of Regulation S-K. A copy of the letter from Michael J. Larsen, PC addressed to the SEC will be also filed by us as Exhibit 16.1 to such current report on Form 8-K.

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(b) Engagement of New Independent Registered Public Accounting Firm

On April 30, 2007, concurrent with the decision to dismiss Michael J. Larsen, PC as our independent auditor, our Board of Directors elected to continue the existing relationship of our new subsidiary Lorain Holding with Samuel H. Wong & Co., LLP, Certified Public Accountants and appointed Samuel H. Wong & Co., LLP, Certified Public Accountants as our independent auditor.

During our two most recent fiscal years (ended December 31, 2006 and 2005) and from January 1, 2007 to the date of this report, there were no disagreements with Michael J. Larsen, PC on any matter of accounting principles or practices, financial disclosure, or auditing scope or procedure. There were no reportable events, as described in Item 304(a)(1)(v) of Regulation S-K, during our two most recent fiscal years (ended December 31, 2006 and 2005) and from January 1, 2007 to the date of this report.

ITEM 5.01CHANGES IN CONTROL OF REGISTRANT

Reference is made to the disclosure set forth under Item 2.01 of this report, which disclosure is incorporated herein by reference.

As a result of the closing of the reverse acquisition with Lorain Holding, the former stockholder of Lorain Holding, Hisashi Akazawa (prior to the private placement transaction as described under Item 2.01) owned 100% of the total outstanding shares of our Series B Preferred Stock and 91% total voting power of all our outstanding voting securities. After the private placement, Mr. Akazawa’s interest in the company with diluted to 70% of the total outstanding shares of our Series B Voting Preferred Stock and 65.43% of the total voting power of all our outstanding voting securities. Mr. Akazawa has granted Mr. Chen, our Chief Executive Officer, an option, pursuant to that certain Option Agreement, dated May 3, 2007, for Mr. Chen to purchase 627,867 shares of our series B Voting Preferred stock in accordance with the terms thereof.

ITEM 5.02DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS

Upon the closing of the reverse acquisition, as of May 3, 2007, Timothy P. Halter, our sole director, submitted his resignation letter pursuant to which he resigned from all offices of the Company that he holds effective immediately and from his position as our director that will become effective on the tenth day following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14f-1 of the Exchange Act, which information statement will be mailed out on or about May 19, 2007. The resignation of Mr. Halter is not in connection with any known disagreement with us on any matter. Mr. Si Chen was appointed to the board of the directors at the closing time of the reverse acquisition.

A copy of this report has been provided to Mr. Halter. Mr. Halter has been provided with the opportunity to furnish us as promptly as possible with a letter addressed to us stating whether he agrees with the statements made by us in this report, and if not, stating the respects in which he does not agree. No such letter has been received by us.

On May 3, 2007 in connection with the closing of the reverse acquisition, Mr. Si Chen was appointed as our Chief Executive Officer and Secretary. Mr. HuanxiangShengwas appointed as Chief Financial Officer.

For certain biographical and other information regarding the newly appointed officers and directors, see the disclosure under Item 2.01 of this report, which disclosure is incorporated herein by reference.

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ITEM 5.03 AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR

We plan to amend and restate our Restated Certificate of Incorporation to (i) change our name to American Lorain Corporation (ii) increase our authorized common stock from 20 million to 200 million shares and (iii) effect a 1-for-32.84 reverse stock split. Such amendments are expected to become effective in or about June 2007.

ITEM 5.06 CHANGE IN SHELL COMPANY STATUS

Reference is made to the disclosure set forth under Item 2.01 and 5.01 of this report, which disclosure is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(a)Financial Statements of Business Acquired

Filed herewith are audited consolidated financial statements of International Lorain Holding, Inc., Shandong Green Foodstuff Co., Ltd, Junan Lorain Foodstuff Co., Ltd, Beijing Green Foodstuff Co., Ltd, and Loutian Green Foodstuff Co., Ltd. for the fiscal years ended December 31, 2006, 2005 and 2004.

(b)Pro forma financial information

Filed herewith is the unaudited pro forma condensed consolidated financial information of Millennium Quest, Inc. and its subsidiaries for the requisite periods.

(d) Exhibits

Exhibit No.	Description
2.1	Share Exchange Agreement, dated May 3, 2007, by and among the registrant, International Lorain Holding, Inc. and Hisashi Akazawa.
3.1	Restated Certificate of Incorporation of the registrant, as amended.
3.2	By-Laws of the registrant, adopted on March 31, 2000. [incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form 10SB12G filed on October 19, 2001, in commission file number 0-31619].
4.1	Certificate of Designation of Series A Voting Convertible Preferred Stock of the registrant as filed with the Secretary of State of Delaware on April 9, 2007. [incorporated by reference to Exhibit 4.1 to the registrant’s Annual Report on Form 10-KSB filed on April 9, 2007].
4.2	Certificate of Designation of Series B Voting Convertible Preferred Stock of the registrant as filed with the Secretary of State of Delaware on April 30, 2007.
4.3	Option Agreement, dated May 3, 2007, between Mr. Si Chen and Mr. Hisashi Akazawa.
4.4	Form of Registration Rights Agreement, dated May 3, 2007.
4.5	Form of Common Stock Purchase Warrant issued to Investors dated May 3, 2007.
4.6	Form of Common Stock Purchase Warrant issued to Sterne Agee & Leach, Inc., and its designee.

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10.1	Form of the Securities Purchase Agreement, dated May 3, 2007.
10.2	Make Good Escrow Agreement, dated May 3, 2007, by and among the registrant, Sterne Agee & Leach, Inc., Mr. Hisashi Akazawa, Mr. Si Chen and Securities Transfer Corporation.
10.3	Closing Escrow Agreement, dated May 3, 2007, by and among the registrant, Sterne Agee & Leach, Inc. and Thelen Reid Brown Raysman & Steiner LLP.
10.4	Cancellation and Escrow Agreement, dated May 3, 2007, by and among the registrant, Halter Financial Investments, L.P., Halter Financial Group, L.P. and Security Transfer Corporation.
10.5	Employment Agreement, dated March 2, 2005, by and between Shandong Green Foodstuff CO., LTD and Si Chen.
10.6	Employment Agreement, dated July 2, 2002, by and between Shandong Green Foodstuff CO., LTD and Xiaodong Zhou.
10.7	Employment Agreement, dated December 7, 2004, by and between Shandong Green Foodstuff CO., LTD and Huanxiang Sheng.
10.8	Cooperation Agreement, dated May 18, 2006, by and between Beijing  Green Foodstuff Co., Ltd. and the Chestnut Cooperation of Zhenzhai Village, Gaoling town, Miyun County.
10.9	Equity Transfer Agreement, dated August 15, 2006, by and between International Lorain Co., Ltd and International Lorain Holding, Inc.
10.10	Credit Facility Agreement, dated September 28, 2006, by and between Beijing  Green Foodstuff Co., Ltd. and the Shilibao Branch of Beijing Rural Commercial Bank Co., Ltd.
10.11	Sales contract, dated May 13, 2006, by and between Shandong  Green Foodstuff Co., Ltd. and the Shandong Lu An Import & Export Co., Ltd.
10.12	Sales contract, dated September 5, 2006, by and between Shandong  Green Foodstuff Co., Ltd. and the Shinsei Foods Co., Ltd.
10.13	Sales Contract, dated September 10, 2006, by and between Junan Hongrun Foodstuff Co., Ltd. and the Shinsei Foods Co., Ltd.
10.14	Financial Advisory Agreement, dated February 14, 2007, by and between HFG International, Limited and Shandong Green Foodstuff Co., Ltd.
10.15	Consulting Agreement, dated March 8, 2007, by and between Heritage Management Consultants, Inc. and International Lorain Holding, Inc.
14	Business Ethics Policy and Code of Conduct, adopted on April 30, 2007.
21	List of subsidiaries of the registrant.
99.1	Press Release, dated May 3, 2007

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SIGNATURES

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

Millennium Quest, Inc.

Date: May 9 , 2007

/s/ Si Chen

Chief Executive Officer

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INTERNATIONAL LORAIN HOLDING, INC.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006

(Stated in US dollars)

INTERNATIONAL LORAIN HOLDING, INC.

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	2
CONSOLIDATED BALANCE SHEET	3 - 4
CONSOLIDATED STATEMENT OF INCOME	5
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY	6
CONSOLIDATED STATEMENT OF CASH FLOWS	7
NOTES TO FINANCIAL STATEMENTS	8 - 27

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Board of Directors and Stockholders of International Lorain Holding, Inc.

We have audited the accompanying consolidated balance sheet of International Lorain Holding, Inc. as of December 31, 2006 and the related consolidated statements of operations, stockholders' equity, and cash flows for the short year from August 4, 2006(date of incorporation) to December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Lorain Holding, Inc. as of December 31, 2006 and the results of its operations, and cash flows for the short year then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California	Samuel H. Wong & Co., LLP
March 1, 2007	Certified Public Accountants

2

INTERNATIONAL LORAIN HOLDING, INC.

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2006

(Stated in US Dollars)

	Note
ASSETS
Current assets
Cash and cash equivalents			$	2,316,425
Pledged bank deposits		3		2,549,321
Trade accounts receivable		4		11,805,229
Trading securities				26,618
Prepayments for raw materials				2,406,161
Income tax prepayment				38,375
Other receivables		5		4,466,169
Inventories		6		12,294,354
Total current assets			$	35,902,652
Property, plant and equipment, net		7		8,883,464
Leasehold Land, net		8		2,777,476
TOTAL ASSETS			$	47,563,592
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Short term debts		9	$	21,858,467
Notes payable		10		3,466,581
Accounts payable				1,795,968
Customers’ deposits				843,089
Accrued expenses and other payables		11		2,903,995
Acquisition payable		12		7,324,272
Current maturities of long term debts		13		5,117
Income tax payable				402,217
Total current liabilities			$	38,599,706
Long term debts		13		1,384,741
TOTAL LIABILITIES			$	39,984,447

See accompanying notes to financial statements

3

INTERNATIONAL LORAIN HOLDING, INC.

CONSOLIDATED BALANCE SHEET (Continued)

AS OF DECEMBER 31, 2006

(Stated in US Dollars)

	Note
Minority interests		14	$	3,474,042
STOCKHOLDERS’ EQUITY
Common stock US$0.001 par value; 21,000,000 authorized; 100,000 issued and outstanding as
of December 31, 2006		1	$	100
Additional paid-in-capital				19,900
Statutory reserves				904,594
Retained earnings				3,149,926
Accumulated other comprehensive income				30,583
			$	4,105,103
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY			$	47,563,592

See accompanying notes to financial statements

4

INTERNATIONAL LORAIN HOLDING, INC.

CONSOLIDATED STATEMENT OF INCOME

FOR THE PERIOD FROM AUGUST 4, 2006 (DATE OF INCORPORATION)

TO DECEMBER 31, 2006

(Stated in US Dollars)

	Notes
Net revenues		18	$	29,131,850
Cost of revenues				(21,765,210	)
Gross profit			$	7,366,640
Operating expenses
Selling and marketing expenses				(606,828	)
General and administrative expenses				(934,050	)
Income from continuing operations			$	5,825,762
Finance costs, net		16		(811,940	)
Government grant				393,240
Other income				35,053
Other expenses				(30,851	)
Income before taxation			$	5,411,264
Income tax		17		(943,131	)
Net income before minority interests			$	4,468,133
Minority interests				(413,613	)
Net income			$	4,054,520
Net income per share, basic and diluted			$	40.54
Weighted average shares outstanding of common stock				100,000

See accompanying notes to financial statements

5

INTERNATIONAL LORAIN HOLDING, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM AUGUST 4, 2006 (DATE OF INCORPORATION)

TO DECEMBER 31, 2006

(Stated in US Dollars)

												Accumulated
	Common stock				Additional							other
	Number				paid-in-		Statutory		Retained			comprehensive
	of share		Amount		capital		reserves		earnings			income		Total
Balance, January 1, 2006		100,000	$	100		19,900		-		-			-		20,000
Net income										4,054,520					4,054,520
Appropriations to statutory
reserves								904,594		(904,594	)				-
Adjustments to foreign
currency translation													30,583		30,583
Balance, December 31, 2006		100,000	$	100		19,900		904,594		3,149,926			30,583		4,105,103

See accompanying notes to financial statements

6

INTERNATIONAL LORAIN HOLDING, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM AUGUST 4, 2006 (DATE OF INCORPORATION)

TO DECEMBER 31, 2006

(Stated in US Dollars)

Cash flows from operating activities
Net income	$	4,054,520
Minority interest		413,613
Depreciation		251,375
Amortization		23,788
Increase in accounts and other receivables		33,729,902
Increase in inventories		6,112,052
Increase in accounts and other payables		(36,310,583	)
Net cash provided by operating activities	$	8,274,667
Cash flows from investing activities
Acquisition of subsidiaries, net of cash equivalents		873,966
Purchase of plant and equipment		(1,566,164	)
Increase in pledged deposits		(417,738	)
Payment of cost of lease prepayment		(1,391,577	)
Net cash used in investing activities	$	(2,501,513	)
Cash flows from financing activities
Issue of common stock		20,000
Bank borrowings		8,248,038
Bank repayment		(11,744,862	)
Net cash used in financing activities	$	(3,476,824	)
Net increase in cash and cash equivalents		2,296,330
Effect of foreign currency translation on cash
and cash equivalents		20,095
Cash and cash equivalents-beginning of year		-
Cash and cash equivalents-end of year	$	2,316,425
Supplementary cash flow information:
Interest received	$	37,195
Interest paid		1,005,531

See accompanying notes to financial statements

7

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

1. ORGANIZATION, BASIS OF PRESENTATION AND PRINCIPAL ACTIVITIES

Organization

International Lorain Holding, Inc. (“the Company”) was incorporated under the Companies Law of the Cayman Islands with limited liabilities on August 4, 2006. The Company currently operates through three wholly-owned and one holding subsidiaries located in Mainland China: Shandong Green Foodstuff Co., Ltd. (“Shandong Lorain”), Junan Hongrun Foodstuff Co., Ltd. (“Junan Hongrun”), Luotian Green Foodstuff Co., Ltd. (“Luotian Lorain”), and Beijing Green Foodstuff Co., Ltd. (“Beijing Lorain”).

The Company and its subsidiaries (hereinafter, collectively referred to as “the Group”) are engaged in development, manufacture and sales of food products worldwide. The Group produces hundreds of varieties of food categorized into three divisions: chestnut products, convenient food including Ready-to-Cook (RTCs), Ready-to-Eat (RTEs) and Meals Ready-to-Eat (MREs), and frozen and canned food.

Basis of Presentation

The current equity structure is established through a series of restructuring transactions:

The Company was incorporated in Cayman Islands in August 2006. Mr. Hisashi Akazawa has 100% equity ownership. In July, 2006, Junan Hongrun acquired the 100% equity ownership of Beijing Lorain. In September, 2006, the Company acquired the 100% equity ownership of Luotian Lorain. On August 30, 2006, the Company acquired the 100% equity ownership of Junan Hongrun, and thus Beijing Lorain became our indirectly wholly-owned subsidiary through Junan Hongrun. In August, 2006, the Company acquired the 25% equity ownership of Shandong Lorain. After that, the Company hold 80.2% equity ownership of Shandong Lorain including 55.2% indirectly holdings through our wholly-owned subsidiary Junan Hongrun. The remaining 19.8% equity of Shangdong Lorain is held by a state-owned interest, Shandong Economic Development Investment Corporation.

After the restructuring described as above, the Company presently has two direct wholly-owned subsidiaries Junan Hongrun and Luotian Lorain, one indirect wholly-owned subsidiary through Junan Hongrun, which is Beijing Lorain. In addition, the Company directly and indirectly own 80.2% ownership of Shandong Lorain. The rest 19.8% state-owned equity of Shandong Lorain is not included in the listing subject.

Mr. Hisashi Akazawa owns 100% equity interest of the Company.

8

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

(b)   Principles of consolidation

The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its commonly controlled entity. All significant inter-company balances and transactions are eliminated in combination.

The Company owned its subsidiaries soon after its inception and continued to own the equity interests through December 31, 2006. The following table depicts the identity of each subsidiary:

Name of Company	Place of Incorporation		Attributable EquityInterest %		Registered Capital
Shandong Green Foodstuff Co., Ltd		PRC		80.2	$	12,901,823	(RMB 100,860,000)
Luotian Green Foodstuff Co., Ltd.		PRC		100	$	1,279,181	(RMB 10,000,000)
Junan Hongrun Foodstuff Co., Ltd		PRC		100	$	2,430,445	(RMB 19,000,000)
Beijing Green Foodstuff Co., Ltd		PRC		100	$	1,279,181	(RMB 10,000,000)

(c)   Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

9

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d)   Economic and political risks

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

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

(e)   Leasehold Land

Leasehold Land represents cost of land use rights in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 year.

(f)   Property, Plant and Equipment

Plant and Equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Buildings	40 years
Machinery and equipment	10 years
Office equipment	5 years
Motor vehicles	10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

10

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g)   Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting period, there was no impairment loss.

(h)   Construction in progress

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

(i)   Investment securities

The Company classifies its equity securities into trading or available-for-sale. Trading securities are bought and held principally for the purpose of selling them in the near term. All securities not included in trading securities are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in the net income. Unrealized holding gains and losses, net of the related tax effect, on available for sale securities are excluded from net income and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis.

A decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged as an expense to the statement of income and comprehensive income and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, and forecasted performance of the investee.

11

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.

As at December 2006, the unrealized gains and loses on these investments are immaterial.

(j)   Inventories

Inventories consisting of finished goods and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

(k)   Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is doubtful. Bad debts are written off as incurred.

(l)   Customer deposits

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

(m)   Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts only in the PRC. Thus far, no bank account is maintained in the United States of America.

(n)   Advertising

All advertising costs are expensed as incurred. The Group incurred $1,265 for advertising costs during the period from August 4, 2006 (date of incorporation) to December 31, 2006.

(o)   Shipping and handling

All shipping and handling are expensed as incurred. The Group incurred $627,420 for shipping and handling expenses during the period from August 4, 2006 (date of incorporation) to December 31, 2006.

12

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(p)   Research and development

All research and development costs are expensed as incurred. The Group incurred $1,249 for research and development costs during the period from August 4, 2006 (date of incorporation) to December 31, 2006.

(q)   Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the consolidated statement of income as incurred. The Group incurred (date of incorporation) $4,719 for the retirement benefits during the period from August 4, 2006 to December 31, 2006.

(r)   Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future year. 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 realization is uncertain.

(s)   Statutory reserves

Statutory reserves refer to the amount appropriated from the net income in accordance with PRC laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

(t)   Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	2006
Period end RMB : US$ exchange rate		7.81750
Average yearly RMB : US$ exchange rate		7.90911

13

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(u)   Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). When goods have been delivered and accepted by customer, no sales return and discount is granted.

(v)   Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of ordinary shares outstanding and dilutive potential ordinary shares during the year. During the year ended December 31, 2006, no dilutive potential ordinary shares was issued.

(w)   Segment reporting

The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal reporting used by the Company’s chief operating decision-maker as the source for determining the Company’s reportable segments.

(x)   Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated pursuant to FASB No. 5

14

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(y)   Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

(z)   Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal years.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

15

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3. PLEDGED BANK DEPOSITS

Pledged bank deposits are restricted cash with banks for general banking facilities and notes payables.

4. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable	$	12,032,110
Less: Allowance for doubtful accounts		(226,881	)
	$	11,805,229

The Group offer credit terms of between 90 to 180 days to most of their international distributors and between 30 to 90 days for most of their domestic distributors.

An analysis of the allowance for doubtful accounts for the year ended December 31, 2006 is as follows:

Balance at beginning of year	$	-
Arising through acquisition		67,090
Addition of bad debt expense, net		159,791
Balance at end of year	$	226,881

5. OTHER RECEIVABLES

Other receivables at December 31, 2006 consist of the following:

Advances to suppliers	$	1,083,467
Amount due from a director		561,995
Turnover taxes prepayment		159,136
Purchases advances		2,661,571
	$	4,466,169

Amount due from a director is unsecured, interest free and has no fixed repayment date.

16

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

6. INVENTORIES

Inventories at December 31, 2006 consist of the following:

Raw materials	$	7,785,927
Finished goods		4,508,427
	$	12,294,354

7. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2006 consist of the following:

At cost
Buildings	$	5,706,515
Landscaping, plant and tree		462,654
Machinery and equipment		3,658,663
Office equipment		163,100
Motor vehicles		245,139
	$	10,236,071
Less: accumulated depreciation		(2,184,172	)
Construction in progress		831,565
	$	8,883,464

Depreciation and amortization expense is included in the statement of income and comprehensive income as follows:

Cost of revenues	$	221,046
Selling and marketing expenses		9,518
General and administrative expenses		20,811
	$	251,375

17

Construction in progress mainly comprises capital expenditures for construction of the Company’s new corporate campus, including offices, factories and staff dormitories. Capital commitments for the construction are immaterial for the three year.

Landscaping, plant and tree are chestnut tree in the growing bases, which have not been the significant procurement source.

18

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

8. LEASEHOLD LAND, NET

Leasehold Land at December 31, 2006 consists of the following:

Leasehold Land, at cost	$	2,886,587
Accumulated amortization		(109,111	)
	$	2,777,476

Leasehold Land represents the prepaid land use right. The PRC government owns the land on which the Company’s corporate campus is being constructed.

Amortization expense for the above leasehold land was $23,788 for the period from August 4, 2006 (date of incorporation) to December 31, 2006. Amortization expense calculated by straight-line is at $48,037 per year.

9. SHORT-TERM DEBTS

Short-term debts are as follows:

Loans from Junan County Construction Bank,
interest rate at 6.264% per annum
Due between 1/10/2007 and 9/7/2007	$	3,652,576
Loans from Junan County Agriculture Bank, interest
rate at 7.6500% to 10.404% per annum
Due between 1/10/2007 and 12/5/2007		6,269,636
Loan from Junan County Industrial and Commercial
Bank, interest rate at 4.650% to 6.120% per annum
Due between 1/11/2007 and 12/10/2007		4,699,925
Loan from Junan County Agricultural Financial
Institution, interest rate at 9.765% per annum
Due between 1/13/2007 and 5/22/2007		181,644
	$	14,803,781

19

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

9. SHORT-TERM DEBTS (Continued)

Loan from Linyi Commercial Bank, interest rates
at 9.765% to 10.4715% per annum
Due between 1/9/2007 and 11/29/2007	$	1,688,520
Loan from Junan Agricultural Development Bank,
interest rate at rates at 5.3625% to 6.435% per annum
Due between 7/19/2007 and 9/4/2007		1,279,182
Loan from Beijing Miyun County Shilipu Rural
Financial Institution, interest rates at 0.6600% to
0.7650% per annum
Due between 3/30/2007 and 5/27/2007		2,539,174
Loan from China Agricultural Bank, Miyun Branch,
interest rate at 0.5850% per annum
Due 7/18/2007		575,632
Loan from China Agricultural Bank, Luotian Square
Branch interest rates at 7.605% to 7.950% per annum
Due 6/30/2007 and 9/5/2007		972,178
	$	7,054,686
	$	21,858,467

The loans were primarily obtained for general working capital.

Interest expenses for the loans were $966,031 for the period from August 4, 2006 (date of incorporation) to December 31, 2006.

20

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

10. NOTES PAYABLE

Notes payable at December 31, 2006 consist of the following:

Notes to Industrial and Commercial	$
Bank, bank commission charge at
3.7440% , due June 1, 2007		3,274,704
Notes to Linyi Commercial Bank
bank commission charge at
2.85% , due May 20, 2007		191,877
	$	3,466,581

11. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables at December 31, 2006 consist of the following:

Accrued salaries and wages	$	346,738
Accrued utility expenses		114,856
Accrued Interest expenses		11,178
Accrued transportation expenses		100,089
Other accruals		90,000
Business and other taxes		734,492
Purchases disbursements payables		1,506,642
	$	2,903,995

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

12. ACQUISITION PAYABLE

Acquisition Payable represented total amount due to shareholders of the four subsidiaries involved in the acquisition deal, which is disclosed in Note 15.

21

After paying-down $2,967,115 towards this debt on April 13, 2007, on April 25, 2007, the Company has agreed with the related debtor and the stockholder to convert the remaining balance of $4,357,157 into common stock equity to the stockholder.

22

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

13. LONG-TERM DEBTS

Long-term debts are as follows:

Loan from Bank of China, Junan Branch
interest rates at 0.67% per annum
Due 5/19/2009	$	14,738
Loan from International Trust & Investment Co., Ltd,
interest rates at 0.67% per annum
Due 6/13/2008		1,279,181
Loan from Agricultural Development Department of
Luotian Government, interest rates at 0.67% per
Annum
Due 12/11/2010		95,939
	$	1,389,858
Less: Current maturities of long-term debts		(5,117	)
	$	1,384,741

Interest expenses for the loans were $39,500 for the period from August 4, 2006 (date of incorporation) to December 31, 2006.

14. MINORITY INTERESTS

This represents the 19.8% equity of Shangdong Lorain held by a state-owned interest, Shandong Economic Development Investment Corporation.

23

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

15. ACQUISITION

In July, 2006, Junan Hongrun acquired 100% equity ownership of Beijing Lorain. In September, 2006, the Company acquired 100% equity ownership of Luotian Lorain. On August 30, 2006, the Company acquired 100% equity ownership of Junan Hongrun, and thus Beijing Lorain became the indirectly wholly-owned subsidiary through Junan Hongrun. In August, 2006, the Company acquired 25% equity ownership of Shandong Lorain. After that, the Company holds 80.2% equity ownership of Shandong Lorain including 55.2% indirectly holdings through the wholly-owned subsidiary Junan Hongrun. The remaining 19.8% equity of Shangdong Lorain is held by a state-owned interest, Shandong Economic Development Investment Corporation.

The following table depicts total assets acquired and liabilities assumed from the above-mentioned subsidiaries at fair values. However, pursuant to the Acquisition Agreement, the Purchase Price was $7,319,476, which was less than the Net Assets acquired of $11,867,757 by $4,546,281. This differential represents Negative Goodwill, which was accounted for according to generally accepted accounting principles in the United States as addressed below.

Cash	$	8,055,825
Other current assets		68,783,142
Property and equipment		10,508,588
Other assets		2,379,848
Total assets acquired		89,727,403
Current liabilities		(77,861,646	)
Net assets acquired	$	11,865,757
Less: Negative goodwill		(4,546,281	)
Acquisition price		7,319,476

Negative goodwill has been applied to reduce the property and equipment as at the acquisition.

16. FINANCE COSTS, NET

Details of finance costs are summarized as follows:

24

Total interest expense:
Short-term loans (refer to Note 9)	$	966,031
Long-term loans (refer to Note 13)		39,500
		1,005,531
Interest Income		(37,195	)
Others		(156,396	)
		811,940

25

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

17. INCOME TAXES

All of the Group’s income before income taxes and related tax expenses are from PRC sources. In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. However, also in accordance with the relevant taxation laws in the PRC, some of the subsidiaries of the Group are eligible for tax exemption. In particular, from the time that a company has its first profitable tax year, the company is exempt from corporate income tax for its first two year and is then entitled to a 50% tax reduction for the succeeding three year. Actual income tax expenses reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 33% to income before income tax for the period from August 4, 2006 (date of incorporation) to December 31, 2006 for the following reasons:

Income before tax	$	5,411,264
Tax at the income tax rate		1,785,717
Effect of tax exemption granted		(842,586	)
Income tax	$	943,131

As of December 31, 2006, there existed no deferred tax assets or liabilities for the Group pursuant to the PRC tax law.

26

INTERNATIONAL LORAIN HOLDING, INC.

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

18. SEGMENT INFORMATION

The Group currently engages in the manufacturing and distribution of a wide variety of convenient food and chestnuts products. Net revenues for the period from August 4, 2006 (date of incorporation) to December 31, 2006 were as follows:

Net revenues by product:

Chestnut	$	13,983,288	48	%
Convenience Food		3,495,822	12	%
Frozen, Canned and Bulk Food		11,652,740	40	%
	$	29,131,850	100	%

Net revenues by geographic area:

China	$	11,267,798	39	%
Japan		9,597,286	33	%
Kuwait		1,129,209	4	%
Others		7,137,557	25	%
	$	29,131,850	100	%

27

Shandong Green Foodstuff Co., Ltd

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US dollars)
 

SHANDONG GREEN FOODSTUFF CO., LTD

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	1
BALANCE SHEETS	2 - 3
STATEMENTS OF INCOME	4
STATEMENTS OF STOCKHOLDERS’ EQUITY	5
STATEMENTS OF CASH FLOWS	6
NOTES TO FINANCIAL STATEMENTS	7 - 18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The board of directors and stockholders of

Shandong Green Foodstuff Co., Ltd

We have audited the accompanying balance sheets of Shandong Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shandong Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California March 1, 2007 Samuel H. Wong & Co., LLP Certified Public Accountants

1

SHANDONG GREEN FOODSTUFF CO., LTD

BALANCE SHEETS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006		2005		2004
ASSETS
Current assets
Cash and cash equivalents			$	511,520	$	5,155,380	$	2,127,107
Pledged deposits		3		588,617		2,838,067		1,566,638
Trade accounts receivable		4		5,552,813		2,137,692		4,896,673
Amounts due from related
companies		5		10,159,238		11,473,570		8,734,488
Prepayments for raw materials				2,165,886		1,553,362		698,598
Other receivables		6		2,569,335		2,641,743		2,803,172
Inventories		7		5,081,421		5,425,698		5,743,344
Total current assets			$	26,628,830	$	31,225,512	$	26,570,020
Property, plant and equipment, net		9		5,129,286		3,720,647		3,603,836
Investment securities				26,620		16,476		9,654
Leasehold land, net		10		921,513		469,177		469,007
TOTAL ASSETS			$	32,706,249	$	35,431,812	$	30,652,517
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans		11	$	11,825,958	$	16,427,664	$	13,573,087
Current maturities of long term
debt		14		5,117		-		-
Accounts payable				1,152,798		1,237,010		1,025,574
Notes payable		12		191,877		2,229,544		1,568,817
Customers’ deposits				105,227		78,475		3,657,924
Accrued expenses and other
payables		13		568,229		1,000,696		1,164,878
Income tax payable				338,609		194,466		199,912
Total current liabilities			$	14,187,815	$	21,167,855	$	21,190,192
Long term debts		14		1,288,803		-		-
TOTAL LIABILITIES			$	15,476,618	$	21,167,855	$	21,190,192

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

2

SHANDONG GREEN FOODSTUFF CO., LTD

BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes	2006		2005		2004
STOCKHOLDERS’ EQUITY
Common stock		$	12,467,395	$	12,467,395	$	965,426
Additional paid-in-capital			266,391		266,391		266,391
Statutory reserves			1,248,805		915,951		647,605
Retained earnings			2,588,502		479,225		7,587,614
Accumulated other comprehensive
income			658,538		134,995		(4,711	)
		$	17,229,631	$	14,263,957	$	9,462,325
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY		$	32,706,249	$	35,431,812	$	30,652,517

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

3

SHANDONG GREEN FOODSTUFF CO., LTD

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006			2005			2004
Net revenues			$	23,151,286		$	18,861,695		$	25,280,603
Cost of revenues				(17,858,007	)		(14,506,900	)		(21,129,419	)
Gross profit			$	5,293,279		$	4,354,795		$	4,151,184
Operating expenses
Selling and marketing expenses				(788,207	)		(832,674	)		(1,599,215	)
General and administrative expenses				(949,281	)		(654,916	)		(701,581	)
Income from continuing operations			$	3,555,791		$	2,867,205		$	1,850,388
Finance costs, net		15		(1,096,616	)		(1,018,385	)		(1,163,984	)
Government grant				481,380			317,701			438,748
Other income				10,390			69,778			87,726
Other expenses				(14,425	)		(3,165	)		(2,556	)
Income before taxation			$	2,936,520		$	2,233,135		$	1,210,321
Income tax		8		(494,390	)		(191,386	)		(199,896	)
Net income			$	2,442,131		$	2,041,749		$	1,010,426

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

4

SHANDONG GREEN FOODSTUFF CO., LTD

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

										Accumulated
			Additional							other
	Common		paid-in-		Statutory		Retained			comprehensive
	stock		capital		reserves		earnings			income			Total
Balance, January 1, 2004	$	965,426		266,391		498,609		6,726,184			-			8,456,610
Net income								1,010,426						1,010,426
Appropriations to statutory
reserves						148,996		(148,996	)
Foreign currency translation
adjustment											(4,711	)		(4,711	)
Balance, December 31, 2004	$	965,426		266,391		647,605		7,587,614			(4,711	)		9,462,325
Balance, January 1, 2005	$	965,426		266,391		647,605		7,587,614			(4,711	)		9,462,325
Net income								2,041,749
Issue of common stock		11,501,969												11,501,969
Appropriations to statutory
reserves						268,346		(268,346	)
Dividends								(8,881,792	)					(8,881,792	)
Foreign currency translation
adjustment											139,706			139,706
Balance, December 31, 2005	$	12,467,395		266,391		915,951		479,225			134,995			14,263,957
Balance, January 1, 2006	$	12,467,395		266,391		915,951		479,225			134,995			14,263,957
Net income								2,442,131						2,442,131
Appropriations to statutory
reserves						332,854		(332,854	)
Foreign currency translation
adjustment											523,543			523,543
Balance, December 31, 2006	$	12,467,395		266,391		1,248,805		2,588,502			658,538			17,229,631

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

5

SHANDONG GREEN FOODSTUFF CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	2006			2005			2004
Cash flows from operating activities
Net income	$	2,442,131		$	2,041,749		$	1,010,426
Depreciation		329,974			303,106			212,748
Amortization		18,508			12,016			6,820
(Increase)/Decrease in accounts and other receivables		(3,171,836	)		(4,581,133	)		(11,766,993	)
(Increase)/Decrease in inventories		511,135			461,812			(2,787,974	)
Increase/(Decrease) in accounts and other payables		(1,324,978	)		1,334,197			12,157,081
Net cash (used in)/provided by operating
activities	$	(1,195,066	)	$	(428,253	)	$	(1,167,893	)
Cash flows from investing activities
Purchase of plant and equipment		(1,590,317	)		(351,317	)		(1,590,485	)
Increase in pledged bank deposits		2,294,111			(1,210,599	)		(311,835	)
Payment of leasehold land		(446,486	)		(6,492	)		(202,999	)
Investments in securities		(9,407	)		(6,461	)		(9,653	)
Net cash used in investing activities	$	247,901		$	(1,574,869	)	$	(2,114,972	)
Cash flows from financing activities
Issue of common stock		-			11,501,969			-
Dividend paid		-			(8,881,792	)		-
Bank borrowings		14,560,283			17,241,146			12,224,322
Bank repayment		(18,326,617	)		(14,966,498	)		(10,081,478	)
Net cash provided by/(used in) financing	$	(3,766,334)	)	$	4,894,825		$	2,142,844
activities
Net increase/(decrease) in
cash and cash equivalents		(4,713,500	)		2,891,703			(1,140,021	)
Effect of foreign currency translation on cash
and cash equivalents		69,640			136,570			(4,831	)
Cash and cash equivalents-beginning of year		5,155,380			2,127,107			3,271,959
Cash and cash equivalents-end of year	$	511,520		$	5,155,380		$	2,127,107
Supplementary cash flow information:
Interest received	$	131,455		$	111,645		$	131,455
Interest paid		1,105,761			1,105,761			1,105,761

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

6

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

Shandong Green Foodstuff Co., Ltd was established in the People’s Republic of China (the PRC) as a limited company in July 1994. The Company currently operates and locates in Junan County, Shandong Province of the People’s Republic of China.

The Company is engaged in the development, manufacture and sales of food products worldwide. The Group produces hundreds of varieties of food categorized into three divisions: chestnut products, convenient food including Ready-to-Cook (RTCs), Ready-to-Eat (RTEs) and Meals Ready-to-Eat (MREs), and frozen and canned food.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

(b)   Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(c)   Economic and political risks

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

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

7

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(d)   Leasehold land

Leasehold land is stated at cost less accumulated amortisation. Amortisation is provided over the respective useful lives, using the straight-line method. Estimated useful live is 50 years.

(e)   Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows: -

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles	10 years
Office equipment	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(f)   Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting years, there was no impairment loss.

(g)   Construction in progress

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

8

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(h)   Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

(i)   Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(j)   Customer deposits

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

(k)   Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts only in the PRC. The Company does not maintain any bank accounts in the United States of America.

(l)   Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	2006		2005		2004
Year end RMB : US$ exchange rate		7.81750		8.07340		8.28650
Average yearly RMB : US$ exchange rate		7.98189		8.20329		8.28723

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(m)   Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

9

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

(n)   Advertising

The Company expensed all advertising costs as incurred.

(o)   Shipping and handling

All shipping and handling are expensed as incurred.

(p)   Research and development

All research and development costs are expensed as incurred.

(q)   Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred.

(r)   Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred 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 realization is uncertain.

(s)   Statutory reserves

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

(t)   Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

10

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(u) Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

11

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3. PLEDGE BANK DEPOSITS

Pledged bank deposits are restricted cash with banks for general banking facilities and notes payables.

4. TRADE ACCOUNTS RECEIVABLE

	2006			2005			2004
Trade accounts receivable
- unrelated parties	$	5,742,077		$	2,160,496		$	4,913,776
Less: Allowance for doubtful
accounts		(189,264	)		(22,804	)		(17,103	)
	$	5,552,813		$	2,137,692		$	4,896,673

An analysis of the allowance for doubtful accounts for the years ended December 31, 2006, 2005, and 2004 is as follows: -

	2006		2005		2004
Balance at beginning of year	$	22,804	$	17,103	$	24,938
Addition of bad debt expense, net		166,460		5,701		(7,835	)
Balance at end of year	$	189,264	$	22,804	$	17,103

5. AMOUNTS DUE FROM RELATED COMPANIES

Amounts due from related companies are unsecured, interest free and have no fixed repayment dates.

6. INVENTORIES

Inventories at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Raw materials	$	2,286,603	$	1,920,243	$	1,775,332
Finished goods		2,794,818		3,505,455		3,968,012
	$	5,081,421	$	5,425,698	$	5,743,344

12

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

7. OTHER RECEIVABLES

Other receivables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Advances to suppliers	$	268,151	$	244,524	$	266,907
Turnover taxes prepayment		-		-		378,707
Purchases disbursements
advances		2,301,184		2,397,219		2,157,558
	$	2,569,335	$	2,641,743	$	2,803,172

8. INCOME TAXES

All of the Company’s income before income taxes and related tax expenses are from PRC sources. In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. Actual income tax expenses reported in the statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 33% to income before income tax for the three years ended December 31, 2006, 2005, and 2004 for the following reasons: -

	2006			2005			2004
Income before tax	$	2,936,520		$	2,233,135		$	1,210,321
Tax at the income tax rate		969,052			736,935			399,311
Effect of tax exemption granted		(474,662	)		(545,549	)		(199,415	)
Income tax	$	494,390			191,386			199,896

No provision for deferred tax (benefit) has been made for the PRC tax jurisdiction because no significant deferred tax liabilities or assets existed as of either December 31, 2006, 2005, or 2004.

13

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

9. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
At cost:
Building	$	2,259,939		$	1,619,407		$	1,577,762
Landscaping, plant and tree		814,001			216,513			20,853
Machinery and equipment		2,872,190			2,652,910			2,461,204
Office equipment		121,891			107,932			98,125
Motor vehicles		286,016			247,256			240,313
	$	6,354,037		$	4,844,018		$	4,398,257
Less: accumulated depreciation		(1,497,058	)		(1,123,371	)		(794,421	)
Construction in progress		272,307			-			-
	$	5,129,286		$	3,720,647		$	3,603,836

Depreciation and amortization expense is included in the statement of income and comprehensive income as follows: -

	2006		2005		2004
Cost of revenues	$	287,865	$	261,396	$	186,674
Selling and marketing expenses		18,111		20,384		13,956
General and administrative expenses		23,997		21,326		12,119
	$	329,973	$	303,106	$	212,749

Construction in progress mainly comprises capital expenditures for construction of the Company’s new corporate campus, including offices, factories and staff dormitories.

14

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

10. LEASEHOLD LAND

Leasehold land at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
Leasehold land, at cost	$	960,249		$	488,387		$	475,827
Less: Accumulated amortization		(38,735	)		(19,210	)		(6,820	)
	$	921,513		$	469,177		$	469,007

Leasehold land represent the prepaid land use right. The land on which the Company’s new corporate campus is being constructed is owned by the PRC government.

Amortization expenses for the above lease prepayments were approximately $18,508, $12,016, and $6,820 for the years ended December 31, 2006, 2005, and 2004, respectively. Estimated amortization expense for the next five years is approximately $18,508 each year.

11. SHORT TERM BANK LOANS

The followings are the short term bank loans outstanding as at December 31, 2006, 2005, and 2004: -

	2006		2005		2004
Loans from Junan County Construction Bank,
interest rates at 6.264% per annum
Due between 1/10/2007 and 9/7/2007	$	3,339,656	$		$
Due between 1/16/2006 and 4/22/2006				7,253,655
Due between 1/12/2005 and 12/31/2005						6,204,470
Loans from Junan County Agriculture Bank,
interest rates at 7.6500% to 10.404% per
annum
Due between 1/10/2007 and 12/5/2007		5,299,775
Due between 1/16/2006 and 12/19/2006				5,247,696
Due between 1/13/2005 and 10/14/2005						3,927,634
Loan from Junan County Industrial and
Commercial Bank, interest rates at 4.650% to
6.120% per annum
Due between 1/11/2007 and 12/10/2007		3,004,883
Due between 2/23/2006 and 12/19/2006				3,926,313
Due between 1/12/2005 and 9/22/2005						3,440,983

15

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

11. SHORT TERM BANK LOANS (Continued)

Loan from Junan County Agricultural
Financial Institution, interest rates at 9.765%
per annum
Due between 1/13/2007 and 5/22/2007		181,644
Due between 9/10/2006 and 10/20/2006				505,923
Due between 1/22/2005 and 5/24/2005						70,539
	$	11,825,958	$	16,427,664	$	13,573,087

The loan was primarily obtained for general working capital.

Interest expenses for the loans were $1,142,083, $1,105,761, and $1,110,632 respectively for the years ended December 31, 2006, 2005, and 2004.

12. NOTES PAYABLE

The followings are the notes payable outstanding as at December 31, 2006, 2005, and 2004: -

	2006		2005		2004
Notes to Linyi Commercial Bank
bank commission charge at 0.05% ,
Due 5/20/2007	$	191,877	$		$
Notes to Junan County Agriculture Bank,
bank commission charge at 0.05% ,
Due 3/29/2006				1,238,636
Notes to Junan County Industrial and Commercial Bank
bank commission charge at 0.05% ,
Due between 4/30/2006 and 5/19/2006				990,908
Due 3/25/2005						724,069
Loan from Junan County Agricultural
Financial Institution,
bank commission charge at 0.05% ,
Due between 4/5/2005 and 5/26/2005						844,747
	$	191,877	$	2,229,544	$	1,568,817

16

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

13. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Accrued salaries and wages	$	42,854	$	69,842	$	166,513
Accrued utility expenses		68,288		120,004		75,200
Accrued Interest expenses		4,419		304,232		204,183
Accrued transportation expenses		-		6,504		399,564
Business and other taxes		73,425		200,653		-
Purchases disbursements payables		379,241		299,459		319,420
	$	568,229	$	1,000,696	$	1,164,878

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

14. LONG-TERM DEBTS

Long-term debts are as follows:

Loan from Bank of China, Junan Branch
interest rates at 0.67% per annum
Due 5/19/2009	$	14,738
Loan from International Trust & Investment Co., Ltd,
interest rates at 0.67% per annum
Due 6/13/2008		1,279,182
	$	1,293,920
Less: Current maturities of long term debts		(5,117	)
	$	1,288,803

Interest expenses for the loans were $39,500 for the year ended December 31, 2006.

17

SHANDONG GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

15. FINANCE COSTS, NET

Details of finance costs are summarized as follows:

	2006			2005			2004
Total interest cost incurred	$	1,181,583		$	1,105,761		$	1,110,632
Interest income		(131,455	)		(111,645	)		(98,150	)
Others		46,488			24,269			151,502
	$	1,096,616		$	1,018,385		$	1,163,984

18

Junan Hongrun Foodstuff Co., Ltd

FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005, AND 2004

(Stated in US dollars)

JUNAN HONGRUN FOODSTUFF CO., LTD

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	1
BALANCE SHEETS	2 - 3
STATEMENTS OF INCOME	4
STATEMENTS OF STOCKHOLDERS’ EQUITY	5
STATEMENTS OF CASH FLOWS	6
NOTES TO FINANCIAL STATEMENTS	7 - 18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Board of Directors and Stockholders of Junan Hongrun Foodstuff Co., Ltd

We have audited the accompanying balance sheets of Junan Hongrun Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Junan Hongrun Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California	Samuel H. Wong & Co., LLP
March 1, 2007	Certified Public Accountants

1

JUNAN HONGRUN FOODSTUFF CO., LTD

BALANCE SHEETS

AS OF DECEMBER 31, 2006, 2005, AND 2004

(Stated in US Dollars)

	Notes		2006		2005		2004
ASSETS
Current assets
Cash and cash equivalents			$	484,156	$	1,729,469	$	2,426,963
Pledged deposits		3		1,960,704		-		-
Trade accounts receivable		4		3,183,750		4,112,198		1,595,047
Prepayments for raw materials				136,515		220,714		733,290
Amounts due from related
companies		5		-		1,545,813		-
Other receivables		6		1,692,811		1,691,891		2,019,029
Inventories		7		4,024,578		6,013,884		6,073,173
Total current assets			$	11,482,514	$	15,313,969	$	12,847,502
Property, plant and equipment, net		9		2,312,157		2,251,017		1,412,514
Investments in subsidiaries				8,012,792		-		-
Leasehold land, net		10		1,298,438		314,324		313,451
TOTAL ASSETS			$	23,105,901	$	17,879,310	$	14,573,467
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans		11	$	6,265,320	$	2,655,322	$	1,559,547
Accounts payable				648,993		535,468		486,661
Notes payable		12		3,274,704		1,535,908		-
Amounts due to related companies		5		6,316,983		7,955,750		7,146,318
Customers’ deposits				24,756		152,958		1,259,418
Accrued expenses and other
payables		13		744,413		608,772		1,553,037
Total current liabilities			$	17,275,169	$	13,444,178	$	12,004,981
TOTAL LIABILITIES			$	17,275,169	$	13,444,178	$	12,004,981

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

2

JUNAN HONGRUN FOODSTUFF CO., LTD

BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2006, 2005, AND 2004

(Stated in US Dollars)

	Notes	2006		2005		2004
STOCKHOLDERS’ EQUITY
Common stock		$	2,394,230	$	603,376	$	603,376
Statutory reserves			922,489		490,610		265,863
Retained earnings			2,283,513		3,244,696		1,699,077
Accumulated other comprehensive
Income			230,500		96,450		170
		$	5,830,732	$	4,435,132	$	2,568,486
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY		$	23,105,901	$	17,879,310	$	14,573,467

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

3

JUNAN HONGRUN FOODSTUFF CO., LTD

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

(Stated in US Dollars)

	Notes		2006			2005			2004
Net revenues			$	14,991,955		$	11,091,448		$	8,557,309
Cost of revenues				(11,048,370	)		(8,792,987	)		(6,574,581	)
Gross profit			$	3,943,585		$	2,298,461		$	1,982,728
Operating expenses
Selling and marketing expenses				(236,346	)		(133,391	)		(26,436	)
General and administrative expenses				(314,533	)		(189,618	)		(143,229	)
Income from continuing operations			$	3,392,706		$	1,975,452		$	1,813,063
Finance costs, net		14		(412,711	)		(241,152	)		(25,807	)
Other income				38,909			36,676			22,856
Other expenses				(24,999	)		(610	)		(37,843	)
Income before taxation			$	2,993,905		$	1,770,366		$	1,772,269
Income tax		8		(310,181	)
Net income			$	2,683,724		$	1,770,366		$	1,772,269

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

4

JUNAN HONGRUN FOODSTUFF CO., LTD

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

(Stated in US Dollars)

								Accumulated
								other
	Common		Statutory		Retained			comprehensive
	stock		reserves		earnings			income		Total
Balance, January 1, 2004	$	603,376		-		192,671			-		796,047
Net income						1,772,269					1,772,269
Appropriations to statutory
reserves				265,863		(265,863	)
Foreign currency translation
adjustment									170		170
Balance, December 31, 2004	$	603,376		265,863		1,699,077			170		2,568,486
Balance, January 1, 2005	$	603,376		265,863		1,699,077			170		2,568,486
Net income						1,770,366					1,770,366
Appropriations to statutory
reserves				224,747		(224,747	)
Foreign currency translation
adjustment									96,280		96,280
Balance, December 31, 2005	$	603,376		490,610		3,244,696			96,450		4,435,132
Balance, January 1, 2006	$	603,376		490,610		3,244,696			96,450		4,435,132
Net income						2,683,724					2,683,724
Issue of common stock		1,790,854									1,790,854
Appropriations to statutory
reserves				431,879		(431,879	)
Dividends						(3,213,028	)				(3,213,028	)
Foreign currency translation
adjustment									134,050		134,050
Balance, December 31, 2006	$	2,394,230		922,489		2,283,513			230,500		5,830,732

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

5

JUNAN HONGRUN FOODSTUFF CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

(Stated in US Dollars)

	2006			2005			2004
Cash flows from operating activities
Net income	$	2,683,724		$	1,770,366		$	1,772,269
Depreciation		110,584			88,364			58,538
Amortization		21,036			7,284			1,063
(Increase)/Decrease in accounts and other receivables		1,698,494			(7,800,209	)		(9,565,377	)
(Increase)/Decrease in inventories		2,141,141			216,115			(2,170,091	)
Increase in accounts and other payables		919,637			4,807,571			9,604,477
Net cash (used in)/provided by operating
activities	$	7,574,616		$	(910,509	)	$	(299,121	)
Cash flows from investing activities
Purchase of plant and equipment		(98,297	)		(876,896	)		(405,884	)
Increase in pledged bank deposits		(1,920,323	)		-			-
Payment of leasehold land		(974,805	)		-			(276,951	)
Investments in subsidiaries		(7,847,765	)		-			-
Net cash used in investing activities	$	(10,841,190	)	$	(876,896	)	$	(682,835	)
Cash flows from financing activities
Issue of common stock		1,790,854			-			-
Dividend paid		(3,213,028	)		-			-
Bank borrowings		8,837,033			2,378,799			1,631,817
Bank repayment		(5,423,398	)		(1,340,889	)		(72,401	)
Net cash provided by/(used in) financing
activities	$	1,991,461		$	1,037,910		$	1,559,416
Net increase/(decrease) in
cash and cash equivalents		(1,275,113	)		(749,495	)		577,460
Effect of foreign currency translation on cash
and cash equivalents		29,799			52,001			93
Cash and cash equivalents-beginning of year		1,729,469			2,426,963			1,849,410
Cash and cash equivalents-end of year	$	484,156		$	1,729,469		$	2,426,963
Supplementary cash flow information:
Interest received	$	8,449		$	5,182		$	6,947
Interest paid		386,224			199,617			27,111

The accompanying notes are an integral part of these financial statements

6

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Junan Hongrun Foodstuff Co., Ltd was established in the People’s Republic of China (the PRC) as a limited company in November 2002. The Company currently operates and locates in Junan County, Shandong Province of the mainland China.

The Company is engaged in the development, manufacture and sales of food products worldwide. The Group produces hundreds of varieties of food categorized into three divisions: chestnut products, convenient food including Ready-to-Cook (RTCs), Ready-to-Eat (RTEs) and Meals Ready-to-Eat (MREs), and frozen and canned food.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

(b) Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(c) Economic and political risks

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

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

7

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(d) Leasehold land

Leasehold land is stated at cost less accumulated amortisation. Amortisation is provided over the respective useful lives, using the straight-line method. Estimated useful live is 50 years.

(e) Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles	10 years
Office equipment	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(f) Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting years, there was no impairment loss.

(g) Construction in progress

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

8

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(h) Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

(i) Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(j) Customer deposits

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

(k) Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts only in the PRC. The Company does not maintain any bank accounts in the United States of America.

(l) Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	2006		2005		2004
Year end RMB : US$ exchange rate		7.81750		8.07340		8.28650
Average yearly RMB : US$ exchange rate		7.98189		8.20329		8.28723

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

9

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(m) Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). , No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

(n) Advertising

The Company expensed all advertising costs as incurred.

(o) Shipping and handling

All shipping and handling are expensed as incurred.

(p) Research and development

All research and development costs are expensed as incurred.

(q)Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred.

(r) Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred 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 realization is uncertain.

(s)  Statutory reserve

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

10

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(t)   Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

(u)   Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

11

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3. PLEDGE BANK DEPOSITS

Pledged bank deposits are restricted cash with banks for general banking facilities and notes payables.

4. TRADE ACCOUNTS RECEIVABLE

	2006			2005			2004
Trade accounts receivable	$	3,207,962		$	4,148,314		$	1,608,220
Less: Allowance for doubtful
Accounts		(24,212	)		(36,116	)		(13,173	)
	$	3,183,750		$	4,112,198		$	1,595,047

An analysis of the allowance for doubtful accounts for the years ended December 31, 2006, 2005, and 2004 is as follows: -

	2006			2005		2004
Balance at beginning of year	$	36,116		$	13,173	$	87
Addition of bad debt expense, net		(11,904	)		22,943		13,086
Balance at end of year	$	24,212		$	36,116	$	13,173

5. AMOUNTS DUE FROM RELATED COMPANIES

Amounts due from related companies are unsecured, interest free and have no fixed repayment dates.

6. OTHER RECEIVABLES

Other receivables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Advances to related companies		-				-
Advances to suppliers	$	1,100,916	$	1,118,758	$
Turnover taxes prepayment		-		-		57,602
Purchases disbursements
advances		591,895		573,133		1,961,427
	$	1,692,811	$	1,691,891	$	2,019,029

12

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

7. INVENTORIES

Inventories at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Raw materials	$	3,228,446	$	671,609	$	1,495,477
Finished goods		796,132		5,342,275		4,577,696
	$	4,024,578	$	6,013,884	$	6,073,173

8. INCOME TAXES

All of the Company’s income before income taxes and related tax expenses are from PRC sources. In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. Actual income tax expenses reported in the statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 33% to income before income tax for the three years ended December 31, 2006, 2005, and 2004 for the following reasons: -

	2006			2005			2004
Income before tax	$	2,993,905		$	1,770,366		$	1,772,269
Tax at the income tax rate		987,989			584,221			584,849
Effect of tax exemption granted		(677,808	)		(584,221	)		(584,849	)
Income tax	$	310,181		$	-		$	-

No provision for deferred tax (benefit) has been made for the PRC tax jurisdiction as no significant deferred tax liabilities or assets existed as of either December 31, 2004, 2005, or 2006.

13

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

9. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
At cost
Building	$	1,790,742		$	1,733,981		$	759,335
Machinery and equipment		771,776			666,477			517,435
Office equipment		25,228			20,784			11,807
Motor vehicles		22,675			9,265			-
	$	2,610,421		$	2,430,507		$	1,288,577
Less: accumulated depreciation		(298,264	)		(179,490	)		(87,398	)
Construction in progress		-			-			211,335
	$	2,312,157		$	2,251,017		$	1,412,514

Depreciation and amortization expense is included in the statement of income and comprehensive income as follows: -

	2006		2005		2004
Cost of revenues	$	103,392	$	83,500	$	55,679
Selling and marketing expenses		1,410		1,372		1,358
General and administrative expenses		5,782		3,492		1,500
	$	110,584	$	88,364	$	58,537

Construction in progress mainly comprises capital expenditures for construction of the Company’s new corporate campus, including offices, factories and staff dormitories.

14

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

10. LEASEHOLD LAND, NET

Leasehold land at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
Leasehold land, at cost	$	1,331,645		$	324,718		$	315,507
Accumulated amortization		(33,207	)		(10,394	)		(2,056	)
	$	1,298,438		$	314,324		$	313,451

Leasehold land represents the prepaid land use right. The land on which the Company’s new corporate campus is being constructed is owned by the PRC government.

Amortization expenses for the above lease prepayments were approximately $21,036, $7,284 and $1,063 for the years ended December 31, 2006, 2005, and 2004 respectively. Estimated amortization expense for the next five years is approximately $21,036 each year.

11. SHORT TERM BANK LOANS

	2006		2005		2004
Loans from Junan County Construction Bank,
interest rates at 6.264% per annum
Due 5/3/2007		312,922
Due 5/3/2006				302,816
Due 5/3/2005						147,612
Loans from Junan County Agriculture Bank, interest rates at 7.6500% to 10.404% per annum
Due between 1/11/2007 and 7/20/2007		1,441,879
Due between 1/3/2006 and 12/21/2006				916,369
Loan from Junan County Industrial and Commercial Bank, interest rates at 4.650% to 6.120% per annum
Due between 4/26/2007 and 12/22/2007		1,542,817
Due 5/3/2006				61,252

15

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

12. SHORT TERM BANK LOANS (Continued)

Loan from Linyi Commercial Bank, interest rates at 9.765% to 10.4715% per annum
Due between 1/9/2007 and 11/29/2007		1,688,520
Due between 1/9/2006 and 4/21/2006				1,374,885
Due between 2/28/2005 and 4/26/2005
						1,411,935
Loan from Junan Agricultural Development Bank, interest rate at 5.3625% to 6.435% per annum
Due between 7/19/2007 and 9/4/2007		1,279,182
	$	6,265,320	$	2,655,322	$	1,559,547

The loan was primarily obtained for general working capital.

Interest expenses for the loans were $386,234, $199,617, and $27,111 respectively for the years ended December 31, 2006, 2005, and 2004.

13. NOTES PAYABLE

Notes payable at December 31, 2006, 2005, and 2004 consist of the following: -

16

	2006		2005		2004
Notes to Junan County Industrial and
Commercial Bank
bank commission charge at 0.05% ,
Due 6/1/2007		3,274,704
Loan from Junan County Agricultural
Financial Institution,
bank commission charge at 0.05% ,
Due 11/25/2006				297,273
Notes to Junan County Agriculture Bank,
bank commission charge at 0.05% ,
Due between 3/22/2006 and 3/30/2006				1,238,635
	$	3,274,704	$	1,535,908	$	-

17

JUNAN HONGRUN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

14. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Accrued salaries and wages	$	225,855	$	42,254	$	98,576
Accrued utility expenses		6,931		17,098		39,505
Dividend payable		136,872		-		-
Business and other taxes		145,768		190,083		-
Purchases disbursements payables		228,987		359,337		1,414,956
	$	744,413	$	608,772	$	1,553,037

15. FINANCE COSTS, NET

Details of finance costs are summarized as follows: -

	2006			2005			2004
Total interest cost incurred	$	386,234		$	199,617		$	27,111
Interest income		(8,449	)		(5,182	)		(6,947	)
Others		34,926			46,717			5,643
	$	412,711		$	241,152		$	25,807

18

Beijing Green Foodstuff Co., Ltd

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US dollars)

BEIJING GREEN FOODSTUFF CO., LTD

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	1
BALANCE SHEETS	2 - 3
STATEMENTS OF INCOME	4
STATEMENTS OF STOCKHOLDERS’ EQUITY	5
STATEMENTS OF CASH FLOWS	6
NOTES TO FINANCIAL STATEMENTS	7 - 16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The board of directors and stockholders of Beijing Green Foodstuff Co., Ltd

We have audited the accompanying balance sheets of Beijing Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Beijing Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California	Samuel H. Wong & Co., LLP
March 1, 2007	Certified Public Accountants

1

BEIJING GREEN FOODSTUFF CO., LTD

BALANCE SHEETS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006		2005		2004
ASSETS
Current assets
Cash and cash equivalents			$	886,799	$	361,622	$	87,799
Trade accounts receivable		3		1,287,812		695,828		274,525
Prepayments for raw materials				96,353		1,030,169		629,327
Other receivables		5		259,509		389,102		128,986
Inventories		4		1,956,324		2,483,678		1,042,584
Total current assets			$	4,486,797	$	4,960,399	$	2,163,221
Property, plant and equipment, net		7		4,398,768		2,645,649		2,510,235
TOTAL ASSETS			$	8,885,565	$	7,606,048	$	4,673,456
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans		9	$	2,795,011	$	2,477,271	$	2,051,530
Accounts payables				478,424		1,407,074		884,195
Amounts due to related companies		8		1,949,252		1,699,886		474,364
Customers’ deposits				633,735		185,795		59,111
Accrued expenses and other
payables		10		827,435		381,173		100,852
Income tax payable				63,607		99,170		4,120
Total current liabilities			$	6,747,464	$	6,250,369	$	3,574,172
TOTAL LIABILITIES			$	6,747,464	$	6,250,369	$	3,574,172

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

2

BEIJING GREEN FOODSTUFF CO., LTD

BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes	2006		2005		2004
STOCKHOLDERS’ EQUITY
Common stock		$	1,206,753	$	1,206,753	$	1,206,753
Statutory reserves			142,093		30,391
Retained earnings			697,038		85,894		(107,494	)
Accumulated other comprehensive
income			92,217		32,641		25
		$	2,138,101	$	1,355,679	$	1,099,284
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY		$	8,885,565	$	7,606,048	$	4,673,456

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

3

BEIJING GREEN FOODSTUFF CO., LTD

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006			2005			2004
Net revenues			$	9,034,694		$	3,515,481		$	1,785,538
Cost of revenues				(7,071,404	)		(2,717,527	)		(1,538,852	)
Gross profit			$	1,963,290		$	797,954		$	246,686
Operating expenses
Selling and marketing expenses				(374,370	)		(103,885	)		(5,435	)
General and administrative expenses				(341,788	)		(203,228	)		(198,108	)
Income from continuing operations			$	1,247,132		$	490,841		$	43,143
Finance costs, net		11		(270,062	)		(172,397	)		(108,513	)
Government grant				23			1,829			48,267
Other income				13,536			1,816			9,654
Other expenses				(7,975	)		(710	)		(3,741	)
Income before taxation			$	982,654		$	321,379		$	(11,190	)
Income tax		6		(259,808	)		(97,600	)		(5,767	)
Net income			$	722,846		$	223,779		$	(16,957	)

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

4

BEIJING GREEN FOODSTUFF CO., LTD

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

								Accumulated
								other
	Common		Statutory		Retained			comprehensive
	stock		reserves		earnings			income		Total
Balance, January 1, 2004	$	1,206,753		-		(90,537	)		-		1,116,216
Net income						(16,957	)				(16,957	)
Appropriations to statutory
reserves
Foreign currency translation
adjustment									25		25
Balance, December 31, 2004	$	1,206,753		-		(107,494	)		25		1,099,284
Balance, January 1, 2005	$	1,206,753		-		(107,494	)		25		1,099,284
Net income						223,779					223,779
Appropriations to statutory
reserves				30,391		(30,391	)
Dividends
Foreign currency translation
adjustment									32,616		32,616
Balance, December 31, 2005	$	1,206,753		30,391		85,894			32,641		1,355,679
Balance, January 1, 2006	$	1,206,753		30,391		85,894			32,641		1,355,679
Net income						722,846					722,846
Issue of common stock
Appropriations to statutory
reserves				111,702		(111,702	)
Dividends
Foreign currency translation
adjustment									59,576		59,576
Balance, December 31, 2006	$	1,206,753		142,093		697,038			92,217		2,138,101

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

5

BEIJING GREEN FOODSTUFF CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	2006			2005			2004
Cash flows from operating activities
Net income	$	722,844		$	223,779		$	(16,957	)
Depreciation		95,880			84,588			25,853
(Increase)/decrease in accounts and other receivables		583,227			(1,021,245	)		253,024
(Increase)/decrease in inventories		596,120			(1,391,191	)		(155,261	)
Increase/(decrease) in accounts and other payables		994			2,158,217			1,072,137
Net cash (used in)/provided by operating
activities	$	1,999,065		$	54,148		$	1,178,796
Cash flows from investing activities
Purchase of plant and equipment		(1,728,073	)		(153,513	)		(1,426,088	)
Net cash used in investing activities	$	(1,728,073	)	$	(153,513	)	$	(1,426,088	)
Cash flows from financing activities
Bank borrowings		250,567			2,803,750			2,051,356
Bank repayment		(18,792	)		(2,438,044	)		(1,810,020	)
Net cash provided by/(used in) financing
activities	$	231,775		$	365,706		$	241,336
Net increase/(decrease) in
cash and cash equivalents		502,767			266,341			(5,956	)
Effect of foreign currency translation on cash
and cash equivalents		22,410			7,482			10
Cash and cash equivalents-beginning of year		361,622			87,799			93,745
Cash and cash equivalents-end of year	$	886,799		$	361,622		$	87,799
Supplementary cash flow information:
Interest received		25,306			4,983			1,722
Interest paid	$	244,757		$	167,414		$	106,791

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

6

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Beijing Green Foodstuff Co., Ltd was established in the People’s Republic of China (the PRC) as a limited company in July, 2003. The Company currently operates and locates in Miyun County, Beijing in the People’s Republic of China.

The Company is engaged in the development, manufacture and sales of food products worldwide. The Group produces hundreds of varieties of food categorized into three divisions: chestnut products, convenient food including Ready-to-Cook (RTCs), Ready-to-Eat (RTEs) and Meals Ready-to-Eat (MREs), and frozen and canned food.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

(b) Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(c) Economic and political risks

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

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

7

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

(d) Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles	10 years
Office equipment	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(e) Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting years, there was no impairment loss.

(f) Construction in progress

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

(g) Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

8

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(h) Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(i) Customer deposits

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

(j) Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts only in the PRC. The Company does not maintain any bank accounts in the United States of America.

(k) Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	2006		2005		2004
Year end RMB : US$ exchange rate		7.81750		8.07340		8.28650
Average yearly RMB : US$ exchange rate		7.98189		8.20329		8.28723

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(l)Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibles is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). , No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

9

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(m) Advertising

The Company expensed all advertising costs as incurred.

(n) Shipping and handling

All shipping and handling are expensed as incurred.

(o) Research and development

All research and development costs are expensed as incurred.

(p) Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred.

(q) Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred 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 realization is uncertain.

(r)   Statutory reserves

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

(s)   Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

10

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(t)   Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

11

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3.TRADE ACCOUNTS RECEIVABLE

	2006			2005			2004
Trade accounts receivable	$	1,295,722		$	700,627		$	274,947
Less: Allowance for doubtful
accounts		(7,910	)		(4,799	)		(422	)
	$	1,287,812		$	695,828		$	274,525

An analysis of the allowance for doubtful accounts for the years ended December 31, 2006, 2005, and 2004 is as follows: -

	2006		2005		2004
Balance at beginning of year	$	4,799	$	422	$	-
Addition of bad debt expense, net		3,111		4,377		422
Balance at end of year	$	7,910	$	4,799	$	422

4.INVENTORIES

Inventories at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Raw materials	$	1,538,547	$	1,733,509	$	258,453
Finished goods		417,777		750,169		784,131
	$	1,956,324	$	2,483,678	$	1,042,584

12

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

5.OTHER RECEIVABLES

Other receivables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Sundry deposits	$	30,717	$	-	$	-
Turnover taxes prepayment		144,168		11,864		-
Purchases disbursements
advances		84,624		377,238		128,986
	$	259,509	$	389,102	$	128,986

6.INCOME TAXES

All of the Company’s income before income taxes and related tax expenses are from PRC sources. In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. Actual income tax expenses reported in the statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 33% to income before income tax for the three years ended December 31, 2006, 2005, and 2004 for the following reasons: -

	2006			2005			2004
Income before tax	$	982,654		$	321,379		$	(11,190	)
Tax at the income tax rate		324,275			106,055			(3,693	)
Effect of tax exemption granted		(64,467	)		(8,455	)		9,460
Income tax	$	259,808		$	97,600		$	5,767

No provision for deferred tax (benefit) has been made for the PRC tax jurisdiction because no significant deferred tax liabilities or assets existed as of either December 31, 2006, 2005, or 2004.

13

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

7.PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
At cost:
Building	$	3,309,826		$	2,294,886		$	2,235,869
Landscaping, plant and tree		191,877			-			-
Machinery and equipment		519,296			430,689			276,530
Office equipment		48,579			38,245			34,730
Motor vehicles		12,241			11,853			-
	$	4,081,819		$	2,775,673		$	2,547,129
Less: accumulated depreciation		(239,495	)		(130,024	)		(36,894	)
Construction in progress		556,444			-			-
	$	4,398,768		$	2,645,649		$	2,510,235

Depreciation and amortization expense is included in the statement of income and comprehensive income as follows: -

	2006		2005		2004
Cost of revenues	$	95,880	$	84,588	$	25,853

Construction in progress mainly comprises capital expenditures for construction of the Company’s new corporate campus, including offices, factories and staff dormitories.

8.AMOUNTS DUE TO RELATED COMPANIES

Amounts due to related companies are unsecured, interest free and have no fixed repayment date.

14

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

9.SHORT TERM BANK LOANS

The followings are the short term bank loans outstanding as at December 31, 2006, 2005, and 2004.

	2006		2005		2004
Loan from Beijing Miyun County Shilipu	$		$		$
Rural Financial Institution, interest rates at
0.6600% to 0.7650% per annum
Due between 3/30/2007 and 5/27/2007		2,539,175
Due between 3/30/2006 and 5/30/2006				2,477,271
Due between 5/27/2005 and 9/27/2005						2,051,530
Loans from Junan County Agriculture Bank, interest rates at 0.5850% per annum
Due 7/18/2007		255,836
	$	2,795,011	$	2,477,271	$	2,051,530

The loan was primarily obtained for general working capital.

Interest expenses for the loans were $244,756, $167,414, and $106,791 respectively for the years ended December 31, 2006, 2005, and 2004.

10.ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Accrued salaries and wages	$	8,014	$	4,986	$	19,878
Accrued utility expenses		37,333		42,396		39,416
Interest payable		5,513		590		12,128
Accrued staff welfare		100,089		28,871		21,188
Business and other taxes		11,715		11,715		1
Purchases disbursements payables		664,771		292,615		8,241
	$	827,435	$	381,173	$	100,852

15

BEIJING GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

11.FINANCE COSTS, NET

Details of finance costs are summarized as follows: -

	2006		2005		2004
Total interest cost incurred	$	244,756	$	167,414	$	106,791
Others		25,306		4,983		1,722
	$	270,062	$	172,397	$	108,513

16

Luotian Green Foodstuff Co., Ltd

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US dollars)

LUOTIAN GREEN FOODSTUFF CO., LTD

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	2
BALANCE SHEETS	3 - 4
STATEMENTS OF INCOME	5
STATEMENTS OF STOCKHOLDERS’ EQUITY	6
STATEMENTS OF CASH FLOWS	7
NOTES TO FINANCIAL STATEMENTS	8 - 17

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The board of directors and stockholders of

Luotian Green Foodstuff Co., Ltd

We have audited the accompanying balance sheets of Luotian Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Luotian Green Foodstuff Co., Ltd as of December 31, 2006, 2005, and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California March 1, 2007 Samuel H. Wong & Co., LLP Certified Public Accountants

2

LUOTIAN GREEN FOODSTUFF CO., LTD

BALANCE SHEETS

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006		2005		2004
ASSETS
Current assets
Cash and cash equivalents			$	408,201	$	182,567	$	110,269
Trade accounts receivable		3		1,780,856		1,047,205		845,286
Prepayments for raw materials				7,406		3,716		304,712
Income tax prepayment				38,375		-		-
Other receivables		4		161,975		67,510		185,962
Inventories		5		1,232,031		1,528,494		1,417,048
Total current assets			$	3,628,844	$	2,829,492	$	2,863,277
Property, plant and equipment, net		7		1,677,697		1,672,020		1,262,173
Leasehold land, net		8		557,524		548,250		548,177
TOTAL ASSETS			$	5,864,065	$	5,049,762	$	4,673,627
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans		9	$	972,178	$	1,114,772	$	1,206,782
Accounts payable				47,405		96,413		119,181
Amounts due to related companies		10		1,893,004		1,817,937		1,113,805
Customers’ deposits				79,372		72,448		10,867
Accrued expenses and other
payables		11		357,835		774,608		1,040,580
Income tax payable				-		11,385		8,419
Total current liabilities			$	3,349,794	$	3,887,563	$	3,499,634
Long term debt		12		95,939		-		-
TOTAL LIABILITIES			$	3,445,733	$	3,887,563	$	3,499,634

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

3

LUOTIAN GREEN FOODSTUFF CO., LTD

BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes	2006		2005		2004
STOCKHOLDERS’ EQUITY
Common stock		$	1,245,928	$	181,017	$	181,017
Additional paid-in-capital			974,188		906,563		906,563
Statutory reserves			120,683		44,046		12,962
Retained earnings			52,594		257		73,446
Accumulated other comprehensive
income			24,939		30,316		5
		$	2,418,332	$	1,162,199	$	1,173,993
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY		$	5,864,065	$	5,049,762	$	4,673,627

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

4

LUOTIAN GREEN FOODSTUFF CO., LTD

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	Notes		2006			2005			2004
Net revenues			$	3,434,466		$	2,614,646		$	1,458,371
Cost of revenues				(2,606,923	)		(2,121,044	)		(1,185,524	)
Gross profit			$	827,543		$	493,602		$	272,847
Operating expenses
Selling and marketing expenses				(42,018	)		(19,473	)		(31,421	)
General and administrative expenses				(256,267	)		(150,200	)		(110,744	)
Income from continuing operations			$	529,258		$	323,929		$	130,682
Finance costs, net		13		(54,857	)		(86,584	)		(80,155	)
Other income				26,462			3,465			5,740
Other expenses				(9,885	)		(3,517	)		(145	)
Income before taxation			$	490,978		$	237,293		$	56,122
Income tax		6		-			(35,594	)		(8,418	)
Net income			$	490,978		$	201,699		$	47,704

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

5

LUOTIAN GREEN FOODSTUFF CO., LTD

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

										Accumulated
			Additional							other
	Common		paid-in-		Statutory		Retained			comprehensive
	stock		capital		reserves		earnings			income			Total
Balance, January 1, 2004	$	181,017		906,563		5,806		32,898			-			1,126,284
Net income								47,704						47,704
Appropriations to statutory
reserves						7,156		(7,156	)
Foreign currency translation
adjustment											5			5
Balance, December 31, 2004	$	181,017		906,563		12,962		73,446			5			1,173,993
Balance, January 1, 2005	$	181,017		906,563		12,962		73,446			5			1,173,993
Net income								201,699						201,699
Appropriations to statutory
reserves						31,084		(31,084	)
Dividends								(243,804	)					(243,804	)
Foreign currency translation
adjustment											30,311			30,311
Balance, December 31, 2005	$	181,017		906,563		44,046		257			30,316			1,162,199
Balance, January 1, 2006	$	181,017		906,563		44,046		257			30,316			1,162,199
Net income								490,978						490,978
Issue of common stock		1,064,911		67,625										1,132,536
Appropriations to statutory
reserves						76,637		(76,637	)
Dividends								(362,004	)					(362,004	)
Foreign currency translation
adjustment											(5,377	)		(5,377	)
Balance, December 31, 2006	$	1,245,928		974,188		120,683		52,594			24,939			2,418,332

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

6

LUOTIAN GREEN FOODSTUFF CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Stated in US Dollars)

	2006			2005			2004
Cash flows from operating activities
Net income	$	490,978		$	201,699		$	47,704
Depreciation		43,298			39,437			28,918
Amortization		8,494			14,168			12,856
(Increase)/Decrease in accounts and other
receivables		(950,354	)		132,446			(561,379	)
(Increase)/Decrease in inventories		339,361			(72,869	)		(1,146,587	)
Increase/(Decrease) in accounts and other payables		(341,980	)		529,120			1,971,372
Net cash (used in)/provided by operating
activities	$	(410,203	)	$	844,001		$	352,884
Cash flows from investing activities
Purchase of plant and equipment	$	(4,952	)		(410,005	)		(429,976	)
Net cash used in investing activities	$	(4,952	)	$	(410,005	)	$	(429,976	)
Cash flows from financing activities
Issue of common stock		1,064,911			-			112,221
Dividend paid		(362,004	)		(243,804	)		-
Bank borrowings		1,096,232			36,571
Bank repayment		(1,177,666	)		(158,473	)		-
Net cash provided by/(used in) financing
activities	$	621,473		$	(365,706	)	$	112,221
Net increase/(decrease) in
cash and cash equivalents		206,318			68,290			35,129
Effect of foreign currency translation on cash
and cash equivalents		19,316			4,008			5
Cash and cash equivalents-beginning of year		182,567			110,269			75,135
Cash and cash equivalents-end of year	$	408,201		$	182,567		$	110,269
Supplementary cash flow information:
Interest received	$	438		$	267		$	572
Interest paid		54,530			86,608			79,917

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

7

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Luotian Green Foodstuff Co., Ltd was established in the People’s Republic of China (the PRC) as a limited company in June 2003. The Company currently operates and locates in Luotian County, Hubei Province of the People’s Republic of China.

The Company is engaged in the development, manufacture and sales of food products worldwide. The Group produces hundreds of varieties of food categorized into three divisions: chestnut products, convenient food including Ready-to-Cook (RTCs), Ready-to-Eat (RTEs) and Meals Ready-to-Eat (MREs), and frozen and canned food.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

(b) Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

(c ) Economic and political risks

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

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

8

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(d) Leasehold land

Leasehold land is stated at cost less accumulated amortisation. Amortisation is provided over the respective useful lives, using the straight-line method. Estimated useful live is 50 years.

(e) Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles	10 years
Office equipment	5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

(f) Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting years, there was no impairment loss.

(g) Construction in progress

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

9

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(h) Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.

(i) Trade receivables

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

(j) Customer deposits

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

(k) Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts only in the PRC. The Company does not maintain any bank accounts in the United States of America.

(l) Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	2006		2005		2004
Year end RMB : US$ exchange rate		7.81750		8.07340		8.28650
Average yearly RMB : US$ exchange rate		7.98189		8.20329		8.28723

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.

(m) Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

10

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). , No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

(n) Advertising

The Company expensed all advertising costs as incurred.

(o) Shipping and handling

All shipping and handling are expensed as incurred.

(p) Research and development

All research and development costs are expensed as incurred.

(q) Retirement benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred.

(r)Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred 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 realization is uncertain.

(s) Statutory reserves

Statutory reserves are referring o the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

(t) Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

11

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

4.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(u) Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007, and interim periods within those fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

The management of the Company does not anticipate that the adoption of these three standards will have a material impact on these consolidated financial statements.

12

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

3. TRADE ACCOUNTS RECEIVABLE

	2006			2005			2004
Trade accounts receivable	$	1,786,350		$	1,048,448		$	847,599
Less: Allowance for doubtful
accounts		(5,494	)		(1,243	)		(2,313	)
	$	1,780,856		$	1,047,205		$	845,286

An analysis of the allowance for doubtful accounts for the years ended December 31, 2006, 2005, and 2004 is as follows: -

	2006		2005			2004
Balance at beginning of year	$	1,243	$	2,313		$	6,439
Addition of bad debt expense, net		4,251		(1,070	)		(4,126	)
Balance at end of year	$	5,494	$	1,243		$	2,313

4. OTHER RECEIVABLES

Other receivables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Sundry deposits	$	72,949	$	8,519	$	-
Turnover taxes prepayment		14,968		18,002		89,701
Purchases disbursements
advances		74,058		40,989		96,261
	$	161,975	$	67,510	$	185,962

13

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

5. INVENTORIES

Inventories at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Raw materials	$	732,330	$	1,259,195	$	1,174,135
Finished goods		499,701		269,299		242,913
	$	1,232,031	$	1,528,494	$	1,417,048

6. INCOME TAXES

All of the Company’s income before income taxes and related tax expenses are from PRC sources. In accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. Actual income tax expenses reported in the statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 33% to income before income tax for the three years ended December 31, 2006, 2005, and 2004 for the following reasons: -

	2006			2005			2004
Income before tax	$	490,978		$	237,293		$	56,122
Tax at the income tax rate		162,023			78,307			18,520
Effect of tax exemption granted		(162,023	)		(42,713	)		(10,102	)
Income tax	$	-		$	35,594		$	8,418

No provision for deferred tax (benefit) has been made for the PRC tax jurisdiction as no significant deferred tax liabilities or assets existed as of either December 31, 2006, 2005 or 2004.

14

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

7. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
At cost:
Building	$	1,607,027		$	1,556,090		$	556,112
Machinery and equipment		199,383			189,117			184,253
Office equipment		17,829			16,314			14,881
	$	1,824,239		$	1,761,521		$	755,246
Less: accumulated depreciation		(149,356	)		(89,501	)		(37,336	)
Construction in progress		2,814			-			544,263
	$	1,677,697		$	1,672,020		$	1,262,173

Depreciation and amortization expense is included in the statement of income and comprehensive income as follows: -

	2006		2005		2004
Cost of revenues	$	41,268	$	37,462	$	26,963
Selling and marketing expenses		2,030		1,975		1,955
	$	43,298	$	39,437	$	28,918

Construction in progress mainly comprises capital expenditures for construction of the Company’s new corporate campus, including offices, factories and staff dormitories.

15

LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

8. LEASEHOLD LAND, NET

Leasehold land at December 31, 2006, 2005, and 2004 consist of the following: -

	2006			2005			2004
Leasehold land, at cost	$	594,692		$	575,842		$	561,034
Less: Accumulated amortization		(37,168	)		(27,592	)		(12,857	)
	$	557,524		$	548,250		$	548,177

Leasehold land represent the prepaid land use right. The land on which the Company’s new corporate campus is being constructed is owned by the PRC government.

Amortization expenses for the above lease prepayments were approximately $8,494, $14,168, and $12,856 for the years ended December 31, 2006, 2005, and 2004 respectively. Estimated amortization expense for the next five years is approximately $8,494 each year.

9. SHORT TERM BANK LOANS

The following is the short term bank loan outstanding as at December 31, 2006, 2005, and 2004.

	2006		2005		2004
Loan from China Agricultural Bank,
Luotian Square Branch interest rates
at 7.605% to 7.950% per annum
Due 6/30/2007 and 9/5/2007	$	972,178
Due 9/5/2006			$	1,114,772
Due 9/5/2005					$	1,206,782
	$	972,178	$	1,114,772	$	1,206,782

The loan was primarily obtained for general working capital.

Interest expenses for the loans were $54,530, $86,608, and $79,917 respectively for the years ended December 31, 2006, 2005, and 2004.

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LUOTIAN GREEN FOODSTUFF CO., LTD

NOTES TO FINANCIAL STATEMENTS

(Stated in US Dollars)

10. AMOUNTS DUE TO RELATED COMPANIES

Amounts due to related companies are unsecured, interest free and have no fixed repayment date.

11. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables at December 31, 2006, 2005, and 2004 consist of the following: -

	2006		2005		2004
Accrued salaries and wages	$	70,015	$	-	$	-
Accrued utility expenses		2,304		38,605		18,139
Interest payable		1,246		22,865		6,823
Business and other taxes		99,748		-		-
Purchases disbursements payables		184,522		713,138		1,015,618
	$	357,835	$	774,608	$	1,040,580

12.LONG-TERM DEBT

Long-term debt is as follows:

Loan from Agricultural Development Department of
Luotian Government, interest rates at 0.67% per
annum
Due 12/11/2010	95,939

Interest expenses for the loans were immaterial to be accrued for the year ended December 31, 2006.

13.FINANCE COSTS, NET

Details of finance costs are summarized as follows:

	2006			2005			2004
Total interest cost incurred	$	54,530		$	86,608		$	79,917
Interest income		(438	)		(267	)		(572	)
Others		765			243			810
	$	54,857		$	86,584		$	80,155

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Share Exchange Agreement, dated May 3, 2007, by and among the registrant, International Lorain Holding, Inc. and Hisashi Akazawa.
3.1	Restated Certificate of Incorporation of the registrant, as amended.
3.2	By-Laws of the registrant, adopted on March 31, 2000. [incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form 10SB12G filed on October 19, 2001, in commission file number 0-31619].
4.1	Certificate of Designation of Series A Voting Convertible Preferred Stock of the registrant as filed with the Secretary of State of Delaware on April 9, 2007. [incorporated by reference to Exhibit 4.1 to the registrant’s Annual Report on Form 10-KSB filed on April 9, 2007].
4.2	Certificate of Designation of Series B Voting Convertible Preferred Stock of the registrant as filed with the Secretary of State of Delaware on April 30, 2007.
4.3	Option Agreement, dated May 3, 2007, between Mr. Si Chen and Mr. Hisashi Akazawa.
4.4	Form of Registration Rights Agreement, dated May 3, 2007.
4.5	Form of Common Stock Purchase Warrant issued to Investors dated May 3, 2007.
4.6	Form of Common Stock Purchase Warrant issued to Sterne Agee & Leach, Inc., and its designee.
10.1	Form of the Securities Purchase Agreement, dated May 3, 2007.
10.2	Make Good Escrow Agreement, dated May 3, 2007, by and among the registrant, Sterne Agee & Leach, Inc., Mr. Hisashi Akazawa, Mr. Si Chen and Securities Transfer Corporation.
10.3	Closing Escrow Agreement, dated May 3, 2007, by and among the registrant, Sterne Agee & Leach, Inc. and Thelen Reid Brown Raysman & Steiner LLP.
10.4	Cancellation and Escrow Agreement, dated May 3, 2007, by and among the registrant, Halter Financial Investments, L.P., Halter Financial Group, L.P. and Security Transfer Corporation.
10.5	Employment Agreement, dated March 2, 2005, by and between Shandong Green Foodstuff CO., LTD and Si Chen.
10.6	Employment Agreement, dated July 2, 2002, by and between Shandong Green Foodstuff CO., LTD and Xiaodong Zhou.
10.7	Employment Agreement, dated December 7, 2004, by and between Shandong Green Foodstuff CO., LTD and Huanxiang Sheng.

10.8	Cooperation Agreement, dated May 18, 2006, by and between Beijing  Green Foodstuff Co., Ltd. and the Chestnut Cooperation of Zhenzhai Village, Gaoling town, Miyun County.
10.9	Equity Transfer Agreement, dated August 15, 2006, by and between International Lorain Co., Ltd and International Lorain Holding, Inc.
10.10	Credit Facility Agreement, dated September 28, 2006, by and between Beijing  Green Foodstuff Co., Ltd. and the Shilibao Branch of Beijing Rural Commercial Bank Co., Ltd.
10.11	Sales contract, dated May 13, 2006, by and between Shandong  Green Foodstuff Co., Ltd. and the Shandong Lu An Import & Export Co., Ltd.
10.12	Sales contract, dated September 5, 2006, by and between Shandong  Green Foodstuff Co., Ltd. and the Shinsei Foods Co., Ltd.
10.13	Sales Contract, dated September 10, 2006, by and between Junan Hongrun Foodstuff Co., Ltd. and the Shinsei Foods Co., Ltd.
10.14	Financial Advisory Agreement, dated February 14, 2007, by and between HFG International, Limited and Shandong Green Foodstuff Co., Ltd.
10.15	Consulting Agreement, dated March 8, 2007, by and between Heritage Management Consultants, Inc. and International Lorain Holding, Inc.
14	Business Ethics Policy and Code of Conduct, adopted on April 30, 2007.
21	List of subsidiaries of the registrant.
99.1	Press Release, dated May 3, 2007

EX-2.1

Exhibit 2.1

SHARE EXCHANGE AGREEMENT

This SHARE EXCHANGE AGREEMENT (this “Agreement”), dated as of May 3, 2007, is by and among Millennium Quest, Inc., a Delaware corporation (the “Parent”), International Lorain Holding, Inc., a Cayman Islands company (the “Company”), and Mr. Hisashi Akazawa, the sole stockholder of the Company signatory hereto (the “Stockholder”). Each of the parties to this Agreement are individually referred to herein as a “Party” and collectively, as the “Parties.”

BACKGROUND

The Company has 5,099,503 common shares (including any future shares acquired by the Stockholder and any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right granted to the Stockholder relating to transactions on or before the date hereof, the “Company Stock”) issued and outstanding, all of which are held by the Stockholder. The Stockholder is the record and beneficial owner of the number of shares of Company Stock set forth opposite such person’s name on Exhibit A. The Stockholder has agreed to transfer all of his shares of Company Stock in exchange for a number of newly issued shares of the Series B Voting Convertible Preferred Stock, par value $.001 per share, of the Parent (the “Parent Stock”) that will, in the aggregate, if converted into common stock of the Parent at the available conversion rate for conversion of Parent Stock into common stock of the Parent and if all Series A Voting Convertible Preferred Stock of the Parent is converted into common stock of the Parent at the available conversion rate for converting Series A Voting Convertible Preferred Stock of the Parent into common stock of the Parent, constitute approximately 65.43% of the issued and outstanding common stock of the Parent on a fully-diluted basis as of and immediately after the Closing, and after giving effect to the Financing (as defined in Section 7.11 hereof). The number of shares of Parent Stock to be received by the Stockholder is listed opposite such Stockholder’s name on Exhibit A attached to this Agreement. The aggregate number of shares of Parent Stock that is reflected on Exhibit A is referred to herein as the “Shares”.

The exchange of Company Stock for Parent Stock is intended to constitute a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986 (the “Code”), as amended or such other tax free reorganization exemptions that may be available under the Code.

The Board of Directors of the Parent and the Company have determined that it is desirable to effect this plan of reorganization and share exchange.

AGREEMENT

NOW THEREFORE, the parties agree as follows:

ARTICLE I

Exchange of Shares

SECTION 1.01.Exchange by Stockholder. At the Closing (as defined in Section 1.02), the Stockholder shall sell, transfer, convey, assign and deliver to the Parent its Company Stock free and clear of all Liens (as defined below) in exchange for the Parent Stock listed on Exhibit A opposite such Stockholder’s name.

SECTION 1.02.Closing. The closing (the “Closing”) of the transactions contemplated hereby (the “Transactions”) shall take place at the offices of Thelen Reid Brown Raysman & Steiner LLP in Washington, DC commencing at 9:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the Transactions contemplated hereby (other than conditions with respect to actions the respective parties will take at the Closing itself), or such other date and time as the parties may mutually determine (the “Closing Date”).

ARTICLE II

Representations and Warranties of Stockholders

The Stockholder hereby represents and warrants to the Parent with respect to himself, as follows:

SECTION 2.01.Good Title. The Stockholder is the record and beneficial owner, and has good title to its Company Stock, with the right and authority to sell and deliver such Company Stock. Upon registering of the Parent as the new owner of such Company Stock in the share register of members of the Company, the Parent will receive good title to such Company Stock, free and clear of all liens, security interests, pledges, equities and claims of any kind, voting trusts, stockholder agreements and other encumbrances (collectively, “Liens”).

SECTION 2.02.Power and Authority. This Agreement constitutes a legal, valid and binding obligation of the Stockholder, enforceable against such Stockholder in accordance with the terms hereof.

SECTION 2.03.No Conflicts. The execution and delivery of this Agreement by the Stockholder and the performance by the Stockholder of his obligations hereunder in accordance with the terms hereof: (i) will not require the consent of any third party or any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (“Governmental Entity”) under any statutes, laws, ordinances, rules, regulations, orders, writs, injunctions, judgments, or decrees (collectively, “Laws”); (ii) will not violate any Laws applicable to such Stockholder and (iii) will not violate or breach any contractual obligation to which such Stockholder is a party.

SECTION 2.04.No Finder’s Fee. The Stockholder has not created any obligation for any finder’s, investment banker’s or broker’s fee in connection with the Transactions.

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SECTION 2.05.Purchase Entirely for Own Account. The Parent Stock proposed to be acquired by the Stockholder hereunder will be acquired for investment for his own account, and not with a view to the resale or distribution of any part thereof, and the Stockholder has no present intention of selling or otherwise distributing the Parent Stock, except in compliance with applicable securities laws.

SECTION 2.06.Available Information. The Stockholder has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of investment in the Parent.

SECTION 2.07.Lock-up and Registration Rights. The Stockholder hereby undertakes that he will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Parent Stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of such Parent Stock, whether any of these transactions are to be settled by delivery of any such Parent Stock, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, for a period of 12 months from the date of issuance of such Parent Stock. After 12-month period described above, the Stockholder shall be entitled to effect the registration under the Securities Act of such Parent Stock.

SECTION 2.08.Restricted Securities. The Stockholder understands that the Parent Stock is characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Stockholder pursuant hereto, the Parent Stock would be acquired in a transaction not involving a public offering. The Stockholder further acknowledges that if the Parent Stock is issued to the Stockholder in accordance with the provisions of this Agreement, such Parent Stock may not be resold without registration under the Securities Act or the existence of an exemption therefrom. The Stockholder represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

SECTION 2.09.Legends. It is understood that the Parent Stock will bear the following legend or one that is substantially similar to the following legend:

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

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SECTION 2.10.Accredited Investor. The Stockholder is an “accredited investor” within the meaning of Rule 501 under the Securities Act.

ARTICLE III

Representations and Warranties of the Company

The Company represents and warrants to the Parent that, except as set forth in the Company Disclosure Letter (as defined below, and regardless of whether or not the Company Disclosure Letter is referenced below with respect to any particular representation or warranty), which will be delivered by the Company to the Parent concurrently herewith (the “Company Disclosure Letter”):

SECTION 3.01.Organization, Standing and Power. Each of the Company and its subsidiaries (the “Company Subsidiaries”) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the Company, a material adverse effect on the ability of the Company to perform its obligations under this Agreement or on the ability of the Company to consummate the Transactions (a “Company Material Adverse Effect”). The Company and each Company Subsidiary is duly qualified to do business in each jurisdiction where the nature of its business or its ownership or leasing of its properties make such qualification necessary except where the failure to so qualify would not reasonably be expected to have a Company Material Adverse Effect. The Company has delivered to the Parent true and complete copies of the memorandum and articles of association of the Company and such other constituent instruments of the Company as may exist, each as amended to the date of this Agreement (as so amended, the “Company Constituent Instruments”), and the comparable charter, organizational documents and other constituent instruments of each Company Subsidiary, in each case as amended through the date of this Agreement.

SECTION 3.02.Company Subsidiaries; Equity Interests.

(a)The Company Disclosure Letter lists each Company Subsidiary and its jurisdiction of organization. Except as specified in the Company Disclosure Letter, all the outstanding shares of capital stock or equity investments of each Company Subsidiary have been validly issued and are fully paid and nonassessable and are as of the date of this Agreement owned by the Company, by another Company Subsidiary or by the Company and another Company Subsidiary, free and clear of all Liens.

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(b)Except for its interests in the Company Subsidiaries, the Company does not as of the date of this Agreement own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

SECTION 3.03.Capital Structure. The authorized share capital of the Company U.S. $21,000 divided into 6,000,000 common shares of U.S. $0.001 par value each and 1,500,000 preferred shares of U.S. $0.01 par value each. As of the date of this Agreement, 5,099,503ordinary shares are issued and outstanding and none of the preferred shares are issued and outstanding. Except as set forth above, no shares or other voting securities of the Company are issued, reserved for issuance or outstanding. Except as specified in the Company Disclosure Letter, the Company is the sole record and beneficial owner of all of the issued and outstanding capital stock of each Company Subsidiary. All outstanding shares of the capital stock of the Company and each Company Subsidiary are duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of the Cayman Islands, the Company Constituent Instruments or any Contract (as defined in Section 3.05) to which the Company is a party or otherwise bound. Except as set forth in this section 3.03 and in the Company Disclosure Letter, there are not any bonds, debentures, notes or other indebtedness of Company or any Company Subsidiary having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Stock or the common stock of any Company Subsidiary may vote (“Voting Company Debt”). Except as set forth above, as of the date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or any Company Subsidiary or any Voting Company Debt, (ii) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of the Company or of any Company Subsidiary. Except as set forth in the Company Disclosure Letter, as of the date of this Agreement, there are not any outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of Parent.

SECTION 3.04.Authority; Execution and Delivery; Enforceability. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery by the Company of this Agreement and the consummation by the Company of the Transactions have been duly authorized and approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the Transactions. When executed and delivered, this Agreement will be enforceable against the Company in accordance with its terms.

5

SECTION 3.05.No Conflicts; Consents.

(a)Except as set forth in the Company Disclosure Letter, the execution and delivery by the Company of this Agreement does not, and the consummation of the Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under, any provision of (i) the Company Constituent Instruments or the comparable charter or organizational documents of any Company Subsidiary, (ii) any material contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument (a “Contract”) to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 3.05(b), any material judgment, order or decree (“Judgment”) or material Law applicable to the Company or any Company Subsidiary or their respective properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(b)Except as set forth in the Company Disclosure Letter and except for required filings with the Securities and Exchange Commission (the “SEC”) and applicable “Blue Sky” or state securities commissions, no material consent, approval, license, permit, order or authorization (“Consent”) of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to the Company or any Company Subsidiary in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions.

SECTION 3.06.Taxes.

(a)Each of the Company and each Company Subsidiary has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

(b)The Company Financial Statements (as defined in Section 3.15) reflect an adequate reserve for all Taxes payable by the Company and the Company Subsidiaries (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against the Company or any Company Subsidiary, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.

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(c)For purposes of this Agreement:

“Taxes” includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts.

“Tax Return” means all federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.

SECTION 3.07.Benefit Plans.

(a)Except as set forth in the Company Disclosure Letter, the Company does not have or maintain any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company or any Company Subsidiary (collectively, “Company Benefit Plans”). Except as set forth in the Company Disclosure Letter, as of the date of this Agreement there are not any severance or termination agreements or arrangements between the Company or any Company Subsidiary and any current or former employee, officer or director of the Company or any Company Subsidiary, nor does the Company or any Company Subsidiary have any general severance plan or policy.

(b)Since December 31, 2006, there has not been any adoption or amendment in any material respect by the Company or any Company Subsidiary of any Company Benefit Plan.

SECTION 3.08.Litigation. There is no action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility (“Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Shares or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect. Neither the Company nor any subsidiary, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

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SECTION 3.09.Compliance with Applicable Laws. The Company and the Company Subsidiaries are in compliance with all applicable Laws, including those relating to occupational, health and safety and the environment, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in the Company Disclosure Letter, the Company has not received any written communication during the past two years from a Governmental Entity that alleges that the Company is not in compliance in any material respect with any applicable Law. This Section 3.09 does not relate to matters with respect to Taxes, which are the subject of Section 3.06.

SECTION 3.10.Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company.

SECTION 3.11.Contracts. Except as disclosed in the Company Disclosure Letter, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole. Neither the Company nor any Company Subsidiary is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

SECTION 3.12.Title to Properties. Except as set forth in the Disclosure Letter, the Company and the Company Subsidiaries do not own any real property. Each of the Company and the Company Subsidiaries has sufficient title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses. All such assets and properties, other than assets and properties in which the Company or any of the Company Subsidiaries has leasehold interests, are free and clear of all Liens other than those set forth in the Company Disclosure Letter and except for Liens that, in the aggregate, do not and will not materially interfere with the ability of the Company and the Company Subsidiaries to conduct business as currently conducted.

SECTION 3.13.Intellectual Property. The Company and the Company Subsidiaries own, or are validly licensed or otherwise have the right to use, all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights and other proprietary intellectual property rights and computer programs (collectively, “Intellectual Property Rights”) which are material to the conduct of the business of the Company and the Company Subsidiaries taken as a whole. The Company Disclosure Letter sets forth a description of all Intellectual Property Rights which are material to the conduct of the business of the Company and the Company Subsidiaries taken as a whole. There are no claims pending or, to the knowledge of the Company, threatened that the Company or any of the Company Subsidiaries is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of the Company, no person is infringing the rights of the Company or any of the Company Subsidiaries with respect to any Intellectual Property Right.

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SECTION 3.14.Labor Matters. Except as set forth in the Company Disclosure Letter, there are no collective bargaining or other labor union agreements to which the Company or any of the Company Subsidiaries is a party or by which any of them is bound. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company.

SECTION 3.15.Financial Statements. Prior to the Closing the Company will deliver to the Parent its audited consolidated financial statements for the fiscal years ended December 31, 2006, 2005 and 2004 (collectively, the “Company Financial Statements”). Upon delivery, the Company Financial Statements will have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. The Company Financial Statements will fairly present in all material respects the financial condition and operating results of the Company, as of the dates, and for the periods, indicated therein. The Company will not have any material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2006, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Company Financial Statements, which, in both cases, individually and in the aggregate would not be reasonably expected to result in a Company Material Adverse Effect.

SECTION 3.16.Insurance. Except as set forth in the Company Disclosure Letter, the Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks in accordance with any applicable laws under their respective jurisdictions of organization and in such amounts as are customary in the businesses in which the Company and its subsidiaries are engaged and in the geographic areas where they engage in such businesses. The Company has no reason to believe that it will not be able to renew its and its subsidiaries’ existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s and such subsidiaries’ respective lines of business.

SECTION 3.17.Transactions With Affiliates and Employees. Except as set forth in the Company Disclosure Letter and Company Financial Statements, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

SECTION 3.18.Internal Accounting Controls. The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its subsidiaries, is made known to the officers by others within those entities. The Company’s officers have evaluated the effectiveness of the Company’s controls and procedures. Since December 31, 2006, there have been no significant changes in the Company’s internal controls or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls.

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SECTION 3.19.Solvency. Based on the financial condition of the Company as of the closing date (and assuming that the closing shall have occurred), (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

SECTION 3.20.Application of Takeover Protections. The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s charter documents or the laws of the Cayman Islands that is or could become applicable to the Stockholder as a result of the Stockholder and the Company fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Shares and the Stockholder’s ownership of the Shares.

SECTION 3.21.No Additional Agreements. The Company does not have any agreement or understanding with the Stockholder with respect to the transactions contemplated by this Agreement other than as specified in this Agreement.

SECTION 3.22.Investment Company. The Company is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

SECTION 3.23.Disclosure. All disclosure provided to the Stockholder regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

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SECTION 3.24.Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the notice that is required to be sent to the stockholders of the Parent pursuant to Rule 14f-1 (the “14f-1 Notice”) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) will, at the date it is first mailed to the Parent’s stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

SECTION 3.25.Absence of Certain Changes or Events. Except as disclosed in the Company Financial Statements or in the Company Disclosure Letter, from December 31, 2006 to the date of this Agreement, the Company has conducted its business only in the ordinary course, and during such period there has not been:

(a)any change in the assets, liabilities, financial condition or operating results of the Company or any Company Subsidiary, except changes in the ordinary course of business that have not caused, in the aggregate, a Company Material Adverse Effect;

(b)any damage, destruction or loss, whether or not covered by insurance, that would have a Company Material Adverse Effect;

(c)any waiver or compromise by the Company or any Company Subsidiary of a valuable right or of a material debt owed to it;

(d)any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company or any Company Subsidiary, except in the ordinary course of business and the satisfaction or discharge of which would not have a Company Material Adverse Effect;

(e)any material change to a material Contract by which the Company or any Company Subsidiary or any of its respective assets is bound or subject;

(f)any mortgage, pledge, transfer of a security interest in, or lien, created by the Company or any Company Subsidiary, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s or such Company Subsidiary’s ownership or use of such property or assets;

(g)any loans or guarantees made by the Company or any Company Subsidiary to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

(h)any alteration of the Company’s method of accounting or the identity of its auditors;

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(i)any declaration or payment of dividend or distribution of cash or other property to Stockholders or any purchase, redemption or agreements to purchase or redeem any shares of Company Stock;

(j)any issuance of equity securities to any officer, director or affiliate, except pursuant to existing Company stock option plans; or

(k)any arrangement or commitment by the Company or any Company Subsidiary to do any of the things described in this Section 3.25.

SECTION 3.26.No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to the Company, its subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

SECTION 3.27.Compliance with PRC Anti-Corruption Laws. Neither the Company, nor any of its subsidiaries, nor, to the Company’s knowledge, any director, officer, agent, employee or other person acting on behalf of the Company or any of its subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of applicable PRC laws; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

ARTICLE IV

Representations and Warranties of the Parent

The Parent represents and warrants to the Stockholder and the Company that, except as set forth in the reports, schedules, forms, statements and other documents filed by Parent with the SEC and publicly available prior to the date of the Agreement (the “Filed Parent SEC Documents”) or in the letter, which will be delivered by the Parent to the Company and the Stockholder concurrently herewith (the “Parent Disclosure Letter”):

SECTION 4.01.Organization, Standing and Power. Parent is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on Parent, a material adverse effect on the ability of Parent to perform its obligations under this Agreement or on the ability of Parent to consummate the Transactions (a “Parent Material Adverse Effect”). Parent is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary and where the failure to so qualify would reasonably be expected to have a Parent Material Adverse Effect. Parent has delivered to the Company true and complete copies of the certificate of incorporation of Parent, as amended to the date of this Agreement (as so amended, the “Parent Charter”), and the Bylaws of Parent, as amended to the date of this Agreement (as so amended, the “Parent Bylaws”).

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SECTION 4.02.Subsidiaries; Equity Interests. Parent does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

SECTION 4.03.Capital Structure. The authorized capital stock of the Parent consists of Twenty-Five Million (25,000,000) shares of Parent Common Stock, par value $0.001 per share, and Five Million (5,000,000) shares of preferred stock, par value $0.001 per share, of which 100,000 shares have been designated as “Series A Voting Convertible Preferred Stock” (the “Series A Preferred Stock”) and 1,000,000 shares have been designated as “Series B Voting Convertible Preferred Stock” (the “Series B Preferred Stock”). As of the date hereof, (i) 10,508,643 shares of Parent Common Stock are issued and outstanding, (ii) 100,000 shares of Series A Preferred Stock are issued and outstanding, (iii) no shares of Series B Preferred Stock are issued and outstanding, (iv) all of the shares of the Parent’s authorized, but unissued Common Stock (14,491,357 shares) are reserved for issuance upon issuance and conversion of the Series A Preferred Stock and the Series B Preferred Stock, and (v) no shares of Parent Common Stock or preferred stock are held by the Parent in its treasury. Except as set forth above, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. All outstanding shares of the capital stock of Parent are, and all such shares that may be issued prior to the date hereof will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the General Corporation Law of the State of Delaware, the Parent Charter, the Parent Bylaws or any Contract to which Parent is a party or otherwise bound. There are not any bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent Common Stock may vote (“Voting Parent Debt”). Except as set forth above, as of the date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which Parent is a party or by which it is bound (i) obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, Parent or any Voting Parent Debt, (ii) obligating Parent to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of the Parent. As of the date of this Agreement, there are not any outstanding contractual obligations of Parent to repurchase, redeem or otherwise acquire any shares of capital stock of Parent. Except as set forth in Schedule 4.03,the Parent is not a party to any agreement granting any securityholder of the Parent the right to cause the Parent to register shares of the capital stock or other securities of the Parent held by such securityholder under the Securities Act. The stockholder list to be provided at closing to the Company shall be a current shareholder list generated by its stock transfer agent, and such list shall accurately reflect all of the issued and outstanding shares of the Parent’s Common Stock.

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SECTION 4.04.Authority; Execution and Delivery; Enforceability. The execution and delivery by the Parent of this Agreement and the consummation by the Parent of the Transactions have been duly authorized and approved by the Board of Directors of the Parent and no other corporate proceedings on the part of the Parent, except for the filing of a Certificate of Completion (as hereinafter defined), are necessary to authorize this Agreement and the Transactions. This Agreement constitutes a legal, valid and binding obligation of the Parent, enforceable against the Parent in accordance with the terms hereof.

SECTION 4.05.No Conflicts; Consents.

(a)Except as set forth in the Parent Disclosure Letter, the execution and delivery by Parent of this Agreement, does not, and the consummation of Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of Parent under, any provision of (i) Parent Charter or Parent Bylaws, (ii) any material Contract to which Parent is a party or by which any of its properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 4.05(b), any material Judgment or material Law applicable to Parent or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect.

(b)No Consent of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to Parent in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions, other than the (A) filing with the SEC of a 14f-1 Notice and (B) filing with the SEC of reports under Sections 13 and 16 of the Exchange Act, and (C) filings under state “blue sky” laws, as may be required in connection with this Agreement and the Transactions.

SECTION 4.06.SEC Documents; Undisclosed Liabilities.

(a)Parent has filed all reports, schedules, forms, statements and other documents required to be filed by Parent with the SEC since April 12, 2006, pursuant to Sections 13(a), 14 (a) and 15(d) of the Exchange Act (the “Parent SEC Documents”).

(b)As of its respective filing date, each Parent SEC Document complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Document, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any Parent SEC Document has been revised or superseded by a later filed Parent SEC Document, none of the Parent SEC Documents contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with the U.S. generally accepted accounting principals (“GAAP”) (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).

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(c)Except as set forth in the Filed Parent SEC Documents, Parent has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a balance sheet of Parent or in the notes thereto. The Parent Disclosure Letter sets forth all financial and contractual obligations and liabilities (including any obligations to issue capital stock or other securities of the parent) due after the date hereof. As of the date hereof the Parent has total liabilities of less than $30,000, all of which liabilities shall be paid off at or prior to the Closing and shall in no event remain liabilities of the Parent, the Company or the Stockholder following the Closing.

SECTION 4.07.Information Supplied. None of the information supplied or to be supplied by Parent for inclusion or incorporation by reference in the 14f-1 Notice will, at the date it is first mailed to the Parent’s stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

SECTION 4.08.Absence of Certain Changes or Events. Except as disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter, from the date of the most recent audited financial statements included in the Filed Parent SEC Documents to the date of this Agreement, Parent has conducted its business only in the ordinary course, and during such period there has not been:

(a)any change in the assets, liabilities, financial condition or operating results of the Parent from that reflected in the Parent SEC Documents, except changes in the ordinary course of business that have not caused, in the aggregate, a Parent Material Adverse Effect;

(b)any damage, destruction or loss, whether or not covered by insurance, that would have a Parent Material Adverse Effect;

(c)any waiver or compromise by the Parent of a valuable right or of a material debt owed to it;

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(d)any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Parent, except in the ordinary course of business and the satisfaction or discharge of which would not have a Parent Material Adverse Effect;

(e)any material change to a material Contract by which the Parent or any of its assets is bound or subject;

(f)any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

(g)any resignation or termination of employment of any officer of the Parent;

(h)any mortgage, pledge, transfer of a security interest in, or lien, created by the Parent, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Parent’s ownership or use of such property or assets;

(i)any loans or guarantees made by the Parent to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;

(j)any declaration, setting aside or payment or other distribution in respect of any of the Parent’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Parent;

(k)any alteration of the Parent’s method of accounting or the identity of its auditors;

(l)any issuance of equity securities to any officer, director or affiliate, except pursuant to existing Parent stock option plans; or

(m)any arrangement or commitment by the Parent to do any of the things described in this Section 4.08.

SECTION 4.09.Taxes.

(a)Parent has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, has been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.

(b)The most recent financial statements contained in the Filed Parent SEC Documents reflect an adequate reserve for all Taxes payable by Parent (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against Parent, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect.

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(c)There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Parent. Parent is not bound by any agreement with respect to Taxes.

SECTION 4.10.Absence of Changes in Benefit Plans. From the date of the most recent audited financial statements included in the Filed Parent SEC Documents to the date of this Agreement, there has not been any adoption or amendment in any material respect by Parent of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of Parent (collectively, “Parent Benefit Plans”). As of the date of this Agreement there are not any employment, consulting, indemnification, severance or termination agreements or arrangements between the Parent and any current or former employee, officer or director of the Parent, nor does the Parent have any general severance plan or policy.

SECTION 4.11.ERISA Compliance; Excess Parachute Payments. The Parent does not, and since its inception never has, maintained, or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other Parent Benefit Plan for the benefit of any current or former employees, consultants, officers or directors of Parent.

SECTION 4.12.Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Shares or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Parent Material Adverse Effect. Neither the Parent nor any subsidiary, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

SECTION 4.13.Compliance with Applicable Laws. Parent is in compliance with all applicable Laws, including those relating to occupational health and safety and the environment, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect. Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, Parent has not received any written communication during the past two years from a Governmental Entity that alleges that Parent is not in compliance in any material respect with any applicable Law. The Parent is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Parent Material Adverse Effect. This Section 4.13 does not relate to matters with respect to Taxes, which are the subject of Section 4.09.

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SECTION 4.14.Contracts. Except as disclosed in the Parent Filed SEC Documents, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Parent taken as a whole. Parent is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect.

SECTION 4.15.Title to Properties. Parent has good title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses. All such assets and properties, other than assets and properties in which the Parent has leasehold interests, are free and clear of all Liens other than those set forth in the Parent Disclosure Letter and except for Liens that, in the aggregate, do not and will not materially interfere with the ability of the Parent to conduct business as currently conducted. Parent has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. Parent enjoys peaceful and undisturbed possession under all such material leases.

SECTION 4.16.Intellectual Property. Parent owns, or is validly licensed or otherwise has the right to use, all Intellectual Property Rights which are material to the conduct of the business of the Parent taken as a whole. The Parent Disclosure Letter sets forth a description of all Intellectual Property Rights which are material to the conduct of the business of the Parent taken as a whole. Except as set forth in the Parent Disclosure Letter no claims are pending or, to the knowledge of the Parent, threatened that the Parent is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of the Parent, no person is infringing the rights of the Parent with respect to any Intellectual Property Right.

SECTION 4.17.Labor Matters. There are no collective bargaining or other labor union agreements to which the Parent is a party or by which it is bound. No material labor dispute exists or, to the knowledge of the Parent, is imminent with respect to any of the employees of the Parent.

SECTION 4.18.Market Makers. The Parent has at least two market makers for its common shares and such market makers have obtained all permits and made all filings necessary in order for such market makers to continue as market makers of the Parent.

SECTION 4.19.Transactions With Affiliates and Employees. Except as set forth in the Filed Parent SEC Documents and Parent Disclosure Letter, none of the officers or directors of the Parent and, to the knowledge of the Parent, none of the employees of the Parent is presently a party to any transaction with the Parent or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Parent, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

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SECTION 4.20.Internal Accounting Controls. The Parent maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Parent has established disclosure controls and procedures for the Parent and designed such disclosure controls and procedures to ensure that material information relating to the Parent is made known to the officers by others within those entities. The Parent’s officers have evaluated the effectiveness of the Parent’s controls and procedures. Since December 31, 2006, there have been no significant changes in the Parent’s internal controls or, to the Parent’s knowledge, in other factors that could significantly affect the Parent’s internal controls.

SECTION 4.21.Solvency. Based on the financial condition of the Parent as of the closing date (and assuming that the closing shall have occurred), (i) the Parent’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Parent’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Parent’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Parent, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Parent, together with the proceeds the Parent would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Parent does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

SECTION 4.22.Application of Takeover Protections. The Parent has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Parent’s charter documents or the laws of its state of incorporation that is or could become applicable to the Stockholder as a result of the Stockholder and the Parent fulfilling their obligations or exercising their rights under this Agreement, including, without limitation, the issuance of the Shares and the Stockholder’s ownership of the Shares.

SECTION 4.23.No Additional Agreements. The Parent does not have any agreement or understanding with the Stockholder with respect to the transactions contemplated by this Agreement other than as specified in this Agreement.

SECTION 4.24.Investment Company. The Parent is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

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SECTION 4.25.Disclosure. All disclosure provided to the Stockholder regarding the Parent, its business and the transactions contemplated hereby, furnished by or on behalf of the Parent (including the Parent’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

SECTION 4.26.Certain Registration Matters. Except as specified in the Parent Disclosure Letter and Filed Parent SEC Documents, the Parent has not granted or agreed to grant to any person any rights (including “piggy-back” registration rights) to have any securities of the Parent registered with the SEC or any other governmental authority that have not been satisfied.

SECTION 4.27.Listing and Maintenance Requirements. The Parent is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Parent Stock on the trading market on which the Parent Stock are currently listed or quoted. The issuance and sale of the Shares under this Agreement does not contravene the rules and regulations of the trading market on which the Parent Stock are currently listed or quoted, and no approval of the stockholders of the Parent is required for the Parent to issue and deliver to the Stockholder the Shares contemplated by this Agreement.

SECTION 4.28.No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to the Parent, its subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Parent under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Parent of its Common Stock and which has not been publicly announced.

SECTION 4.29.Foreign Corrupt Practices. Neither the Parent, nor any of its subsidiaries, nor, to the Parent’s knowledge, any director, officer, agent, employee or other person acting on behalf of the Parent or any of its subsidiaries has, in the course of its actions for, or on behalf of, the Parent (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

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ARTICLE V

Deliveries

SECTION 5.01.Deliveries of the Stockholder.

(a)Concurrently herewith the Stockholder is delivering to the Parent this Agreement executed by the Stockholder.

(b)On Closing date, the Stockholder shall deliver to the Parent:

(i)   certificates representing its Company Stock; and

(ii)   duly executed instruments of transfer by the Stockholder of its Company Stock to the Parent.

SECTION 5.02.Deliveries of the Parent.

(a)Concurrently herewith, the Parent is delivering:

(i)   to each Stockholder and to the Company, a copy of this Agreement executed by Parent;

(ii)   to the Company, a certificate from the Parent, signed by its Secretary or Assistant Secretary certifying that the attached copies of the Parent Charter, Parent Bylaws and resolutions of the Board of Directors of the Parent approving the Agreement and the Transactions, are all true, complete and correct and remain in full force and effect;

(b)At or prior to the Closing, the Parent shall deliver:

(i)   to the Company, a letter of resignation of Timothy Halter from all offices he holds with the Parent effective upon the Closing and from his position as a director of the Parent that will become effective upon the 10th day following the mailing by the Parent to its stockholders of the 14f-1 Notice;

(ii)   to the Company, evidence of the election (A) of Mr. Si Chen as a director of the Parent and (B) of the executive officers of the Company as executive officers of the Parent effective upon the Closing;

(iii)   to the Company, such pay-off letters and releases relating to liabilities as the Company shall request and such pay-off letters and releases shall be in form and substance satisfactory to the Company; and

(iv)   to the Company the results of UCC, judgment lien and tax lien searches with respect to the Parent, the results of which indicate no liens on the assets of the Parent.

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(c)On Closing date, the Parent shall deliver:

(i)   to each Stockholder, certificates representing the new shares of Parent Series B Preferred Stock issued to such Stockholder as set forth on Exhibit A; and

(ii)   to the Company, consent letters of the accounting firms of Parent confirming each such firm’s respective consent to the use by the Parent of reports prepared by such firm regarding the financial statements of the Parent in all future registration statements filed with the SEC.

SECTION 5.03.Deliveries of the Company.

Concurrently herewith, the Company is delivering to the Parent:

(a) this Agreement executed by Company; and

(b) a certificate from the Company, signed by its authorized officer certifying that the attached copies of the Company Constituent Instruments and resolutions of the Board of Directors of the Company approving the Agreement and the Transactions are all true, complete and correct and remain in full force and effect.

ARTICLE VI

Conditions to Closing

SECTION 6.01.Stockholder and Company Conditions Precedent. The obligations of the Stockholder and the Company to enter into and complete the Closing is subject, at the option of the Stockholder and the Company, to the fulfillment on or prior to the Closing Date of the following conditions:

(a)Representations and Covenants. The representations and warranties of the Parent contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Parent shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Parent on or prior to the Closing Date. The Parent shall have delivered to the Stockholder and the Company, a certificate, dated the Closing Date, to the foregoing effect.

(b)Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Company or the Stockholder, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Parent or the Company.

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(c)No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since December 31, 2006 which has had or is reasonably likely to cause a Parent Material Adverse Effect.

(d)Post-Closing Capitalization. At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of the capital stock of the Company and the Parent, on a fully-diluted basis, as indicated on a schedule to be delivered by the Parties at or prior to the Closing, shall be acceptable to the Stockholder in their sole and absolute discretion.

(e)SEC Reports. The Parent shall have filed all reports and other documents required to be filed by Parent under the U.S. federal securities laws through the Closing Date.

(f)OTCBB Quotation. The Parent shall have maintained its status as a Company whose common stock is quoted on the Over-the-Counter Bulletin Board and no reason shall exist as to why such status shall not continue immediately following the Closing.

(g)Deliveries. The deliveries specified in Section 5.02 shall have been made by the Parent.

(h)No Suspensions of Trading in Parent Stock; Listing. Trading in the Parent Stock shall not have been suspended by the SEC or any trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material information regarding the Parent) at any time since the date of execution of this Agreement, and the Parent Stock shall have been at all times since such date listed for trading on a trading market.

(i)Satisfactory Completion of Due Diligence. The Company and the Stockholder shall have completed their legal, accounting and business due diligence of the Parent and the results thereof shall be satisfactory to the Company and the Stockholder in their sole and absolute discretion.

(j)Delivery of Audit Report and Financial Statements. The Company shall have completed the Company Financial Statements and shall have received an audit report from an independent audit firm that is registered with the Public Company Accounting Oversight Board relating to the fiscal years ended December 31, 2006, 2005 and 2004.

(k)Completion of Financing. The Financing (as defined in Section 7.11 below) shall have been completed or shall be completed simultaneously with the Closing.

(l)Delivery of US Legal Opinion. The Company shall have received an opinion from its legal counsel in the US that discusses the Company’s entering into documents in connection with the Transactions and certain other matters, under New York law and the Delaware General Corporation Law and that is otherwise satisfactory to the Company, the Stockholder, the Parent and the investors investing in the Financing.

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(m)Delivery of PRC Legal Opinion. The Company shall have received an opinion from its legal counsel in People’s Republic of China that confirms the legality under Chinese laws of the restructuring being effected by the Company in connection with the Transactions and that is otherwise satisfactory to the Company, the Stockholder, the Parent and the investors investing in the Financing.

(n)Delivery of Cayman Island Legal Opinion. The Parent shall have received an opinion from the Company’s legal counsel in the Cayman Islands that confirms the legality under the laws of the Cayman Islands of the restructuring being effected by the Company in connection with the Transactions and that is otherwise satisfactory to the Company, the Stockholder, the Parent and the investors investing in the Financing.

(o)Filing of Certificate of Designation. The Parent shall have filed with the Secretary of State of the State of Delaware a Certificate of Designation setting forth the voting powers, designations, preferences and relative, participating, optional or other rights and the qualifications, limitations and restrictions of the Series B Preferred Stock, in form and substance mutually agreed upon by the Parties.

SECTION 6.02.Parent Conditions Precedent. The obligations of the Parent to enter into and complete the Closing is subject, at the option of the Parent, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by the Parent in writing.

(a)Representations and Covenants. The representations and warranties of the Stockholder and the Company contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Stockholder and the Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by the Stockholder and the Company on or prior to the Closing Date. The Company shall have delivered to the Parent, if requested, a certificate, dated the Closing Date, to the foregoing effect.

(b)Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of the Parent, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of the Parent.

(c)No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since December 31, 2006 which has had or is reasonably likely to cause a Company Material Adverse Effect.

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(d)Deliveries. The deliveries specified in Section 5.01 and Section 5.03 shall have been made by the Stockholder and the Company, respectively.

(e)Post-Closing Capitalization. At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of the capital stock of the Company and the Parent, on a fully-diluted basis, as indicated on a schedule to be delivered by the Parties at or prior to the Closing, shall be acceptable to the Parent in its sole and absolute discretion.

(f)Satisfactory Completion of Due Diligence. The Parent shall have completed its legal, accounting and business due diligence of the Company and the Stockholder and the results thereof shall be satisfactory to the Parent in its sole and absolute discretion.

(g)Delivery of Audit Report and Financial Statements. The Company shall have completed the Company Financial Statements and shall have received an audit report from an independent audit firm that is registered with the Public Company Accounting Oversight Board relating to the fiscal years ended December 31, 2006, 2005 and 2004. The form and substance of the Financial Statements shall be satisfactory to the Parent in its sole and absolute discretion.

(h)Completion of Financing. The Financing (as defined in Section 7.11 below) shall have been completed or shall be completed simultaneously with the Closing.

(i)Delivery of PRC Legal Opinion. The Parent shall have received an opinion from the Company’s legal counsel in the People’s Republic of China that confirms the legality under Chinese law of the restructuring being effected by the Company in connection with the Transactions and that is otherwise satisfactory to the Company, the Stockholder, the Parent and the investors investing in the Financing.

(j)Delivery of Cayman Island Legal Opinion. The Parent shall have received an opinion from the Company’s legal counsel in the Cayman Islands that confirms the legality under the laws of the Cayman Islands of the restructuring being effected by the Company in connection with the Transactions and that is otherwise satisfactory to the Company, the Stockholder, the Parent and the investors investing in the Financing.

(k)Registration Rights Agreement. The Company shall have entered into a registration rights agreement with such parties as indicated by the Parent and the form and substance of such registration rights agreement shall be reasonably satisfactory to the Parent.

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ARTICLE VII

Covenants

SECTION 7.01.Preparation of the 14f-1 Notice; Blue Sky Laws.

(a)As soon as possible following the Closing and in any event, within four business days thereafter, the Company and Parent shall prepare and file with the SEC the 14f-1 Notice in connection with the consummation of this Agreement. The Parent shall cause the 14f-1 Notice to be mailed to the Parent’s stockholders as promptly as practicable thereafter.

(b)Parent shall take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Parent Stock in connection with this Agreement.

SECTION 7.02.Public Announcements. Parent and the Company will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the Agreement and the Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange.

SECTION 7.03.Fees and Expenses. All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses, whether or not this Agreement is consummated.

SECTION 7.04.Continued Efforts. Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the Transactions, and (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date.

SECTION 7.05.Conduct of Business. During the period from the date hereof through the Closing Date, Parent and the Company shall carry on their respective businesses in the ordinary and usual course consistent with past practice.

SECTION 7.06.Exclusivity. The Parent shall not (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of any capital stock or other voting securities of the Parent, or any assets of the Parent (including any acquisition structured as a merger, consolidation, share exchange or other business combination), (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing, or (iii) take any other action that is inconsistent with the Transactions and that has the effect of avoiding the Closing contemplated hereby. The Parent shall notify the Company immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.

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SECTION 7.07.Filing of 8-K and Press Release. As soon as practicable following the Closing Date, the Company shall provide the Parent and the Stockholder with a draft of the current report on Form 8-K that is reasonably acceptable to the Parent and the Stockholder that the Parent shall file, within four business days of the Closing Date and attaching as exhibits all relevant agreements with the SEC disclosing the terms of this Agreement and other requisite disclosure regarding the Transactions and including the requisite audited consolidated financial statements of the Company and the requisite Form 10 disclosure regarding the Company. In addition, the Parent shall issue a press release prior to 9:30 a.m. (New York Time) on the business day following the Closing Date, announcing the closing of the transaction.

SECTION 7.08.Furnishing of Information. As long as any Stockholder owns the Shares, the Parent covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Parent after the date hereof pursuant to the Exchange Act. As long as any Stockholder owns Shares, if the Parent is not required to file reports pursuant to such laws, it will prepare and furnish to the Stockholder and make publicly available in accordance with Rule 144(c) promulgated by the SEC pursuant to the Securities Act, such information as is required for the Stockholder to sell the Shares under Rule 144. The Parent further covenants that it will take such further action as any holder of Shares may reasonably request, all to the extent required from time to time to enable such person to sell the Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

SECTION 7.09.Access. Each Party shall permit representatives of each other Party to have full access to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to such Party.

SECTION 7.10.Preservation of Business. From the date of this Agreement until the Closing Date, each of the Company and the Parent shall operate only in the ordinary and usual course of business consistent with past practice (provided, however, that Parent shall not issue any securities without the prior written consent of the Company), and shall use reasonable commercial efforts to (a) preserve intact its respective business organization, (b) preserve the good will and advantageous relationships with customers, suppliers, independent contractors, employees and other Persons material to the operation of its respective business, and (c) not permit any action or omission which would cause any of its respective representations or warranties contained herein to become inaccurate or any of its respective covenants to be breached in any material respect.

SECTION 7.11.Financing. Parent shall use commercially reasonable efforts to raise up to $20 million in an equity financing transaction on terms that are satisfactory to the Company and the Stockholder (the “Financing”), which Financing shall be consummated simultaneously with the Closing.

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ARTICLE VIII

Miscellaneous

SECTION 8.01.Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

If to the Parent, to:

MILLENNIUM QUEST, INC.

12890 Hilltop Road

Argyle, TX 76226

Attention: Timothy P. Halter

Facsimile: (940) 455-7337

If to the Company, to:

INTERNATIONAL LORAIN HOLDING, INC.

Beihuan Road

Junan County

Shandong, China

Attention: Mr. Hisashi Akazawa

Facsimile: (0086539) 7314886 7311026

If to the Stockholder at the addresses set forth in Exhibit A hereto.

with a copy to:

King & Wood

40th Floor, Office Tower A, Beijing Fortune Plaza 7 Dongsanhuan Zhonglu, Chaoyang District Beijing 100020, China.

Attention: Charles Law

Tel: 8610-58785588

Fax:8610-58785599

and

Thelen, Reid Brown Raysman & Steiner, LLP

701 Eighth Street, N.W.

Washington, D.C. 20001

Attention: Louis A. Bevilacqua, Esq.

Facsimile: (202) 654-1804

SECTION 8.02.Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company, Parent and the Stockholder holding a majority of the Shares. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either Party to exercise any right hereunder in any manner impair the exercise of any such right. No consideration shall be offered or paid to the Stockholder to amend or consent to a waiver or modification of any provision of any transaction document unless the same consideration is also offered to all Stockholders who then hold Shares.

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SECTION 8.03.Termination.

(a)Termination of Agreement. The Parties may terminate this Agreement as provided below:

(i)   The Company, the Stockholder and the Parent may terminate this Agreement by mutual written consent at any time prior to the Closing;

(ii)   The Parent may terminate this Agreement by giving written notice to the Company and the Stockholder at any time prior to the Closing (A) in the event the Company or any of the Stockholder have breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Parent has notified the Company and/or the Stockholder of the breach, and the breach has continued without cure for a period of twenty days after the notice of breach, or (B) if the Closing shall not have occurred on or before May 31, 2007 by reason of the failure of any condition precedent under Section 6.02 hereof (unless the failure results primarily from the Parent itself breaching any representation, warranty, or covenant contained in this Agreement); and

(iii)   The Company may terminate this Agreement by giving written notice to the Parent at any time prior to the Closing (A) in the event the Parent has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Company has notified the Parent of the breach, and the breach has continued without cure for a period of twenty days after the notice of breach or (B) if the Closing shall not have occurred on or before May 31, 2007, by reason of the failure of any condition precedent under Section 6.01 hereof (unless the failure results primarily from the Company or the Stockholder themselves breaching any representation, warranty, or covenant contained in this Agreement).

(b)Effect of Termination. If any Party terminates this Agreement pursuant to Section 8.03(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party to consummate its obligations hereunder or to complete the transactions contemplated by this Agreement, except for any Liability of any Party then in breach.

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SECTION 8.04.Power of Attorney. The Stockholder hereby irrevocably constitutes and appoints the Company and any officer or agent of the Company, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Stockholder or in the Company’s own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives said attorneys the power and right, on behalf of the Stockholder, without notice to or assent by the Stockholder to transfer any future shares acquired by the Stockholder and any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right granted to the Stockholder relating to transactions on or before the date hereof.

SECTION 8.05.Replacement of Securities. If any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, the Parent shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Parent of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Shares. If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, the Parent may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

SECTION 8.06.Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Stockholder, Parent and the Company will be entitled to specific performance under this Agreement. The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

SECTION 8.07.Independent Nature of Stockholders’ Obligations and Rights. The obligations of each Stockholder under this Agreement are several and not joint with the obligations of any other Stockholder, and no Stockholder shall be responsible in any way for the performance of the obligations of any other Stockholder under this Agreement. The decision of each Stockholder to acquire Shares pursuant to this Agreement has been made by such Stockholder independently of any other Stockholder. Nothing contained herein, and no action taken by any Stockholder pursuant hereto, shall be deemed to constitute the Stockholder as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Stockholder are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein. Each Stockholder acknowledges that no other Stockholder has acted as agent for such Stockholder in connection with making its investment hereunder and that no Stockholder will be acting as agent of such Stockholder in connection with monitoring its investment in the Shares or enforcing its rights under this Agreement. Each Stockholder shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Stockholder to be joined as an additional party in any proceeding for such purpose. Each of the Company and Parent acknowledge that the Stockholder has been provided with this same Agreement for the purpose of closing a transaction with multiple Stockholders and not because it was required or requested to do so by any Stockholder.

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SECTION 8.08.Limitation of Liability. Notwithstanding anything herein to the contrary, each of the Parent and the Company acknowledge and agree that the liability of a Stockholder arising directly or indirectly, under any transaction document of any and every nature whatsoever shall be satisfied solely out of the assets of such Stockholder, and that no trustee, officer, other investment vehicle or any other affiliate of such Stockholder or any investor, shareholder or holder of shares of beneficial interest of such Stockholder shall be personally liable for any liabilities of such Stockholder.

SECTION 8.09.Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”.

SECTION 8.10.Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that Transactions contemplated hereby are fulfilled to the extent possible.

SECTION 8.11.Counterparts; Facsimile Execution. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes.

SECTION 8.12.Entire Agreement; Third Party Beneficiaries. This Agreement, taken together with the Company Disclosure Letter and the Parent Disclosure Letter, (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the Transactions and (b) are not intended to confer upon any person other than the Parties any rights or remedies.

SECTION 8.13.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto agrees (a) that this Agreement involves at least $100,000.00, and (b) that this Agreement has been entered into by the parties hereto in express reliance upon 6 Del. C.§ 2708. Each of the parties hereto hereby irrevocably and unconditionally agrees (i) that it is and shall continue to be subject to the jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware, and (ii)(A) to the extent that such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such party’s agent for acceptance of legal process and notify the other parties hereto of the name and address of such agent, and (B) to the fullest extent permitted by law, that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the U.S. Postal Service constituting evidence of valid service, and that, to the fullest extent permitted by applicable law, service made pursuant to (ii)(A) or (B) above shall have the same legal force and effect as if served upon such party personally within the State of Delaware.

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SECTION 8.14.Assignment. To the fullest extent permitted by law, neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of the other Parties. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

[Signature Page Follows]

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The Parties hereto have executed and delivered this Share Exchange Agreement as of the date first above written.

The Parent:

MILLENNIUM QUEST, INC.

By: /s/Timothy P. Halter

Name: Timothy P. Halter

Title: President

The Company:

INTERNATIONAL LORAIN HOLDING, INC.

By: /s/Hisashi Akazawa

Name: Hisashi Akazawa

Title: Director

The Stockholder:

/s/Hisashi Akazawa

Hisashi Akazawa

[Signature Page to Share Exchange Agreement]

EXHIBIT A

Stockholders of International Lorain Holding, Inc.

Name and Address of Stockholder	Tax ID Number of Stockholder (if Applicable)	Number of Shares of Company Stock Being Exchanged	Percentage of Total Company Shares Represented By Shares Being Exchanged	Number of Shares of Parent Stock to be Received by Stockholder
Mr. Hisashi Akazawa Beihuan Zhong Road Junan County Shandong, China 276600	N/A	5,099,503	100%	697,663

EX-3.1

EX-4.2

   v073867_ex4-2 -- Converted by SECPublisher 2.1.1.8, created by BCL Technologies Inc., for SEC Filing
   

EX-4.4

Exhibit 4.4

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this "Agreement") is made and entered into as of May 3, 2007, by and among Millennium Quest, Inc., a Delaware corporation (the "Company"), and the investors signatory hereto (each an "Investor" and collectively, the "Investors").

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Investors (the "Purchase Agreement").

The Company and the Investors hereby agree as follows:

1.Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement will have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms have the respective meanings set forth in this Section 1:

“2007 Delivery Date” means the date on which the 2007 Make Good Shares are required to be delivered to the Investors by the Beneficial Owners pursuant to Section 5.2(a) of the Purchase Agreement.

“2008 Delivery Date” means the date on which the 2008 Make Good Shares are required to be delivered to the Investors by the Beneficial Owners pursuant to Section 5.2(b) of the Purchase Agreement.

“Advice” has the meaning set forth in Section 6(c).

"Effective Date" means, as to a Registration Statement, the date on which such Registration Statement is first declared effective by the Commission.

“Effectiveness Date” means

(a) with respect to the Registration Statement required to be filed under Section 2(a), the earlier of

(i)the 120^th day following the date Stockholder Approval is obtained, and

(ii)the fifth Trading Day following the date on which the Company is notified by the Commission that such Registration Statement will not be reviewed or is no longer subject to further review and comments,

(b) with respect to a Registration Statement required to be filed under Section 2(b), the earlier of:

(i) the 60^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (b)(i) shall be the 90^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock, and

(ii)the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments,

(c) with respect to a Registration Statement required to be filed under Section 2(c), the earlier of:

(i)the 60^th day following the 2007 Delivery Date; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (c)(i) shall be the 90^th day following the 2007 Delivery Date, and

(ii)the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments and

(d) with respect to a Registration Statement required to be filed under Section 2(d), the earlier of:

(i)the 60^th day following the 2008 Delivery Date; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (d)(i) shall be the 90^th day following the 2008 Delivery Date, and

(ii)the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments.

"Effectiveness Period" has the meaning set forth in Section 2(a).

"Filing Date" means

(a) with respect to the Registration Statement required to be filed under Section 2(a), the fifth Trading Day following the date Stockholder Approval is obtained,

(b) with respect to a Registration Statement required to be filed under Section 2(b), the 30^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock,

(c) with respect to the Registration Statement required to be filed under Section 2(c), the 30^th day following the 2007 Delivery Date (provided that if the Company is then eligible to utilize Form S-3 to register the resale of Common Stock, the Filing Date under this clause (c) shall be 15 days following the 2007 Delivery Date) and

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(d) with respect to the Registration Statement required to be filed under Section 2(d), the 30^th day following the 2008 Delivery Date (provided that if the Company is then eligible to utilize Form S-3 to register the resale of Common Stock, the Filing Date under this clause (d) shall be 15 days following the 2008 Delivery Date).

"Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” has the meaning set forth in Section 5(c).

“Indemnifying Party” has the meaning set forth in Section 5(c).

“Losses” has the meaning set forth in Section 5(a).

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means: (i) the Underlying Shares, (ii) the Warrant Shares, (iii) the 2007 Make Good Shares, as applicable, (iv) the 2008 Make Good Shares, as applicable and (v) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, or any price adjustment as a result of such stock splits, reverse stock splits or similar events with respect to any of the securities referenced in (i) through (iv) above.

"Registration Statement" means the registration statement required to be filed in accordance with Section 2(a) and any additional registration statement(s) required to be filed under Section 2(b), Section 2(c), or Section 2(d), including (in each case) the Prospectus, amendments and supplements to such registration statements or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference therein.

"Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

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2. Registration.

(a)On or prior to the fifth Trading Day following the date Stockholder Approval is obtained, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities (other than the 2007 Make Good Shares and the 2008 Make Good Shares) not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415, on Form S-1 (or on such other form appropriate for such purpose).

(b)Promptly following any date on which the Company becomes eligible to use a registration statement on Form S-3 to register Registrable Securities for resale, the Company shall file a Registration Statement on Form S-3 covering all such Registrable Securities (or a post-effective amendment on Form S-3 to the then effective Registration Statement) and shall cause such Registration Statement to be filed by the Filing Date for such Registration.

(c)On or prior to the applicable Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the 2007 Make Good Shares on Form S-1 or Form S-3 if the Company is then eligible to utilize such Form (or on such other form appropriate for such purpose) and shall cause such Registration Statement to be filed by the Filing Date for such Registration Statement.

(d)On or prior to the applicable Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the 2008 Make Good Shares on Form S-1 or Form S-3 if the Company is then eligible to utilize such Form (or on such other form appropriate for such purpose) and shall cause such Registration Statement to be filed by the Filing Date for such Registration Statement.

(e)Each Registration Statement filed pursuant to subpart (a) through (d) shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement) the "Plan of Distribution" attached hereto as Annex A. The Company shall cause each such Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than its Effectiveness Date, and shall use its reasonable best efforts to keep each such Registration Statement continuously effective under the Securities Act until the date which is the earliest of (i) two years after its Effective Date, (ii) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold by the Holders, or (iii) such time as all of the Registrable Securities covered by such Registration Statement may be sold by the Holders pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the "Effectiveness Period"). By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of each such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

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(f)Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Holder Questionnaire”). The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statement who fails to furnish to the Company a fully completed Selling Holder Questionnaire at least two Trading Days prior to the Filing Date (subject to the requirements set forth in Section 3(a)).

3. Registration Procedures.

In connection with the Company's registration obligations hereunder, the Company shall:

(a)Not less than four Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to each Holder copies of the “Selling Stockholders” section of such document, the “Plan of Distribution” and any risk factor contained in such document that addresses specifically this transaction or the Selling Stockholders, as proposed to be filed which documents will be subject to the review of such Holder. Any Holder must provide their comments, if any, to the Company at least two Trading Days prior to the filing of such Registration Statement or any related Prospectus or any amendment or supplement thereto. The Company shall not file a Registration Statement, any Prospectus or any amendments or supplements thereto in which the “Selling Stockholder” section thereof differs from the disclosure received from a Holder in its Selling Holder Questionnaire (as amended or supplemented).

(b)(i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that would not result in the disclosure to the Holders of material and non-public information concerning the Company; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of all Registrable Securities covered by each Registration Statement.

(c)Notify the Holders as promptly as reasonably possible (and, in the case of (i)(A) below, not less than three Trading Days prior to such filing and, in the case of (v) below, not less than three Trading Days prior to the financial statements in any Registration Statement becoming ineligible for inclusion therein) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders that pertain to the Holders as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non-public information); and (C) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) of the occurrence of any event or passage of time that causes a Registration Statement not to be effective.

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(d)Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Person (including those previously furnished) promptly after the filing of such documents with the Commission.

(f)Promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(g)Prior to any public offering of Registrable Securities, register or qualify such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder may request, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statements.

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(h)Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Purchase Agreement or Warrant, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

(i)Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(j)In conjunction with the filing of the Registration Statement, the Company will cooperate and coordinate with the placement agent in connection with the filings to be made with the NASD, via the COBRA desk filing system, for approval of underwriting compensation under Section 2710 of the rules and regulations of the NASD, obtain from the NASD a standard clearance letter, and coordinate with the placement agent on filings it will be required to make upon sales under the registration statement.

4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

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5. Indemnification.

(a)Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors, partners, members and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

(b)Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon: (x) such Holder's failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

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(c)Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

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(d)Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6. Miscellaneous.

(a)Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

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(b)Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(c)Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

(d)Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights.

(e)No Piggyback on Registrations. Except with respect to the shares of Common Stock underlying the warrant issued by the Company to the Placement Agent and as set forth on Schedule 6(e) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders to include securities of the Company in the Registration Statement.

(f)Amendments and Waivers. The provisions of this Agreement, including the provisions of this Section 6(f), may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of no less than a majority in interest of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates.

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(g)Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 3:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 3:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	Millennium Quest, Inc. Beihuan Road Junan County Shandong, China Facsimile: (0086539) 7314886 7311026 Attn: Mr. Si Chen
With a copy to:	Thelen Reid Brown Raysman & Steiner LLP 701 8th Street NW Washington, D.C. 20001 Facsimile: (202) 654-1804 Attn.: Louis A. Bevilacqua, Esq.
If to a Investor:	To the address set forth under such Investor's name on the signature pages hereto.
If to any other Person who is then the registered Holder:
	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(h)Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(i)Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

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(j)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective Affiliates, employees or agents) will be commenced in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

(k)Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(m)Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(n)Independent Nature of Investors' Obligations and Rights. The obligations of each Investor under this Agreement are several and not joint with the obligations of each other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or any other Transaction Document. Each Investor acknowledges that no other Investor will be acting as agent of such Investor in enforcing its rights under this Agreement. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any Proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Registration Rights Agreement for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

MILLENNIUM QUEST, INC.

By:  

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SIGNATURE PAGES OF INVESTORS TO FOLLOW]

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

NAME OF INVESTING ENTITY

_________________________________________

By: ____________________________________________

Name:

Title:

ADDRESS FOR NOTICE

c/o: _____________________________________________

Street: ___________________________________________

City/State/Zip: _____________________________________

Attention: ________________________________________

Tel:_____________________________________________

Fax:_____________________________________________

Email:___________________________________________

EX-4.5

Exhibit 4.5

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

To Purchase __________ Shares of Common Stock of

MILLENNIUM QUEST, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ (the “Holder”), is entitled, subject to Shareholder Approval and the Amendment Filing, and upon the other terms and limitations on exercise hereinafter set forth, at any time on or after May 3, 2007 (the “Initial Exercise Date”) and on or prior to the close of business on the third anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Millennium Quest, Inc., a Delaware corporation (the “Company”), up to ______ ¹ shares (the “Warrant Shares”) of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

This Warrant is being issued to the Holder pursuant to Section 2(b) of that certain engagement letter agreement dated March 16, 2007 between International Lorain Holding, Inc. and Sterne, Agee & Leach, Inc.

Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated May 3, 2007, among the Company, the purchasers signatory thereto, and the Beneficial Owners. For the sake of clarity, the stated number of Warrant Shares and the stated Exercise Price set forth herein are determined pre-Reverse Split and will be adjusted by the Reverse Split.

Section 2.  Exercise.

a)Exercise of Warrant. Subject to Shareholder Approval and the Amendment Filing, exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); and, within three Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

^{_______________________}

¹ Warrant Shares shall be a number equal to 20% of the shares of common stock issuable upon conversion of the Series B Voting Convertible Preferred Stock purchased by Holder.

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b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.1294153, subject to adjustment as set forth herein (the “Exercise Price”).

c) Cashless Exercise. If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to tender Warrants for cancellation and in return receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of the Warrants tendered for cancellation in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b)  if the OTC Bulletin Board is the Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Mechanics of Exercise.

i.Authorization of Warrant Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and subject to Shareholder Approval and the Amendment Filing, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

ii.Delivery of Certificates Upon Exercise. Subject to and in reliance on Holder’s covenant in Section 6(b) of the Registration Rights Agreement, in the event of exercise of this Warrant at a time when a Registration Statement covering the resale of the Warrant Shares is effective under the Securities Act,certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have been paid.

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iii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iv.Rescission Rights. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise by the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares purchased in the Buy-In at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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vi.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

vii.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

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e)Registration Rights. The Company shall prepare and file with the Commission a registration statement under the Securities Act on Form S-1 (or on such other form appropriate for such purpose) covering the resale of all Warrant Shares for an offering to be made on a continuous basis pursuant to Rule 415. The Company shall provide to the Holders and its assignees registration rights at least as favorable to the selling stockholder as the rights set forth in the Registration Rights Agreement, and the Company shall enter into a registration rights agreement with the Holder and its assignees on terms and conditions at least as favorable to the selling stockholder as the Registration Rights Agreement. In furtherance of its covenants herein, the Company shall include the Warrant Shares on the Registration Statement to be filed for the benefit of the Investors pursuant to the Registration Rights Agreement. 

Section 3.          CertainAdjustments.

a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of the Reverse Split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b) Pro Rata Distributions. If the Company, at any time while the Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) (i) evidences of its indebtedness or assets (including cash and cash dividends), (ii) any security (other than a distribution of Common Stock covered by subpart (a) above), or (iii) rights or warrants to subscribe for or purchase any security, (each, a “Distributed Property”) then in each such case the Holder shall, upon exercise of this Warrant, be entitled to receive such Distributed Property as the Holder would have received had the Holder exercised the Warrant prior to the record date for the distribution of the Distributed Property.

c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in an all cash transaction, cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(c) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

e) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

f) Notice to Holders.

i.Adjustment to Warrant Shares; Notice of Adjustment. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. The Company shall promptly mail to each Holder a notice setting forth the Exercise Price and Warrant Share amount after each adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.          Transfer of Warrant.

a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

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b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d) Transfer Restrictions. In connection with any transfer of this Warrant, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

Section 5. Miscellaneous.

a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(ii).

b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

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c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants to take all action in a timely manner to obtain Shareholder Approval and effect the Amendment Filing, and thereafter, during the period the Warrant is outstanding, reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company further covenants to list the Warrant Shares on each Trading Market on which its Common Stock is or becomes listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

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e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f) Reissuance of Warrant. Following Shareholder Approval and the Amendment Filing, the Company, at the request of the Holder and upon delivery of this Warrant for cancellation and reissuance hereunder, shall issue to Holder, at the Company’s expense, a new Warrant that gives effect to the Shareholder Approval and the Amendment Filing but which otherwise is on exactly the same terms and conditions as this Warrant.

g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement to the Holder as follows:

Sterne Agee & Leach, Inc.

800 Shades Creek Parkway, Suite 300

Birmingham, Alabama 35209

Facsimile: (205) 949-3626

Attention: Ryan C. Medo

i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

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l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated: May 3, 2007

MILLENNIUM QUEST, INC.

By:__________________________________________

Si Chen, Chief Executive Officer

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NOTICE OF EXERCISE

TO:MILLENNIUM QUEST, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _________________________________________________

Name of Authorized Signatory: ___________________________________________________________________

Title of Authorized Signatory: ____________________________________________________________________

Date: ________________________________________________________________________________________

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address:_____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-4.6

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

To Purchase                                   Shares of Common Stock of

MILLENNIUM QUEST, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,                                   (the “Holder”), is entitled, subject to Shareholder Approval and the Amendment Filing, and upon the other terms and limitations on exercise hereinafter set forth, at any time on or after May 3, 2007 (the “Initial Exercise Date”) and on or prior to the close of business on the third anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Millennium Quest, Inc., a Delaware corporation (the “Company”), up to                                   shares (the “Warrant Shares”) of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

This Warrant is being issued to the Holder pursuant to Section 2(b) of that certain engagement letter agreement dated March 16, 2007 between International Lorain Holding, Inc. and Sterne, Agee & Leach, Inc. 

Section 1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated May 3, 2007, among the Company, the purchasers signatory thereto, and the Beneficial Owners. For the sake of clarity, the stated number of Warrant Shares and the stated Exercise Price set forth herein are determined pre-Reverse Split and will be adjusted by the Reverse Split.

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Section 2.Exercise.

a)Exercise of Warrant. Subject to Shareholder Approval and the Amendment Filing, exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); and, within three Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

b)Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $0.1294153, subject to adjustment as set forth herein (the “Exercise Price”).

c)Cashless Exercise. If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to tender Warrants for cancellation and in return receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

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(X) = the number of Warrant Shares issuable upon exercise of the Warrants tendered for cancellation in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b)  if the OTC Bulletin Board is the Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

d)Mechanics of Exercise.

i.Authorization of Warrant Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and subject to Shareholder Approval and the Amendment Filing, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

ii.Delivery of Certificates Upon Exercise. Subject to and in reliance on Holder’s covenant in Section 6(b) of the Registration Rights Agreement, in the event of exercise of this Warrant at a time when a Registration Statement covering the resale of the Warrant Shares is effective under the Securities Act,certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have been paid.

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iii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iv.Rescission Rights. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

v.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise by the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares purchased in the Buy-In at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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vi.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

vii.Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

e)Registration Rights. The Company shall prepare and file with the Commission a registration statement under the Securities Act on Form S-1 (or on such other form appropriate for such purpose) covering the resale of all Warrant Shares for an offering to be made on a continuous basis pursuant to Rule 415.  The Company shall provide to the Holders and its assignees registration rights at least as favorable to the selling stockholder as the rights set forth in the Registration Rights Agreement, and the Company shall enter into a registration rights agreement with the Holder and its assignees on terms and conditions at least as favorable to the selling stockholder as the Registration Rights Agreement. In furtherance of its covenants herein, the Company shall include the Warrant Shares on the Registration Statement to be filed for the benefit of the Investors pursuant to the Registration Rights Agreement.

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Section 3.CertainAdjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of the Reverse Split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Pro Rata Distributions. If the Company, at any time while the Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) (i) evidences of its indebtedness or assets (including cash and cash dividends), (ii) any security (other than a distribution of Common Stock covered by subpart (a) above), or (iii) rights or warrants to subscribe for or purchase any security, (each, a “Distributed Property”) then in each such case the Holder shall, upon exercise of this Warrant, be entitled to receive such Distributed Property as the Holder would have received had the Holder exercised the Warrant prior to the record date for the distribution of the Distributed Property.

c)Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in an all cash transaction, cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(c) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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d)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

e)Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

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f)Notice to Holders.

i.Adjustment to Warrant Shares; Notice of Adjustment. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. The Company shall promptly mail to each Holder a notice setting forth the Exercise Price and Warrant Share amount after each adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice.

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Section 4.Transfer of Warrant.

a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. In connection with any transfer of this Warrant, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

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Section 5.Miscellaneous.

a)No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(d)(ii).

b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

d)Authorized Shares.

The Company covenants to take all action in a timely manner to obtain Shareholder Approval and effect the Amendment Filing, and thereafter, during the period the Warrant is outstanding, reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company further covenants to list the Warrant Shares on each Trading Market on which its Common Stock is or becomes listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

e)Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

f)Reissuance of Warrant. Following Shareholder Approval and the Amendment Filing, the Company, at the request of the Holder and upon delivery of this Warrant for cancellation and reissuance hereunder, shall issue to Holder, at the Company’s expense, a new Warrant that gives effect to the Shareholder Approval and the Amendment Filing but which otherwise is on exactly the same terms and conditions as this Warrant.

g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

h)Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement to the Holder as follows:

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i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

j)Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated:
	MILLENNIUM QUEST, INC.
	By:

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NOTICE OF EXERCISE

TO:MILLENNIUM QUEST, INC.

(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: __________________________________________________

Name of Authorized Signatory: ____________________________________________________________________

Title of Authorized Signatory: _____________________________________________________________________

Date: ________________________________________________________________________________________

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________.

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:_____________________________

Holder’s Address: _____________________________

                                                                                   _____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of May 3, 2007, by and among Millennium Quest, Inc., a Delaware corporation, and all predecessors thereto (the “Company”) and the investors identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”). Hisashi Akazawa and Si Chen join as additional parties to this Agreement for purposes of Sections 5 and 7 only (each a “Beneficial Owner” and together the “Beneficial Owners”).

R E C I T A L S

A.Subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase from the Company certain securities of the Company, as more fully described in this Agreement.

B.Prior to the consummation of the purchase and sale of the Company’s securities pursuant to this Agreement, the Company shall consummate its acquisition (“Lorain Acquisition”) of all of the outstanding capital shares of International Lorain Holding, Inc., a Cayman Islands company (“Lorain”), in consideration of the Company’s issuance of 697,663 shares of its Series B Voting Convertible Preferred Stock, pursuant to that certain Share Exchange Agreement of even date herewith (“Share Exchange Agreement”) between the Company, Lorain and Hisashi Akazawa.

A G R E E M E N T

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors agree as follows:

ARTICLE 1.

DEFINITIONS

1.1.Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

“2007 Guaranteed ATNI” has the meaning set forth in Section 5.2(a).

“2007 Make Good Shares” has the meaning set forth in Section 5.2(a).

“2008 Guaranteed ATNI” has the meaning set forth in Section 5.2(b).

“2008 Make Good Shares” has the meaning set forth in Section 5.2(b).

“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

“Amendment Filing” shall mean the filing of a certificate of amendment to the restated certificate of incorporation of the Company with the Delaware Secretary of State for purposes of effecting (i) an increase in the number of authorized shares of Common Stock to 200,000,000 shares, (ii) a change in the corporate name of the Company to “Lorain International Food Group, Inc.”, and (iii) the Reverse Split.

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York or the State of Utah are authorized or required by law or other governmental action to close.

“Buy-In” has the meaning set forth in Section 4.1(c).

"Certificate of Designation" shall mean a Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of the State of Delaware, setting forth the rights, preferences and privileges of the Shares, in the form attached as Exhibit A hereto.

“Closing” means the closing of the purchase and sale of the Shares pursuant to Article II.

“Closing Date” means the Business Day on which all of the conditions set forth in Sections 6.1 and 6.2 hereof are satisfied, or such other date as the parties may agree.

"Closing Escrow Agreement" means the Closing Escrow Agreement, dated as of the date hereof, between the Placement Agent, the Company and the Escrow Agent pursuant to which the Investors shall deposit their Investment Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder, in the form of Exhibit B hereto.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

“Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.

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“Company Counsel” means Thelen Reid Brown Raysman & Steiner LLP.

“Company Deliverables” has the meaning set forth in Section 2.2(a).

“Disclosure Materials” means the SEC reports, the Draft S-1 Registration Statement and the schedules to this Agreement.

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered by the Company to Investors contemporaneously with this Agreement.

“Draft S-1 Registration Statement” means a draft registration statement on Form S-1 under the Securities Act, draft dated April 24, 2007, to be filed by the Company (with such changes as are needed to finalize such draft) with the Commission, pursuant to the Registration Rights Agreement, for purposes of registering the resale of the Underlying Shares and Warrant Shares.

“Effective Date” means the date that the Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission.

“Escrow Agent” means Thelen Reid Brown Raysman & Steiner LLP, 701 Eighth Street N.W., Washington, DC 20001.

“Evaluation Date” has the meaning set forth in Section 3.1(t).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

“FCPA Subsidiary” means any Subsidiary of the Company that has been subject to the FCPA prior to the Closing Date, and specifically excluding Lorain and its subsidiaries.

“GAAP” means U.S. generally accepted accounting principles, consistently applied.

“Intellectual Property Rights” has the meaning set forth in Section 3.1(q).

“Investment Amount” means, with respect to each Investor, the Investment Amount indicated on such Investor’s signature page to this Agreement.

“Investor Deliverables” has the meaning set forth in Section 2.2(b).

“Investor Party” has the meaning set forth in Section 4.7.

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal, right of participation or other restrictions of any kind.

“Lorain Acquisition” has the meaning set forth in Recital B to this Agreement.

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“Make Good Escrow Agreement” means the Make Good Escrow Agreement, dated as of the date hereof, among the Company, the Placement Agent, the Securities Transfer Corporation, as the Make Good Escrow Agent (the “Make Good Escrow Agent”) and the Beneficial Owners, in the form of Exhibit C hereto.

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis any of its obligations under any Transaction Document.

“New York Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“Outside Date” means the 15^th following the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Placement Agent” means Sterne, Agee & Leach, Inc.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and the Investors, in the form of Exhibit D hereto.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Investors of the Underlying Shares and Warrant Shares.

“Reverse Split” means a 1 for 32.84 reverse stock split of the Company’s Common Stock.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” has the meaning set forth in Section 3.1(h).

“Securities” means the Shares, Warrants, Underlying Shares and Warrant Shares.

“Securities Act” means the Securities Act of 1933, as amended.

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“Series B Preferred Stock” means the Series B Voting Convertible Preferred Stock, par value $0.001, of the Company.

“Share Delivery Date” has the meaning set forth in Section 4.1(c).

“Share Exchange Agreement” has the meaning set forth in Recital B to this Agreement.

“Shares” means the shares of Series B Preferred Stock issued or issuable to the Investors pursuant to this Agreement.

“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

“Stockholder Approval” has the meaning set forth in Section 4.13.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means this Agreement, the Certificate of Designation, the Registration Rights Agreement, the Closing Escrow Agreement, the Make Good Escrow Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Underlying Shares” means the shares of Common Stock issuable upon conversion or exchange of the Shares.

“Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit E, delivered to the Investors at the Closing in accordance with Section 2.2(a) and 6.1(e) hereof, which Warrants shall be (i) immediately exercisable subject to Shareholder Approval at an exercise price of $0.1294153 per share (pre-Reverse Split), (ii) have a term of exercise equal to three years, and (iii) issued to each Investor in a number equal to 20% of the shares of common stock issuable upon conversion of the Series B Preferred Stock purchased by such Investor.

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“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE 2.

PURCHASE AND SALE

2.1.Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company, the number of Shares and Warrants set forth on each respective Investor’s signature page attached hereto, in consideration of the Investor’s payment of the Investment Amount set forth thereon. The Closing shall take place at the offices of Escrow Agent on the Closing Date or at such other location or time as the parties may agree.

2.2.Closing Deliveries. (a) On or prior to the Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “Company Deliverables”):

(i)this Agreement duly executed by the Company and each Beneficial Owner;

(ii)a copy of the executed, filed and effective Certificate of Designation, accompanied by a certified copy thereof issued by the Secretary of State of the State of Delaware;

(iii)a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3.1(c) as adopted by the Company's Board of Directors in a form reasonably acceptable to the Investors, and (ii) the current certificate of incorporation, as amended, and bylaws, as amended, of the Company;

(iv)executed consents of at least a majority of (i) the shares of Common Stock then outstanding, and (ii) the share of Common Stock and Series A Preferred Stock then outstanding voting as a group, irrevocably approving the items set forth in Section 4.13 herein;

(v)the legal opinion of King & Wood, People’s Republic of China, Counsel to the Company addressed to the Investors, in the form of Exhibit F attached hereto;

(vi)the legal opinion of Company Counsel addressed to the Investors, in the form of Exhibit G attached hereto;

(vii)the Closing Escrow Agreement, duly executed by all parties thereto;

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(viii)the Make Good Escrow Agreement, duly executed by all parties thereto;

(ix)the Registration Rights Agreement, duly executed by the Company; and

(x)the Draft S-1 Registration Statement.

(b)On or prior to the Closing Date, each Investor shall deliver or cause to be delivered the following (the “Investor Deliverables”):

(i)to the Company, this Agreement duly executed by the Investor;

(ii)to the Escrow Agent for deposit and disbursement in accordance with the Closing Escrow Agreement, Investment Amount, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and

(iii)to the Company, the Registration Rights Agreement, duly executed by such Investor.

(c)Within three (3) Business Days following the Closing Date, the Company shall deliver or cause to be delivered the following:

(i)one or more stock certificates evidencing Shares with a stated value equal to such Investor’s Investment Amount, registered in the name of such Investor; and

(ii)a Warrant registered in the name of such Investor evidencing the number of Warrants set forth on such Investor’s signature page attached hereto.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

3.1.Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof and to qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby makes the following representations and warranties to each Investor:

(a)Subsidiaries. All of the direct or indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. The Company owns all of the outstanding capital stock of Lorain in accordance with the Share Exchange Agreement, free and clear of all Liens. For the sake of clarity, as used herein the term Subsidiaries includes Lorain and all direct and indirect subsidiaries of Lorain.

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(b)Organization and Qualification. The Company and each Subsidiary are duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company and each Subsidiary are duly qualified to conduct its respective businesses and are in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(c)Authorization; Enforcement. Subject to Shareholder Approval and the Amendment Filing, the Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its stockholders in connection therewith, other than Shareholder Approval or the Amendment Filing. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(d)No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

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(e)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) filings required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the information statement referred to in Section 4.13; (v) an information statement that complies with Section 14(f) of the Exchange Act and Rule 14f-1 thereunder; (vi) the Amendment Filing; and (vii) the filings required in accordance with Section 4.5 (collectively, the “Required Approvals”).

(f)Issuance of the Shares. The Shares and the Warrants have been duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents. Upon Stockholder Approval and the Amendment Filing, the Company will reserve from its duly authorized capital stock the shares of Common Stock issuable upon conversion of the Shares and exercise of the Warrants. Subject to Shareholder Approval and the Amendment Filing, the Underlying Shares and Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents.

(g)Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g). No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth in Schedule 3.1(g), there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any securities of the Company or any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional securities of the Company or any Subsidiary. The issue and sale of the Securities will not, immediately or with the passage of time, obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except for Shareholder Approval, no further approval or authorization of any stockholder, the board of directors of the Company or others is required for the issuance and sale of the Securities. Except for the Transaction Documents and as set forth on Schedule 3.1(g), there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since January 1, 2004 (collectively, the “SEC Reports”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Lorain Financial Statements; Draft S-1 Registration Statement. The Company has delivered to each Investor the following financial statements: (i) audited consolidated balance sheet of Lorain as of December 31, 2006; (ii) audited consolidated statements of income, stockholders’ equity and cash flows of Lorain for the period from August 4, 2006 (date of incorporation of Lorain) to December 31, 2006; and (iii) the pro forma unaudited combined balance sheet and statements of income and cash flows of Lorain as of and for the three years ended December 31, 2006 (collectively, the “Lorain Financial Statements”). The Lorain Financial Statements comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto. The Lorain Financial Statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of Lorain and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

The Company has delivered to each Investor the Draft S-1 Registration Statement. After giving effect to the Lorain Acquisition and the transactions contemplated by the Transaction Documents, the Draft S-1 Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

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(j)Press Releases. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

(k)Material Changes.

(A)Since the date of the latest balance sheet included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the Commission any request for confidential treatment of information.

(B)Lorain. Since the date of the latest balance sheet included within the Lorain Financial Statements, except as specifically disclosed in the Draft S-1 Registration Statement, (i) there has been no event, occurrence or development that has had or that could reasonably be expected by the Company or Lorain to result in a Material Adverse Effect, (ii) none of Lorain or any of its direct or indirect subsidiaries have incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Lorain Financial Statements pursuant to GAAP or disclosed in the Draft S-1 Registration Statement as filed with the Commission under the Securities Act, (iii) none of Lorain or any of its direct or indirect subsidiaries have altered their method of accounting, (iv) none of Lorain or any of its direct or indirect subsidiaries has declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) none of Lorain or any of its direct or indirect subsidiaries has issued any equity securities to any officer, director or Affiliate.

(l)Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents, the Securities or the Share Exchange Agreement or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under U.S. or foreign federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company or any current or former director or officer of the Company (in his or her capacity as such). The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.

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(m)Labor Relations. No material labor dispute exists or, to the knowledge of the Company or any Subsidiary, is imminent with respect to any of the employees of the Company or any Subsidiary which could reasonably be expected to result in a Material Adverse Effect. Except as set forth in Schedule 3.1(m), none of the Company's or its Subsidiaries' employees is a member of a union that relates to such employee's relationship with the Company or such Subsidiary, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer of the Company or any Subsidiary, to the knowledge of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(n)Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any U.S. or foreign court, arbitrator or governmental body, or (iii) is or has been in violation of any U.S. or foreign statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Share Exchange Agreement and the transaction contemplated thereby comply with all applicable laws, rules and regulations of the United States and the People’s Republic of China.

(o)Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Disclosure Documents, except where the failure to possess such permits could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such permits.

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(p)Title to Assets. The Company and the Subsidiaries have good and marketable title to all real property owned by them that is material to their respective businesses and good and marketable title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(q)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the Disclosure Documents and which the failure to so have could, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. All such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(r)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s and such Subsidiaries’ respective lines of business without a significant increase in cost.

(s)Transactions With Affiliates and Employees. Except as set forth in Schedule 3.1(s), none of the officers, directors or employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, or (ii) reimbursement for bona fide expenses incurred on behalf of the Company or any Subsidiary.

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(t)Internal Accounting Controls. The Company is in compliance with all requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls over financial reporting (as such term is defined in Rule 13a-15(e) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(u)Solvency. Based on the financial condition of the Company as of the Closing Date (and assuming that the Closing shall have occurred), (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(v)Certain Fees. Except for fees payable to the Placement Agent, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Investors shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by an Investor pursuant to written agreements executed by such Investor which fees or commissions shall be the sole responsibility of such Investor) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

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(w)Certain Registration Matters. Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3.2(b)-(e), no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Investors under the Transaction Documents. The Company is eligible to register its Common Stock for resale by the Investors under Form S-1 promulgated under the Securities Act. Except as set forth on Schedule 3.1(w), the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied.

(x)Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not during the two years preceding the date hereof, received notice from any Trading Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market on which the Common Stock is currently listed or quoted. The issuance and sale of the Securities under the Transaction Documents does not contravene the rules and regulations of the Trading Market on which the Common Stock is currently listed or quoted, and no approval of the stockholders of the Company thereunder is required for the Company to issue and deliver to the Investors the Securities contemplated by the Transaction Documents.

(y)Investment Company. The Company is not, and is not an Affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(z)Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company’s issuance of the Securities and the Investors’ ownership of the Securities.

(aa)No Additional Agreements. The Company does not have any agreement or understanding with any Investor with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

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(bb)Consultation with Auditors. The Company has consulted its independent auditors concerning the accounting treatment of the transactions contemplated by the Transaction Documents, and in connection therewith has furnished such auditors complete copies of the Transaction Documents.

(cc)Disclosure. The Company confirms that neither it nor any Person acting on its behalf has provided any Investor or its respective agents or counsel with any information that the Company believes constitutes material, non-public information concerning the Company, the Subsidiaries or their respective businesses, except insofar as the existence and terms of the proposed transactions contemplated hereunder may constitute such information. The Company understands and confirms that the Investors will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Investors regarding the Company, the Subsidiaries or their respective businesses and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Investor has made nor makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

(dd)No Integrated Offering. Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(ee)Tax Status. Except as set forth on Schedule 3.1(ee), and for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

(ff)No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Investors and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(gg)Foreign Corrupt Practices. Neither the Company, any FCPA Subsidiary, nor to the knowledge of the Company or any FCPA Subsidiary, any agent or other person acting on behalf of the Company or any FCPA Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company, any FCPA Subsidiary (or made by any person acting on its behalf of which the Company or any FCPA Subsidiary is aware) which is in violation of law, or (iv) violated in any material respect any provision of the FCPA, as amended.

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(hh)Accountants. The Company’s and Lorain’s accountants are set forth on Schedule 3.1(hh) of the Disclosure Schedule. To the knowledge of the Company, such accountants, who the Company expects will express their opinions with respect to the financial statements of the Company and Lorain to be included in the Registration Statement, are each a registered public accounting firms as required by the Securities Act and are independent of the Company and Lorain, as the case may be, in accordance with Rule 2-01 of Regulation S-X under the Exchange Act.

(ii)Acknowledgment Regarding Investors’ Purchase of Securities. The Company acknowledges and agrees that each of the Investors is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Investor or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Investors’ purchase of the Securities. The Company further represents to each Investor that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(jj)Acknowledgement Regarding Investors’ Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.5 hereof), it is understood and acknowledged by the Company (i) that none of the Investors have been asked to agree, nor has any Investor agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Investor, including Short Sales, and specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) that any Investor, and counter-parties in “derivative” transactions to which any such Investor is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iv) that each Investor shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (a) one or more Investors may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined and (b) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

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(kk)Regulation M.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

3.2.Representations and Warranties of the Investors. Each Investor hereby, for itself and for no other Investor, represents and warrants to the Company as follows:

(a)Organization; Authority. Such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Investor of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Investor is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Investor. Each of this Agreement and the Registration Rights Agreement has been duly executed by such Investor, and when delivered by such Investor in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b)Investment Intent. Such Investor is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is acquiring the Securities hereunder in the ordinary course of its business. Such Investor does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(c)Investor Status. At the time such Investor was offered the Securities, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Investor is not a registered broker-dealer under Section 15 of the Exchange Act.

(d)General Solicitation. Such Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

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(e)Access to Information. Such Investor acknowledges that it has reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.

(f)Certain Trading Activities. Such Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the earlier to occur of (1) the time that such Investor was first contacted by the Company or the Placement Agent regarding an investment in the Company and (2) the 30^th day prior to the date of this Agreement. Notwithstanding the foregoing, in the case of an Investor that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Investor's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Investor's assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Such Investor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

(g)Independent Investment Decision. Such Investor has independently evaluated the merits of its decision to purchase the Securities pursuant to the Transaction Documents, and such Investor confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel in making such decision. Such Investor has not relied on the business or legal advice of Placement Agent or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to such Investor in connection with the transactions contemplated by the Transaction Documents.

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ARTICLE 4.

OTHER AGREEMENTS OF THE PARTIES

4.1.(a) Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement, to the Company, to an Affiliate of an Investor or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.

(b)Certificates evidencing the Securities will contain the following legend, until such time as they are not required under Section 4.1(c):

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that an Investor may from time to time pledge, and/or grant a security interest in some or all of the Securities pursuant to a bona fide margin agreement in connection with a bona fide margin account and, if required under the terms of such agreement or account, such Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion may be required in connection with a subsequent transfer following default by the Investor transferee of the pledge. No notice shall be required of such pledge. At the appropriate Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. Except as otherwise provided in Section 4.1(c), any Securities subject to a pledge or security interest as contemplated by this Section 4.1(b) shall continue to bear the legend set forth in this Section 4.1(b) and be subject to the restrictions on transfer set forth in Section 4.1(a).

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(c)Certificates evidencing Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b)): (i) following a sale or transfer of such Underlying Shares pursuant to an effective registration statement (including a Registration Statement), or (ii) following a sale or transfer of such Underlying Shares pursuant to Rule 144 (assuming the transferee is not an Affiliate of the Company), or (iii) while such Underlying Shares are eligible for sale under Rule 144(k). If an Investor shall make a sale or transfer of Underlying Shares either (x) pursuant to Rule 144 or (y) pursuant to a registration statement and in each case shall have delivered to the Company or the Company’s transfer agent the certificate representing Underlying Shares containing a restrictive legend which are the subject of such sale or transfer and a representation letter in customary form(the date of such sale or transfer and Underlying Share delivery being the “Share Delivery Date”) and (1) the Company shall fail to deliver or cause to be delivered to such Investor a certificate representing such Underlying Shares that is free from all restrictive or other legends by the third Trading Day following the Share Delivery Date and (2) following such third Trading Day after the Share Delivery Date and prior to the time such Underlying Shares are received free from restrictive legends, the Investor, or any third party on behalf of such Investor, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Investor of such Underlying Shares (a "Buy-In"), then the Company shall pay in cash to the Investor (for costs incurred either directly by such Investor or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceed the proceeds received by such Investor as a result of the sale to which such Buy-In relates. The Investor shall provide the Company written notice indicating the amounts payable to the Investor in respect of the Buy-In.

4.2.Furnishing of Information. As long as any Investor owns the Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Investor owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Investors and make publicly available in accordance with Rule 144(c) such information as is required for the Investors to sell the Underlying Shares under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell the Underlying Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

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4.3.Integration. The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Investors, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market in a manner that would require stockholder approval of the sale of the Securities to the Investors.

4.4.Subsequent Registrations. Other than pursuant to the Registration Statement, prior to the Effective Date, the Company may not file any registration statement (other than on Form S-8) with the Commission with respect to any securities of the Company.

4.5.Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time) on the Trading Day following the Closing Date, the Company shall issue a press release disclosing the transactions contemplated hereby and the Closing. By the fourth Trading Day following the execution of this Agreement the Company will file a Current Report on Form 8-K disclosing the material terms of the Transaction Documents (and attach as exhibits thereto the Transaction Documents), and by the fourth Trading Day following the Closing Date the Company will file a Current Report on Form 8-K to disclose the Closing and the information and financial statements required by Item 9.01(c) of Form 8-K. In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Investor, or include the name of any Investor in any filing with the Commission (other than the Registration Statement and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the Exchange Act) or any regulatory agency or Trading Market, without the prior written consent of such Investor, except to the extent such disclosure is required by law or Trading Market regulations.

4.6.Limitation on Issuance of Future Priced Securities

. During the six months following the Closing Date, the Company shall not issue any “Future Priced Securities” as such term is described by NASD IM-4350-1.

4.7.Indemnification of Investors. Subject to the provisions of this Section 4.7, the Company will indemnify and hold each Investor and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Investor (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Investor Party”) harmless from any and all actual losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Investor Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company or the Beneficial Owners in this Agreement or in the other Transaction Documents or (b) any action instituted against an Investor, or any of them or their respective Affiliates, by any stockholder of the Company with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Investor’s representations, warranties or covenants under the Transaction). If any action shall be brought against any Investor Party in respect of which indemnity may be sought pursuant to this Agreement, such Investor Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Investor Party. Any Investor Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Investor Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Investor Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Investor Party under this Agreement (i) for any settlement by a Investor Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Investor Party’s breach of any of the representations, warranties, covenants or agreements made by such Investor Party in this Agreement or in the other Transaction Documents as determined by a final non-appealable judgment of a court of competent jurisdiction.

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4.8.Reimbursement. If any Investor becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of (i) Proceedings brought by another Investor against such Investor, (ii) sales, pledges, margin sales and similar transactions by such Investor to or with any other stockholder or (iii) as a result of a breach of such Investor’s representations, warranties or covenants under the Transaction Documents or any violations by such Investor of state or federal securities laws or any conduct by such Investor which constitutes fraud, gross negligence, willful misconduct or malfeasance), solely as a result of such Investor’s acquisition of the Securities under this Agreement, the Company will reimburse such Investor for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Investors who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Investor and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Investors and any such Affiliate and any such Person. The Company also agrees that neither the Investors nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement, except if such claim arises primarily from a breach of such Investor’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Investor of state or federal securities laws or any conduct by such Investor which constitutes fraud, gross negligence, willful misconduct or malfeasance.

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4.9.Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Investor or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Investor shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Investor shall be relying on the foregoing representations in effecting transactions in securities of the Company.

4.10.Listing of Securities. The Company agrees, (i) if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application the Underlying Shares and Warrant Shares, and will take such other action as is necessary or desirable to cause the Underlying Shares and Warrant Shares to be listed on such other Trading Market as promptly as possible, and (ii) it will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.

4.11.Use of Proceeds. The Company will use the net proceeds from the sale of the Shares hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables and accrued expenses in the ordinary course of the Company’s business and consistent with prior practices), or to redeem any Common Stock or Common Stock Equivalents.

4.12.Make Good Shares. The Company covenants and agrees that upon any transfer under Article 5 of 2007 Make Good Shares and 2008 Make Good Shares to the Investors in accordance with Section 5 of the Make Good Escrow Agreement, the Company shall promptly reissue such 2007 Make Good Shares or 2008 Make Good Shares in the applicable Investor’s name and deliver the same as directed by such Investor.

4.13.Stockholder Approval. The Company covenants and agrees to effect the approval of its stockholders of (i) an increase in the number of authorized shares of Common Stock to 200,000,000 shares, (ii) the change the name of the Company from Millennium Quest, Inc. to Lorain International Food Group, Inc., and (iii) the Reverse Split, which stockholder approval shall be deemed to occur on the twentieth day following the mailing by the Company of the definitive information statement on Schedule 14C pertaining thereto (collectively “Stockholder Approval”) in accordance with Rule 14c-2(b) under the Exchange Act. The Company agrees to effect Stockholder Approval as soon as possible, but in no event later than May 31, 2007.

4.14.Acknowledgment of Dilution. The Company acknowledges that the issuance of Underlying Shares upon conversion of Shares will result in substantial dilution of the outstanding shares of Common Stock. The Company further acknowledges that its obligation to honor conversions under the Shares is unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim that the Company may have against any Investor.

4.15.Reservation of Shares. Upon Stockholder Approval and the Amendment Filing, the Company shall maintain a reserve from its duly authorized shares of Common Stock to comply with its conversion obligations under the Shares and exercise obligation under the Warrants. If on any date the Company would be, if notice of conversion or exercise were to be delivered on such date, precluded from issuing the number of Underlying Shares or Warrant Shares issuable upon conversion in full of the Shares or exercise of the Warrants due to the unavailability of a sufficient number of authorized but unissued or reserved shares of Common Stock, then the Board of Directors of the Company shall promptly prepare and mail to the stockholders of the Company proxy materials or other applicable materials requesting authorization to amend the Company’s certificate of incorporation or other organizational document to increase the number of shares of Common Stock which the Company is authorized to issue so as to provide enough shares for issuance of the Underlying Shares and Warrant Shares. In connection therewith, the Board of Directors shall (a) adopt proper resolutions authorizing such increase, (b) recommend to and otherwise use its best efforts to promptly and duly obtain stockholder approval (including the hiring of a nationally recognized proxy solicitor firm) to carry out such resolutions (and hold a special meeting of the stockholders as soon as practicable, but in any event not later than the 60^th day after delivery of the proxy or other applicable materials relating to such meeting) and (c) within five Business Days of obtaining such stockholder authorization, file an appropriate amendment to the Company’s certificate of incorporation or other organizational document to evidence such increase.

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4.16.Retention of U.S. Counsel. As a further inducement to the Investors to enter into this Agreement and purchase the Securities offered hereby, the Company covenants and agrees to use its good faith best efforts to retain, and rely upon, the law firm of Thelen Reid Brown Raysman & Steiner LLP as primary counsel on matters relating to U.S. corporate and securities laws, including, but not limited to, the representation of the Company in connection with the preparation, filing and prosecution of the Registration Statement and all other reports, registration statements and filings to be made by the Company with the Commission.

ARTICLE 5.

REPRESENTATIONS, WARRANTIES AND COVENANTS

OF THE BENEFICIAL OWNERS

5.1.Representations and Warranties of the Company. As an inducement to the Investors to enter into this Agreement and purchase the Securities, each of the Beneficial Owner hereby makes the following representations and warranties to, and covenants and agreements with, each Investor:

(a)Authority. Such Beneficial Owner has all individual power and authority to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly executed by such Beneficial Owner, and when delivered by such Beneficial Owner in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Beneficial Owner, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b)Record and Beneficial Ownership. Immediately prior to the closing of the transactions under the Share Exchange Agreement, Hisashi Akazawa was the sole record and beneficial owner of all of the outstanding capital shares of Lorain, as the term beneficial owner is defined under Rule 13d-3(d) under the Exchange Act, free and clear of all pledges, liens and encumbrances. Hisashi Akazawa is the sole record owner, and Hisashi Akazawa and Si Chen are the sole beneficial owners, of all 697,633 shares Series B Preferred Stock issued by the Company under the Share Exchange Agreement, as the term beneficial owner is defined under Rule 13d-3(d) under the Exchange Act, free and clear of all pledges, liens and encumbrances.

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(c)Share Exchange Agreement. The representations and warranties of Lorain and Hisashi Akazawa contained in the Share Exchange Agreement were true and correct in all material respects as of the date when made and as of the closing of the transactions thereunder as though made on and as of such date. Lorain and Hisashi Akazawa performed, satisfied and complied in all material respects with all covenants, agreements and conditions required to be performed, satisfied or complied with by them under the Share Exchange Agreement at or prior to the closing of the transactions thereunder.

5.2.Make Good Shares.

(a)2007 Make Good. The Beneficial Owners agree that if the After-Tax Net Income for the fiscal year ended December 31, 2007 reported in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2007, as filed with the Commission (the “2007 Annual Report”) is less than $9,266,000, inclusive of all commissions, legal fees, auditing fees and other fees and expenses incurred in the Lorain Acquisition (the “2007 Guaranteed ATNI”), the Beneficial Owners will transfer to each Investor, for no additional consideration, their pro rata share of 302,337 shares of Series B Preferred Stock or the equivalent amount of Common Stock (adjusted for the Reverse Split) following a conversion of such shares of Series B Preferred Stock in accordance with the Certificate of Designation (for this purpose, any such conversion to be conducted without regard to any restrictions or caps on conversion contained in the Certificate of Designation or otherwise applicable to such shares) (the “2007 Make Good Shares”). If the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2007 specify that the 2007 Guaranteed ATNI shall have been achieved, no transfer of the 2007 Make Good Shares shall be required by this Section 5.2(a) and all 2007 Make Good Shares deposited with the Make Good Escrow Agent shall be returned to the Beneficial Owners within seven Business Days after the date which the 2007 Annual Report is filed with the Commission and otherwise in accordance with the Make Good Escrow Agreement. Transfers of 2007 Make Good Shares required under this Section 5.2(a) shall be made to Investors within seven Business Days after the date which the 2007 Annual Report is filed with the Commission and otherwise in accordance with the Make Good Escrow Agreement.

(b)2008 Make Good. The Beneficial Owners agree that, if the Company’s After-Tax Net Income reported in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2008, as filed with the Commission (the “2008 Annual Report”) is less than $12,956,000 (the “2008 Guaranteed ATNI”), the Beneficial Owners will transfer to each Investor for no additional consideration, their pro rata share of 302,337 shares of Series B Preferred Stock, or the equivalent amount of Common Stock (adjusted for the Reverse Split) following a conversion of such shares of Series B Preferred Stock in accordance with the Certificate of Designation (for this purpose, any such conversion to be conducted without regard to any restrictions or caps on conversion contained in the Certificate of Designation or otherwise applicable to such shares) (the “2008 Make Good Shares”). If the 2008 Annual Report indicates that the Company shall have satisfied the 2008 Guaranteed ATNI test specified above for such period, then no transfer to Investors of 2008 Make Good Shares shall be required by this Section 5.2(b) and all 2008 Make Good Shares deposited with the Make Good Escrow Agent shall be returned to the Beneficial Owners within seven Business Days after the date which the Company’s 2008 Annual Report is filed with the Commission and otherwise in accordance with the Make Good Escrow Agreement. Transfers of 2008 Make Good Shares required under this Section 5.2(b) shall be made to Investors within seven Business Days after the date which the Company’s 2008 Annual Report is filed with the Commission and otherwise in accordance with the Make Good Escrow Agreement.

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(c)Make Good Escrow. In connection with the foregoing, the Beneficial Owners agree that within one Trading Day following the Closing, the Beneficial Owners will deposit all potential 2007 Make Good Shares and 2008 Make Good Shares into escrow in accordance with the Make Good Escrow Agreement along with undated stock powers with Medallion guarantees (or with such other instruments of transfer as in accordance with the requirements of the Company’s transfer agent), in the form and number acceptable to the Investors in their reasonable discretion, and the handling and disposition of the 2007 Make Good Shares and 2008 Make Good Shares shall be governed by this Section 5.2 and such Make Good Escrow Agreement. The parties hereby agree that the Beneficial Owners’ obligation to transfer shares of Common Stock to Investors pursuant to this Section 5.2 shall continue to run to the benefit of an Investor only to the extent of the portion of such Shares or, in the case of their conversion, Underlying Shares which have not been transferred or sold by such Investor as of the date the Company files with the Commission the 2007 Annual Report or 2008 Annual Report, as the case may be, and that Investors shall not have the right to assign their rights to receive all or any such shares of Common Stock to other Persons in conjunction with negotiated sales or transfers of any of their Securities or otherwise. The 2007 Make Good Shares or 2008 Make Good Shares, as applicable, corresponding to Shares or, in the case of their conversion, Underlying Shares which have been transferred or sold by an Investor, shall be released from the Make Good Escrow and returned to the Beneficial Owners within seven Business Days after the date which the Company’s 2007 Annual Report or 2008 Annual Report, as applicable, is filed with the Commission.

(d)After-Tax Net Income. For purposes of this Section 5.2, the term After-Tax Net Income or ATNI shall mean the after-tax net income of the Company and its consolidated subsidiaries prepared in accordance with GAAP consistently applied; provided in the event that the release of the 2007 Make Good Shares or the 2008 Make Good Shares to the Investors or the Beneficial Owners is deemed to be an expense or deduction from revenues/income of the Company for the applicable year, as required under GAAP, then such expense or deduction shall be excluded for purposes of determining whether or not the 2007 Guaranteed ATNI or the 2008 Guaranteed ATNI has been achieved by the Company.

(e)Pro Rata Share. Each Investor’s pro rata share of the 2007 Make Good Shares or the 2008 Make Good Shares shall be determined by dividing the 2007 Make Good Shares or the 2008 Make Good Shares, as the case may be, by a fraction the denominator of which is the aggregate Investment Amount of all Shares or, in the case of their conversion, Underlying Shares held by the Investors as of the date the Company files with the Commission the 2007 Annual Report or 2008 Annual Report, as the case may be (each such date, a “Make Good Determination Date”), and the numerator of which is the Investment Amount of the Shares or, in the case of their conversion, Underlying Shares held by such Investor as of such Make Good Determination Date.

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ARTICLE 6.

CONDITIONS PRECEDENT TO CLOSING

6.1.Conditions Precedent to the Obligations of the Investors toPurchase Securities. The obligation of each Investor to acquire the Shares and Warrants at the Closing is subject to the satisfaction or waiver by such Investor, at or before the Closing, of each of the following conditions:

(a)Representations and Warranties. The representations and warranties of the Company and the Beneficial Owners shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall remain true and correct as of such specific date);

(b)Performance. The Company and the Beneficial Owners shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by each of them at or prior to the Closing;

(c)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;

(d)Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably could have or result in a Material Adverse Effect or a material adverse change with respect to the Company or Lorain;

(e)Company Deliverables. The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a); and

(f)Termination. This Agreement shall not have been terminated as to such Investor in accordance with Section 7.5.

6.2.Conditions Precedent to the Obligations of the Companyto sell Securities. The obligation of the Company to sell Shares and Warrants at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions:

(a)Representations and Warranties. The representations and warranties of the Investors shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall remain true and correct as of such specific date);

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(b)Performance. Each Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Investor at or prior to the Closing;

(c)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;

(d)Investors Deliverables. Each Investor shall have delivered its Investors Deliverables in accordance with Section 2.2(b); and

(e)Termination. This Agreement shall not have been terminated as to such Investor in accordance with Section 7.5.

ARTICLE 7.

MISCELLANEOUS

7.1.Fees and Expenses. Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Securities.

7.2.Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

7.3.Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 3:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 3:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

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If to the Company:	Millennium Quest, Inc. Beihuan Road Junan County Shandong, China Attn: Mr. Si Chen Facsimile: (0086539) 7314886 7311026
With a copy to:	Thelen Reid Brown Raysman & Steiner LLP 701 8th Street NW Washington, D.C. 20001 Facsimile: (202) 654-1804 Attn.: Louis A. Bevilacqua, Esq.
If to an Investor:	To the address set forth under such Investor’s name on the signature pages hereof;
If to the Beneficial Owners:	Beihuan Road Junan County Shandong, China Facsimile: (0086539) 7314886 7311026
With a copy to:	King and Wood PRC Lawyers 40th Floor, Office Tower A, Beijing Fortune Plaza, 7 Dongsanhuan Zhoulu, Chaoyang District, Beijing 100020, China Facsimile: (008610) 5878-5566 Attn.: Charles Law

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

7.4.Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investors holding a majority of the Shares or, in the event of their conversion, Underlying Shares. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. No consideration shall be offered or paid to any Investor to amend or consent to a waiver or modification of any provision of any Transaction Document unless the same consideration is also offered to all Investors who then hold Securities. In the event of any discrepancy between this Agreement and the Make Good Escrow Agreement, the terms of the Make Good Escrow Agreement shall apply to the extent of such discrepancy.

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7.5.Termination. This Agreement may be terminated prior to Closing:

(a)by written agreement of the Investors and the Company; and

(b)by the Company or an Investor (as to itself but no other Investor) upon written notice to the other, if the Closing shall not have taken place by 6:30 p.m. Eastern time on the Outside Date; provided, that the right to terminate this Agreement under this Section 7.5(b) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time.

In the event of a termination pursuant to this Section, the Company shall promptly notify all non-terminating Investors. Upon a termination in accordance with this Section 7.5, the Company and the terminating Investor(s) shall not have any further obligation or liability (including as arising from such termination) to the other and no Investor will have any liability to any other Investor under the Transaction Documents as a result therefrom.

7.6.Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

7.7.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors. Any Investor may assign any or all of its rights under this Agreement to any Person to whom such Investor assigns or transfers any Shares, provided such transferee agrees in writing to be bound, with respect to the transferred Shares, by the provisions hereof that apply to the “Investors.”

7.8.No Third-Party Beneficiaries

. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 (as to each Investor Party).

7.9.Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

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7.10.Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares and Warrants.

7.11.Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

7.12.Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

7.13.Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Investor exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Investor may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

7.14.Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

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7.15.Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

7.16.Payment Set Aside. To the extent that the Company makes a payment or payments to any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

7.17.Independent Nature ofInvestors’ Obligations and Rights. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor. Each Investor represents that it has been represented by its own separate legal counsel in its review and negotiations of this Agreement and the Transaction Documents.

7.18.Limitation of Liability. Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of an Investor arising directly or indirectly, under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of the assets of such Investor, and that no trustee, officer, other investment vehicle or any other Affiliate of such Investor or any investor, shareholder or holder of shares of beneficial interest of such a Investor shall be personally liable for any liabilities of such Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

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EX-10.2

Exhibit 10.2

MAKE GOOD ESCROW AGREEMENT

This Make Good Escrow Agreement (the "Make Good Agreement"), dated effective as of May 3, 2007, is entered into by and among Millennium Quest, Inc., a Delaware corporation (the "Company"), Sterne Agee & Leach, Inc., as agent (“Sterne”), Hisashi Akazawa and Si Chen, each in their individual capacities (each a "Make Good Pledgor" and together the "Make Good Pledgors"), and Securities Transfer Corporation, as escrow agent ("Escrow Agent").

WHEREAS, each of the investors in the private offering of securities of the Company (the "Investors") has entered into a Securities Purchase Agreement, dated May 3, 2007 (the "Purchase Agreement"), evidencing their participation in the Company's private offering (the "Offering") of securities. As an inducement to the Investors to participate in the Offering and as set forth in the Purchase Agreement, Make Good Pledgors agreed to place the Escrow Shares (as defined in Section 3 hereto) into escrow for the benefit of the Investors in the event the Company fails to satisfy certain After-Tax Net Income thresholds.

WHEREAS, pursuant to the requirements of the Purchase Agreement, the Company and Make Good Pledgors have agreed to establish an escrow on the terms and conditions set forth in this Make Good Agreement;

WHEREAS, Sterne has agreed to act as agent for the Investors in connection with this Make Good Agreement pursuant to the terms and conditions of that certain Agency Agreement, dated as of the date hereof, by and among Sterne and the Investors; and

WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to the terms and conditions of this Make Good Agreement.

NOW, THEREFORE, in consideration of the mutual promises of the parties and the terms and conditions hereof, the parties hereby agree as follows:

1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement will have the meanings given such terms in the Purchase Agreement.

2. Appointment of Escrow Agent. Make Good Pledgors, Agent and the Company hereby appoint Escrow Agent to act in accordance with the terms and conditions set forth in this Make Good Agreement, and Escrow Agent hereby accepts such appointment and agrees to act in accordance with such terms and conditions.

3. Establishment of Escrow. Upon the execution of this Make Good Agreement, Make Good Pledgors shall deliver, or cause to be delivered, to the Escrow Agent certificates evidencing a number of shares of the Series B Preferred Stock equal to the 2007 Make Good Shares and the 2008 Make Good Shares, along with undated stock powers with Medallion guarantees, in the form and number acceptable to the Investors in their reasonable discretion, (or such other signed instrument of transfer acceptable to the Company’s Transfer Agent (as defined in Section 5a below)). The 2007 Make Good Shares and the 2008 Make Good Shares are collectively referred to as the “Escrow Shares”.

4. Representations of Make Good Pledgors. Each Make Good Pledgor hereby represents and warrants to Sterne and the Investors as follows:

a.Such Make Good Pledgor has all individual power and authority to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly executed by such Make Good Pledgor, and when delivered by such Make Good Pledgor in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Make Good Pledgor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

b.Immediately prior to the closing of the transactions under the Share Exchange Agreement, Hisashi Akazawa was the sole record and beneficial owner of all of the outstanding capital shares of Lorain, as the term beneficial owner is defined under Rule 13d-3(d) under the Exchange Act, free and clear of all pledges, liens and encumbrances. Hisashi Akazawa is the sole record owner, and Hisashi Akazawa and Si Chen are the sole beneficial owners of the Escrowed Shares, as the term beneficial owner is defined under Rule 13d-3(d) under the Exchange Act, free and clear of all pledges, liens and encumbrances.

c.All of the Escrow Shares are, and as to any Underlying Shares when issued upon conversions will be, validly issued, fully paid and nonassessable shares of the Company, and free and clear of all pledges, liens and encumbrances. Upon any transfer of Escrow Shares to Investors hereunder, Investors will receive full right, title and authority to such shares as holders of Common Stock of the Company.

d.Performance of this Make Good Agreement and compliance with the provisions hereof will not violate any provision of any applicable law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any of the properties or assets of Make Good Pledgors pursuant to the terms of any indenture, mortgage, deed of trust or other agreement or instrument binding upon Make Good Pledgors, other than such breaches, defaults or liens which would not have a material adverse effect taken as a whole.

5. Disbursement of Escrow Shares.

a.Fiscal Year Ended December 31, 2007. Make Good Pledgors agree that that if the After-Tax Net Income for the fiscal year ended December 31, 2007 reported in the Company’s 2007 Annual Report, and as adjusted in accordance with Section 5.2(d) of the Purchase Agreement, is less than the 2007 Guaranteed ATNI, Sterne shall provide written instruction (with a copy to the Company) to the Escrow Agent to instruct the Company’s transfer agent (“Transfer Agent”) to transfer to each Investor their pro rata share of the 2007 Make Good Shares as determined under Section 5.2(e) of the Purchase Agreement. The Escrow Agent need only rely on the letter of instruction from Sterne in this regard and will disregard any contrary instructions. The Escrow Agent shall be entitled to rely on the calculations provided by Sterne in releasing the Escrow Shares for disbursement, with no further responsibility to calculate or confirm amounts. If the Company’s 2007 Annual Report reflect that the 2007 Guaranteed ATNI has been achieved, no transfer of the 2007 Make Good Shares shall be required by this Section and Sterne shall provide written instruction (with a copy to the Company) to the Escrow Agent to return all 2007 Make Good Shares deposited with the Escrow Agent to the Make Good Pledgors within seven Business Days after the date which the 2007 Annual Report is filed with the Commission, provided that Escrow Agent is given notice by Sterne of the 2007 Annual Report’s filing and results. Subject to the timing of the Transfer Agent, transfers of 2007 Make Good Shares required under this Section shall be made to Investors within seven Business Days after the date which the 2007 Annual Report is filed with the Commission, provided that Escrow Agent is given notice by Sterne of the 2007 Annual Report’s filing and results.

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b.Fiscal Year Ending December 31, 2008. The Make Good Pledgors agree that if the Company’s After-Tax Net Income for the fiscal year ended December 31, 2008 reported in the Company’s 2008 Annual Report, and as adjusted in accordance with Section 5.2(d) of the Purchase Agreement, is less than the 2008 Guaranteed ATNI, Sterne shall provide written instruction (with a copy to the Company) to the Escrow Agent to instruct the Transfer Agent to transfer to each Investor their pro rata share of the 2008 Make Good Shares as determined under Section 5.2(e) of the Purchase Agreement. The Escrow Agent need only rely on the letter of instruction from Sterne in this regard and will disregard any contrary instructions. The Escrow Agent shall be entitled to reply on the calculations provided by Sterne in releasing the Escrow Shares for disbursement, with no further responsibility to calculate or confirm amounts. If the Company’s 2008 Annual Report reflect that the 2008 Guaranteed ATNI has been achieved, no transfer of the 2008 Make Good Shares shall be required by this Section and Sterne shall provide written instruction (with a copy to the Company) to the Escrow Agent to return all 2008 Make Good Shares deposited with the Escrow Agent to the Make Good Pledgors within seven Business Days after the date which the 2008 Annual Report is filed with the Commission, provided that Escrow Agent is given notice by Sterne of the 2008 Annual Report’s filing and results. Subject to the timing of the Transfer Agent, transfers of 2008 Make Good Shares required under this Section shall be made to Investors within seven Business Days after the date which the 2008 Annual Report is filed with the Commission, provided that Escrow Agent is given notice by Sterne of the 2008 Annual Report’s filing and results.

c.In connection with the foregoing, Make Good Pledgors agree that within one business day following execution of the Purchase Agreement, Make Good Pledgors will deposit the 2007 Make Good Shares and 2008 Make Good Shares into escrow in accordance with this Agreement along with undated stock powers with Medallion guarantees (or with such other instruments of transfer as in accordance with the requirements of the Company’s transfer agent), in the form and number acceptable to the Investors in their reasonable discretion, and the handling and disposition of the 2007 Make Good Shares and 2008 Make Good Shares in accordance with Section 5(a) and 5(b) of this Agreement. The parties hereby agree that the Investors shall not have the right to assign its rights to receive all or any 2007 Make Good Shares and 2008 Make Good Shares in conjunction with negotiated sales or transfers of any of its Shares or, in the case of their conversion, Underlying Shares ( collectively, the “Securities”).

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d.The parties hereby agree that the Make Good Pledgors’ obligation to transfer Escrow Shares to the Investors pursuant to Section 5.2 of the Purchase Agreement shall not continue to run to the benefit of any Securities transferred or sold by the Investors prior to a Make Good Determination Date. In the event an Investor transfers or sells prior to the Make Good Determination Date relating to the 2008 Make Good Shares a portion of its Securities, the Escrow Agent shall, upon instruction from Sterne, return to the Make Good Pledgors a portion of 2008 Make Good Shares and, if the Investor transfer or sale takes place prior to the Make Good Determination Date relating to the 2007 Make Good Shares, a portion of the 2007 Make Good Shares equal to the initial number of 2008 Make Good Shares and, if appropriate, 2007 Make Good Shares multiplied by a fraction the numerator of which is the number of Securities involved in the particular Investor sale or transfer and denominator is the total amount of Securities originally purchased by all Investors under Purchase Agreement. Any of the Escrowed Shares to returned to the Make Good Pledgors hereunder shall, subject to the timing of the Transfer Agent, be returned to the Make Good Pledgors within seven Business Days after the date which the Company’s 2007 Annual Report or 2008 Annual Report, as applicable, is filed with the Commission. Sterne shall provide Escrow Agent with specific notice of those Escrow Shares which shall be delivered back to the Make Good Pledgors for the above-listed reason. Escrow Agent will in turn notify the Transfer Agent of such instructions. Escrow Agent shall under no circumstances be responsible for instructions it does not receive or instructions it receives after Escrow Agent has instructed the Transfer Agent.

e.The Escrow Agent covenants and agrees that upon any transfer of 2007 Make Good Shares or 2008 Make Good Shares to the Investors in accordance with this Agreement, the Escrow Agent shall promptly instruct the Transfer Agent to reissue such 2007 Make Good Shares or 2008 Make Good Shares in the applicable Investor’s name and deliver the same as directed by such Investor.

f.The Company and Made Good Pledgors covenant and agree, to provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and such other forms and documents that the Escrow Agent may request, including appropriate W-9 or W-8 forms for each Investor. The Company and Make Good Pledgors understand that if such tax reporting documentation is not provided and certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder, to withhold a portion of any interest or other income earned on the investment of the Escrow Property.

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g.The Company and the Escrow Agent covenant and agree to provide, and cause others under their control to provide, to Sterne, on a timely basis, any documents or information Sterne may require in its reasonable discretion in order to carry out and enforce the terms and duties under this Make Good Agreement.

6. Duration. This Make Good Agreement shall terminate on the sooner of (i) the distribution of all the Escrow Shares or (ii) June 30, 2009. The Company agrees to promptly provide the Escrow Agent written notice of the filing with the Commission of any financial statements or reports referenced herein.

7. Escrow Shares. If any Escrow Shares are deliverable to the Investors pursuant to the Purchase Agreement and in accordance with this Make Good Agreement, (i) Make Good Pledgors covenants and agrees to execute all such instruments of transfer (including stock powers and assignment documents) as are customarily executed to evidence and consummate the transfer of the Escrow Shares from Make Good Pledgors to the Investors, to the extent not done so in accordance with Section 5, and (ii) following its receipt of the documents referenced in Section 5, the Company and Escrow Agent covenant and agree to cooperate with the Transfer Agent so that the Transfer Agent promptly reissues such Escrow Shares in the applicable Investor’s name and delivers the same as directed by such Investor. Until such time as (if at all) the Escrow Shares are required to be delivered pursuant to the Purchase Agreement and in accordance with this Make Good Agreement, any dividends payable in respect of the Escrow Shares and all voting rights applicable to the Escrow Shares shall be retained by Make Good Pledgors. Should the Escrow Agent receive dividends or voting materials, such items shall not be held by the Escrow Agent, but shall be passed immediately on to the Make Good Pledgors and shall not be invested or held for any time longer than is needed to effectively re-route such items to the Make Good Pledgors.

8. Interpleader. Should any controversy arise among the parties hereto with respect to this Make Good Agreement or with respect to the right to receive the Escrow Shares, Escrow Agent and/or Sterne shall have the right to consult and hire counsel and/or to institute an appropriate interpleader action to determine the rights of the parties. Escrow Agent and/or Sterne are also each hereby authorized to institute an appropriate interpleader action upon receipt of a written letter of direction executed by the parties so directing either Escrow Agent or Sterne. If Escrow Agent or Sterne is directed to institute an appropriate interpleader action, it shall institute such action not prior to thirty (30) days after receipt of such letter of direction and not later than sixty (60) days after such date. Any interpleader action instituted in accordance with this Section 8 shall be filed in any court of competent jurisdiction in the State of New York or the State of California, and the Escrow Shares in dispute shall be deposited with the court and in such event Escrow Agent and Sterne shall be relieved of and discharged from any and all obligations and liabilities under and pursuant to this Make Good Agreement with respect to the Escrow Shares and any other obligations hereunder.

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9. Exculpation and Indemnification of Escrow Agent and Sterne.

a.Escrow Agent is not a party to, and is not bound by or charged with notice of any agreement out of which this escrow may arise. Escrow Agent acts under this Make Good Agreement as a depositary only and is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of the escrow, or any part thereof, or for the form or execution of any notice given by any other party hereunder, or for the identity or authority of any person executing any such notice. Escrow Agent will have no duties or responsibilities other than those expressly set forth herein. Escrow Agent will be under no liability to anyone by reason of any failure on the part of any party hereto (other than Escrow Agent) or any maker, endorser or other signatory of any document to perform such person's or entity's obligations hereunder or under any such document. Except for this Make Good Agreement and instructions to Escrow Agent pursuant to the terms of this Make Good Agreement, Escrow Agent will not be obligated to recognize any agreement between or among any or all of the persons or entities referred to herein, notwithstanding its knowledge thereof. Sterne’s sole obligation under this Make Good Agreement is to provide written instruction to Escrow Agent (following such time as the Company files certain periodic financial reports as specified in Section 5 hereof) directing the distribution of the Escrow Shares. Sterne will provide such written instructions upon review of the relevant earnings per share and/or After-Tax Net Income amount reported in such periodic financial reports as specified in Section 5 hereof. Sterne is not charged with any obligation to conduct any investigation into the financial reports or make any other investigation related thereto. In the event of any actual or alleged mistake or fraud of the Company, its auditors or any other person (other than Sterne) in connection with such financial reports of the Company, Sterne shall have no obligation or liability to any party hereunder.

b.Escrow Agent will not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, absent gross negligence or willful misconduct. Escrow Agent may rely conclusively on, and will be protected in acting upon, any order, notice, demand, certificate, or opinion or advice of counsel (including counsel chosen by Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is reasonably believed by Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Make Good Agreement and no other or further duties or responsibilities shall be implied, including, but not limited to, any obligation under or imposed by any laws of the State of New York upon fiduciaries. THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

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c.The Company and Make Good Pledgors each hereby, jointly and severally, indemnify and hold harmless each of Escrow Agent, Sterne and any of their principals, partners, agents, employees and affiliatesfrom and against any expenses, including reasonable attorneys' fees and disbursements, damages or losses suffered by Escrow Agent or Sterne in connection with any claim or demand, which, in any way, directly or indirectly, arises out of or relates to this Make Good Agreement or the services of Escrow Agent or Sterne hereunder; except, that if Escrow Agent or Sterne is guilty of willful misconduct or gross negligence under this Make Good Agreement, then Escrow Agent or Sterne, as the case may be, will bear all losses, damages and expenses arising as a result of its own willful misconduct or gross negligence. Promptly after the receipt by Escrow Agent or Sterne of notice of any such demand or claim or the commencement of any action, suit or proceeding relating to such demand or claim, Escrow Agent or Sterne, as the case may be, will notify the other parties hereto in writing. For the purposes hereof, the terms "expense" and "loss" will include all amounts paid or payable to satisfy any such claim or demand, or in settlement of any such claim, demand, action, suit or proceeding settled with the express written consent of the parties hereto, and all costs and expenses, including, but not limited to, reasonable attorneys' fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding. The provisions of this Section 8 shall survive the termination of this Make Good Agreement, and the resignation or removal of the Escrow Agent.

10. Compensation of Escrow Agent. Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit A, which compensation shall be paid by the Company. The fee agreed upon for the services rendered hereunder is intended as full compensation for Escrow Agent's services as contemplated by this Make Good Agreement; provided, however, that in the event that Escrow Agent renders any material service not contemplated in this Make Good Agreement, or there is any assignment of interest in the subject matter of this Make Good Agreement, or any material modification hereof, or if any material controversy arises hereunder, or Escrow Agent is made a party to any litigation pertaining to this Make Good Agreement, or the subject matter hereof, then Escrow Agent shall be reasonably compensated by the Company for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company. Prior to incurring any costs and/or expenses in connection with the foregoing sentence, Escrow Agent shall be required to provide written notice to the Company of such costs and/or expenses and the relevancy thereof and Escrow Agent shall not be permitted to incur any such costs and/or expenses prior to receiving written approval from the Company, which approval shall not be unreasonably withheld.

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11. Resignation of Escrow Agent. At any time, upon ten (10) days' written notice to the Company, Escrow Agent may resign and be discharged from its duties as Escrow Agent hereunder. As soon as practicable after its resignation, Escrow Agent will promptly turn over to a successor escrow agent appointed by the Company the Escrow Shares held hereunder upon presentation of a document appointing the new escrow agent and evidencing its acceptance thereof. If, by the end of the 10-day period following the giving of notice of resignation by Escrow Agent, the Company shall have failed to appoint a successor escrow agent, Escrow Agent may interplead the Escrow Shares into the registry of any court having jurisdiction.

12. Records. Escrow Agent shall maintain accurate records of all transactions hereunder. Promptly after the termination of this Make Good Agreement or as may reasonably be requested by the parties hereto from time to time before such termination, Escrow Agent shall provide the parties hereto, as the case may be, with a complete copy of such records, certified by Escrow Agent to be a complete and accurate account of all such transactions. The authorized representatives of each of the parties hereto shall have access to such books and records at all reasonable times during normal business hours upon reasonable notice to Escrow Agent and at the requesting party’s expense.

13. Notice. All notices, communications and instructions required or desired to be given under this Make Good Agreement must be in writing and shall be deemed to be duly given if sent by registered or certified mail, return receipt requested, or overnight courier, to the addresses listed on the signature pages hereto.

14. Execution in Counterparts. This Make Good Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15. Assignment and Modification. This Make Good Agreement and the rights and obligations hereunder of any of the parties hereto may not be assigned without the prior written consent of the other parties hereto. Subject to the foregoing, this Make Good Agreement will be binding upon and inure to the benefit of each of the parties hereto and their respective successors and permitted assigns. No other person will acquire or have any rights under, or by virtue of, this Make Good Agreement. No portion of the Escrow Shares shall be subject to interference or control by any creditor of any party hereto, or be subject to being taken or reached by any legal or equitable process in satisfaction of any debt or other liability of any such party hereto prior to the disbursement thereof to such party hereto in accordance with the provisions of this Make Good Agreement. This Make Good Agreement may be amended or modified only in writing signed by all of the parties hereto.

16. Applicable Law. This Make Good Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof.

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17. Headings. The headings contained in this Make Good Agreement are for convenience of reference only and shall not affect the construction of this Make Good Agreement.

18. Attorneys' Fees. If any action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Make Good Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees from the other party (unless such other party is the Escrow Agent), which fees may be set by the court in the trial of such action or may be enforced in a separate action brought for that purpose, and which fees shall be in addition to any other relief that may be awarded.

19. Merger or Consolidation. Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Escrow Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.

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IN WITNESS WHEREOF, the parties have duly executed this Make Good Agreement as of the date set forth opposite their respective names.

COMPANY:

MILLENNIUM QUEST, INC.

By:/s/Si Chen

Name: Si Chen

Title: Chief Executive Officer

Address:

Beihuan Zhong Road

Junan County

Shandong, China 276600

Attn: Si Chen

Facsimile: 86-539-7314886

MAKE GOOD PLEDGORS

Hisashi Akazawa:

/s/Hisashi Akazawa

Address:

Beihuan Zhong Road

Junan County

Shandong, China 276600

Facsimile: 86-539-7314886

Si Chen:

/s/Si Chen

Address:

Beihuan Zhong Road

Junan County

Shandong, China 276600

Facsimile: 86-539-7314886

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK SIGNATURE

PAGE FOR OTHER PARTIES FOLLOWS]

ESCROW AGENT:

SECURITIES TRANSFER CORPORATION, as Escrow Agent

By:/s/Kevin B. Halter, Jr.

      Kevin B. Halter, Jr., President

Address:

2591 Dallas Parkway Suite 102

Frisco Texas 75034

Attn: Kevin B. Halter, Jr.

Facsimile: (469) 633-0088

AGENT:

STERNE AGEE & LEACH, INC.

By:/s/Ryan Medo

      Ryan Medo,

      Managing Director, Capital Markets

Address:

Sterne Agee & Leach, Inc.

800 Shades Creek Parkway, Suite 700

Birmingham, Alabama 35209

Attn: Ryan Medo

Facsimile: (205) 949-3607

EX-10.3

Exhibit 10.3

CLOSING ESCROW AGREEMENT

CLOSING ESCROW AGREEMENT, dated May 3, 2007 (“Escrow Agreement”), is entered into by and between Millennium Quest, Inc., a Delaware corporation (the “Company”), Thelen Reid Brown Raysman & Steiner LLP (the “Escrow Agent”) and Sterne Agee & Leach, Inc., as agent (“Sterne Agee”).

BACKGROUND

Concurrently herewith the Company and Investors are entering into a Securities Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”), pursuant to which each Investor (as defined therein) has agreed to purchase from the Company, and the Company has agreed to sell to each Investor, the number of Shares and Warrants identified therein (capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement).

Pursuant to the Purchase Agreement, the Company and the Investors have agreed to establish an escrow on the terms and conditions set forth in this Escrow Agreement and the Escrow Agent is willing to accept appointment as Escrow Agent for only the expressed duties outlined herein.

NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Proceeds to be Escrowed. A copy of the Purchase Agreement is attached as Exhibit A. All amounts provided by the Investors in connection with their acquisition of the Shares and Warrants as set forth in the Purchase Agreement shall be deposited directly with the Escrow Agent in immediately available funds by federal wire transfer, such funds being referred to herein as the “Escrow Funds.” The Escrow Funds shall be retained in escrow by the Escrow Agent in a separate account and invested as stated below.

2. Identity of Investors. Concurrent with the execution of the Escrow Agreement, the Company shall furnish to the Escrow Agent the information comprising the identity of the Investors in the format set forth in the “List of Investors” attached as Exhibit B, or in an electronic spreadsheet format with the same information. All Escrow Funds shall remain the property of the Investors and shall not be subject to any liens or charges by the Company or the Escrow Agent or judgments or creditors' claims against the Company, until released to the Company as hereinafter provided. Escrow Agent will not use the information provided to it by the Company for any purpose other than to fulfill its obligations as Escrow Agent. The Company and the Escrow Agent will treat all Investor information as confidential.

3. Disbursement of Funds.

(a)The Escrow Agent shall continue to hold the Escrow Funds delivered for deposit hereunder by an Investor until the earlier of: (1) receipt of a joint written notice from the Company and the Investors evidencing termination under Section 7.5(a) of the Purchase Agreement, (2) receipt of a written notice from the Company or such Investor evidencing termination under Section 7.5(b) of the Purchase Agreement (each of (1) and (2), a “Termination Election”) and (3) receipt of both (x) written notice from the Company that the conditions to closing under Section 6.1 of the Purchase Agreement have been satisfied and (y) joint written notice from the Company and Sterne Agee, who acted as placement agent in connection with the transactions contemplated by the Purchase Agreement, to effect the Closing.

(b)If the Escrow Agent receives a Termination Election prior to its receipt of the notices contemplated under Section 3(a)(3), then the Escrow Agent shall return the Escrow Funds delivered by such Investor as directed by such Investor. If the Escrow Agent receives the notices contemplated under Section 3(a)(3) prior to a Termination Election, then the Escrow Agent shall disburse the portion of the Escrow Funds for which the foregoing is the case in accordance with Exhibit C to this Escrow Agreement.

4. Duty and Limitation on Liability of the Escrow Agent. The sole duty of the Escrow Agent shall be to receive the Escrow Funds and to hold them subject to release, in accordance herewith, and the Escrow Agent shall be under no duty to determine whether the Company is complying with requirements of the Escrow Agreement or the Purchase Agreement. The Escrow Agent may conclusively rely upon and shall be protected in acting upon any statement, certificate, notice, request, consent, order or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall have no duty or liability to verify any such statement, certificate, notice, request, consent, order or other document, and its sole responsibility shall be to act only as expressly set forth in the Escrow Agreement. The Escrow Agent shall be under no obligation to institute or defend any action, suit or proceeding in connection with the Escrow Agreement unless first indemnified to its satisfaction. The Escrow Agent may consult counsel of its own choice with respect to any question arising under the Escrow Agreement and the Escrow Agent shall not be liable for any action taken or omitted in good faith upon advice of such counsel.

In no event shall the Escrow Agent be liable, directly or indirectly, for any (a) damages or expenses arising out of the services provided hereunder, other than damages which result from the Escrow Agent’s gross negligence or willful misconduct or (b) special or consequential damages, even if the Escrow Agent has been advised of the possibility of such damages.

The Escrow Agent shall be obligated only to perform the duties specifically set forth in this Escrow Agreement, which shall be deemed purely ministerial in nature, and shall under no circumstances be deemed to be a fiduciary to the Company, Sterne Agee or any other person. The Escrow Agent shall not assume any responsibility for the failure of the Company to perform in accordance with this Escrow Agreement. This Escrow Agreement sets forth all matters pertinent to the escrow contemplated hereunder, and no additional obligations of the Escrow Agent shall be implied by nor inferred from the terms of any other agreement, including, without limitation, the Purchase Agreement.

Under no circumstances shall the Escrow Agent be expected or required to use, risk or advance its own funds in the performance of its duties or exercise of its rights hereunder.

The Investors (by agreeing to use this form of Closing Escrow Agreement) and Sterne Agee acknowledge that they are aware that the Escrow Agent has represented the Company in connection with the Purchase Agreement and this Escrow Agreement and that Escrow Agent may continue to represent the Company in that connection and in connection with the transactions contemplated by those agreements, including, but not limited to, in connection with any disputes that may arise under either of those agreements. The Escrow Agent shall not be precluded from or restricted from representing the Company or any of its affiliates or otherwise acting as attorneys for the Company or any of its affiliates in any matter, including, but not limited to, any court proceeding or other matter related to the Purchase Agreement or the transactions contemplated by the Purchase Agreement, or this Escrow Agreement or the Escrow Funds, whether or not there is a dispute between the Investors, Sterne Agee and/or the Company with respect to any such matter.

5. Interpleader. The Escrow Agent may at any time commence an action in the nature of interpleader or other legal proceedings and may deposit the Escrow Deposit with the clerk of the court. In the event of any dispute regarding who is entitled to the Escrow Deposit at any time, the Escrow Agent may determine not to release the Escrow Deposit to either any Investor or the Company and may commence an interpleader action as aforesaid or may cause the Escrow Deposit to be deposited with a court of competent jurisdiction whereupon it shall cease to have any further obligation hereunder. Upon any delivery or deposit of the Escrow Deposit as provided in this Section 5, the Escrow Agent shall be released and discharged from any further obligation under this Agreement.

6. Investment of Proceeds. The Escrow Funds shall be credited by Escrow Agent and recorded in a non-interest bearing escrow account. The Company agrees to indemnify and hold Escrow Agent harmless from and against any taxes, additions for late payment, interest, penalties and other expenses that may be assessed against Escrow Agent on or with respect to any payment or other activities under this Escrow Agreement unless any such tax, addition for late payment, interest, penalties and other expenses shall arise out of or be caused by the gross negligence or willful misconduct of the Escrow Agent.

The Company acknowledges that Escrow Agent is not providing investment supervision, recommendations or advice.

7. Notices. All notices, requests, demands and other communications under the Escrow Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of service if served personally on the party to whom notice is to be given, (b) on the day of transmission if sent by facsimile/email transmission to the facsimile number/email address given below, and telephonic confirmation of receipt is obtained promptly after completion of transmission, (c) on the day after delivery to Federal Express or similar overnight courier or the Express Mail service maintained by the United States Postal Service or (d) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to the party as follows:

If to the Company:	Millennium Quest, Inc. Beihuan Road Junan County Shandong, China 276600 Attn: Mr. Si Chen, Chairman and Chief Executive Officer Facsimile: (0086539) 7314886 7311026
If to Escrow Agent:	Thelen Reid Brown Raysman & Steiner LLP 701 8th Street NW Washington, D.C. 20001 Attn.: Louis A. Bevilacqua, Esq. Facsimile: (202) 508-4321
If to Sterne Agee:	Sterne Agee & Leach, Inc., 2901 W. Coast Highway, Ste. 230 Newport Beach, CA 92663 Attn: Patrick L. Winton Facsimile: (949) 270-2936
If to an Investor:	To the address set forth under such Investor’s name on its signature page to the Purchase Agreement.

Any party may change its address for purposes of this paragraph by giving the other party written notice of the new address in the manner set forth above.

8. Indemnification of Escrow Agent. TheCompany hereby indemnifies and holds harmless the Escrow Agent from and against any and all loss, liability, cost, damage and expense, including, without limitation, reasonable counsel fees, which the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought against the Escrow Agent arising out of or relating in any way to the Escrow Agreement or any transaction to which the Escrow Agreement relates unless such action, claim or proceeding is the result of the willful misconduct or gross negligence of the Escrow Agent. For this purpose, the term "attorneys' fees" includes fees payable to any counsel retained by the Escrow Agent in connection with its services under this Agreement and, with respect to any matter arising under this Escrow Agreement as to which the Escrow Agent performs legal services, if and to the extent that the Escrow Agent itself is a law firm, its standard hourly rates and charges then in effect. All of the Escrow Agent's rights of indemnification provided for in this Escrow Agreement shall survive the resignation of the Escrow Agent, its replacement by a successor Escrow Agent, its delivery or deposit of the Escrow Funds in accordance with this Escrow Agreement, the termination of this Escrow Agreement, and any other event that occurs after this date.

9. Successors and Assigns. Except as otherwise provided in the Escrow Agreement, no party hereto shall assign the Escrow Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto, and any such attempted assignment without such prior written consent shall be void and of no force and effect. The Escrow Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto.

10.Governing Law; Jurisdiction. The Escrow Agreement shall be construed, performed and enforced in accordance with, and governed by the internal laws of the State of New York, without giving effect to the principles of conflicts of laws thereof.

11. Severability. In the event that any part of the Escrow Agreement is declared by any court or other judicial or administrative body to be null, void, or unenforceable, said provision shall survive to the extent it is not so declared, and all of the other provisions of the Escrow Agreement shall remain in full force and effect.

12. Amendments; Waivers. The Escrow Agreement may be amended or modified, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by each of the Company, the Escrow Agent and Sterne Agee. Any waiver by any party of any condition or of the breach of any provision, term, covenant, representation or warranty contained in the Escrow Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant, representation or warranty of the Escrow Agreement.

13. Entire Agreement. The Escrow Agreement contains the entire understanding among the parties hereto with respect to the escrow contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to such escrow.

14. Section Headings. The section headings in the Escrow Agreement are for reference purposes only and shall not affect the meaning or interpretation of the Escrow Agreement.

15. Counterparts. The Escrow Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument.

16. Resignation. Escrow Agent may resign upon 30 days advance written notice to the Company. If a successor escrow agent is not appointed within the 30-day period following such notice, Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent or interplead the Escrow Funds with such court, whereupon Escrow Agent’s duties hereunder shall terminate.

17. Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto, the Investors and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused the Escrow Agreement to be executed the day and year first set forth above.

MILLENNIUM QUEST, INC.

/s/Si Chen

By: Si Chen

Its: Chief Executive Officer

THELEN REID BROWN RAYSMAN & STEINER LLP

By: /s/Louis A. Bevilacqua

Name: Louis A. Bevilacqua

Title: Partner

STERNE AGEE & LEACH, INC.

/s/Ryan Medo

By: Ryan Medo

Its: Managing Director, Capital Markets

EX-10.4

Exhibit 10.4

CANCELLATION AND ESCROW AGREEMENT

CANCELLATION AND ESCROW AGREEMENT, dated May 3, 2007 (this “Agreement”), by and among, MILLENNIUM QUEST, INC., a Delaware corporation (the “Company”), Halter Financial Investments, L.P., a Texas limited partnership (“HFI”), Halter Financial Group, L.P., a Texas limited partnership (“HFG”), and Securities Transfer Corporation, as escrow agent (“Escrow Agent”).

BACKGROUND

Pursuant to a Financial Advisory Agreement, dated February 14, 2007 (the “Financial Advisory Agreement”), the Company’s subsidiary retained HFG International, Limited (“HFG International”) as the Company’s exclusive financial advisor. HFG consulted on the Restructuring and Going Public Transaction, as identified therein.

HFG International agreed that if the Company, on a consolidated basis, reports in its Annual Report filed with the U.S. Securities and Exchange Commission, net income of $12.5 million for fiscal 2008, HFG International would ensure that HFI and HFG cancel that number of shares that will reduce the Pubco Shareholders Ownership Percentage, as defined in the Financial Advisory Agreement, to 5.6%.

HFI and HFG currently hold 100,000 shares of the Company’s Series A Convertible Preferred Stock, which are convertible into 42,856,000 shares of the Company’s Common Stock, constituting a total of 5.22% of the Company’s issued and outstanding common stock, assuming conversion of all outstanding shares of the Company’s Series A Voting Convertible Preferred Stock and the Company’s Series B Voting Convertible Preferred Stock into shares of common stock at the present rate of conversion. The other Pubco Shareholders, as defined in the Financial Advisory Agreement, hold 1.28% of the Company’s issued and outstanding Common Stock, assuming conversion of all outstanding shares of the Company’s Series A Voting Convertible Preferred Stock and the Company’s Series B Voting Convertible Preferred Stock into shares of common stock at the present rate of conversion. In order to reduce the 6.5% interest owned by all of the Pubco Shareholders to a 5.6% interest, HFI and HFG would have to tender to the Company for cancellation a total of 229,227 shares of the Company’s common stock upon conversion of the Series A Voting Convertible Preferred Stock into common stock (taking into account the contemplated 1-for-32.84 reverse stock split and the conversion of Series B Voting Convertible Preferred Stock into common) (the “Cancellation Shares”).

HFI, HFG and the Company desire to retain the Escrow Agent to act as the escrow agent hereunder and hold the Cancellation Shares and cancel such shares or return such shares to HFI and HFG in accordance with this Agreement to carry out the terms of the Financial Advisory Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.Definitions.

(a)Capitalized terms used and not otherwise defined herein that are defined in the Financial Advisory Agreement will have the meanings given such terms in the Financial Advisory Agreement.

(b)The following terms have the meanings ascribed to them below:

(i)“After-Tax Net Income” or “ATNI” means the after-tax net income of the Company and its consolidated subsidiaries prepared in accordance with GAAP consistently applied; provided in the event that the release of the Cancellation Shares to the Company or HFG is deemed to be an expense or deduction from revenues/income of the Company for the applicable year, as required under GAAP, then such expense or deduction shall be excluded for purposes of determining whether or not the 2008 Guaranteed ATNI has been achieved by the Company.

(ii)“Annual Report” means the Annual Report of the Company on Form 10-K for the fiscal year ending December 31, 2008, as filed with the Commission.

(iii)“Commission” means the U.S. Securities and Exchange Commission.

(iv)“Guaranteed ATNI” means $12,500,000.

2.Appointment of Escrow Agent. The Company, HFI and HFG hereby appoint the Escrow Agent as escrow agent hereunder to act in accordance with the terms and conditions set forth in this Agreement, and Escrow Agent hereby accepts such appointment and agrees to act in accordance with such terms and conditions.

3.Establishment of Escrow. Upon the conversion of the Series A Voting Convertible Preferred Stock held by HFI and HFG into common stock, each of HFI and HFG shall deliver, or cause to be delivered, to the Escrow Agent certificates evidencing the Cancellation Shares, along with undated stock powers with Medallion guarantees (or such other signed instrument of transfer acceptable to the Company’s Transfer Agent (as defined in Section 5a below)).

4.Representations of HFI and HFG. Each of HFI and HFG hereby represents and warrants to the Company as follows:

(a)each has all corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly executed by HFI and HFG, and when delivered in accordance with the terms hereof, will constitute a valid and legally binding obligation of HFI and HFG, enforceable against them in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(b)HFI and HFG are the sole record and beneficial owners of all of the Cancellation Shares.

(c)All of the Cancellation Shares are free and clear of all pledges, liens and encumbrances. Upon any transfer of the Cancellation Shares to the Company hereunder, the Company will receive full right, title and authority to such Cancellation Shares or, if such shares have been converted to common stock (such underlying shares being referred to as the “Underlying Shares”) prior to such transfer, then the Company will receive full right, title and authority to such Underlying Shares.

(d)Performance of this Agreement and compliance with the provisions hereof will not violate any provision of any applicable law.

5.Disbursement of Cancellation Shares.

(a)If the After-Tax Net Income for the fiscal year ended December 31, 2008 is at least equal to the Guaranteed ATNI, HFI and HFG shall transfer to the Company, for no additional consideration, the Cancellation Shares, within seven Business Days after the date which the Annual Report is filed with the Commission. If the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2008 specify that the Guaranteed ATNI has not been achieved, no transfer of the Cancellation Shares shall be required by this Section 5(a) and all Cancellation Shares deposited with the Escrow Agent shall be returned to HFI and HFG within seven Business Days after the date which the Annual Report is filed with the Commission and otherwise in accordance with this Agreement.

(b)If the Cancellation Shares are disbursed to the Company in accordance with this Agreement, then the Company shall instruct the transfer agent to cancel the Cancellation Shares. Upon written request from the Company, HFI and HFG shall deliver to the Company a written release that releases the Company from any obligations arising as a result of HFI’s and HFG’s ownership of the Cancellation Shares.

(c)Within five business days following the conversion of the Series A Voting Convertible Preferred Stock, HFI and HFG shall deposit the Cancellation Shares into escrow in accordance with this Agreement along with undated stock powers with Medallion guarantees (or with such other instruments of transfer as in accordance with the requirements of the Company’s transfer agent), in the form and number acceptable to the Company.

6.Duration. This Agreement shall terminate on the sooner of (i) the distribution of all the Cancellation Shares or (ii) May 1, 2009. The Company agrees to promptly provide the Escrow Agent written notice of the filing with the Commission of any financial statements or reports referenced herein.

7.Cancellation Shares. If any Cancellation Shares are deliverable to the Company in accordance with this Agreement, HFI and HFG shall execute all such instruments of transfer (including stock powers and assignment documents) as are customarily executed to evidence and consummate the transfer of the Cancellation Shares from HFI and HFG to the Company, to the extent not done so in accordance with Section 5. Until such time as (if at all) the Cancellation Shares are required to be delivered pursuant in accordance with this Agreement, any dividends payable in respect of the Cancellation Shares and all voting rights applicable to the Cancellation Shares shall be retained by HFI and HFG. Should the Escrow Agent receive dividends or voting materials, such items shall not be held by the Escrow Agent, but shall be passed immediately on to HFI and HFG and shall not be invested or held for any time longer than is needed to effectively re-route such items to HFG.

8.Interpleader. Should any controversy arise among the parties hereto with respect to this Agreement or with respect to the right to receive the Cancellation Shares, Escrow Agent shall have the right to consult and hire counsel and/or to institute an appropriate interpleader action to determine the rights of the parties. Escrow Agent is hereby authorized to institute an appropriate interpleader action upon receipt of a written letter of direction executed by the parties so directing the Escrow Agent. If Escrow Agent is directed to institute an appropriate interpleader action, it shall institute such action not prior to thirty (30) days after receipt of such letter of direction and not later than sixty (60) days after such date. Any interpleader action instituted in accordance with this Section 8 shall be filed in any court of competent jurisdiction in the State of New York, and the Cancellation Shares in dispute shall be deposited with the court and in such event Escrow Agent shall be relieved of and discharged from any and all obligations and liabilities under and pursuant to this Agreement with respect to the Cancellation Shares and any other obligations hereunder.

9.Exculpation and Indemnification of Escrow Agent.

(a)Escrow Agent is not a party to, and is not bound by or charged with notice of any agreement out of which this escrow may arise. Escrow Agent acts under this Agreement as a depositary only and is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of the escrow, or any part thereof, or for the form or execution of any notice given by any other party hereunder, or for the identity or authority of any person executing any such notice. Escrow Agent will have no duties or responsibilities other than those expressly set forth herein. Escrow Agent will be under no liability to anyone by reason of any failure on the part of any party hereto (other than Escrow Agent) or any maker, endorser or other signatory of any document to perform such person's or entity's obligations hereunder or under any such document. Except for this Agreement and instructions to Escrow Agent pursuant to the terms of this Agreement, Escrow Agent will not be obligated to recognize any agreement between or among any or all of the persons or entities referred to herein, notwithstanding its knowledge thereof.

(b)Escrow Agent will not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, absent gross negligence or willful misconduct. Escrow Agent may rely conclusively on, and will be protected in acting upon, any order, notice, demand, certificate, or opinion or advice of counsel (including counsel chosen by Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is reasonably believed by Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Agreement and no other or further duties or responsibilities shall be implied, including, but not limited to, any obligation under or imposed by any laws of the State of New York upon fiduciaries. THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

(c)The Company, HFI and HFG each hereby, jointly and severally, indemnify and hold harmless each of Escrow Agent, and any of their principals, partners, agents, employees and affiliatesfrom and against any expenses, including reasonable attorneys' fees and disbursements, damages or losses suffered by Escrow Agent in connection with any claim or demand, which, in any way, directly or indirectly, arises out of or relates to this Agreement or the services of Escrow Agent hereunder; except, that if Escrow Agent is guilty of willful misconduct or gross negligence under this Agreement, then Escrow Agent will bear all losses, damages and expenses arising as a result of its own willful misconduct or gross negligence. Promptly after the receipt by Escrow Agent of notice of any such demand or claim or the commencement of any action, suit or proceeding relating to such demand or claim, Escrow Agent will notify the other parties hereto in writing. For the purposes hereof, the terms "expense" and "loss" will include all amounts paid or payable to satisfy any such claim or demand, or in settlement of any such claim, demand, action, suit or proceeding settled with the express written consent of the parties hereto, and all costs and expenses, including, but not limited to, reasonable attorneys' fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding. The provisions of this Section 9 shall survive the termination of this Agreement, and the resignation or removal of the Escrow Agent.

10.Compensation of Escrow Agent. Escrow Agent shall be entitled to compensation for its services in the amount of $750.00 which shall be paid by HFG. The fee agreed upon for the services rendered hereunder is intended as full compensation for Escrow Agent's services as contemplated by this Agreement; provided, however, that in the event that Escrow Agent renders any material service not contemplated in this Agreement, or there is any assignment of interest in the subject matter of this Agreement, or any material modification hereof, or if any material controversy arises hereunder, or Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then Escrow Agent shall be reasonably compensated by the Company for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company. Prior to incurring any costs and/or expenses in connection with the foregoing sentence, Escrow Agent shall be required to provide written notice to the Company of such costs and/or expenses and the relevancy thereof and Escrow Agent shall not be permitted to incur any such costs and/or expenses prior to receiving written approval from the Company, which approval shall not be unreasonably withheld.

11.Resignation of Escrow Agent. At any time, upon ten (10) days' written notice to the Company, HFI and HFG, Escrow Agent may resign and be discharged from its duties as Escrow Agent hereunder. As soon as practicable after its resignation, Escrow Agent will promptly turn over to a successor escrow agent appointed by the Company, HFI and HFG the Cancellation Shares held hereunder upon presentation of a document appointing the new escrow agent and evidencing its acceptance thereof. If, by the end of the 10-day period following the giving of notice of resignation by Escrow Agent, the Company, HFI and HFG shall have failed to appoint a successor escrow agent, Escrow Agent may interplead the Cancellation Shares into the registry of any court having jurisdiction.

12.Records. Escrow Agent shall maintain accurate records of all transactions hereunder. Promptly after the termination of this Agreement or as may reasonably be requested by the parties hereto from time to time before such termination, Escrow Agent shall provide the parties hereto, as the case may be, with a complete copy of such records, certified by Escrow Agent to be a complete and accurate account of all such transactions. The authorized representatives of each of the parties hereto shall have access to such books and records at all reasonable times during normal business hours upon reasonable notice to Escrow Agent and at the requesting party’s expense.

13.Notice. All notices, communications and instructions required or desired to be given under this Agreement must be in writing and shall be deemed to be duly given if sent by registered or certified mail, return receipt requested, or overnight courier, to the addresses listed on the signature pages hereto.

14.Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.Assignment and Modification. This Agreement and the rights and obligations hereunder of any of the parties hereto may not be assigned without the prior written consent of the other parties hereto. Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of each of the parties hereto and their respective successors and permitted assigns. No other person will acquire or have any rights under, or by virtue of, this Agreement. No portion of the Cancellation Shares shall be subject to interference or control by any creditor of any party hereto, or be subject to being taken or reached by any legal or equitable process in satisfaction of any debt or other liability of any such party hereto prior to the disbursement thereof to such party hereto in accordance with the provisions of this Agreement. This Agreement may be amended or modified only in writing signed by all of the parties hereto.

16.Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof.

17.Headings. The headings contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

18.Attorneys' Fees. If any action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees from the other party (unless such other party is the Escrow Agent), which fees may be set by the court in the trial of such action or may be enforced in a separate action brought for that purpose, and which fees shall be in addition to any other relief that may be awarded.

19.Merger or Consolidation. Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Escrow Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

MILLENNIUM QUEST, INC.

By:/s/Si Chen

Name: Si Chen

Title: Chief Executive Officer

ADDRESS:

Beihuan Road

Junan County

Shandong, China

HALTER FINANCIAL INVESTMENTS, L.P.

By:/s/Timothy P. Halter

Name: Timothy P. Halter

Title: Chairman

ADDRESS:

12890 Hilltop Road

Argyle, Texas 76226

HALTER FINANCIAL GROUP, L.P.

By:/s/Timothy P. Halter

Name: Timothy P. Halter

Title: Chairman

ADDRESS:

12890 Hilltop Road

Argyle, Texas 76226

[Signature Page to Cancellation and Escrow Agreement]

ESCROW AGENT:

SECURITIES TRANSFER CORPORATION,

as Escrow Agent

By:/s/ Kevin B. Halter, Jr.

      Kevin B. Halter, Jr., President

Address:

2591 Dallas Parkway Suite 102

Frisco Texas 75034

Attn: Kevin B. Halter, Jr.

Facsimile: (469) 633-0088

[Signature Page to Cancellation and Escrow Agreement]

EX-10.5

Exhibit 10.5

(English Translation)

Employment Contract

Party A:	Shandong Green Foodstuff Co., Ltd	Legal Representative: Si Chen
Party B:	Si Chen	Sex:  Male
Date of Birth:	February 2nd, 1963	Education Degree: Associate Degree
Graduation School:	Linyi Normal College	Major: Chemical Education

Native Place: 138# Village, People’s Road, Junan County, Shandong Province

ID Number: 372824196302020232

According to the Labor Law of the People’s Republic of China and relevant regulations promulgated by the local government, both parties agree to sign this labor contract on the principle of equality and through amicable negotiation.

I. From the date this contract takes effect, Party B becomes an employee of Party A and the employment relation between both parties is established.

The term of this contract is:

A.   The fixed term is from March 2, 2005 to March 1, 2010.

II. Salaries

During the period of this contract, Party A shall pay Party B for his labor in cash. Party A shall calculate and distribute Party A’s salaries in accordance with:

1.   the regulations of the company’s salary system.

III. Party A’s Responsibilities

1. Party A shall comply with state laws, regulations and policies and shall create a favorable working environment to raise the staff’s enthusiasm and creativity.

2. Party A shall be responsible for instructing and training Party B of political opinions, vocational ethics, production safety, and observance of laws and disciplines as well as rules and regulations of the unit; ensure that its employees enjoy working rights and fulfill working obligations.

3. Party A shall reasonably determine the labor ration and shall pay Party B salaries no lower than the local minimum salary standard. Once the labor relationship is established, Party A shall provide Party B with labor insurance and pay insurance fees for such insurance coverage as endowment insurance, unemployment insurance and work injury insurance.

4. Party A may rescind the labor contract in case that party B:

(1). is proved to be unqualified during the probation period.

(2). severely violates the labor disciplines or Party A’s regulations.

(3). is in serious breach of duty, irregularities of favoritism that do great harm to Party A.

(4). is fired or dismissed by the company or inflicted with criminal liabilities according to laws.

(5). is unable to do the original job or other job arranged by Party A due to Party B’s diseases or non-work related injuries after the expiration of medical treatment period.

(6). is unqualified for the job even after the training or post adjustment.

IV. Party B’s Responsibilities

1. Party B shall comply with state laws, regulations and policies and shall protect national interests and Party A’s interests.

2. Party B shall actively attend the education and training of political opinions and vocational ethics offered by Party A, execute the safety and health regulations and comply with the labor disciplines and vacational ethics.

3. Party B shall accept and finish the production tasks stipulated by Party A, meet the fixed target and continuously improve the professional skills.

4. Party B shall comply with each regulation legally instituted by Party A and obey Party A’s guidance and management.

5. Party B shall comply with personnel adjustment, able to work in any of Party A’s company as required by Party A’s production needs.

6. Party B shall perform the obligations stipulated by laws, regulations and the labor contract.

7. Party B may not rescind the labor contract with Party A under any of the following circumstance:

(1).The training expenditure is paid by Party A but the service period provided in the labor contract is not over yet.

(2).Party B has not finished important tasks of production, management or scientific researches.

(3).Party B’s involvement in economic compensation, economic punishment and administrative sanction is unsettled.

8. To rescind the labor contract, Party B shall inform Party A in written form 30 days in advance..

9. During the contract period or after the rescission of the contract, regardless of being fired because of disobeying the disciplines or rules or leaving the factory privately, Party B shall not do any harm to the company. In case of any offense, Party A is entitled to recover from Party B all the economic loss.

10. The director, supervisor and manager as well as those who are familiar with the company’s management, sales, product exploitation and quality control, etc. or familiar with the commercial secrets and processing technologies, cannot personally or jointly conduct or assist others to conduct the same or similar business or engage any activity harmful to the company’s interests regardless of the reason for their depart.

V. Once the contract period expires, the employment relationship between both parties is terminated. If both parties agree to continue the employment relationship, the contract can be renewed. One party’s decision about contract renewal shall be informed to the other party within 30 days after the contract period expires.

VI. Upon conclusion of the contract both parties shall strictly implement the contract. The party in breach shall pay a penalty of RMB 100,000 (One hundred thousand RMB).

VII. In the process of implementing the contract, if any labor dispute takes place between the two parties, it may be submitted to Party A’s mediation committee of labor disputes for mediation, or be submitted to an authoritative arbitration committee of labor dispute for arbitration; the arbitration decision may be appealed to the local people’s court.

VIII. Other issues unsettled in this contract shall be solved according to the national or provincial regulations. In the absence of national or provincial regulations, the two parties may consult on supplementary provisions.

IX. Other negotiated issues that shall be complied with and implemented will be recorded in the appendix or be regarded as the annex of the contract.

X. The contract takes effect upon both parties seal/signature.

XI. The contract is executed in two originals, with each party holding one original. 

XII. Appendix or Annex

(None)

Party A: Shandong Green Foodstuff Co., Ltd.	Party B: Si Chen
(Corporate Seal)	/s/ Si Chen
March 2nd, 2005	March 2nd, 2005

EX-10.6

Exhibit 10.6

(English Translation)

Employment Contract

Party A:	Shandong Green Foodstuff Co., Ltd	Legal Representative: Si Chen
Party B:	Xiaodong Zhou	Sex:  Male
Date of Birth:	April 13th, 1971	Education Degree: N/A
Graduation School:	N/A	Major: Accounting

Native Place: Dormitory of Stockbreeding Bureau, JunanCounty, Shandong Province

ID Number: 372824710413001

According to the Labor Law of the People’s Republic of China and relevant regulations promulgated by the local government, both parties agree to sign this labor contract on the principle of equality and through amicable negotiation.

I. From the date this contract takes effect, Party B becomes an employee of Party A and the employment relation between both parties is established.

The term of this contract is:

A.   The fixed term is fromJuly 2nd, 2002 to July 1st, 2008.

II. Salaries

During the period of this contract, Party A shall pay Party B for his labor in cash. Party A shall calculate and distribute Party A’s salaries in accordance with:

1.   the regulations of the company’s salary system.

III. Party A’s Responsibilities

1. Party A shall comply with state laws, regulations and policies and shall create a favorable working environment to raise the staff’s enthusiasm and creativity.

2. Party A shall be responsible for instructing and training Party B of political opinions, vocational ethics, production safety, and observance of laws and disciplines as well as rules and regulations of the unit; ensure that its employees enjoy working rights and fulfill working obligations.

3. Party A shall reasonably determine the labor ration and shall pay Party B salaries no lower than the local minimum salary standard. Once the labor relationship is established, Party A shall provide Party B with labor insurance and pay insurance fees for such insurance coverage as endowment insurance, unemployment insurance and work injury insurance.

4. Party A may rescind the labor contract in case that party B:

(1). is proved to be unqualified during the probation period.

(2). severely violates the labor disciplines or Party A’s regulations.

(3). is in serious breach of duty, irregularities of favoritism that do great harm to Party A.

(4). is fired or dismissed by the company or inflicted with criminal liabilities according to laws.

(5). is unable to do the original job or other job arranged by Party A due to Party B’s diseases or non-work related injuries after the expiration of medical treatment period.

(6). is unqualified for the job even after the training or post adjustment.

IV. Party B’s Responsibilities

1. Party B shall comply with state laws, regulations and policies and shall protect national interests and Party A’s interests.

2. Party B shall actively attend the education and training of political opinions and vocational ethics offered by Party A, execute the safety and health regulations and comply with the labor disciplines and vacational ethics.

3. Party B shall accept and finish the production tasks stipulated by Party A, meet the fixed target and continuously improve the professional skills.

4. Party B shall comply with each regulation legally instituted by Party A and obey Party A’s guidance and management.

5. Party B shall comply with personnel adjustment, able to work in any of Party A’s company as required by Party A’s production needs.

6. Party B shall perform the obligations stipulated by laws, regulations and the labor contract.

7. Party B may not rescind the labor contract with Party A under any of the following circumstance:

(1).The training expenditure is paid by Party A but the service period provided in the labor contract is not over yet.

(2).Party B has not finished important tasks of production, management or scientific researches.

(3).Party B’s involvement in economic compensation, economic punishment and administrative sanction is unsettled.

8. To rescind the labor contract, Party B shall inform Party A in written form 30 days in advance..

9. During the contract period or after the rescission of the contract, regardless of being fired because of disobeying the disciplines or rules or leaving the factory privately, Party B shall not do any harm to the company. In case of any offense, Party A is entitled to recover from Party B all the economic loss.

10. The director, supervisor and manager as well as those who are familiar with the company’s management, sales, product exploitation and quality control, etc. or familiar with the commercial secrets and processing technologies, cannot personally or jointly conduct or assist others to conduct the same or similar business or engage any activity harmful to the company’s interests regardless of the reason for their depart.

V. Once the contract period expires, the employment relationship between both parties is terminated. If both parties agree to continue the employment relationship, the contract can be renewed. One party’s decision about contract renewal shall be informed to the other party within 30 days after the contract period expires.

VI. Upon conclusion of the contract both parties shall strictly implement the contract. The party in breach shall pay a penalty of RMB 100,000 (One hundred thousand RMB).

VII. In the process of implementing the contract, if any labor dispute takes place between the two parties, it may be submitted to Party A’s mediation committee of labor disputes for mediation, or be submitted to an authoritative arbitration committee of labor dispute for arbitration; the arbitration decision may be appealed to the local people’s court.

VIII. Other issues unsettled in this contract shall be solved according to the national or provincial regulations. In the absence of national or provincial regulations, the two parties may consult on supplementary provisions.

IX. Other negotiated issues that shall be complied with and implemented will be recorded in the appendix or be regarded as the annex of the contract.

X. The contract takes effect upon both parties seal/signature.

XI. The contract is executed in two originals, with each party holding one original. 

XII. Appendix or Annex

(None)

Party A: Shandong Green Foodstuff Co., Ltd.	Party B: Xiaodong Zhou
(Corporate Seal)	/s/ Xiaodong Zhou
March 2nd, 2005	March 2nd, 2005

EX-10.7

Exhibit 10.7

(English Translation)

Employment Contract

Party A:	Shandong Green Foodstuff Co., Ltd	Legal Representative: Si Chen
Party B:	Huanxiang Sheng	Sex:  Male
Date of Birth:	October 14th, 1971	Education Degree: Associate Degree
Graduation School:	N/A	Major: Accounting

Native Place: JunanCounty, ShandongProvince

ID Number:  372832197110147452

According to the Labor Law of the People’s Republic of China and relevant regulations promulgated by the local government, both parties agree to sign this labor contract on the principle of equality and through amicable negotiation.

I. From the date this contract takes effect, Party B becomes an employee of Party A and the employment relation between both parties is established.

The term of this contract is:

A.   The fixed term is from December 7th, 2004 to December 6th, 2009.

II. Salaries

During the period of this contract, Party A shall pay Party B for his labor in cash. Party A shall calculate and distribute Party A’s salaries in accordance with:

1.   the regulations of the company’s salary system.

III. Party A’s Responsibilities

1. Party A shall comply with state laws, regulations and policies and shall create a favorable working environment to raise the staff’s enthusiasm and creativity.

2. Party A shall be responsible for instructing and training Party B of political opinions, vocational ethics, production safety, and observance of laws and disciplines as well as rules and regulations of the unit; ensure that its employees enjoy working rights and fulfill working obligations.

3. Party A shall reasonably determine the labor ration and shall pay Party B salaries no lower than the local minimum salary standard. Once the labor relationship is established, Party A shall provide Party B with labor insurance and pay insurance fees for such insurance coverage as endowment insurance, unemployment insurance and work injury insurance.

4. Party A may rescind the labor contract in case that party B:

(1). is proved to be unqualified during the probation period.

(2). severely violates the labor disciplines or Party A’s regulations.

(3). is in serious breach of duty, irregularities of favoritism that do great harm to Party A.

(4). is fired or dismissed by the company or inflicted with criminal liabilities according to laws.

(5). is unable to do the original job or other job arranged by Party A due to Party B’s diseases or non-work related injuries after the expiration of medical treatment period.

(6). is unqualified for the job even after the training or post adjustment.

IV. Party B’s Responsibilities

1. Party B shall comply with state laws, regulations and policies and shall protect national interests and Party A’s interests.

2. Party B shall actively attend the education and training of political opinions and vocational ethics offered by Party A, execute the safety and health regulations and comply with the labor disciplines and vocational ethics.

3. Party B shall accept and finish the production tasks stipulated by Party A, meet the fixed target and continuously improve the professional skills.

4. Party B shall comply with each regulation legally instituted by Party A and obey Party A’s guidance and management.

5. Party B shall comply with personnel adjustment, able to work in any of Party A’s company as required by Party A’s production needs.

6. Party B shall perform the obligations stipulated by laws, regulations and the labor contract.

7. Party B may not rescind the labor contract with Party A under any of the following circumstance:

(1).The training expenditure is paid by Party A but the service period provided in the labor contract is not over yet.

(2).Party B has not finished important tasks of production, management or scientific researches.

(3).Party B’s involvement in economic compensation, economic punishment and administrative sanction is unsettled.

8. To rescind the labor contract, Party B shall inform Party A in written form 30 days in advance..

9. During the contract period or after the rescission of the contract, regardless of being fired because of disobeying the disciplines or rules or leaving the factory privately, Party B shall not do any harm to the company. In case of any offense, Party A is entitled to recover from Party B all the economic loss.

10. The director, supervisor and manager as well as those who are familiar with the company’s management, sales, product exploitation and quality control, etc. or familiar with the commercial secrets and processing technologies, cannot personally or jointly conduct or assist others to conduct the same or similar business or engage any activity harmful to the company’s interests regardless of the reason for their depart.

V. Once the contract period expires, the employment relationship between both parties is terminated. If both parties agree to continue the employment relationship, the contract can be renewed. One party’s decision about contract renewal shall be informed to the other party within 30 days after the contract period expires.

VI. Upon conclusion of the contract both parties shall strictly implement the contract. The party in breach shall pay a penalty of RMB 100,000 (One hundred thousand RMB).

VII. In the process of implementing the contract, if any labor dispute takes place between the two parties, it may be submitted to Party A’s mediation committee of labor disputes for mediation, or be submitted to an authoritative arbitration committee of labor dispute for arbitration; the arbitration decision may be appealed to the local people’s court.

VIII. Other issues unsettled in this contract shall be solved according to the national or provincial regulations. In the absence of national or provincial regulations, the two parties may consult on supplementary provisions.

IX. Other negotiated issues that shall be complied with and implemented will be recorded in the appendix or be regarded as the annex of the contract.

X. The contract takes effect upon both parties seal/signature.

XI. The contract is executed in two originals, with each party holding one original. 

XII. Appendix or Annex

(None)

Party A: Shandong Green Foodstuff Co., Ltd.	Party B: Huanxiang Sheng
(Corporate Seal)	/s/ Huanxiang Sheng
December 7th, 2004	December 7th, 2004

EX-10.8

Exhibit 10.8

(English Translation)

Cooperation Agreement for Organic Authentication

of Miyun/Yanshan Chestnut

Party A: Beijing Green FoodStuff Co., Ltd. (hereinafter referred to as Party A)

Party B: Chestnut Cooperative Association, Lizhenzhai Village, Gaoling Town, Miyun County (hereinafter referred to as Party B)

Date: May 18th 2006.

Validity: from May 8th 2006 to December 8th 2014.

(Copyright of this agreement is reserved only to Beijing Green FoodStuff Co., Ltd.)

Article 1 General Provisions

1.   Basis of Authentication: according to relevant policies specified in “Incentive for Development of Urban Modern Agriculture and Increase of Farmers’ Income” issued by the government of Miyun County (Mizhengfa No. [2006] 21) and the developing trend of the chestnut markets both at home and abroad, in order to further improve the competing ability of Miyun Chestnut (Yanshan Chestnut) in the markets both at home and abroad and to take more chestnut market shares, to cultivate and develop the high-class brand of organic chestnut, to raise agricultural productivity and farmers’ incomes, and to make sustainable and healthy development of chestnut production, in the principles of equality and voluntary, mutual benefit and joint development, and after discussions with the cooperative association, this agreement is made and entered into as follows.

2.   Method of authentication: according to the principle of “Renovation of Mechanism and Group Development” set forth in document of Mingzhengfa No.[2006] 21, and in consideration of production and sales of Miyun chestnuts in recent years as well as the construction of chestnut organic food base in the year 2006, the method of authentication is conducted as the market orientation of both the enterprise and the bases.

3.   Main applicant for authentication: Beijing Green Foodstuff Co., Ltd. shall be the main applicant for authentication of organic chestnut growing base, and the chestnut base of Lizhenzhai village, Gaoling town shall be the base to be authenticated, of which total areas are about 1,000 mu(see appendix for numbers of trees, output and distribution of lots).

4.   Authentication body: after checking authentication bodies both at home and aboard, Organic Food Authentication Center of China Administration Bureau of Environment Protection was selected. Fruit Tree Center of Miyun Forest Bureau was selected to provide technical direction, in charge of making the technical enforcing plan for chestnut organic production and of rebuilding measures.

5.   Period: it takes 8 years, starting from May 2006 to December 2014.

6.   Two Parties’ Confirmation: Beijing Green FoodStuff Co., Ltd. is Party A, and the cooperative association that owns the organic chestnut growing base is Party B (hereinafter separately referred to as Party A and Party B). In addition, a general verification team shall be set up, which consists of Miyun Agriculture Committee as the leader and county finance bureau, forest bureau, Goaling Town People’s government and Beijing Green FoodStuff Co., Ltd. as members. The team shall be responsible for daily supervision, examination, instruction and verification.

7.   Use of Special Funds. Party A has the rights to use the authentication fee funds allocated by the government, and Party B has the rights to use funds for the planting and production activities verified by the general verification team. Nevertheless, no fund shall be used for those chestnut growing farms which fail to pass the verification.

8.   Party A shall possess the ownership of using the organic product certificates and logos for chestnut growing farm.

Article 2 Rights, Obligations and Responsibilities of Party A

1.   Party A shall apply for organic authentication of Miyun/Yanshan chestnuts in accordance with the requirements of domestic and international markets and obtain certificates of International (OCIA), Japan (JAS), the United States (NOP), and EU (EU2092/91) and Chinese certificates within 1-3 years.

2.   Party A has the rights to manage and use the certificates, logos of transforming organic chestnut products and the certificates and logos of formal organic chestnuts. Party A shall take costs of authentication and annual inspection. In the events of cut-off, bankruptcy, change or asset transfer occurred to Party A, Party B shall have the rights to use the certificates and logos.

3.   Party A shall take part into examination, supervision and verification of chestnut production, management and technology implementation. It has the rights to participate in and to decide the environmental requirements for the base, the reservation of inter-plants and the training and personnel arrangement of base inspectors.

4.   Determination of the price of organic chestnuts: minimum purchasing price of the first class standard chestnut (110-140 nuts/KG) is 6.20RMB yuan/KG. Whenever market price is over 6.20 yuan/KG, purchasing price of transforming products shall be raised by 5-10% and purchasing price of organic chestnuts shall be raised by 11-20% based on the average price of the markets in Miyun and around. Both parties shall determine the average market price of the current year in Miyun and around.

5.   Party A shall purchase all organic chestnuts from the farms which have passed the verification with the price agreed. However, Party A has the rights to refuse all products from the base, if organic chestnuts are not produced in accordance with organic production standard, or fraud, mixture of poor quality products, or any other willful activities found. Party B shall take all the legal responsibilities and compensate Party A for any economic losses caused by Party B

6.   Party A has the rights to make claims against Party B for the failure to protect and fulfill Party A’s intellectual property rights (including the authentication certificate rights, use rights of logo, copyright of the contract). In such circumstance, 100,000 yuan of penalty shall be charged to Party B for each breach and Party A has the rights to terminate the agreement and claim against Party B.

Article 3 Rights, Obligations and Responsibilities of Party B

1.   Party B shall carry out production management to chestnut growing farmers in accordance with the requirements of organic production management and technical measures and 6 unifications so as to ensure the conduct of authentication to process as planned. In detail, the 6 unifications are unified organization and training, unified growth of inter-plants, unified format of production record, unified collection, purchase, classification, coding storage of the products, independent freight settlement, unified execution of product quality commitment letter with farmers, and unified implementation of technical measures.

2.   Subject to local farming activities and seasons, Party B is obligated to positively complete all kinds of organic production in accordance with requirements of schedule, quality and quantity. It shall conduct internal production check pursuant to organic production standard.

3.   Party B shall accept supervision, check, management and verification done by Party A, the authentication center, the Fruit Tree Center of Miyun Forest Bureau and the general verification team and so on. It shall also submit party A relevant reports, internal check records or restructuring measures requested by authentication body or authorities.

4.   Party B shall strictly abide by the “Rule on Technology of Organic Food’s Production” to make sure that all goods put into the production in the base are in accordance with the requirements. and ensure the quality, quantity and time schedule. No non-organic goods are used. In case that Party A finds any fraud done by Party B, it has the rights to refuse to sign the acceptance letter.

5.   Party B shall, with spirits of honesty, provide Party A with organic transforming chestnuts or organic chestnuts. No mixture of organic chestnuts with normal chestnuts is allowed. Without consent of Party A, Party B shall not sell the products to others. In the event of finding so, Party A has the rights to refuse to purchase Party B’s products.

6.   Party B shall promptly complete quantity of organic chestnuts as planned by Party A. All chestnuts purchased by Party A shall be classified under international and domestic criterions or Party A’s standard and prices shall be determined as per quality. Party A shall not refuse qualified products and lower classification or reduce price. In such circumstance, Party B has the rights to claim against Party A.

7.   Payment terms. Party B shall be responsible for sending qualified chestnuts to Party A’s factory. After receiving the products, Party A shall make payment. In the event of delayed payment, penalty shall be charged to Party A at basis of the current interest rate of the bank.

Article 4 Liabilities

In case that any party breaches the agreement during term of the agreement and economic loss is caused to the other Party, the parties shall solve it by negotiation. In the event of failure, any party has the rights to submit it to Miyun court for judgment.

Article 5 Miscellaneous

1.   This agreement is written in four copies, of which each party holds one copy, and one copy is filed to the County Agriculture Committee and one copy is filed to the Fruit Center of Forest Bureau. This agreement shall become effective at the date of signatures and stamps affixed by both Parties.

2.   Pending matters, or supplementary shall be agreed by both parties.

Party A: Beijing Green FoodStuff Co., Ltd.

(Corporate Seal)

Authorized Representative: /s/ Lantao Li

Date: May 18th 2006

Party B: Chestnut Cooperatives of Jiazhenzhai Village, Gaoling Town, Miyun County

(Corporate Seal)

Legal representative: /s/ Xianfu Li

Date: May 18th, 2006

EX-10.9

Exhibit 10.9

(English Translation)

Equity Transfer Agreement

The Transferor: INTERNATIONAL LAOAN CO., LTD.

(Hereinafter referred to as “Party A”)

The Transferee: International Lorain Holding, Inc.

(Hereinafter referred to as “Party B”)

The agreement is entered into by and between Party A and Party B after thorough negotiation.

Article 1 The parties of this agreement are:

1. The Transferor: INTERNATIONAL LAOAN CO., LTD.

Address: Road Town, British Virgin Islands

Legal Representative: Si Chen

Nationality: China

2. The Transferee: International Lorain Holding, Inc.

Address: 4F, Scotia Center, George Town, Cayman Islands

Legal Representative: AKAZAWA HISASHI

Nationality: Japan

Article 2 Party A agrees to transfer to Party B its equity interest in Shandong Lorain Foodstuff Co., Ltd., which accounts for 25% of the registered capital thereof and amounts to 3,154,470 USD (equivalent to 25,220,000 RMB).

Article 3 Party B shall pay to Party A transfer price by credit transfer at the sum and in the currency set forth in Article 2 in three installments within 90 days after this agreement takes effect.

Article 4 Party B shall possess all rights and undertake all obligations of Party A stipulated by the Articles of Association of Shandong Lorain Foodstuff Co., Ltd.

Article 5 If this agreement cannot be wholly or partially performed due to one party’s fault, the defaulting party shall assume liabilities for breach of the agreement. If the unenforceability is caused by both parties’ fault, the two parties shall assume their respective liabilities according to the actual conditions. The Conclusion, effect, interpretation, performance and settlement of disputes of this agreement shall be governed by the laws of the People’s Republic of China. When dispute occurs, the two parties shall consult amicablyto settle the dispute. If the two parties fail to solve the dispute through negotiation, the dispute may be submitted to the People’s Court of Junan County.

Article 6 This agreement is executed in the office of Shandong Lorain Foodstuff Co., Ltd. on August 15, 2006.

This agreement takes effect upon signature of the two parties thereof.

Party A: INTERNATIONAL LAOAN CO., LTD.

(Corporate Seal)

Legal Representative: (Si Chen)

/s/ Si Chen

Party B: International Lorain Holding, Inc.

(Corporate Seal)

Authorized Representative: (AKAZAWA HISASHI)

/s/ Hisaashi Akazawa

Date August 15, 2006

EX-10.10

Exhibit 10.10

(English Translation)

Contract Number: (2006) Jie Zi No. 0154

Credit Facility Agreement

The Creditor: Shilibao Branch of Beijing Rural Commercial Bank Co., Ltd. (hereinafter referred to as “Party A”)

Address: East of Shilibao Government, Miyun County, Beijing

Postal Code: 101500

Principal Person: Lianjun Yu

Telephone: 69044918

Fax: 69054735

The Debtor: Beijing Green Foodstuff Co., Ltd.(hereinafter referred to as “Party B”)

Address: Technical Road, Industrial Development District, Miyun County, Beijing Postal Code: 101500

Principal Person: Yundong Lu

Telephone: 69075881

Fax: 61085771

Deposit Bank: Shilibao Branch of Beijing Suburban Commercial Bank

Account Number: 1206000103000005058

Credit Card Number: 110100000469658901

This contract is hereby concluded by and between Party A and Party B, on the principle of equality, free will and good faith and through amicable consultation in accordance with relevant laws and provisions of China.

Article 1 Loan Classification

1. Party A agrees to provide short-term loan to Party B according to this contract.

Article 2 Purpose of the Loan

2. The loan under this contract is to be used for repaying the loan of No. 3362 in 2005; without written approval of the Creditor, the Debtor may not use the loan for other purposes.

Article 3 Amount and Term of the Loan

3. The loan amount herein is fourteen million eight hundred and fifty thousand Yuan, and the currency is Renminbi (RMB) .

1

4. The period of this loan is from September 28, 2006 to September 27, 2007.

Before the execution of the contract, if Party B needs to extend the loan period, a written application for extension shall be submitted to Party A at least 30 days before expiration of the contract; Upon approval by Party A, the two parties shall sign the Agreement for Term Extension.

Article 4 Calculation of Interest

5.

5.1 The monthly interest of this loan is 7.65 ‰ within the contract period.

5.2 Once the principal herein is put into Party A’s account according to the fixed time in Subparagraph 6, Party A is regarded to have lent the money and Party B has borrowed it. The interest calculation for this loan commences. On condition that the actual lending date is not consistent with the fixed date of the contract, the date hereof can be determined in accordance with the date in the due bill or loan warrant. The due bill or loan warrant is part of this contract and is provided with the same validity.

5.3 The interest settlement date of each loan hereof is on the 20^th of the each quarter.

5.4 The manner of interest accrual is monthly interest (monthly interest or quarterly interest or paying back the principal plus interest).

5.5 In the event that the Debtor fails to pay the interest on time, the compound interest will accrue according to the original interest thereof. Moreover, the compound interest that is calculated according to the penalty interest if the loan repaid is overdue.

5.6 In case the loan repaid is overdue, an overdue penalty for 130% of the overdue amount per day will be collected on the base of the interest stipulated in Subparagraph 5.1.

5.7 During the loan term, in case the People’s Bank of China adjusts the loan interest rate and manner of interest calculation, which is applicable to the loan herein, Party A is not obliged to inform Party B and can conduct the adjustments according to relevant provisions of People’s Bank of China.

Article5 Draw-down

6. Party B shall draw the loan:

·  in one lump sum on September 28, 2006

·  for several times according to the time and amount stipulated in Annex 2.

2

Article 6 Repayment of Loan

7.

7.1 Party B shall repay the principal:

·  in one lump sum on the due date

·  at the amount and on the date listed in Annex 2.

7.2 Party B shall prepare sufficient money for the payable interest and principal in the account opened by Party A before the stipulated interest settlement date and interest payment date, or transfer the money from other accounts for repaying the loan on the interest payment date herein. In the event that Party B fails to repay the loan, Party A is entitled to deduct the debt from the bank account of Party B at Party A’s branches or empower the branches of Party A to deduct the debt from the bank account of Party B at Party A’s branches, including but not limited to principal, interest, compound interest and penalty interest.

7.3 Unless otherwise expressly provided for herein, the payment made by Party B shall be used for repaying the interest at first and then for repaying the principal within 90 days from the expiration; in case of exceeding 90 days, repay the principal at first and then the interest.

7.4 In the event that Party B is going to prepay the interest, a written notice shall be sent to Party A; in case of prepaying the principal, Party B shall send a written application to Party A 10 working days in advance, and repay the installment of or total principle if approved.

7.5 If Party A approves Party B to prepay the installment of or total principal, Party A will charge the interest from Party B according to the actual using days and the stipulated interest rates hereof, and Party B shall pay to Party A the penalty calculated by the formula below:

Penalty= prepayment amounts ×____‰₀× days ahead

8.

8.1 If Party B fails to use the loan in accordance with the stipulations set forth in this contract, or to repay the interest or principal on schedule, Party A shall have the right to announce that all the loans are due, and draw back all the granted loans ahead of schedule and cease to grant the loan.

8.2 During the term of the contract, if any deficiency or obligation dispute or guaranty damage or ruins occur caused by Party B’s poor management, Party A can cease to grant the loan and draw back part of or total loans ahead of schedule.

8.3 In case Party B provides any false balance sheet, income statement or refuse to accept Party A’s supervision on the loan use, production, management and finical activities, Party A can cease to grant the loan and draw back part of or total loans ahead of schedule.

3

8.4 In case Party B fails to implement or undertake any assumed obligation hereof, Party A can cease to grant the loan and draw back part of or total loans ahead of schedule, and is authorized to take corresponding measures.

Article 7 Guaranty

9. In order to guarantee the loans herein can be liquidated; one or some guaranties are taken hereunder:

·  Contract Number (2006) (Guarantee), Number (0154) Guarantee Contract

·  Contract Number (             ) (              ), Number (              )

·  Contract Number (              ) (              ), Number (              )

Party B confirms herein, that Party A has rights to carry though each right listed in Guaranty hereof to indemnify Party A’s claims and give up any deraignment against Party A’s choice above.

If the guaranties hereof become deteriorated to Party A’s claims for liability, Party A shall have the right to request Party B to provide mortgage and pawn secured for this load under this contract.

Article 8 Rights and Obligations of Both Parties

10. Party B’s rights and obligations are as follows:

10.1 Drawing and using the loan according to the stipulated term set forth in the contract.

10.2 Guaranteeing the loan use of answering for law, rules as well as administrative regulations, and attaining the admission and authorization concerned.

10.3 Providing Party A with the true and valid documents and materials in the process of loan checkup.

10.4 Accepting the investigation and supervision on the loan use hereof from Party A.

10.5 Providing active assistance and cooperation for Party A’s investigation and supervision on production, management as well as financial status, and provide Party A with financial statements of balance sheet, incoming statement and statement of cash flow, moreover, be liable for the truth, completeness and validity of the provided materials.

10.6 During the term of the contract, in case of off production, out of business, business license’s revocation, commitment of crimes by the legal representative or directors, production and business in difficulty, deterioration of financial status and bankruptcy as well as any serious circumstances unfavorable to implementing the repaying obligations, a written report should be submitted to Party A; Party B shall fulfill the liquidating of the debts and guaranties in accordance with Party A’s requirements of the contract..

4

10.7 In the case of Party B’s amalgamation, separation, lease, assets alienation, affiliation, investment, joint venture, capital reduction, shareholding alteration and other alteration of credits and debts as well as activities influencing Party A’s interests, a written form should be sent to Party A prior to 30 days for approval and liquidate the liability as well as guaranties hereof according to Party A’s requirements; or else, the activities above must not be carried through before liquidating all the loans and interest hereof.

10.8 During the term of contract, in case of Party B’s alteration on the industrial and commercial registration items of the legal representative, location, business scope, a written form should be submitted to Party A within 10days after the alterations.

10.9 Before liquidating the principal and interest to Party A, Party B cannot provide the guaranties that exceeds the self-burden capacity to others.

10.10 On condition that Party B has to transfer the liability hereof to the third party, he must gain the literal agreement from Party A.

10.11 Party B should undertake the expenses herein, including but not limited to the expenses used for notarization, appraisal, registration and insurance.

10.12 For loan guarantor, in case of off-production, out-of-business, registration cancellation, business license’s revocation, bankruptcy, business deficiency, part of and all the guarantee capacity loss, as well as value reduction or being damaged or ruined by damage on guaranty and pledge, Party B should inform Party A in a written form in time and provide Party B with other mortgage and pawn secured for the loan.

11. Party A’s Rights and obligations are as follows:

11.1Party A has taken all necessary actions to authorize the execution of the contract.

11.2 Party A shall grant the loans on schedule in accordance with the provisions set forth in the contract.

11.3 Party A is liable for securing the materials about liability, finance, production and management (except otherwise herein or law provided).

11.4 Party A has the right to directly deduct the payable principal, interest, penalty interest, compound interest and other payable expenses from Party B’s accounts at Party A’s or Party A’s branches.

5

11.5 In the event that Party A has to transfer the liability hereof to the third party, it can go without Party B’s approval but should inform Party B within 15 days when the transfer contract for claims is signed.

16. Party A is entitled to notify Party B’s behaviors of escaping from supervision, defaulting principals and interest to the relevant department or unit, and to proclaim it on the media for collecting the debt back.

Article 9 Liability for Breach of Contract

12.

12.1 After the contract takes effect, both parties should completely implement the obligations hereof. Any nonperformance or improper performance of obligations shall undertake the liability for breach of contract, if any breach.

12.2 In the event that Party B fails to repay the due principal and pay the interest in accordance with the agreed term of this contract, Party A is entitled to require Party B to liquidate in a limited term, and ask for penalty interest and compound interest in accordance with the stipulations herein.

12.3 In the case of a lawsuit submitted by Party A due to Party B’s breach of contract, Party B should undertake all the legal costs, counsel fees, travel charge as well as other expenses for attaining the claims.

12.4 If Party B has completely performed the contract, and Party A fails to provide Party B with loans as stipulated, Party B has the right to claim for penalty stipulated in Clause5.1 herein by right of breach amounts and actual overdue days.

12.5 If Party B fails to use the loan as stipulated, Party A is entitled to draw back part of or total loans ahead of schedule, and cease to provide the rest loans. Penalty interest and compound interest are calculated for those overdue loans.

12.6 In case of failure to implement the obligations listed in Clause 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8 by Party B, some remedies must be taken within 10 days after receiving Party A’s notification, otherwise, Party A has rights to draw back part of or total loans ahead of schedule, and cease to provide the rest loans. Penalty interest and compound interest are calculated for those overdue loans.

Article 10 Execution of Contract

6

13. The contract comes into force in the way hereunder:

· It is signed and sealed officially by each party’s legal representative (directors), or the agents thereof (the power of attorney is regarded as an annex hereof).

· It is signed and sealed officially by each party’s legal representative (directors), or the agents thereof (the power of attorney is regarded as an annex hereof), and takes effect after the guaranty contract comes into force stipulated in Subparagraph 9.

Article 11 Amendment, Cancellation and Termination of Contract

14.

14.1 Once the contract takes effect, unless there are additional stipulations, both parties must not amend or cancel the contract ahead of schedule. In case it is necessary to amend or cancel the contract, consistent negotiations as well as a written agreement shall be reached.

14.2 The contract is completely performed in accordance with the stipulations hereof until the principal, interest, penalty interest, compound interest and penalty as well as other related expenses are liquidated.

Article 12 Settlement of Disputes

15. Any dispute occurring between both parties about the contract can be settled through amicable negotiation; in case the two parties fail to reach an agreement, any party may submit the dispute to the court with jurisdiction where Party A is located.

Article 13 Miscellaneous Provisions

16. Other special items will be listed hereunder: None.

17. There are 2 originals of this contract, and each party will hold 1 original, which is equally valid.

18. The contract is signed in ShiliBao Branch, Beijing Rural Commercial Bank on September 13, 2006. Party A has the introduction on the noticeable clauses.

Party A (official seal) Shilibao Branch of Beijing Rural Commercial Bank Co., Ltd.

Representative /s/ Yu Lian Jun

September 13, 2006

Party B (official seal) Beijing Green Foodstuff Co., Ltd.

Legal representative /s/ Li Lantao

September 13, 2006

7

Attachment one: Manner for Party B to Draw-down

No.	Date for Draw-down	Sum (capitalized)
1	Sep.28th, 2006	14.85 million Yuan

8

EX-10.11

Exhibit 10.11

(English Translation)

Shandong Green Foodstuff Co. Ltd.

Sales Contract

Contract No.: 20060513

Date: May 13^th 2006

Place: Junan

The Seller: Shandong Green Foodstuff Co. Ltd.

Address: Bei Huan Zhong Road, Junan County, Shandong, China

The buyer: Shandong Green Safety Import and Export Co. , Ltd.

The two parties hereby enter into the following provisions through friendly consultation in accordance with the Contract Law of the People’s Republic of China:

Article One: Name and Specifications of the Product

Name	Specification	Unit price	Quantity	Price	Time of delivery
Chestnut In Syrup	9L/Tin	120RMB	80000tins	RMB 9,600,000.00	Time of delivery: from May 13, 2006 to December 12, 2006. To be delivered in 7 installments on the 10th day of the second month since signature of the contract and of every subsequent month, Quantity of delivery is 1/7 of the total quantity of every variety. Pay on Delivery (P.O.D). 2% of over or short of payment and delivery is allowed.
Frozen Bottom-open Chestnut in Shell	Kilogram	15 RMB/kg	100tons	RMB 1,500,000.00
Lorain chestnut	100g×16 bags/box	80 RMB/box	18400boxes	RMB 1,472,000.00
YueGuang Rice	5kg/bag	45 RMB/box	8000bags	RMB 360,000.00
Egg Food	350×240 bags/box	70 RMB/box	3000 boxes	RMB 210,000.00
Alga Nutrient Egg	52/box	60 RMB/box	75000 boxes	RMB 4,500,000.00
The Sweet Heart Chestnut	100g×16 bags/box	80 RMB/box	34600 boxes	RMB 2,768,000.00
In total: twenty million four hundred and ten thousand RMB				RMB 20,410,000.00

Article two: Quality Requirement: To be in conformity with national food standards as well as with the sample provided.

Article three: Place of Delivery/Receipt: Junan County, Shandong Province

Article four: Transport Cost is to be assumed by the seller.

Article five: Standard for Acceptance: Trade standard of the People’s Republic of China shall be applied.

Article six: Settlement Method: Upon signature of the contract, the buyer shall pay the seller 10% of total price as advance payment. The rest payment shall be made upon delivery of the product.

Article seven: Liability for Breach of Contract: Except for force majeure, if the Seller fails to supply the product or the Buyer returns the product after receipt, the party in breach shall pay to the other party liquidated damages constituting 25% of the total price. If the liquidated damages is insufficient to make up the loss, the other party may claim for further compensation.

Article eight: Methods for Settling Contractual Disputes: All disputes arising in connection with this contract or the execution thereof shall be settled by way of amicable negotiation. If the two parties fail to solve the disputes through negotiation, the disputes may be submitted to the relevant legal authority with jurisdiction where the Seller is located in accordance with the Contract Law.

The period of validity of this contract is from May 13^th, 2006 to December 12^th, 2006.

This contract takes into effect upon signature and fax by the both parties.

The Sellers: Shandong Green Foodstuff Co. Ltd.

(Corporate Seal)

Authorized Representative /S/ Chen Si

The Buyers: Shandong Green Safety Import and Export Co. Ltd.

(Corporate Seal)

Authorized Representative /S/: Ji Zhenwei

EX-10.12

Exhibit 10.12

(English Translation)

SHANDONG GREEN FOODSTUFF CO.,LTD.

Sales Contract

Contract No: SHINSEI-5

Date: SEP 5, 2006

The Seller: SHINSEI FOODS CO., LTD.

The Seller and Buyer have agreed to close the following transactions according to the terms and conditions stipulated as below:

1 Commodity description	2 Packing	3Quantity	4 Unit Price	5 Amount
PEELED CHESTNUTS PRODUCTS	18L	70000.00CAN	FOB	USD 3520000.00
TOTAL AMOUNT IN WORD: U.S.DOLLARS THIREE MILLON FIVE HUNDRED TWENTY THOUSAND ONLY.

6. Time of Delivery: NOV 30, 2006

7. Port of Loading: QINGDAO PORT

8. Port of Destination: JAPAN PORT

9. Shipping marks: N/M

10. Terms of Payment: L/C

11. Insurance: to be effected by BUYER .

12. 5 % more or less in quantity and amount is allowed.

13. Quality/quantity claims: if any, quality claims should be sent to the Seller in written form during next 14days after discharging of merchandise; quantity claims should be sent to the Seller in written form during next 3 days after discharging of merchandise.

15. Responsibilities of the parties: In case of either party’s refusal of performance of the present contract, it pays the other party the penalty of 25% of the amount of the covered goods and restitutes the relative losses in spite of the penalty.

16. Force Majeure: The Seller shall not be held reliable for failure or delay in delivery of the covered cargo or a portion under the present contract in consequence of any force majeure incidents.

17. Arbitration: All dispute, if any, arising form or in connection with the performance of the contract shall be settled through friendly discussion/negotiation by both parties. otherwise, to be presented to the China Relevant Authorities for arbitration, and the decision is the final for both parties.

18. Other: As per the Popular Practice and Uniforms of the International Trade.

The buyer: Shinsei Foods Co., Ltd.

President: /s/ Teruyoshi Kanbara

The seller: Shandong Green Foodstuff Co., Ltd.

/s/ Chen Si

EX-10.13

Exhibit 10.13

(English Translation)

JUNAN HONGRUN FOODSTUFF CO., LTD.

Sales Contract

Contract No: HR073502B

Date: 10,SEP.2006

The Buyer: SHINSEI FOODS CO., LTD.

The Seller: JUNAN HONGRUN FOODSTUFF CO., LTD.

The Seller and Buyer have agreed to close the following transactions according to the terms and conditions stipulated as below:

1 Commodity description	2 Packing	3Quantity	4 Unit Price	5 Amount
PEELED CHESTNUTS PRODUCTS	18L/ 12.5KG/CAN	361MT	FOB QINGDAO USD5000.00/MT	USD1,805,000.00
Total amount: USD:ONE MILLION EIGHT HUNDRED AND FIVE THOUSAND ONLY

6. Time of Delivery: BEFORE.30,DEC.2006

7. Port of Loading: CHINA PORT

8. Port of Destination: JAPAN PORT

9. Shipping marks: N/M

10. Terms of Payment: BY T/T

11. Insurance: to be effected by The Buyer .

12. 5 % more or less in quantity and amount is allowed.

13. Quality/quantity claims: if any, quality claims should be sent to the Seller in written form during next 14days after discharging of merchandise; quantity claims should be sent to the Seller in written form during next 3 days after discharging of merchandise.

14. Responsibilities of the parties: In case of either party’s refusal of performance of the present contract, it pays the other party the penalty of 25% of the amount of the covered goods and restitutes the relative losses in spite of the penalty.

15. Force Majeure: The Seller shall not be held reliable for failure or delay in delivery of the covered cargo or a portion under the present contract in consequence of any force majeure incidents.

15. Arbitration: All dispute, if any, arising form or in connection with the performance of the contract shall be settled through friendly discussion/negotiation by both parties. otherwise, to be presented to the China Relevant Authorities for arbitration, and the decision is the final for both parties.

17. Other: As per the Popular Practice and Uniforms of the International Trade.

The buyer: Shinsei Foods Co., Ltd.

President: /s/ Teruyoshi Kanbara

The seller: Shandong Green Foodstuff Co., Ltd.

/s/ Chen Si

EX-10.14

EXHIBIT 10.14

FINANCIAL ADVISORY AGREEMENT

THIS FINANCIAL ADVISORY AGREEMENT (“Agreement” or “FAA”) is made and entered into on the 14^th of February, 2007, by and between HFG International, Limited, a Hong Kong corporation (“HFG”), and Shan Dong Green Foodstuff Co., Ltd., a P.R.C. corporation (the “Company”).

W I T N E S S E T H:

WHEREAS, the Company desires to engage HFG to provide certain financial advisory and consulting services as specifically enumerated below commencing as of the date hereof related to the Restructuring, the Going Public Transaction and the Post-Transaction Period (each as hereinafter defined), and HFG is willing to be so engaged; and

WHEREAS, HFG will also advise the Company with regard to matters related to their efforts to complete a capital raising transaction generating targeted gross offering proceeds of $20million USD (the “Financing”).

NOW, THEREFORE, for and in consideration of the covenants set forth herein and the mutual benefits to be gained by the parties hereto, and other good and valuable consideration, the receipt and adequacy of which are now and forever acknowledged and confessed, the parties hereto hereby agree and intend to be legally bound as follows:

1.Retention. As of the date hereof, the Company hereby retains and HFG hereby agrees to be retained as the Company’s exclusive financial advisor during the term of this Agreement. The Company acknowledges that HFG shall have the right to engage third parties to assist it in its efforts to satisfy its obligations hereunder. In its capacity as a financial advisor to the Company, HFG will:

A.   Restructuring and Going Public Transaction.

(i)consult on the implementation of a restructuring plan (the “Restructuring”) resulting in an organizational structure that will allow the Company to complete the Going Public Transaction; and

(ii)assist the Company in evaluating the manner of effecting a going public transaction with a public shell corporation (“Pubco”) domiciled in the United States of America and quoted on the “OTC BB” (a “Going Public Transaction”). HFG and the original Pubco shareholders shall hold, in the aggregate, 6.5% of Pubco’s issued and outstanding common stock upon completion of both the Financing and the Going Public Transaction (the “Pubco Shareholders Ownership Percentage”). In the event that Pubco, on a consolidated basis with the Company, reports in its Annual Report filed with the U.S Securities and Exchange Commission, net income of $12.5 million for fiscal 2008, HFG shall return to the Company for cancellation that number of shares that will reduce the Pubco Shareholders Ownership Percentage to 5.6%. At the closing of the Going Public Transaction, HFG shall place into escrow, which escrow shall be governed by a definitive escrow agreement, the number of shares of Pubco’s common stock that will be necessary to allow it to satisfy its obligations under this paragraph.

FINANCIAL ADVISORY AGREEMENT - Page 1

B.   Post Transaction Period

Upon consummation of the Going Public Transaction, HFG agrees to:

(i)coordinate and supervise a training program for the purpose of facilitating new management’s operation of Pubco (the Company agrees that all costs and expenses charged by third party consultants introduced by HFG and engaged by the Company will be the sole responsibility of the Company);

(ii)if necessary, coordinate the preparation by the Company’s legal counsel of an information statement to be filed with the SEC to change Pubco’s name and to in turn assist in obtaining a new CUSIP number and stock symbol for Pubco;

(iii)oversee third party development by third parties of Pubco’s investor relations efforts, which effort shall include (a) establishing a program for communicating with brokerage professionals, investment bankers and market makers; and (b) creating a complete investor relations strategy to be implemented in English and Chinese. The Company agrees that all costs and expenses charged by investor relations and press relations firms introduced by HFG and engaged by Pubco or the Company will be the sole responsibility of the Company;

(iv)coordinate with the Company’s legal counsel in the preparation and assembly of application materials for the listing of Pubco’s common stock on a national exchange or quotation medium that may include, but shall not necessarily be limited to, the American Stock Exchange or the NASDAQ Stock Market; and

(v)Provide Pubco with such additional financial advisory services as may be reasonably requested, to the extent HFG has the expertise or legal right to render such services.

2.Financing and Financing Conditions. The Financing will be accomplished under terms and conditions that are mutually agreeable to the issuer and the investors. HFG will seek to have the Company receive a post money valuation of at least 11X its audited 2006 net income. It is anticipated that the Company will pay investment bankers involved in the transaction a commission equal to 7% of the capital raised in the Financing along with warrants to purchase Pubco’s common stock, the terms of which to be agreed upon by the Company prior to the closing of the Financing. HFG will complete the Financing within one month after the Company’s independent auditor signs the final audit report.

The Company acknowledges that the closing of a Financing will be contingent upon (a) the agreement of the Company’s shareholders to enter into a Make Good Escrow Agreement whereby they shall agree to place into escrow an agreed upon number of shares of Pubco’s common stock that they will receive upon the closing of the Going Public Transaction that shall be delivered to investors in the Financing in the event that the Financing is completed before July, 2007, and the Company fails to report a 60% increase in net income for fiscal 2007 over fiscal 2006, (b) the Company’s commitment to ensure that Pubco files a registration statement with the U.S. Securities and Exchange Commission for the purpose of registering the Pubco shares held by HFG or its assignees, the shares purchased in the Financing, or any security for which the purchased shares are exchanged, for resale, with offering proceeds not to be released from escrow until the registration statement is filed, (c) consummation of the Going Public Transaction in accordance with this FAA, (d) the agreement by the Company that $300,000 of the net proceeds of the Financing will be placed into escrow and used for financial public and investor relations activities and the engagement of a US domiciled spokesperson(s), recommended by HFG and confirmed by Company, for a period of at least 12 months following the closing of the Financing and (e) the agreement of the Company to have HFG act as its exclusive advisor for any capital raising transactions undertaken by Pubco following the closing of the Going Public Transaction.

FINANCIAL ADVISORY AGREEMENT - Page 2

3.Non-circumvent. The Company agrees that in the event that this Agreement is terminated for any reason, other than upon the completion of a Financing, it shall not enter into discussions or negotiations with or close a financing, regardless of terms, with any party introduced by HFG as a possible investor or placement agent for the Financing, each of which shall be listed on Schedule “A” to this Agreement at the time of introduction, for a period of one year following the date of termination of this Agreement.

4.Authorization. Subject to the terms and conditions of this Agreement, the Company hereby appoints HFG to act on a best efforts basis as its exclusive consultant during the Authorization Period (as hereinafter defined). HFG hereby accepts such appoint, with it being expressly acknowledged that HFG is acting in the capacity of independent contractor and not as agent of either the Company, affiliates of the Company resulting from the Restructuring, or Pubco.

In addition, except in the event of an act constituting either willful misconduct or gross negligence on the part of HFG, the Company agrees that it will not hold HFG responsible in the event that either the Restructuring, the Financing or the Going Public Transaction is not consummated, nor shall it hold HFG liable for any damages suffered by the Company as a result of the Company’s inability to consummate either the Restructuring, the Financing or the Going Public Transaction. However, in the event HFG commits an act constituting either willful misconduct or gross negligence which makes it impossible to complete either the Financing or the Going Public Transaction, HFG shall indemnify the Company against all costs, including legal, accounting and other fees and expenses, arising from the Company’s efforts to complete the Financing and the Going Public Transaction. It is expressly acknowledged by the Company that HFG shall not render legal or accounting advice in connection with the services to be provided herein. HFG shall have the right to recommend the legal and accounting professionals for the transactions contemplated herein.

5.Authorization Period. HFG’s engagement hereunder shall become effective on the date hereof (the “Effective Date”) and will automatically terminate (the “Termination Date”) on the first to occur of the following: (a) either party exercises their right of termination as provided for in this FAA, (b) the Company’s breach of its covenants herein, or (c) 12 months following the completion of the Going Public Transaction. This Agreement may be extended beyond the Termination Date if both parties mutually agree in writing. Except as to certain obligations of the Company under Section 3. hereof, this Agreement shall also terminate immediately upon the mutual decision of the parties not to move forward with the Restructuring, the Financing or the Going Public Transaction.

FINANCIAL ADVISORY AGREEMENT - Page 3

6.Fees and Expenses. On the closing date of the Going Public Transaction, the Company shall pay to HFG the fee of $450,000.

In addition, the Company shall reimburse HFG for all documented travel and lodging expenses incurred by HFG personnel during the term of this Agreement. Reimbursement is to be made within 10 days of receipt of a written request for reimbursement submitted to the Company.

7.Due Diligence and Auditabilty. HFG shall have the right to perform a due diligence investigation of the Company that demonstrates to HFG’s sole satisfaction that the Company is a suitable candidate for the Going Public Transaction, which due diligence investigation shall include consultation with the Company’s independent audit firm regarding the auditablity of the Company in accordance with US GAAP. HFG shall have the right to terminate this Agreement in the event it determines that there exists a material and non-curable due diligence matter. The Company shall also have the right to perform a due diligence investigation of Pubco.

8.Governing Law. This Agreement shall be governed by the laws of the Peoples Republic of China and any dispute arising hereunder shall be submitted for binding arbitration to the China Foreign Trade Commission Arbitration Committee in Shanghai.

It is understood that this Agreement will be prepared and executed in both the English and Chinese languages. If a dispute arises as to the interpretation of a particular provision of this Agreement because of differences between the Chinese and English languages, the dispute shall be resolved in accordance with the Chinese version.

FINANCIAL ADVISORY AGREEMENT - Page 4

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

HFG:
HFG International, Limited
By:	Timothy P. Halter
	Timothy P. Halter,
	Its:President

The Company:
Shang Dong Green Foodstuff Co., Ltd.
By:	Si Chen
	Si Chen
	Its:Chairman

FINANCIAL ADVISORY AGREEMENT - Page 5

SCHEDULE A

NAME OF POTENTIAL INVESTOR	DATE INTRODUCED
Granite Global Ventures	2007-1-20
Hua-Mei 21st Century	2007-1-20
Sumitomo Corporation Equity Asia	2007-1-20

FINANCIAL ADVISORY AGREEMENT - Page 6

EX-10.15

Exhibit 10.15

(English Translation)

CONSULTING AGREEMENT

This Consulting Agreement (this "Agreement") is entered into as of March 8, 2007 by and between the International Lorain Holding Inc. a holding company organized under the laws of the Cayman Islands, (”Lorain"), and Heritage Management Consultants, Inc., a corporation organized under the laws of South Carolina, USA (“Heritage” or "the "Consultant").

RECITALS

1. Consultant is willing to provide to Lorain and its affiliated companies (collectively, the “Company”) the consulting services identified in this Agreement.

2. Lorain is willing to engage Consultant as an independent contractor, and not as an employee, on the terms and conditions set forth herein.

AGREEMENT

In consideration of the foregoing and of the mutual promises set forth herein, and intending to be legally bound, the parties hereto agree as follows:

1.Engagement. Lorain hereby engages Consultant as an independent contractor to provide outsourced professional management services for the purpose of assisting the Company in its reverse merger transaction and in meeting its obligations as a US publicly traded company. Heritage will provide an executive who will act as the Company’s U.S. based executive (the “Spokesperson”) to the U.S. financial markets, and who will be supported by the Heritage staff. The scope of work includes the following:

·   The Spokesperson will be supported by a staff financial analyst.

·   Heritage representative(s) will visit the Company’s location(s) to conduct a detailed analysis of the Company in order to gain an understanding of the Company’s operations, strategies and financial projections.

·   Heritage will develop an investor presentation for use in any transactions.

·   Heritage will review and suggest edits to any written business plans in the English language that will be used for any transaction.

·   Heritage will provide consultation to the Company during all fund raising activities during the term of the engagement. The Spokesperson will make “one on one,” web cast and teleconference presentations to investment banks and potential investors on behalf of the Company with the Company’s executive management in attendance. Heritage staff will coordinate communications between investment banks, investors and the Company.

·   Heritage staff will assist the company in the construction of both historical and projected financial models appropriate for use with the investment community. Heritage staff will conduct a detailed review of the financial projections for any potential issues prior to their release to the investment community.

·   On an ongoing basis, Spokesperson will be available to make “one on one” presentations, web cast presentation and teleconference updates to current investors, potential investors, and the analyst community as appropriate

·   Spokesperson will participate in investor conferences, as appropriate.

·   Spokesperson will conduct quarterly investor conference calls, as appropriate.

·   Spokesperson and the Heritage staff will be readily available to receive inquiries and coordinate responses to potential and current investors, buy and sell side analysts, the financial press, and the Securities and Exchange Commission.

·   Heritage will work with the Company on proactively analyzing, identifying potential issues or areas of concern and constructing responses to potential questions which may result from the Company’s quarterly financial results.

·   Heritage can assist the Company in interviewing; selecting and retaining an investor relations firm.

·   Heritage will solicit independent research coverage with the sell side analyst community.

·   Heritage will review all press releases on financial results and material company events.

·   Heritage will assist the company in the recruitment of independent directors as required to facilitate the company’s listing on NASDAQ or the American Stock Exchange.

·   Heritage will assist the company in putting into place the necessary internal management resources that will enable the company to operate effectively in the capital markets on an ongoing basis.

·   Heritage will assist the company in the arrangement of Directors and Officers Liability Insurance coverage.

2.Term. This Agreement will commence on the date first written above, and unless modified by the mutual written agreement of the parties, shall continue for a period of one year.

3.Compensation.

a.In consideration of the services to be performed by Consultant, Lorain agrees to pay Consultant one hundred seventy five thousand U.S. dollars ($175,000.) Payment of one hundred fifteen thousand U.S. dollars ($115,000) will be made immediately upon the successful completion of a transaction (a “RTO”) whereby Lorain becomes a wholly owned subsidiary of a corporation domiciled in the United States of America., The remaining sixty thousand U.S. dollars ($60,000) will be paid in three equal installments of twenty thousand dollars ($20,000) at the beginning of each calendar quarter commencing ninety (90) days after the execution of this agreement.

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b.All out of pocket expenses incurred by Consultant and/or its associates shall be reimbursed by the Company. If the RTO is not consummated, Lorain agrees to reimburse Heritage for all out of pocket expenses incurred up to the date it is determined the RTO will not be effected. Travel expenses will be incurred at a Business Class level of service. Besides travel in the US, it is expected that the Spokesperson will visit company’s China locations(s) two (2) times during the term of the agreement. Maximum travel expenses will be $25,000 unless specifically authorized by Lorain.

4.Representations and Warranties. Consultant represents and warrants (i) that Consultant has no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with Consultant's undertaking this relationship with the Company, (ii) that Consultant will not use in the performance of its responsibilities under this Agreement any confidential information or trade secrets of any other person or entity and (iii) that Consultant has not entered into or will enter into any agreement (whether oral or written) in conflict with this Agreement.

5.Indemnification. Company agrees to indemnify and save harmless the Consultant, as well as Consultant’s officers, employees, and agents from all suits, actions, losses, damages, claims, or liability of any character, type or description, including without limiting the generality of the foregoing all expenses of litigation, court costs, and attorney’s fees arising out of or occasioned by the acts of Lorain, its agents or employees, or occasioned by the acts of Consultant in the execution or performance of the services provided by the Consultant, at any time from the execution date of this Agreement until such time after any pertinent limitations period expires after the termination of this Agreement.

.

As part of this indemnification, Lorain agrees to defend and hold harmless Consultant from and against any and all liabilities arising from the consulting agreement. As such, Consultant shall not be liable to Lorain , or to anyone who may claim any right due to its relationship with Lorain , for any acts or omissions on the part of the Consultant or the agents or employees of the Consultant in the performance of Consultant’s services under this agreement. Lorain shall hold Consultant free and harmless from any obligations, costs, claims, judgments, attorney’s fees, or attachments arising from or growing out of the services rendered to the Company.

Lorain agrees to list Mr. James H. Groh, Spokesperson and Mr. Gerard Pascale on any Directors and Officers Liability Insurance policies that the Company may retain for a period of 6 years from the date of this Agreement.

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6.Governing Law. This Agreement shall be governed by the laws of the Peoples Republic of China and any dispute arising hereunder shall be submitted for binding arbitration to the China Foreign Trade Commission Arbitration Committee in Shanghai.

It is understood that this Agreement will be prepared and executed in both the English and Chinese languages, with both versions having legal efficacy. If a dispute arises as to the interpretation of a particular provision of this Agreement because of differences between the Chinese and English languages, the dispute shall be resolved in accordance with the provisions of the preceding paragraph.

7.Miscellaneous. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs. This Agreement shall be binding on and inure to the benefit of the parties to it and their respective successors and assigns.

Executed at Hilton Head Island, SC, USA on the day and year first above written.

International Lorain Holding Inc. (Corporate Seal)	Heritage Management Consultants, Inc (Corporate Seal)
By : /s/ Hisashi Akazawa	By: /s/ James H. Groh
Hisashi Akazawa	James H. Groh, President
Date : March 8, 2007	March 8, 2007

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EX-14

Exhibit 14

BUSINESS ETHICS POLICY AND

CODE OF CONDUCT FOR

MILLENNIUM QUEST, INC.

(As adopted on April 30, 2007)

SCOPE: This Business Ethics Policy and Code of Conduct (the or this “Policy”) applies to all directors on the Company’s board of directors (the “Board”), officers and employees of Millennium Quest, Inc. (the “Company”) and its subsidiary entities, including all principal executive officers and principal financial officers (collectively, the “Covered Persons”).

POLICY: All Covered Persons must abide by the highest standards of business ethics and avoid any actual or apparent conflict of interest as described in this Policy. This Policy establishes minimum standards required of all Covered Persons, which are in addition to the requirements of other Company policies. The Company requires that upon commencement of employment, or election to the Board, each Covered Persons acknowledges that he or she has read and understands this Policy and has reported, or will report as they arise, all potential conflicts of interest as required by this Policy. Failure to comply with this Policy and the procedures established to implement it can result in disciplinary action, termination from employment, removal from the Board, and/or initiation of appropriate legal action, as the Company deems appropriate.

PURPOSE: Establishes the requirement that all Covered Persons use the highest degree of business ethics and provides minimum standards of business ethics and conduct. Simply reading these standards, however, does not necessarily lead to ethical conduct. The Covered Person must understand, support and adhere to these standards on a daily basis, which will enable the Company to achieve both its business objectives and strict conformity with the law. Violations of this Policy could expose the Company and the individual involved to civil and criminal actions, fines, revocation of licenses and other legal remedies. To ensure on-going compliance with this Policy, the Company requires all Covered Persons on an annual basis to acknowledge that they have read and understand this Policy and have reported all potential conflicts of interest as required by the Policy.

INDEX OF PROCEDURES OR GUIDELINES:

1.0 ORGANIZATION AND ADMINISTRATION OF THE POLICY

2.0 CONFLICTS OF INTEREST

3.0 CONFIDENTIAL INFORMATION

4.0 INSIDE INFORMATION

5.0 PROHIBITED RECEIPTS AND PAYMENTS

6.0 POLITICAL ACTIVITY AND CAMPAIGN CONTRIBUTIONS

7.0 PERSONAL USE OF COMPANY PROPERTY & SERVICES

8.0 COMPANY BOOKS AND RECORDS

9.0 COMPLIANCE WITH TAX LAWS

10.0 COMPLIANCE WITH LAWS RULES AND REGULATIONS

11.0 COMPLIANCE AND ACCOUNTABILITY

12.0 WAIVER

13.0 CONCLUSION

14.0 REPORTING NONCOMPLIANCE

15.0 NO RETALIATION POLICY

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1.0 ORGANIZATION AND ADMINISTRATION OF THE POLICY

1.1 Overall Policy Responsibility

A. Providing guidance on matters of business ethics.

B. Monitoring compliance with this Policy and applicable laws to ensure consistency with the Company’s goals of promoting fair and ethical conduct and avoiding undesirable relationships in all of its activities.

C. Toward that end, the Committee shall use the services of a Designated Ethics Officer (DEO), the internal audit and legal staff and the Company’s independent public accountants.

D. Provide full, fair, accurate, timely and understandable disclosure in reports and documents the Company files with or submits to the SEC and-in other public communications.

E. Report to the DEO and/or the Audit Committee of the Board or, if no Audit Committee then the Board (the Audit Committee or the Board, as applicable, is referred to herein as, the “Oversight Authority”), any conflict of interest that may arise and any material transaction or relationship that reasonably could be expected to give rise to a conflict.

F. Ensure Covered Persons promptly report violations of this Policy to the Oversight Authority.

1.2 Definitions

A. “CEO” - - The person designated by the Board as the Chief Executive Officer, or persons performing similar functions.

B. “CFO” - - The person designated by the Board as the Chief Financial Officer, or persons performing similar functions.

C. “Company” - Millennium Quest, Inc., including its subsidiaries and affiliates.

D. “DEO” - - Designated Ethics Officer. The Company’s DEO shall be recommended by the CEO and appointed to serve at the pleasure of the Board.

E. “Covered Persons” - All directors on the Company’s board of directors, all officers and all employees of Millennium Quest, Inc. and its subsidiary entities, including all principal executive officers and principal financial officers.

F. “FCPA” - - Foreign Corrupt Practices Act.

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G. “Officers - The CEO, President, CFO, Chief Accounting Officer, Secretary and Treasurer, or persons performing similar functions and any other officer designated by the Board as an “Officer” for purposes of this Policy.

H. “Oversight Authority” - The Audit Committee of the Board or, if no Audit Committee exists then the Board.

I. “President” - The person designated by the Board as the President of the Company.

J. “Policy” - The Company’s Business Ethics Policy and Code of Conduct.

K. “SEC” - - Securities and Exchange Commission.

L. “You” - - The Covered Person.

M. “Your” - - Belonging to the Covered Person.

1.3 The DEO/Oversight Authority Relationship

The DEO shall report directly to the Oversight Authority. Under the Oversight Authority’s general supervision, the DEO shall monitor compliance with this Policy, and shall promptly report violations or threatened violations to the Oversight Authority. The DEO shall also make recommendations to the Oversight Authority for improving the monitoring of and compliance with this Policy.

1.4 The DEO’s Responsibility And Authority

The DEO shall direct such training and investigations as may be appropriate to ascertain compliance with this Policy at all levels of the Company. The DEO shall also propose for adoption by the Oversight Authority internal reporting systems as may be required or desirable for effective administration of the policy.

2.0 CONFLICTS OF INTEREST

2.1 Conflict Of Interest Defined

Of all corporate activities involving employee conduct, among the most important involves avoiding actual or potential conflicts of interest. A conflict of interest arises when an employee’s judgment in acting on the Company’s behalf is, or appears to be, influenced by an actual or potential personal benefit from an investment, business interest, or some other association or relationship. Conflicts occur most often in cases where You or a member of Your household or Your immediate family (spouse, child, parent or sibling) obtains some personal benefit at the expense of the Company’s best interests. However, they may arise in other circumstances, as well. Keep in mind that for the purposes of this Policy, in general, You will be regarded as having an interest in any property owned, or any transactions entered into, by members of Your household or Your immediate family.

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2.2 Common Conflict of Interest Situations

Conflicts of interest can arise in many different situations, and it is not possible to describe all circumstances in which they may exist. The following three sections describe common categories of conflicts of interest. They also illustrate Your responsibility and the Company’s policy in each situation.

A. Employee Relationships with Parties in Company-Related Transactions.

You must fully disclose details when You or a member of Your household or Your immediate family has an interest in, or a relationship with, any party that transacts business with the Company, such as a supplier or vendor, lessor, lessee, licensor, or licensee, when:

1. You are in a position to make or influence decisions pertaining to the transactions, and

2. Your interest or relationship is substantial enough to appear to a reasonable person that Your decision-making regarding the transaction may be affected.

3. Examples of these relationships include when You or a member of Your household or Your immediate family:

a. Has any position or employment, including work performed as an officer, partner, employee, director or consultant of the other company that is a party to the transaction;

b. Receives any compensation, discounts, rebates, kickbacks, credit, loans, gifts or other perquisites from the other company;

c. Acquires, directly or indirectly, an interest in, or rights to the profit or income of the other party.

4. You do not need to disclose the mere ownership or securities of the other party if it is listed on a national stock exchange as long as the amount You or members of Your household or immediate family own is less than one percent (1%) of the class of securities outstanding, and does not equal or exceed ten percent (10%) of Your (their) net worth.

B. Accepting Gifts or Favors.

You must not accept gifts or favors from any individual or entity that You know or should know transacts business, or may seek to transact business with the Company, unless the gift or favor is a common courtesy usually associated with customary business practices. You must never accept a gift in the form of cash or a cash equivalent. All offers of gifts or favors should be reported immediately in writing to Your supervisor and the DEO.

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C. Nepotism.

Nepotism occurs when preferential treatment is given on the basis of close personal relationships, as opposed to merit. You must not grant preferential treatment to relatives or friends within the Company in conflict with the Company’s best interests. You must also avoid situations in which conflicts may arise. For example, no employee should supervise or be supervised by, or work in the same department on the same shift as, a member of his or her immediate family. Exceptions must be approved in writing and in advance by the Department Director and the DEO and the CEO or CFO.

2.3 Your Responsibility To Avoid Or Eliminate Conflicts Of Interest

You must avoid any relationship, influence, activity, or investment that might impair, or even appear to impair Your ability to make objective and fair decisions in the Company’s best interest. Compliance with this Policy also requires You to take any actions regarded by the Company as necessary to eliminate or satisfactorily regulate an actual or potential conflict of interest situation. When in doubt, share the facts of the situation with the DEO or the Chairman of the Oversight Authority before taking any action.

2.4 Your Responsibility To Disclose All Possible Conflicts

Periodically, You will be required to complete a disclosure statement setting forth any financial interests, business and/or other relationships that might present a conflict of interest. In addition, You must provide full and immediate disclosure of any interest that You may have at the time of hire or during employment which creates, or appears to create, a possible conflict of interest.

2.5 An Important Note About The Company’s Disclosure Requirement

This disclosure requirement in no way represents the Company’s intention to police or interfere with its employees’ activities. Rather, the requirement is intended to assist employees in realizing the fullest freedom consistent with their own best interests, and those of the Company and its stockholders, by protecting all parties from the harmful effects of any subsequent revelation of activities, associations or interests that might constitute a prohibited conflict of interest. The disclosure requirement is merely a recognition of the fact that very few substantial questions of conflict of interest can exist where there is full knowledge by the Company of all the facts. In the few instances where such a question might exist after full disclosure, corrective steps generally can be taken to avoid potential problems without interfering with the outside interests of the employee.

2.6 Confidentiality

With respect to any disclosure of information furnished by an employee in accordance with this Policy, the Company will endeavor to protect such information and handle it on a strictly confidential basis. Notwithstanding the foregoing, disclosure by the Company to the appropriate personnel in order to avoid or abate actual or potential conflicts of interest discovered to protect the best interests of the Company may be required.

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2.7 Related Party Transactions

Notwithstanding the provisions above, all related party transactions involving any Director or Executive Officer of the Company must be approved by the Oversight Authority or other designated committee of the Board.

3.0 CONFIDENTIAL INFORMATION

3.1 Confidential Information Defined

Confidential information means all non-public information regarding the Company’s operations and business activities and those of its customers and suppliers. Non-public means any information that is not officially disclosed through means such as press releases or other forms of publication, or is not common knowledge.

3.2 Examples Of Confidential Information

Confidential information includes items such as customer lists, any and all customer information, employee information, policies, systems and procedures, trade secrets, financial information, business plans, contract negotiations, contractual agreements, blueprints, marketing and promotional plans and ideas (including new products and programs, pricing strategies and advertising campaigns), or other information or material unique to the Company.

3.3 Your Responsibility Regarding Confidential Information

Do not disclose confidential information to any unauthorized person, either during or after termination of Your employment. Unauthorized persons include anyone who does not have a business need to know such information for the express benefit of the Company, excluding: agencies which have jurisdiction over the Company, and other authorized state and federal law enforcement officers in the course of their assigned duties. Do not hesitate to ask the DEO or your Department Director if you have any question regarding a particular individual’s authorization to obtain confidential information. Upon Your departure, You must not take any documents or records belonging to the Company and You must return to your supervisor all such documents and records in Your possession.

3.4 Your Responsibility Not To Profit From Confidential Information

Do not profit from confidential information of which You have become aware during the course of Your employment. For example, do not acquire an interest in property that You know the Company is considering purchasing. Similarly, You should not acquire any security of another entity, if You are aware that the Company is considering purchasing that entity’s securities. These may also constitute conflicts of interest.

3.5 Your Responsibility Not To Compete With Company

You must not compete with the Company in pursuing any business opportunities which come to Your attention during the course of Your employment with the Company. Before personally pursuing or profiting from any venture which could be viewed as competing with the Company, You must disclose the opportunity to the DEO or Chairman of the Oversight Authority and obtain the Oversight Authority’s positive written affirmation either that the venture is not in competition with the Company or that the Company has no interest in pursuing the venture.

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4.0 INSIDE INFORMATION

4.1 Inside Information Defined

Inside information is similar to confidential information, and refers to all material non-public information. Information is material if it could affect the market price of a security, or if a reasonable investor would consider the information important in deciding whether to buy, sell or hold a security. In this context, “security” is referring to the Company’s common stock (or other securities that may be issued by the Company in the future), or the common stock or other securities of other companies, which due to your relationship with the Company, you may discover is engaged in negotiations with or otherwise entering into a substantial business transaction with the Company. Information is considered public only if it has been effectively disclosed to the investing public (for example, by press release) and enough time (typically two trading days after the information has been announced publicly) has elapsed to permit the investment market to absorb and evaluate the information. Inside information is not limited to information about the Company. It also includes material norm-public information about other corporations with which the Company has business relationships.

4.2 Example Of Inside Information

Examples of inside information include, but are not limited to, non-public information about:

A. Earnings results;

B. Future earnings, losses or stock splits as estimated or projected by the Company’s officers;

C. Changes in management or dividend policies; and

D. Events or business operations which are likely to affect future revenues or earnings (for example, the development of a new casino property; joint ventures with other companies; mergers and acquisitions; or lawsuits and settlements).

4.3 Prohibited Use Of Inside Information

Company policy, state and federal laws and regulations prohibit the use of inside information when trading in or recommending the Company’s or anyone else’s securities. Federal securities laws impose potentially onerous civil and criminal penalties on persons who, in connection with a purchase or sale of securities, improperly obtain and use inside information about such securities. Persons who fail to prevent others from using inside information may also be liable for civil penalties under federal law.

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4.4 Your Responsibility Regarding Inside Information

You must not disclose inside information to persons outside the Company or other persons within the Company who are not authorized to receive such information. It is illegal to pass on inside information to another individual who buys or sells a security on the basis of that information. In fact, it is illegal to suggest buying or selling a security while in the possession of inside information, even if You do not actually disclose that information.

4.5 Do Not Trade On Company Inside Information

You, any party related to You, or any party to whom You provide (improperly or otherwise) inside information, must not trade in Company securities while possessing inside information until the pertinent information has been disclosed by the Company through public announcements or filings with the SEC and the public has had sufficient time to assimilate it for not less than two full business days after the Company has publicly disclosed the information.

4.6 Do Not Trade On Any Other Company Inside Information

You, any party related to You, or any party to whom You provide (improperly or otherwise) inside information, must not trade in the securities of another corporation if the value of such securities is likely to be affected by actions of the Company of which You are-aware and which have not been disclosed to the public. For example, if a vendor is developing and testing a new product in conjunction with the Company, employees should not trade in the securities of that vendor until such information becomes public knowledge.

4.7 Prevent Others From Insider Trading

It is also illegal for certain persons to fail to prevent insider trading by others. Individual employees with managerial or supervisory responsibilities over an employee and, in some cases, officers, directors, and controlling stock holders of the Company (collectively referred to as “controlling persons”), may be liable for civil penalties under insider trading laws for the violations of an employee if the controlling person knew or recklessly disregarded the fact that the employee was likely to engage in a violation, and failed to take appropriate steps to prevent that violation before it occurred.

4.8 Questions Regarding Inside Information

Before disclosing or using information in Your possession which could be considered inside information and, therefore, subject to this Policy, You must obtain the written approval from the DEO, CEO or CFO. If such approval is not given, then you should not use or disclose such information.

5.0 PROHIBITED RECEIPTS AND PAYMENTS

5.1 Your Use Of Company Assets

The use of Company funds or assets for any unlawful purpose is strictly prohibited. You must not establish undisclosed or unrecorded funds or assets of the Company for any purpose, or engage in any arrangement that results in prohibited acts. No payments shall be approved or made with the intention or understanding that any part of such payment is to be used for any purpose other than that described by the materials supporting the disbursement.

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5.2 Your Authorization To Use Company Assets

You must not authorize or make any payment, whether in money, property or services, either Company or personal, for a bribe, kickback, or any other similar payment, to any person or organization designed to secure favored treatment for the Company. These payments are highly improper and could adversely reflect on the Company’s integrity and reputation.

5.3 Your Responsibility To Report Prohibited Act

If You have information regarding any prohibited act or payments, You must promptly report the matter to the DEO or Chairman of the Oversight Authority.

6.0 POLITICAL ACTIVITY AND CAMPAIGN CONTRIBUTIONS

6.1 Political Campaign Contributions Defined

Political campaign contributions mean:

A. Direct expenditures or contributions, in cash or property, to candidates for nomination or election to public office or to political parties; and

B. Indirect assistance or support, such as the furnishing of goods, services or equipment, or other political fund raising support.

6.2 Prohibited Domestic Political Contributions

The Company does not make political contributions for candidates for federal office and in the United States it would be a crime for the Company to do so. It is also Company policy not to make political contributions for candidates for state and local office, except in those states where such payments are legal and such payments have been authorized in writing, in advance, by the Company Co-Chairs.

6.3 Prohibited Foreign Political Contributions

It is Company policy not to make political contributions to foreign political parties or candidates for public office except in countries where such payments are legal under local law, and have been approved in writing, in advance, by the Company Co-Chairs.

6.4       Individual Employee Political Participation

The Company encourages political participation by employees in their individual capacities, including the making of voluntary contributions to candidates of the employee’s choice in accordance with legal limitations. In compliance with federal laws and regulations, the Company will not reimburse any employee directly or indirectly for any political contributions made by the employee. Furthermore, employees must not engage in political activities during working hours.

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6.5 International Business

In addition to the general principles set out in this section, the Company has detailed policies governing compliance with laws and regulations concerning exports, economic sanctions, international boycotts, the United States Foreign Corrupt Practices Act (“FCPA”), gifts to and entertainment of foreign officials, and other aspects of international business operations. Some of these policies are summarized below. If You are involved in the Company’s international business activities, You are required to familiarize yourself with, and comply with, all Company policies relating to international business operations.

A. Foreign Corrupt Practices Act and International Bribery Laws

The FCPA prohibits the offer or payment of money or anything of value to an official of a foreign country or public international organization, foreign political party or official thereof, or any candidate for political office of a foreign country (each a “foreign official”) with the intent or purpose of inducing the foreign official to use his or her influence to affect a government act or decision in order to obtain, retain or direct any business or to obtain any other improper advantage. The prohibition applies both to offers and to payments made directly by the Company, and to any offers or payments made indirectly through intermediaries such as marketing agents, brokers, distributors, joint venture partners and similar parties. Directors, officers and employees of government-owned or controlled companies, and members of royal families may be considered to be foreign officials subject to these restrictions. Prohibited offers or payments can include entertainment and gifts, as well as money. Actions that violate the FCPA may also violate the laws of the foreign countries in which the Company does business. Violation of any of these laws can result in severe criminal or civil penalties for the Company and for the individuals involved, including imprisonment.

Because determining whether international business dealings are compliant with foreign and domestic laws is complicated, You must consult with the DEO before initiating any direct or indirect business relationships with foreign companies, foreign officials, and foreign nationals, and obtain prior written approval for any expenses You incur in connection with such business relationships.

B. United States Sanctions Restricting Exports and Transactions

United States economic sanctions laws and regulations also restrict exports and other transactions with the governments of, and persons and entities associated with, sanctioned countries such as Cuba, Iran, Libya, and North Korea, among others, and with specially designated individuals and entities affiliated with these and other countries. It is against Company policy to engage in exports to or other transactions with sanctioned countries, entities or individuals.

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C. United States Anti-boycott Laws and Regulations

The United States anti-boycott laws prohibit the Company from complying with or supporting a country’s boycott of another country that is “friendly” to the United States. Even when a company refuses to comply with a prohibited boycott, United States law requires companies to report promptly to the United States government any request that the company receives to support or furnish information regarding a boycott. The rules governing the Company’s obligations under the United States anti-boycott laws are complex, and the penalties for violating them are severe. You should be attentive to situations where boycott requests may occur and should inform the DEO if any such situations arise.

7.0 PERSONAL USE OF COMPANY PROPERTY AND SERVICES

7.1 Your Use Of Company Property

The use of Company owned land, materials, equipment, or other property, and the use of services provided by Company employees on Company time under any other circumstances are strictly prohibited, except as approved in advance by the person to whom such approval authority has been delegated. For instance, you may not use Company employees to perform home improvement or any other personal work for Your benefit on Company time.

7.2 Your Responsibility To Obtain Authorization

You must not sell, loan, give away or otherwise dispose of Company property, regardless of condition or value, except with proper prior authorization.

7.3 Your Responsibility Not To Profit From Company Time Or Property

You may not engage in activities on Company time or use, or cause to be used, Company facilities, equipment, materials or supplies for Your personal profit.

8.0 COMPANY BOOKS AND RECORDS

8.1 Your Responsibility Regarding Company Books And Records

It is Company policy that all books and records of the Company be maintained so that they fully and fairly reflect all of the Company’s receipts and expenditures, assets and liabilities. The integrity of the Company’s records and other business information is based on the accuracy and completeness of the information supporting the entries to the Company’s books of account. The integrity of the Company’s products is dependent upon the accuracy of the Company’s records and business information derived from its operations. Therefore, if You are involved in creating, processing or recording such information, You are responsible for its accuracy and completeness. You must not make false or artificial entries in the books and records of the Company for any reason.

You must not establish any funds or accounts outside the books and records of the Company. All bank accounts set up on behalf of the company, foreign or domestic, must be approved by the CFO and shall be controlled, recorded and reconciled under the direction of the CFO.

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8.2 Your Responsibility For Full Disclosure

Federal laws prohibit materially false or misleading statements or omission of facts by officers and directors in connection with the audit or examination of the Company’s financial statements or the preparation of its required SEC (Securities and Exchange Commission) filings. The FCPA requires the Company to develop and maintain a system of internal accounting controls to help assure the Company’s books and records accurately reflect its transactions and dispositions of assets. The FCPA and securities laws apply to indirect as well as direct falsification, misrepresentation or omission. Federal laws impose civil and criminal penalties on individuals and companies who violate these requirements. If Your duties include participation in the preparation of Company press releases or filings with the SEC, You must use Your best efforts to assure that such press releases and/or SEC filings fully, fairly and accurately disclose the material information required to be contained therein.

No employee, officer or director shall make any statement to (i) any stockholder, director, officer or employee of the Company, (ii) any auditor, lawyer or accountant retained by the Company, or (iii) any government agency, if the statement relates to the Company’s business and the employee, officer or director knows or has reason to believe that such statement is false or misleading in any material respect.

Direct or indirect falsification of documents, whether by alteration, destruction, intentional omission, misstatement or otherwise, is strictly prohibited and is grounds for immediate termination of employment or service to the Company.

9.0 COMPLIANCE WITH TAX LAWS

9.1 Your Responsibility Regarding Personal Taxes

It is against Company policy for any employee, with fraudulent intent, to misrepresent any employee’s income, fail to withhold applicable income taxes as required by law, or to take any other action to illegally evade taxes on, or with respect to, income from the Company.

9.2 Your Responsibility Regarding Company Taxes

It also is Company policy to comply with all applicable tax statutes and regulations. It is a violation of Company policy for any employee to take any action for the purpose of illegally evading taxes due on the Company’s operations.

9.3 Questions Regarding Tax Compliance

Any questions in this regard must be reviewed in advance with the CFO.

10.0 COMPLIANCE WITH LAWS, RULES AND REGULATIONS

10.1 Your Responsibility Regarding All Applicable Laws. Rules and Regulations

It is against Company policy for any employee, with intent, to violate any applicable law, rule or regulation issued by a governmental body. Notwithstanding the foregoing, good faith efforts to contest laws, rules and/or regulations as permitted by law and authorized by management of the Company shall not be prohibited.

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10.2 Questions Regarding Legal Compliance

Any questions in this regard must be reviewed in advance with the DEO.

11.0 COMPLIANCE AND ACCOUNTABILITY

This Policy is not intended as a comprehensive review of laws related to the principles and practices regulating all Covered Persons and the policies and practices related to conflicts of interests, relationships with public officials, prohibited receipts and payments and antitrust laws. This Policy is not a substitute for expert advice. If any Covered Person has questions concerning a specific situation, the Covered Person should contact the DEO and/or the Oversight Authority or the Company’s general counsel or corporate counsel before taking action.

12.0 WAIVER

Any Request for a waiver of any provision of this Policy must be in writing and addressed to the DEO and/or Oversight Authority. Any waiver of this Policy with respect to an officer or director on the Board must be approved by the Board, after consultation with the Company’s corporate or outside counsel, and will be disclosed promptly on Form 8-K or any other means approved by the SEC.

13.0 CONCLUSION

13.1 Your Responsibility For Business Ethics

You must maintain the highest standards of ethical conduct in all Your business dealings. The Board adopted this Policy to help You achieve and maintain that vital goal. You must endeavor to read, understand, and abide by it.

13.2 Required Acknowledgment

You are required to complete the “Business Ethics Policy Acknowledgment and conflict of Interest Statement” (see Attachment 1) upon accepting any appointment as director, beginning employment or upon the institution of this Policy, and on an annual basis thereafter.

14.0 REPORTING NON-COMPLIANCE

14.1 Reporting Actual or Suspected Violations

All Covered Persons have a duty to report promptly, verbally or in writing, any evidence of any improper practice of which they are aware in connection with the operations or activities of the Company or any of its subsidiaries. This obligation requires that any Covered Person who becomes aware of any actual or suspected violation of this Policy, any applicable law, or any of the Company's policies or procedures must report it promptly to his or her supervisor, to the DEO or the Oversight Authority.

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You may submit a report by phone or in writing.

All reports will be treated in a confidential manner, except where disclosure is required to properly investigate the matter or is mandated by law.

The Company prefers that you identify yourself when reporting violations so that we may follow up with you, as necessary, for additional information. If you prefer to submit your report anonymously, however, you may do so by phone or in writing. Both telephone reports and reports in writing will remain anonymous if anonymity has been requested.

14.2 Receipt of a Report

Based on the nature of the comment provided, an alert will be sent to the appropriate Company representative(s), who will review the reported issue, concern or complaint. If the alleged violation involves an executive officer or a director, the Chief Executive Officer and Board of Directors will be informed of the alleged violation. The responsible party or parties will determine whether it is necessary to conduct an informal inquiry or a formal investigation and, if so, will initiate such inquiry or investigation. The results of any such inquiry or investigation, together with a recommendation as to disposition of the matter, will be provided to the Company's senior management team (or a designated committee) or, if the alleged violation involves an executive officer or a director, to the Board (or a committee thereof). Senior management (or a designated committee), or, if an executive officer or director is involved, the Board (or a committee thereof), will determine whether there has been a violation and, if so, shall determine the disciplinary measures to be taken against any employee, officer or director who has violated this Policy.

Any employee who has concerns regarding questionable accounting or auditing matters or complaints regarding accounting, internal accounting controls or auditing matters may confidentially, and anonymously if they wish, submit such concerns or complaints to the DEO or the Oversight Authority.

14.3 Cooperation and Commitment

Employees, officers and directors are expected to cooperate fully with any inquiry or investigation by the Company regarding an alleged violation of this Policy. Failure to cooperate with any such inquiry or investigation may result in disciplinary action, up to and including discharge.

Because it is impossible to describe every potential situation that relates to our standards of conduct and business ethics, the Company relies on the commitment of its employees, officers and directors to exercise sound judgment, to seek advice when appropriate and to adhere to the highest ethical standards in the conduct of professional and personal affairs.

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Customary day-to-day issues (such as questions or concerns regarding paid time off, your compensation, or employee relations) typically should be addressed to your supervisor or to the Human Resources Department.

15.0 NO RETALIATION POLICY

The Company will not discriminate against or retaliate against any employee, officer or director who reports a complaint or concern, unless it is determined that the report was made with knowledge that it was false. This Policy should not be construed to prohibit you from testifying, participating or otherwise assisting in any state or federal administrative, judicial or legislative proceeding or investigation.

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EX-21

Exhibit 21

List of Subsidiaries

Name of Subsidiary	Jurisdiction of Organization	% Beneficially Owned
Shandong Green Foodstuff CO., LTD.	Foreign-Chinese owned, PRC company	80.2 %
Junan Hongrun Foodstuff CO., LTD.	Foreign-owned, PRC company	100%
Beijing Green Foodstuff CO., LTD.	Foreign-Chinese owned, PRC company	100%
Luotian Green Foodstuff CO., LTD.	Foreign-owned, PRC company	100%

The registered capital of Shandong Green Foodstuff Co., Ltd. is RMB 100, 86 million, and the paid-in capital of this company is RMB90, 8825 million.

International Lorain owns 80.2% equity interest in Shandong Green Foodstuff Co., Ltd., and the remaining 19.8% is held by Shandong Economic Investment and Development Co., Ltd.

EX-99.1

Exhibit 99.1

 FOR IMMEDIATE RELEASE    CONTACT: Mr. Sheldon Saidman (719-548-9963)

Millennium Quest, Inc.

Shandong Province

People’s Republic of China

NEWSRELEASE

INTERNATIONAL LORAIN HOLDING, INC. UTILIZES APO^sm SERVICE TO GO PUBLIC AND COMPLETE PRIVATE FINANCING

Junan County, Shandong Province, May 3, 2007 - Millennium Quest, Inc., a Delaware corporation (“Millennium”) (OTCBB: MLQT.OB) announced the closing of a share exchange transaction with the shareholders of International Lorain Holding, Inc., a Cayman Islands company (“Lorain”) and a related private placement financing transaction. Millennium will operate through its consolidated indirect Chinese subsidiaries to execute the current business plan of those subsidiaries.

Under the terms of the share exchange transaction, Lorain’s shareholders were issued 697,663 shares of Millennium’s Series B Voting Convertible Preferred Stock in exchange for 100% of the issued and outstanding shares of Lorain. If converted into common stock of Millennium at the current conversion rate for conversion of the Series B Voting Convertible Preferred Stock into common stock and if all Series A Voting Convertible Preferred Stock of Millennium is converted into common stock at the current conversion rate for converting Series A Voting Convertible Preferred Stock into common stock, the shares of Series B Voting Convertible Preferred Stock received by the shareholders of Lorain after conversion to common stock will represent approximately 65.43% of the total issued and outstanding common stock of Millennium (after the closing of the private placement described below).

In conjunction with the stock exchange transaction, a private placement financing transaction was completed in which Millennium issued 299,055.78 shares of its Series B Voting Convertible Preferred Stock, along with warrants for the purchase of an additional 59,811.16 Series B Voting Convertible Preferred Stock, at a rate equivalent to $4.25 per common share post conversion and post reverse split (as described herein), in exchange for approximately $19.8 millionin gross offering proceeds, before payment of commissions and fees. Also, warrants for the purchase of an additional 20,933.90 of Series B Voting Convertible Preferred Stock have been issued to Sterne, Agee & Leach, Inc. and its designees. The shares of Series B Voting Convertible Preferred Stock issued to investors in the financing transaction represent approximately 27.13% of the total issued common stock of Millennium if converted into common stock of Millennium at the current conversion rate of the Series B Voting Convertible Preferred Stock and if all Series A Voting Convertible Preferred Stock of Millennium is converted into common stock of at the current conversion rate the Series A Voting Convertible Preferred Stock. Following the consummation of the share exchange transaction and the private placement, and assuming conversion of all outstanding shares of Series A Voting Convertible Preferred Stock and Series B Voting Convertible Preferred Stock into shares of common stock at the present rate of conversion and the exercise of all warrants issued, the number of issued and outstanding shares of common stock of Millennium, on a fully diluted, basis is 26,810,593.

The combined $19.8 million transaction includes “make good” provisions based on the achievement of certain net income targets for Millennium’s 2007 and 2008 fiscal years. Should Millennium, on a consolidated basis, not achieve $9.266 million in fiscal 2007 net income, purchasing shareholders in this transaction will receive up to 3,533,552 shares of common stock (after shares have been adjusted for the reverse split discussed herein) from original Lorain shareholders. Should Millennium not achieve $12.956 million in fiscal 2008 net income, purchasing shareholders in this transaction will receive up to 3,533,552 shares of common stock (after the shares have been adjusted for the reverse split discussed herein) from original Lorain shareholders. Lorain expects to achieve gross revenues of approximately $80.6 million and $110.7 million in fiscal 2007 and 2008, respectively, to support achievement of these “make good” net income targets.

Lorain is a Cayman Islands holding company that only operates through its subsidiaries, which are based in the People’s Republic of China. As a result of this exchange transaction, Si Chen, Lorain’s principal executive officer was appointed to the Board of Directors of Millennium and senior officers of Lorain were elected as executive officers of Millennium. The companies will operate on a consolidated basis, executing upon the current business plan of Lorain, under Mr. Chen’s leadership.

Mr. Chen, the new Chief Executive Officer of Millennium stated, "We want to thank our financial advisor, HFG International, Limited, for facilitating our efforts in connection with our private financing and the going public transaction. These transactions have given us access to the US capital markets, with the intent of capitalizing on significant growth opportunities.” Sterne, Agee & Leach, Inc, acted as the placement agents in the approximately $19.8 million financing transaction. Heritage Management Consultants, Inc. provides professional and management and advisory services to Millennium.

Millennium’s shares are listed on the Over-the-Counter (OTC) Bulletin Board under the symbol, MLQT.OB.

Lorain is a leading food processing company engaging in the development, manufacture and sale of food products worldwide. Formed in 1994, the company produces hundreds of varieties of food products, categorized into three interrelated divisions: chestnut products, processed food, including frozen, canned and packaged goods, and convenience foods, consisting of meals ready to eat (MRE) and ready to cook (RTC). Lorain, headquartered in Junan County, Shandong Province, owns and operates four manufacturing facilities, two in Junan County, one in Luotian Hubei Province and one in Beijing. In addition to serving the growing food market in China, Lorain sells its products in 23 countries under both the “Lorain” brand and under private labels. Lorain currently employs over 1250 people, and sells its products through a distribution network of wholesalers, trading companies and supermarket chains. For the twelve months ended December 31, 2006, Lorain reported consolidated net sales of approximately $49.1 million and consolidated net income of approximately $5.9 million.

Lorain is investing about $16.8 million to meet the growing international and domestic demand for their products, and using about $1 million to pay off an existing bridge loan. Lorain also plans to expand its production capacity by extending the current space for workshops used in raw material preparation, adding new processing and packaging lines and increasing storage facilities.

As a result of the consummation of the share exchange and private placement transactions, Millennium intends to file within two days of this release, a preliminary information statement on Schedule 14C with the U.S. Securities and Exchange Commission. The Schedule 14C relates to the approval by Millennium’s Board of Directors and stockholders of Millennium’s Amended and Restated Certificate of Incorporation which:

·   Increases the number of Millennium’s authorized common stock;

·   Effectuates a 1 for 32.84 reverse stock split of Millennium’s common stock; and

·   Changes the name of the company to American Lorain Corporation.

The action to increase Millennium’s authorized common stock is designed primarily to accommodate the conversion of Millennium’s Series A Voting Convertible Preferred Stock and Series B Voting Convertible Preferred Stock into common stock. After the amendment and restatement of Millennium’s Certificate of Incorporation, the authorized common stock of Millennium will be increased from 20,000,000 to 200,000,000 shares. Shares of Series A Voting Convertible Preferred Stock convert into shares of common stock on a 428.56 common shares for 1 Series A Voting Convertible Preferred Stock share basis, and shares of Series B Voting Convertible Preferred Stock convert into shares of common stock on a 767.635common shares for 1 Series A Voting Convertible Preferred Stock share basis, and, thereafter, all common stock will be subject to the 1 for 32.84 reverse stock splitdescribed in the next paragraph.

The preliminary Schedule 14C information statement also described the 1 for 32.84 reverse split of Millennium’s common stock, which has been approved by Millennium’s Board of Directors and stockholders and will be effectuated by operation of the Amended and Restated Certificate of Incorporation. The 1 for 32.84 Reverse Split will reduce the number of issued and outstanding shares of Millennium’s common stock and number of shares of its common stock issuable upon conversion of the shares of Millennium’s preferred stock, and effectively increases the number of authorized and unissued capital stock available for future issuance. The 1 for 32.84 Reverse Split will become effective when the Amended and Restated Certificate of Incorporation are filed with the Secretary of State of Delaware following the expiration of the 20-day period mandated by Rule 14c of the Securities Exchange Act of 1934. All outstanding warrants and conversion rights will be adjusted to reflect the stock split such that a warrant for 1 pre-reverse split common share would be valid for .03045067 post-reverse split common shares.

When the reverse split becomes effective, each share of common stock will automatically become .03045067 shares of the new common stock.

The table below illustrates the current capital structure of Millennium and upon effectiveness of the amendment to and restatement of Millennium’s Certificate of Incorporation, after giving effect to the conversion of the Series A and B Preferred Stock into common stock and the reverse stock split:

	Before Conversion of Preferred Stock and Reverse Stock Split		After Conversion of Preferred Stock and Reverse Stock Split
Title of Issued and Outstanding Shares	Number of Shares	% Total Capital Stock	Number of Shares of Common Stock	% Total Capital Stock
Common Stock	10,508,643	1.3%	24,923,178	100%
Series A Preferred Stock	100,000	5.2%	-	0%
Series B Preferred Stock	996,718.78	93.5%	-	0%
Total		100%		100%

The approval by Millennium’s Board of Directors and stockholders of the Amended and Restated Certificate of Incorporation also operates to change the name of the company from “Millennium Quest, Inc.” to “American Lorain Corporation”. The name change to “American Lorain Corporation” will more accurately reflect the anticipated future business operations.

Additional information regarding the increase in Millennium’s authorized common stock, its 1 for 32.84 reverse stock splitand the name change as well as a copy of Millennium’s Amended and Restated Certificate of Incorporation, can be found in Millennium’s Preliminary Information Statement on Schedule 14C and its Current Report on Form 8-K.

FORWARD LOOKING STATEMENTS

This release contains certain “forward-looking statements” relating to the business of Millennium and its subsidiary companies, which can be identified by the use of forward-looking terminology such as “believes, expects” or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties, including all business uncertainties relating to product development, marketing, concentration in a single customer, raw material costs, market acceptance, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. Millennium is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

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