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):  April 14, 2008

SMARTHEAT INC.

(Exact Name of Registrant as Specified in Charter)

Nevada	333-139649	98 -0514768
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

A-1, 10, Street 7 Shenyang Economic and Technological Development Zone Shenyang, China	110027
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: +86 (24) 2519-7699

Pacific Goldrim Resources, Inc.

1445 Pendrell Street, Suite 202

Vancouver, British Columbia

Canada V6C 1S3

(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:

  o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

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

CURRENT REPORT ON FORM 8-K

SMARTHEAT INC.

TABLE OF CONTENTS

	Page
Item 1.01                      Entry into a Material Definitive Agreement.	1
Item 2.01                      Completion of Acquisition of Disposition of Assets	2
The Share Exchange	2
Description of our Company	4
Description of our Business	5
Management Discussion and Analysis of Plan of Operations	12
Risk Factors	19
Security Ownership of Certain Beneficial Owners and Management	36
Executive Officers and Directors	37
Certain Relationships and Related Transactions	40
Item 3.02                      Unregistered Sales of Equity Securities.	40
Item 4.01                      Changes in Registrant's Certifying Accountant	43
Item 5.01                      Changes in Control of Registrant	43
Item 5.02                      Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.	43
Item 5.03                      Amendments to Articles of Incorporation or Bylaws, Change in Fiscal Year	44
Item 5.06                      Change in Shell Company Status	44
Item 9.01                      Financial Statements and Exhibits	44

Item 1.01 Entry into a Material Definitive Agreement.

On April 14, 2008, Pacific Goldrim Resources, Inc., a Nevada corporation (the "Company"), entered into and consummated a series of agreements which resulted in the acquisition of all of share capital of Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd, a plate heat exchange products company organized under the laws of the People's Republic of China ("Taiyu"), the divestiture of the Company's prior exploration business, and the change of the Company's name to SmartHeat Inc.

The name change was accomplished on April 14, 2008 by merging the Company's wholly owned subsidiary SmartHeat Inc., a Nevada corporation ("SmartHeat"), into the Company.

The acquisition of Taiyu's share capital was accomplished pursuant to the terms of a Share Exchange Agreement dated April 14, 2008 (the "Share Exchange Agreement") by and among SmartHeat, Taiyu and all of the shareholders of Taiyu (the "Taiyu Shareholders").  At the closing under the Share Exchange Agreement all of the equitable and legal rights, title and interests in and to Taiyu's share capital in the amount of Yuan 25,000,000 was exchanged for an aggregate of 18,500,000 shares of SmartHeat common stock (the "Share Exchange").  As a result of the Share Exchange, Taiyu became a wholly-owned subsidiary of SmartHeat.

In addition, the following actions occurred under the terms of the Share Exchange Agreement:

· Immediately following the closing of the Share Exchange, the Company transferred all of its pre-closing assets and liabilities (other than the obligation to pay a $10,000 fee to the Company's audit firm) to a wholly owned subsidiary, PGR Holdings, Inc., a Nevada corporation ("SplitCo"), under the terms of an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations dated April 14, 2008 (the "Transfer Agreement").  The Company also sold all of the outstanding capital stock of SplitCo to Jason Schlombs (the former director and officer, and a major shareholder, of the Company) pursuant to a Stock Purchase Agreement dated April 14, 2008 (the "Split-Off Agreement") in exchange for the surrender of 2,500,000 shares of the Company's common stock held by Mr. Schlombs (the "Split-Off").

· As a condition to the closing of the Share Exchange, Mr. Jun Wang, the Chairman and Chief Executive Officer of Taiyu was appointed to the board of directors of the Company and Mr. Schlombs, the former sole member of the board of directors of the Company resigned, effective as of the close of business on April 15, 2008. As a requirement to listing the Company's common stock on the NASDAQ Capital Market or other exchange, the Company will seek to add additional independent directors and increase the size of the board of directors following the Share Exchange.  The board's composition (and that of its committees) will be subject to the corporate governance provisions of its primary trading market, including the requirement for appointment of independent directors in accordance with the Sarbanes-Oxley Act of 2002, and regulations adopted by the SEC and NASD pursuant thereto.

· Also as a condition to the closing of the Share Exchange, Mr. Schlombs resigned as the President, Chief Executive Officer, Secretary and Treasurer of the Company and Mr. Jun Wang was appointed as President and Chief Executive Officer, Ms. Zhijuan Guo was appointed as Chief Financial Officer and Ms. Huajun Ai was appointed as Corporate Secretary.

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Each of the Share Exchange Agreement, Transfer Agreement, and Split-Off Agreement contained such representations, warranties, obligations and conditions as are customary for transactions of the type governed by such agreements.

As a result of the Share Exchange and the cancellation of the 2,500,000 shares of the Company's common stock pursuant to the Split-Off Agreement, there are 22,549,900 shares of the Company's common stock issued and outstanding, approximately 82.04% of which are held by the former Taiyu Shareholders.  The shareholders of the Company immediately prior to the completion of these transactions hold the remaining 17.96% of the issued and outstanding share capital of SmartHeat.

As of the date of the Share Exchange Agreement and currently, there were no material relationships between the Company and Taiyu, or any of their respective affiliates, directors or officers, or any associates of their respective officers or directors, other than in respect of the Share Exchange Agreement.

The foregoing description of the Share Exchange Agreement, Transfer Agreement, and Split-Off Agreement do not purport to be complete and is qualified in its entirety by reference to the complete text of the Share Exchange Agreement, Transfer Agreement, and Split-Off Agreement which are filed as exhibits hereto and incorporated herein by reference.

Item 2.01 Completion of Acquisition of Disposition of Assets

The Share Exchange

The Share Exchange

On April 14, 2008, the Company entered into the Share Exchange Agreement with Taiyu and the Taiyu Shareholders.  Upon closing of the Share Exchange on April 14, 2008, the Company acquired all of the equitable and legal rights, title and interests in and to the share capital of Taiyu and Taiyu became a wholly-owned subsidiary of the Company.  Pursuant to the Share Exchange Agreement, at closing, the Taiyu Shareholders received an aggregate of 18,500,000 shares of the Company's common stock in exchange for all of their equitable and legal rights, title and interests in and to Taiyu's share capital in the amount of Yuan 25,000,000.

Immediately following the closing of the Share Exchange, under the terms of the Transfer Agreement, except for fees up to an amount of $10,000 due and owing to the Company's audit firm as of April 14, 2008, the Company transferred all of its pre-closing assets and liabilities to SplitCo.  Immediately thereafter pursuant to the Split-Off Agreement, the Company transferred all of its interest in SplitCo to Mr. Schlombs in exchange for the surrender and cancellation of 2,500,000 shares of the Company's common stock held by him.  After giving effect to the cancellation of those shares in the Split-Off, the stockholders of the Company immediately preceding the Share Exchange held 4,049,900 shares of the Company's common stock before giving effect to the stock issuances in the Share Exchange.  Such 4,049,900 shares constitute the Company's "public float" prior to the Share Exchange and will continue to represent the shares of our common stock held for resale without further registration by the holders thereof until such time as the applicability of Rule 144 of the Securities Act of 1933, as amended, (the "Securities Act") or other exemption from registration under the Securities Act permits sales of the shares issued to the Taiyu Shareholders, or a registration statement has been declared effective with respect to such shares.  Pursuant to the plan of distribution described in a registration statement on Form SB-2 filed by the Company during 2006, the registered public float shares may be sold in one or more transactions, including block transactions; on such public markets or exchanges as the common stock may from time to time be trading; in privately negotiated transactions; or in any

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combination of these methods of distribution and as otherwise described in the Form SB-2 Registration Statement.

As a result of the Share Exchange and the Split-Off, Taiyu became a wholly-owned subsidiary of the Company and the Taiyu Shareholders now hold approximately 82.04% of the Company's outstanding common stock.  The shareholders of the Company immediately prior the Share Exchange and Split-Off hold the remaining 17.96% of the issued and outstanding shares of the Company's common stock.

Prior to the closing of the Share Exchange, there were no options or warrants to purchase shares of capital stock of SmartHeat or Taiyu outstanding and neither the Company nor Taiyu had adopted an equity incentive plan or otherwise reserved shares for issuance as incentive awards to officers, directors, employees and other qualified persons in the future.

The shares of the Company's common stock issued to the Taiyu Shareholders in connection with the Share Exchange were not registered under the Securities Act, in reliance upon the exemption from registration provided by Regulation S promulgated under the Securities Act.  These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.  Certificates representing these shares contain a legend stating the same.

As of the date of the Share Exchange Agreement there were no material relationships between the Company and Taiyu, or any of their respective affiliates, directors or officers, or any associates of their respective officers or directors, other than in respect of the Share Exchange Agreement.

Changes Resulting from the Share Exchange

The Company intends to carry on Taiyu's business as its sole line of business.  The Company has relocated its executive offices to A-1, 10, Street 7, Shenyang Economic and Technological Development Zone, Shenyang 110027, Peoples Republic of China, and its telephone number is +86 (24) 2519-7699.

The stockholders of the Company immediately preceding the Share Exchange will not be required to exchange their existing Goldrim stock certificates for certificates of the Company stating its new name, since the OTC Bulletin Board will consider the existing stock certificates as constituting "good delivery" in securities transactions subsequent to the Share Exchange.  The American Stock Exchange and Nasdaq SmallCap Market will also consider the submission of existing stock certificates as "good delivery," in the event that the Company's shares are ever listed on those exchanges.  The Company cannot be certain that it will receive approval to list its common stock on any exchange or market should it apply for such listing.

Changes to the Board of Directors

Mr. Jun Wang, the Chairman and Chief Executive Officer of Taiyu was appointed to the board of directors of the Company effective as of the closing on June 14, 2008.  Mr. Jason Schlombs resigned as a director, effective as of the close of business on June 15, 2008.  As a result, Mr. Jun Wang became our sole member of our board of directors.

Following the Share Exchange, Mr. Schlombs resigned as President, Chief Executive Officer, Secretary and Treasurer of the Company and Mr. Jun Wang was appointed as President and Chief Executive Officer, Ms. Zhijuan Guo as Chief Financial Officer and Ms. Huajun Ai as Corporate Secretary.

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The sole director holds office for a one-year term until the election and qualification of his successor(s).  Officers are elected by the board of directors and serve at the discretion of the board.

Accounting Treatment; Change of Control

The Share Exchange is being accounted for as a "reverse acquisition," since the stockholders of Taiyu own a majority of the outstanding shares of the Company's common stock immediately following the Share Exchange.  Taiyu is deemed to be the acquiror in the reverse acquisition.  Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Share Exchange will be those of Taiyu and will be recorded at the historical cost basis of Taiyu, and the consolidated financial statements after completion of the Share Exchange will include the assets and liabilities of the Company and Taiyu, historical operations of Taiyu and operations of the Company from the closing date of the Share Exchange.  Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of the Company's board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company.  Further, as a result of the issuance of the shares of the Company common stock pursuant to the Share Exchange, a change in control of the Company occurred on the date of the consummation of the Share Exchange.  The Company will continue to be a "small business issuer," as defined under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), following the Share Exchange.

Tax Treatment

The Split-Off of SplitCo will result in taxable income to the Company in an amount equal to the difference between the fair market value of the assets transferred and the Company's tax basis in the assets.  Any gain recognized, to the extent not offset by the Company's net operating losses carry-forwards, if any, will be subject to federal income tax at regular corporate income tax rates.

Description of our Company

We were incorporated in the State of Nevada on August 4, 2006 under the name Pacific Goldrim Resources, Inc. as an exploration stage corporation that intended to engage in the exploration of silver, lead and zinc.  On April 14, 2008 we changed our name to SmartHeat Inc. and acquired all of the equity interests in Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd. ("Taiyu"), a privately held company formed under the laws of the People's Republic of China ("China") engaged in the design, manufacture, sale, and servicing of plate heat exchange products in China.

Prior to our acquisition of Taiyu, we were in the development stage and had minimal business operations.  We had no interest in any property, but had the right to conduct exploration activities on thirteen (13) mineral title cells covering 270.27 hectares (667.85 acres) in the Slocan Mining Division of southeastern British Columbia, Canada.  In connection with the acquisition of Taiyu, we transferred our prior assets and liabilities to a wholly owned subsidiary and sold all of the outstanding capital stock of that subsidiary to our former director and officer in exchange for 2,500,000 shares of our common stock.

Taiyu was formed in July, 2002 under the laws of China and is headquartered in Shenyang City, Liaoning Province, China.  Taiyu designs, manufactures, sells, and services plate heat exchangers ("PHEs"), compact plate heat exchanger units ("PHE Units"), and heat meters.  Taiyu is an authorized dealer of Sondex A/S, one of the world's leading PHE manufacturers.  Taiyu sells PHEs under the Sondex brand name and PHE Units under the Taiyu brand name.

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Description of our Business

We design, manufacture, sell, and service PHEs, PHE Units and heat meters for a broad range of industries,  including petroleum refining, petrochemicals, power generation, metallurgy, food & beverage, and chemical processing.  We sell PHEs under the Sondex brand and PHE Units that are designed by our engineers and assembled with Sondex plates under our Taiyu brand name.  We are one of three authorized dealers of Sondex PHEs for the industrial and energy sectors in China.  Our Sondex distribution territory is North China.

Industry Overview

The PHE is a device which transfers energy, usually in the form of heat, from one fluid to another across a solid surface.  PHE analysis and design involves both convection and conduction.  PHEs were first invented in the mid 1920s to control pressure and temperature, and to increase energy efficiency in industrial use.  The most common heat transfer product used commercially up to date are shell-and-tube heat exchangers, which are still being used in older buildings and manufacturing facilities in China.  This technology is being rapidly replaced by plate heat exchangers which achieve superior heat transfer efficiency because of a larger heat transfer surface area.  PHEs can be installed in old buildings as well as new ones since they are smaller than the traditional heat exchangers and fit with in existing installations.

Today, heat exchangers are used in heat and power generation, HVAC and refrigeration, chemicals & petrochemicals, steel & metallurgy, aeronautics, textiles, food and beverage processing and various other manufacturing industries.  Heat transfer equipment is also being employed in new energy applications such as wind, solar, biomass and waste disposal.

Within the PHE industry, manufacturers are differentiated primarily based upon their reputation and the technology, improved efficiency, and durability of their products.  Given the growing importance of energy conservation and waste reduction, PHEs are likely to play an increasingly important role in many industries.

Market Overview

The global market for heat transfer products and compact PHE Units in 2006 was approximately $12 billion and $2.3 billion, respectively according to Alfa Laval, a leading manufacturer in our industry.  Large international PHE producers include: Alfa Laval, Sondex, GEA, Tranter SWEP, Danfoss, and Hisaka Works.

Heat transfer technology was introduced to China in the 1960's from Russia, mainly for applications in the petroleum industry.  Foreign manufacturers began to sell in China on a large commercial scale in the 1980's and have since dominated the Chinese market.  As domestic producers sprang up in the late 1980's and 1990's they began to take an increasingly larger share of the market.  The past decade has seen the rise of many domestic manufacturers along with joint venture operations between local and international firms.  Today the market is split between domestic firms, foreign JVs and direct imports.

China Heat Association believes that the domestic market for PHE products has been growing at an annual rate of about 30% since 2000 and that it will continue to grow at a similar rate until 2010 due to the continuation of industrialization and urbanization trends in China.  New environmental policies and regulations are also expected to have a positive impact on the demand for PHE products.

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Products

PHEs

PHEs are used in a wide range of industries with the principal demand originating in the following industries: petroleum refining, petrochemicals, power generation, metallurgy, food & beverage, and chemical processing.  PHEs are constructed through the use of specifically manufactured stainless steel, titanium, and nickel plates welded together and are often referred to as the "PHE" within PHE Units.  The quantity and size of the plates used along with the total size of the PHE will vary according to the particular application requirements but generally do not exceed the size of a large refrigerator.

As one of the three authorized dealers of Sondex PHEs in China, we import finished stainless steel plates from Sondex and assemble customized PHEs based on client's specifications.  All PHE design is done in-house by our engineers utilizing Sondex tailored Paradox software.  In the initial year of our operations, the PHE was the cornerstone of our product line.  As an authorized Sondex dealer, we established a reputation as a high quality provider of PHEs in China.  In May 2003, we began to sell customized PHE Units containing Sondex plates.  While our direct third-party sales of PHEs have declined in recent years, the quantity of plates supplied through Sondex has continued to grow as they are incorporated in the PHE Units we sell.

PHE Units

PHE Units are mainly used in petroleum refining, chemicals and petrochemicals, energy generation, HVAC, steel, medical, electronics, food & beverage processing and other manufacturing sectors to reduce energy waste through heat recovery, improve temperature and pressure controls and cool equipment.  PHE Units are built by integrating PHEs with various pumps, temperature sensors, valves, and automated control systems to form a "unit" which is used along with other units to form a "PHE network" installed in the local district heating systems.  We specialize in making PHE Units for HVAC systems in residential and commercial buildings.

According to China's Ministry of Construction data, 2007 domestic demand for PHE Units in China was estimated at $139 million, and combined with the replacement of shell and tube heat exchangers is expected to increase by approximately 70% annually through 2010.

We began designing, manufacturing and selling our branded PHE Units in May 2003.  Our PHE Units are designed in-house by our system engineers employing online customized CAD design software based on Solid Works software which is integrated with our real-time enterprise resource planning system databases.  This advanced design platform provides the following benefits:

· We can provide accurate price quotes instantly;

· Our purchasing function is immediately notified of any additional material orders needed; and,

· Our manufacturing operations are able to schedule production so that goods are delivered on a just-in-time basis.

The production and sale of PHE Units have been central to the Company's growth.  PHE Units require a comparatively higher level of technical skill and knowledge of the application markets and this is reflected in the price.  In the recent years, PHE Unit sales have contributed significantly to our revenue

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growth and high margins.  Less than five years after entering the market, we have emerged as a leading domestic producer of PHE Units, with approximately 8%share of the market in China.

Heat Meters

Heating companies in many western countries have long used meters to measure customer heat usage and invoice customers.  However, Chinese residents and commercial customers are largely billed based on the square footage of their utilized space.  Meters indicate heat in legal heat units and the calibration of meters in many countries is regulated by government agencies and subject to local or national guidelines.  Due to rising energy costs and the increased sensitivity to environmental issues, Chinese government and local utility companies have recently made the use of heat meters compulsory in several cities in China.  As of January 2007, heat meters are required by law in the cities of Tianjin, Xingtai, Chengde, and Handan.

Using our established relationships with provincial governments and utility companies throughout China, we introduced our patented heat meters to the market during the second quarter of 2006.  Sales to date have been insignificant.  However, in 2008 we plan to work with the various government entities to establish a national heating standard and become an active participant in China's heat meter market in the coming years.

Production

We conduct all manufacturing activities at our Shenyang plant.  We generally operate on an 8 hour shift, with the exception of the high season from May to November, during which we may operate the plant for 11-12 hours a day.  Production is driven by orders from clients and is scheduled on a just-in-time delivery basis.  Our Shenyang facility currently has the capacity to produce 10 PHEs, 3 PHE Units, and 50 heat meters per day.

Marketing

Since our entry into the market for PHE Units in May 2003, the Taiyu brand name has been promoted in conjunction with quality production and first-rate service by means of our successful track record, industry trade fairs and establishing and maintaining positive relationships with local governments in Beijing, Shenyang, Urumqi, Shandong, Jiangsu and Shanghai.  We attend the bi-annual HVAC trade fair in Shanghai and Chinese environmental protection forums and we visit the local utilities companies, oil refiners, steel and food & beverage companies.  Marketing costs are generally funded through working capital and expensed as incurred.

Suppliers

Plates

Plates1are supplied by Sondex under the terms of our Sondex authorized dealer arrangement.  We generally order stainless steel plates 2-3 months in advance based on production needs and forecasted sales.  Plate purchases generally constitute 40% of our total annual raw material purchases.  While we are an authorized dealer, annual or quarterly purchasing prices are not fixed and fluctuate according to Sondex's most recent pricing list.

 

1 All plates sold by Sondex to Taiyu contain gaskets unless otherwise specified.

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Components

Components generally include pumps, valves, pipes, and electronic meters purchased from a variety of international (Siemens, Wilo A.G., Honeywell) and domestic suppliers who have been certified to meet Taiyu's quality specifications.  Components are ordered on an as needed basis.  Plates and components together constituted approximately 98% of raw materials purchases in 2007.

Customers

We sell both directly through our sales force and through a network of 29 national distributors located throughout China.  Our customer base consists mainly of large companies with the 10 largest customers accounting for over 60% of our total sales.  The 10 largest customers and respective revenues during 2007 are as follows:

Customer Name	Sales ($000s) 2007	% of Sales 2007
Dalkia (Jiamusi) Heat & Power	$2,790	21.0%
Urumqi Heat Power Co. Ltd	1,256	9.5%
Sinopec Shenli Oil Field	892	6.7%
Shenyang Huanggu Thermo Electric Heating Inc.	848	6.4%
Northern United Electric Co. Ltd., Qingshan	634	4.8%
YSKN (Beijing) Machinery & Elec Dev. Co.	527	4.0%
Shenyang Power Co., Ltd., No.3	452	3.4%
Tianjin Binhai Machinery & Elec Equip Co. Ltd	423	3.2%
Shenyang Longyan Heating Co., Ltd	373	2.8%
Yingkou Development and Construction Co. Ltd	362	2.7%
Sales to Top 10 Customers	$8,557	64.5%
Total Sales	$13,273

Each sale can range from $2,500 to $500,000 and up depending on the client's needs.  Contract implementation generally takes one to six months.  Outstanding receivables are collected upon completion of work with the exception of a 10% warranty hold-back that remains unpaid and outstanding for 12-18 months following delivery and contract completion.  All of our work is performed based on written contracts and there are no oral contracts.  Historically, the Company has not had any uncollected warranty hold-backs.

Intellectual Property

We use the Taiyu brand name on all the PHE Units and heat meters we sell.  We have applied to the China Trademark Bureau for the registration of this trade name and we are awaiting approval of our application.  We believe that the Taiyu brand name is recognized in China's heating industry for quality and efficiency.  We have five registered patents in China for both PHE products and heat meters.

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These patents are integral to our ability to create and design PHEs and PHE Units.  To the extent third parties utilize such patents in their work, we do not receive royalties or licensing fees from any such third parties.

Research and Development

To maintain our competitive edge in the marketplace and keep pace with new technologies, constant research and development work is required to find improved efficiencies in design, cost, and energy capture.  While the core technology for plate production remains with Sondex, our competitive advantage in the market stems from our engineering and system design capabilities.

Research and development costs are funded through working capital and expensed as incurred.  We plan to spend approximately $110,000 in 2008 on identifying new industry applications for PHEs, improving the accuracy of heat meters, designing heat meters for industrial usage, developing multifunctional PHE units and modifying PHE designs to meet the current market demand.

While we have no formal written alliances with the universities, we work with several professors who are heat transfer experts on an individual consulting basis.

Governmental and Environmental Regulation

While our PHE & PHE Units business and products are not subject to any material regulation by the Chinese government or other national agency, we have obtained National Safety Certification for our PHE products and we are an ISO 9000 certified manufacturer.  The National Safety Certification is not required for either production or sale of PHE products.  However, obtaining this certification confirms our commitment to safety and quality.  For companies in industries utilizing high temperatures or pressure in their production processes, the certification is of critical importance in choosing a PHE provider.  Of over 500 companies selling PHEs in China, we believe that only 30 companies have obtained this certification.

Conversely, heat meters require a license for production and sale.  We obtained this license on August 12, 2005.  The license is valid for 3 years through August 11, 2008 at which time it will need to be renewed.  The Safety Bureau conducts site visits and inspections of documents on a periodic basis to verify adherence to the standards.

While heat meters are only required in four cities in which local legislation has been passed on requiring the installation of heat meters and so far no national legislation has been passed requiring heat meters in the rest of China, expected legislation in the coming year mandating such would likely impact National certification standards.  We plan to work with both the National and local governments in establishing such standards.

Our business and company registrations are in compliance with the laws and regulations of the municipal governments of Shenyang and China.

We are subject to China's National Environmental Protection Law as well as local laws regarding pollutant discharge, air, water, and noise pollution, with which we comply.

Competition

The Company competes only in the domestic Chinese market.  We believe our competitive advantages lie in our superior engineering and design skills, our affiliation with Sondex, the longevity and

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efficiency of the Sondex plates we use, our just-in-time delivery and the reliable after sale service we provide through our local service centers.

PHEs

Alfa Laval has the largest market share in mainland China.  An assortment of other foreign producers hold an aggregate market share of 20%, and the rest of the market is divided among multiple domestic producers.  While we believe the quality or our PHEs is considered on par with Alfa Laval's, our prices are approximately 15% lower.  In comparison with the other domestic producers, our prices are approximately 15% higher.

PHE Units

According to data from the China Heating Association, we were the leading producer and seller of PHE Units in China in 2007, representing 8% of the market, followed by Danfoss, and Accessen (a Sino-US JV established by Denmark's Accessen and utilizing Alfa Laval plates as well as their own plates in their PHE Units).  Danfoss competes directly with us for the local heat and power companies' contracts in larger cities, while Accessen targets the petrochemical, metallurgy and HVAC sectors.

As the majority of projects are awarded on a bid basis, prices among leading competitors are difficult to assess.  For certain projects, we do not bid, but negotiate directly with the customers.  We have done prior projects with some of the customers we negotiate with, including our largest customer in 2007, Dalkia, a JV between Dalkia and the local government in Heilongjiang province.  Dalkia is the leading provider of energy services in Europe, active in multiple energy projects in China and is a subsidiary of Veolia EDF.

Heat Meters

The market for heat meters is extremely fragmented with multiple overseas and domestic producers and no established leaders.  Currently, the industry lacks National product standards which will be needed if legislation requiring heat meters for all residential and commercial spaces is passed during 2008-2010.  Two of our goals for the near future are to become an integral player in the establishment of National Heat Meter Standards and a leading supplier of heat meters in China.

Seasonality

We typically experience stronger third and fourth calendar quarters and weaker first and second calendar quarters due to the seasonal related fluctuations in sales volumes.  Customer demand for heat exchange products is also influenced by weather.

Description of Property

Our headquarters and manufacturing facilities are located in Shenyang's Economic and Technological Development Zone, Shenyang City, Liaoning Province, PRC.  We own two buildings which include our office headquarters and primary manufacturing facilities.  We have been granted the right to use the land in Shenyang by the Municipal administration of state-owned land through June 2055.

In addition to the two buildings in Shenyang, we own four vehicles, two dual beam cranes and other special equipment.

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Employees

As of April 14, 2007, we had 131 full-time employees.  We plan to hire additional employees during 2008 as shown below:

Function Unit	Current Number of Employees	Recruitment Budget	Total after the Budget
CEO	1	0	1
Technology Department	19	3	22
Heat Meter Department	4	0	4
Manufacturing Department	18	28	46
Logistics Department	6	0	6
Quality Department	4	1	5
Marketing Department	3	0	3
After-sale Service Department	5	1	6
Finance Department	6	0	6
Administrative Department	9	0	9
Sales Department	56	7	63

We maintain strong ties with our employees and staff and retention is stable.  Our employee contracts adhere to both State and Provincial employment and all social security regulations.  All compensation including social insurance is paid in a timely manner to authorities and employees.  There have been no disputes and there are no collective bargaining agreements.

Our sales personnel are eligible to receive annual bonuses based on pre-established sales targets.  Production employees are also eligible for annual bonuses based on product quality ratios, customer complaint ratios, new product invention, and product inventory.

Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which 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 have an adverse affect on our business, financial conditions, or operating results.  We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Forward-Looking Statements

The information in this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  All statements other than statements of historical fact made in this report including, without limitation, statements regarding our future financial

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position or results, levels of activity, events, trends or plans, are forward-looking statements.  In particular, the statements herein regarding industry prospects and our future results of operations or financial position are forward-looking statements.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” or “believe” or the negative thereof or any variation thereon or similar terminology.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, there is no assurance that such expectations will be accomplished.Forward-looking statements reflect our current expectations and are inherently uncertain.  Our actual results may differ significantly from our expectations.  Some factors that might cause or contribute to such discrepancy include those factors listed in the section "Risk Factors" beginning on page 19 of this Report on Form 8-K.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.  We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.

Management Discussion and Analysis of Plan of Operations

The following discussion and analysis should be read in conjunction with our financial statements, included herewith.  This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.  Such discussion represents only the best present assessment of our management.

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods.  On an ongoing basis, we evaluate our estimates and assumptions.  We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

This discussion should be read in conjunction with the other sections of this Report, including "Risk Factors," "Description of Business" and the Financial Statements attached hereto as Item 9.01 and the related exhibits.  The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report.  See "Forward-Looking Statements." Our actual results may differ materially.

While our significant accounting policies are more fully described in Note 1 to our combined financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Overview

We are one of three authorized OEMs of Sondex PHEs in China, specializing in the manufacturing, sale, research, and servicing of PHEs, PHE Units and heat meters for a broad range of

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industries such as petroleum refinement, petrochemicals, power generation, metallurgy, food & beverage, and chemical processing.  We also sell PHEs under the Sondex brand and PHE Units that are designed by us and using PHEs that are assembled with Sondex plates under our Taiyu brand name.

Our revenue is subject to fluctuations due to the timing of sales of high-value products, the impact of seasonal spending patterns, the timing and size of projects our customers perform, changes in overall spending levels in the industry and other unpredictable factors that may affect customer ordering patterns.  Any significant delays in the commercial launch or any lack or delay of commercial acceptance of new products, unfavorable sales trends in existing product lines, or impacts from the other factors mentioned above, could adversely affect our revenue growth or cause a sequential decline in quarterly revenue.  Due to the possibility of fluctuations in our revenue and net income or loss, we believe that quarterly comparisons of our operating results are not a good indication of future performance.

Basis of Presentation

The audited financial statements as of December 31, 2007 and 2006, that are presented are those of Taiyu rather than SmartHeat because Taiyu is our operating business, and SmartHeat's acquisition of Taiyu was deemed completed on April 14, 2008.  A detailed description of this acquisition transaction is provided under the section titled “Share Exchange” in 2.01 of this Report on Form 8-K.  The financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").  The accompanying pro forma combined balance sheet presents the accounts of SmartHeat, and Taiyu as if SmartHeat’s acquisition of Taiyu occurred on December 31, 2007.  The accompanying pro forma combined statements of operations present the accounts of Taiyu and SmartHeat for the year ended December 31, 2007 as if acquisition occurred on January 1, 2007.  The acquisition of Taiyu by SmartHeat has been accounted for as recapitalization of Taiyu as Taiyu’s shareholders will be the majority shareholders of the Company.

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 55% owned subsidiary, Qingdao Yushi Heat Power Equipment Co., Ltd (Yushi).  Yushi is engaged in manufacturing and selling of heat power equipment.  All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year.  Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories.  Actual results could differ from those estimates.

Accounts and Retentions Receivable

The Company’s policy is to maintain reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

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Accounts receivable is net of unearned interest.  Unearned interest represents imputed interest on accounts receivable with due dates over one year from the invoice date discounted at the Company's borrowing rate for the year.

Inventories

Inventories are valued at the lower of cost or market with cost determined on a moving weighted average basis.  Cost of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production overheads.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation.  Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.  Depreciation of property and equipment is provided using the straight-line method with a 10% salvage value and estimated lives ranging from 5 to 20 years as follows:

Building	20 years
Vehicle	5 years
Office Equipment	5 years
Production Equipment	5 - 10 years

Revenue Recognition

Our revenue recognition policies are in compliance with Securities and Exchange Commission (SEC) 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 recorded as unearned revenue.

Foreign Currency Translation and Comprehensive Income (Loss)

The Company’s functional currency is the Renminbi (“RMB”).  For financial reporting purposes, RMB has been translated into United States dollars ("USD") as the reporting currency.  Assets and liabilities are translated at the exchange rate in effect at the balance sheet date.  Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income."  Gains and losses resulting from foreign currency transactions are included in income.  There has been no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

The Company uses Statement of Financial Accounting Standards No. 130 (SFAS 130) “Reporting Comprehensive Income.”  Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

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Recent Accounting Pronouncements

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”).  SFAS 141R will significantly change the accounting for business combinations.  Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.  SFAS 141R will change the accounting treatment for certain specific items, including:

· Acquisition costs will be generally expensed as incurred;

· Noncontrolling interests (formerly known as “minority interests” – see SFAS 160 discussion below) will be valued at fair value at the acquisition date;

· Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

· In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;

· Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

· Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

SFAS 141R also includes a substantial number of new disclosure requirements.  SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Earlier adoption is prohibited.  Accordingly, since we are a calendar year-end company we will continue to record and disclose business combinations following existing GAAP until January 1, 2009.  We expect SFAS 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”).  SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity.  The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement.  SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest.  In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated.  Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date.  SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.  SFAS 160 are effective for fiscal years, and interim periods within those fiscal

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years, beginning on or after December 15, 2008.  Like SFAS 141R discussed above, earlier adoption is prohibited.  We have not completed our evaluation of the potential impact, if any, of the adoption of SFAS 160 on our consolidated financial position, results of operations and cash flows.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under the accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value.  Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for fiscal year, including financial statements for an interim period within the fiscal year.  The Company is currently evaluating the impact, if any, that SFAS No. 157 will have on its financial statements.

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R

In September 2006, the FASB, issued SFAS, No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R,” which requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income.  Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position.  The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006.  We adopted the provisions of SFAS No. 158 for the year end 2006, and the effect of recognizing the funded status in accumulated other comprehensive income was not significant.  The new measurement date requirement applies for fiscal years ending after December 15, 2008.

Fair Value Option for Financial Assets and Financial Liabilities

In February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.”  The statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company is analyzing the potential accounting treatment.

Considering the Effects of Prior Year Misstatements in Current Year Financial Statements

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment.  The Company adopted SAB 108 in the fourth quarter of 2006 with no impact on its financial statements.

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Results of Operations

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales:

Year Ended December  31	2007						2006
		$		% of Sales				$		% of Sales
Sales		13,273,151						8,205,166
Cost of sales		(8,667,353	)		65.0	%		(5,710,540	)		70.0	%
Gross Profit		4,605,798			35.0	%		2,494,626			30.0	%
Operating Expenses		(2,369,090	)		18.0	%		(1,642,721	)		20.0	%
Income from Operation		2,236,708			17.0	%		851,905			10.0	%
Other Income (Expenses), net		24,957			0.2	%		39,587			0.5	%
Net Income		2,087,891			16.0	%		832,612			10.0	%

Sales.  Net sales for 2007 were approximately $13.27 million while our net sales in 2006, were approximately $8.21 million, an increase in revenues of $5.06 million, or 62%.  The increase was due to growing demand for our product resulting from rapid increase in newly-build residential communities in Shenyang City and surrounding area.  We also increased the number of our sales representatives to develop new customers in more cities in China. We believe that our sales will continue to grow because we are strengthening our sales efforts by hiring more sales personnel, increasing the sales channels, and improving the quality of our products

Cost of Sales.  Cost of sales for 2007 were approximately $8.67 million while our cost of sales in 2006, were approximately $5.71 million, an increase of $2.96 million, or 52%.  The increase in cost of sales can be attributed to the increase of production and sales activities in 2007.  Cost of sales as a percentage of sales was approximately 65% for 2007 and 70% for 2006.  The decrease in cost of sales as a percentage of sales in 2007 was mainly due to the economy of scale, higher the production volume, lower the cost of each product manufactured.  We believe that our cost of sales will continue to remain stable as we will improve the efficiency of manufacturing facility.

Goss Profit (Loss).  Gross profit was $4.61 million for 2007 as compared to $2.49 million for 2006, representing gross margins of approximately 35% and 30% for 2007 and 2006, respectively.  The increase in our gross profits and gross profit margin was mainly due to the increase of sales activities and due to the economy of scale discussed above.

Operating Expenses.  Operating expenses consisted of selling, general and administrative expenses totaled approximately $2.37 million for 2007 as compared to $1.64 million for 2006, an increase of approximately $726,000 or 44%.  The increased in operating expenses was mainly due to proportional increase in after-sale service, payroll, insurance and travel expenses with our increased sales and production.

Net Income.  Our net income for the year ended December 31, 2007 was $2.09 million as compared to approximately $832,000 for the year ended December 31, 2006, an increase of $1.26 million or 151%.  This increase is attributable to economy of scale combined with rapid growth in revenue and

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efficiency of operations. Our management believes that net income will continue to increase as we continue to increase our sales, offer better quality products and control our manufacturing costs.

Liquidity and Capital Resources

The following is a summary of cash provided by or used in each of the indicated types of activities during year ended December 31, 2007 and 2006:

		2007		2006
Cash provided by (used in):
Operating Activities	$	3,047	$	(51,587)
Investing Activities		(909,280)		(889,490)
Financing Activities		1,075,719		967,328

Net cash flow provided by operating activities was $3,047 in fiscal 2007, as compared to net cash flow used in operating activities of $51,587 in fiscal 2006. The increase in net cash flow from operating activities in fiscal 2007 was mainly due to decrease in inventory, increase in customer deposits, tax and other payables.  In addition, our net income has increased rapidly compared to 2006 which brought more cash to the company, but at the same time, our accounts receivable have increased which held back our cash inflows.

Net cash flow used in investing activities was $909,280 for fiscal 2007, as compared to net cash used in investing activities of $889,490 in fiscal 2006.  The increase of net cash flow used in investing activities in fiscal 2007 was mainly due to acquisition of manufacturing equipment and other office equipment and furniture during the year.

Net cash flow provided by financing activities was $1,075,719 in fiscal 2007 as compared to net cash provided by financing activities of $967,328 for fiscal 2006. The increase of net cash flow provided by financing activities in fiscal 2007 was mainly due to increased short term loans with banks and other third parties.

Off-Balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.  We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

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Contractual Obligations

The Company is obligated for the following short term loans payable as of December 31, 2007:

		Balance at December 31, 2007
Short term loan with China CITIC Bank in the PRC for 6, 000,000 RMB, or $822,526.  This loan was entered into on Apr 28, 2007 and is due on Apr 12, 2008.  This loan bears interest at 7.029% per annum.	$	822,526
Short term loan with Citibank (China) Co., Ltd with branch in the PRC for 10,200,000 RMB.  This loan was entered into on Jun 25, 2007 and is due on Jun 24, 2008.  This loan bears interest at 5.265% per annum.		1,302,333
The Company entered into a series of short term loans during 2006 and 2007 with a third party company in the PRC for total of 10, 300,000 RMB.  Some of the loans will mature on various dates in year 2008 and some of the loans are payable on demand.  These loans bear interest at 6.903% per annum.		1,412,003
The Company entered into a series of short term loans during 2006 with another third party company in the PRC for total of 2,850,000 RMB, or $390,700.  These loans are due on various dates in year 2008.  These loans bear interest at 6.903% per annum.		390,670
The Company entered into a short term loan with another third party company in the PRC for 5,050,000 RMB.  This loan was entered into on Aug 31, 2005 and was due on Aug 31, 2006.  This loan bears no interest.  Imputed interest on the loan was immaterial.  This loan became payable on demand after Aug 31, 2006.		692,292
	$	4,619,856

Risk Factors

Our business and an investment in our securities are subject to a variety of risks.  The following risk factors describe the most significant events, facts or circumstances that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan, and the market price for our securities.  Many of these events are outside of our control The risks described below are not the only ones facing our company.  Additional risks not presently known to us or that we currently believe are immaterial may also impair our business operations.  If any of these risks actually occurs, our business, financial condition or results of operation may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

Risks Related to Our Business

Our relationship with Sondex has substantially contributed to our business and its growth.  We could be adversely affected if that relationship terminated

We are one of three authorized dealers appointed by Sondex A/S for PHEs in China.  Our territory is North China.  Sondex is one of the world's leading PHE manufacturers.  Our sales of Sondex PHEs have contributed to our reputation for the high quality of the products we manufacture and sell.  If our relationship with Sondex were to terminate, our business, revenues, and results of operations could be adversely affected.

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The markets we serve are subject to seasonality and cyclical demand, which could harm our business and make it difficult to project long-term performance.

Demand for our products depends in large part upon the level of capital and maintenance expenditures of our customers and the end users.  These expenditures have historically been cyclical in nature and vulnerable to economic downturns.  Decreased capital and maintenance spending by our customers could have a material adverse effect on the demand for our products and our business, financial condition and results of operations.  In addition, this historically cyclical nature of the demand for our products limits our ability to make accurate long-term predictions about our performance.  Changing world economic and political conditions may also reduce the willingness of our customers and prospective customers to purchase our products and services.  The seasonality of our business results in significant operational challenges to our production and inventory control functions.

We derive a substantial part of our revenues from several major customers.  If we lose any of these customers or they reduce the amount of business they do with us, our revenues may be seriously affected.

Our five largest customers accounted for 48.5% of our revenues for the year ended December 31, 2007 and our ten largest customers accounted for 64.5% our revenues for the year ended December 31, 2007.  Our largest customer accounted for 21% of our revenues in the year ended December 31, 2007.  These customers may not maintain the same volume of business with us in the future.  If we lose any of these customers or they reduce the amount of business they do with us, our revenues may be seriously affected.

We use estimates when accounting for contracts.  Changes in estimates could affect our profitability and overall financial position.

Contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues.  Due to the size and nature of many of our contracts, the estimation of total revenues and costs at completion is complicated and subject to many variables.  For example, assumptions have to be made regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials.  Similarly, assumptions have to be made regarding the future impact of efficiency initiatives and cost reduction efforts.  Incentives, awards, or penalties related to performance on contracts are considered in estimating revenue and profit rates and are recorded when there is sufficient information to assess anticipated performance.  Because of the significance of the judgments and estimation processes described above, it is possible that materially different amounts could be obtained if different assumptions were used or if the underlying circumstances were to change.  Changes in underlying assumptions, circumstances, or estimates may have a material adverse effect upon future period financial reporting and performance.

We cannot be certain that our product innovations and marketing successes will continue.

We believe that our past performance has been based on, and our future success will depend, in part, upon our ability to continue to improve our existing products through product innovation and to develop, market and produce new products.  We cannot assure you that we will be successful in introducing, marketing and producing any new products or product innovations, or that we will develop and introduce in a timely manner innovations to our existing products which satisfy customer needs or achieve market acceptance.  Our failure to develop new products and introduce them successfully and in a timely manner could harm our ability to grow our business and could have a material adverse effect on our business, results of operations and financial condition.

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Our technology may not satisfy the changing needs of our customers.

With any technology, including the technology of our current and proposed products, there are risks that the technology may not successfully address all of our customers' needs.  While we have already established successful relationships with our customers, there needs may change or vary.  This may affect the ability of our present or proposed products to address all of our customers' ultimate technology needs in an economically feasible manner.

We may not be able to keep pace with rapid technological changes and competition in our industry.

While we believe that we have hired or engaged personnel and outside consultants who have the experience and ability necessary to keep pace with advances in technology, and while we continue to seek out and develop "next generation" technology through our research and development efforts, there is no guarantee that we will be able to keep pace with technological developments and market demands in this evolving industry and market.  In addition, our industry is highly competitive.  Although we believe that we have developed strategic relationships to best penetrate the China market, we face competition from other manufacturers of product similar to our products.  Some of our competitors' advantages over us in both the areas of products, marketing, and services include the following:

· Substantially greater revenues and financial resources;

· Stronger brand names and consumer recognition;

· The capacity to leverage marketing expenditures across a broader portfolio of products;

· Pre-existing relationships with potential customers;

· More resources to make acquisitions;

· Lower labor and development costs; and

· Broader geographic presence.

We will face different market dynamics and competition if we expand our market to other countries.  In some international markets, our future competitors would have greater brand recognition and broader distribution than we have.  We may not be as successful as our competitors in generating revenues in international markets due to our inability to provide products that are attractive to the market in other countries, the lack of recognition of our brand, and other factors.  As a result, any international expansion efforts could be more costly and less profitable than our efforts in the domestic market in China.

If we are not as successful as our competitors in our target markets, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could materially harm our business.

We depend on a limited number of suppliers of components for our products and if we are unable to obtain these components when needed, we would experience delays in manufacturing our products and our financial results could be adversely affected.

We acquire most of the components for the manufacture of our products from a limited number of suppliers.  In order for us to have our products manufactured, these components must be available at the

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right level of quality and at the right price.  Suppliers of some of these components require us to place orders with significant lead-time to assure supply in accordance with our requirements.  Certain of these suppliers are currently the sole source of one or more components upon which we are dependent and alternative sources would not be available for those components unless we were to redesign our products.  Other components could be obtained from alternative suppliers without redesign, but only at higher prices than we currently pay or for delivery later than required by our production schedule.  We rely on Sondex for parts for our PHE products and PHE Units.  If we were unable to obtain adequate supplies of parts from Sondex at commercially reasonable prices, our operations could be interrupted.  We maintain a relatively small inventory of component parts for resale and our parts services business would suffer if the supply of replacement parts was reduced or terminated by our suppliers.  If suppliers are not able to provide these critical components on the dates and at the prices scheduled, we may not be able to promptly and cost-effectively manufacture our products to meet customer orders which could harm our credibility and the market acceptance and sales of our products.  Increased costs associated with supplied materials or components could increase our costs and reduce our profitability if we are unable to pass these cost increases on to our customers.

We are a major purchaser of certain goods and raw materials that we use in the manufacturing process of our products, and price changes for the commodities we depend on may adversely affect our profitability.

Our profitability generally depends upon the margin between the cost to us of certain goods used in the manufacturing process, such as plates, pumps, water tanks, sensors and controlling systems and other raw materials as well as our fabrication costs associated with converting such goods and raw materials compared to the selling price of our products, and the overall supply of raw materials.  It is our intention to base the selling prices of our products upon the associated raw materials costs to us.  However, we may not be able to pass all increases in raw material costs and ancillary acquisition costs associated with taking possession of the raw materials through to our customers.  Although we are currently able to obtain adequate supplies of raw materials, it is impossible to predict future availability.  With the rapid growth of China's economy, the demand for certain raw materials is great while the supply may be more limited.  This may affect our ability to secure the necessary raw materials in a cost-effective manner for production of our products at the volume of purchase orders that we anticipate receiving.  The inability to offset price increases of raw material by sufficient product price increases, and our inability to obtain raw materials, would have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

Our products may contain defects, which could adversely affect our reputation and cause us to incur significant costs.

Despite testing by us defects may be found in existing or new products.  Any such defects could cause us to incur significant return and exchange costs, re-engineering costs, divert the attention of our engineering personnel from product development efforts, and cause significant customer relations and business reputation problems.  Any such defects could force us to undertake a product recall program, which could cause us to incur significant expenses and could harm our reputation and that of our products.  If we deliver products with defects, our credibility and the market acceptance and sales of our products could be harmed.

Due to the nature of our business and products, we may be liable for damages based on product liability and warranty claims.

Due to the high pressures and temperatures at which many of our products are used and the fact that some of our products are relied upon by our customers or end users in their facilities or operations, or

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are manufactured for relatively broad consumer use, we face an inherent risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in bodily injury, property damage or economic loss.  We believe that we meet or exceed existing professional specification standards recognized or required in the industries in which we operate.  We have been subject to claims in the past, none of which have had a material adverse effect on our financial condition or results of operations, and we may be subject to claims in the future.  Although we currently maintain product liability coverage, which we believe is adequate for the continued operation of our business, such insurance may become difficult to obtain or unobtainable in the future on terms acceptable to us and may not cover warranty claims.  A successful product liability claim or series of claims against us, including one or more consumer claims purporting to constitute class actions, in excess of our insurance coverage or a significant warranty claim or series of claims against us could materially decrease our liquidity and impair our financial condition.

We may experience delays in launching our products, which would negatively impact our position in the marketplace.

We may experience delays in bringing new products to market, due to design, manufacturing or distribution problems.  Such delays could adversely affect our ability to compete effectively and may adversely affect our relationship with our customers.  Any such delays would adversely affect our revenues and our ability to become profitable.

If we are not able to manage our growth, we may not be profitable.

Our success will depend on our ability to expand and manage our operations and facilities.  There can be no assurance that we will be able to manage our growth, meet the staffing requirements for our business or for additional collaborative relationships or successfully assimilate and train new employees.  In addition, to manage our growth effectively, we may be required to expand our management base and enhance our operating and financial systems.  If we continue to grow, there can be no assurance that the management skills and systems currently in place will be adequate or that we will be able to manage any additional growth effectively.  Failure to achieve any of these goals could have a material adverse effect on our business, financial condition or results of operations.

We face risks associated with managing international operations.

Almost all of our operations are conducted in China.  There are a number of risks inherent in doing business in such market, including the following:

· unfavorable political or economical factors;

· fluctuations in foreign currency exchange rates;

· potentially adverse tax consequences;

· unexpected legal or regulatory changes;

· lack of sufficient protection for intellectual property rights;

· difficulties in recruiting and retaining personnel, and managing international operations; and

· less developed infrastructure.

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Our inability to manage successfully the risks inherent in our international activities could adversely affect us.   Because of the risks associated with conducting an international operation (including the risks listed above), there can be no assurances that our international expansion will be successful.

We may not be able to adequately protect our technology and other proprietary rights.

Our success will depend in part on our ability to obtain and protect our products, methods, processes and other technologies, to preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties both domestically and abroad.  We have patents and patent applications pending in China, and have worked and continue to work closely with Chinese patent officials to preserve our intellectual property rights.  Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:

· Our applications for patents and trademarks relating to our business may not be granted and, if granted, may be challenged or invalidated;

· Issued patents and trademarks may not provide us with any competitive advantages;

· Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;

· Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we develop; or

· Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.

In addition, while we have developed substantial goodwill for our Taiyu brand in China, our application for the registration of that mark is still pending and there is no assurance that our application will be granted.

Effective protection of intellectual property rights may be unavailable or limited in certain foreign countries.  If we are unable to adequately protect our proprietary rights, then it would have a negative impact on our operations.

We may be subject to claims that we have infringed the proprietary rights of others, which could require us to obtain a license or change our designs.

Although we do not believe that any of our products infringe the proprietary rights of others, there is no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against us or that any such assertions or prosecutions will not materially adversely affect our business.  Regardless of whether any such claims are valid or can be successfully asserted, defending against such claims could cause us to incur significant costs and could divert resources away from our other activities.  In addition, assertion of infringement claims could result in injunctions that prevent us from distributing our products.  If any claims or actions are asserted against us, we may seek to obtain a license to the intellectual property rights that are in dispute.  Such a license may not be available on reasonable terms, or at all, which could force us to change our designs.

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We may need additional capital to execute our business plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.

Capital requirements are difficult to plan in our rapidly changing industry.  Although we currently expect to have sufficient funding for the next 12 months, we expect that we will need additional capital to fund our future growth.

Our ability to obtain additional capital on acceptable terms or at all is subject to a variety of uncertainties, including:

· Investors' perceptions of, and demand for, companies in our industry;

· Investors' perceptions of, and demand for, companies operating in China

· Conditions of the U.S. and other capital markets in which we may seek to raise funds;

· Our future results of operations, financial condition and cash flows;

· Governmental regulation of foreign investment in companies in particular countries;

· Economic, political and other conditions in the United States, China, and other countries; and

· Governmental policies relating to foreign currency borrowings.

We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings.  There is no assurance that we will be successful in locating a suitable financing transaction in a timely fashion or at all.  In addition, there is no assurance that we will be successful in obtaining the capital we require by any other means.  Future financings through equity investments are likely to be dilutive to our existing stockholders.  Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors.  Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects.  Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.  We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

If we cannot raise additional funds on favorable terms or at all, we may not be able to carry out all or parts of our strategy to maintain our growth and competitiveness or to fund our operations.  If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

We face risks associated with currency exchange rate fluctuations.

Although we currently transact parts of our business in U.S., a larger portion of our revenues is denominated in other foreign currencies.  Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our operating results.  Fluctuations in the value of the U.S. dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.

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Historically, we have not engaged in exchange rate hedging activities.  Although we may in the future implement hedging strategies to mitigate this risk, these strategies may not eliminate our exposure to foreign exchange rate fluctuations.

Our business could be subject to environmental liabilities.

As is the case with manufacturers of similar products, we use certain hazardous substances in our operations.  Currently we do not anticipate any material adverse effect on our business, revenues or results of operations,  as a result of compliance with Chinese environmental laws and regulations.  However, the risk of environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of our business, and there is no assurance that material environmental liabilities and compliance charges will not arise in the future.

If we lose our key personnel or are unable to attract and retain additional qualified personnel, the quality of our services may decline and our business may be adversely impacted.

We rely heavily on the expertise, experience and continued services of our senior management, including our president and chief executive officer.  Loss of their services could adversely impact our ability to achieve our business objectives.  We believe our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled personnel.  The rapid growth of the economy in China has caused intense competition for qualified personnel.  We cannot guarantee that any employee will remain employed by us for any definite period of time or that we will be able to attract, train or retain qualified personnel in the future and the loss of personnel could have a material adverse effect on our business and company.  Qualified employees periodically are in great demand and may be unavailable in the time frame required to satisfy our customers' requirements.  We need to employ additional personnel to expand our business.  There is no assurance that we will be able to attract and retain sufficient numbers of highly skilled employees in the future.  The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.

We will incur significant costs as a result of operating as a public company, our management will be required to devote substantial time to new compliance initiatives.

While we are a public company, our compliance costs to date have not been substantial in light of our limited operations.  Taiyu has never operated as a public company.  As a public company with substantial operations, we will incur increased legal, accounting and other expenses.  The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is time-consuming and costly.

It will also be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").  Certain members of our management have limited or no experience operating a company whose securities are traded or listed on an exchange, nor with SEC rules and requirements, including SEC reporting practices and requirements that are applicable to a publicly traded company.  We will need to recruit, hire, train and retain additional financial reporting, internal controls and other personnel in order to develop and implement appropriate internal controls and reporting procedures.  If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act.

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If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud.  Any inability to report and file our financial results accurately and timely could harm our business and adversely impact the trading price of our common stock.

We are required to establish and maintain internal controls over financial reporting, disclosure controls, and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC thereunder.  Our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs.  Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate.  Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Because we are not yet required to comply with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act, as well as the rules enacted by the SEC and the national stock exchanges as a result of the Sarbanes-Oxley Act, require the implementation of various measures relating to corporate governance.  These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges.  Because we are not presently required to comply with many of the corporate governance provisions, we have not yet adopted these measures.

We do not have a board member that qualifies as an "audit committee financial expert" or that qualifies as "independent" as that term is used in the rules of the Securities and Exchange Commission or the Nasdaq Marketplace Rules.

Until we comply with the corporate governance measures adopted by the national securities exchanges after the enactment of Sarbanes-Oxley Act, regardless of whether such compliance is required, the absence of standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds in the future if we determine it is necessary to raise additional capital.  We intend to comply with all applicable corporate governance measures relating to director independence as soon as practicable.

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New rules, including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our common stock.

We may be unable to attract and retain those qualified officers, directors and members of board of directors committees required to provide for our effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers.  The perceived personal risk associated with the Sarbanes-Oxley Act may deter qualified individuals from accepting roles as directors and executive officers.

Further, some of these recent changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence and level of experience in finance and accounting matters.  We may have difficulty attracting and retaining directors with the requisite qualifications.  If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain the listing of our common stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.

We are a holding company that depends on cash flow from our wholly-owned subsidiary to meet our obligations.

After the Share Exchange, we became a holding company with no material assets other than the stock of our wholly-owned subsidiary.  Accordingly, all our operations will be conducted by Taiyu, our wholly-owned subsidiary.  We currently expect that the earnings and cash flow of our subsidiary will primarily be retained and used by us in its operations.

All of Taiyu's liabilities survived the Share Exchange and there may be undisclosed liabilities that could have a negative impact on our financial condition.

Before the Share Exchange, certain due diligence activities on the Company and Taiyu were performed.  The due diligence process may not have revealed all liabilities (actual or contingent) of the Company and Taiyu that existed or which may arise in the future relating to the Company's activities before the consummation of the Share Exchange.  Notwithstanding that all of the Company's pre-closing liabilities were transferred to SplitCo pursuant to the Transfer Agreement Split-Off, it is possible that claims for such liabilities may still be made against us, which we will be required to defend or otherwise resolve.  The provisions and terms of the Transfer Agreement and Split-Off may not be sufficient to protect us from claims and liabilities and any breaches of related representations and warranties.  Any liabilities remaining from the Company's pre-closing activities could harm our financial condition and results of operations.

Because Taiyu has become public by means of a share exchange, we may not be able to attract the attention of major brokerage firms.

There may be risks associated with Taiyu's becoming public through the Share Exchange Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock.  No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on our behalf.

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Our director and Chief Executive Officer has the ability to obtain a substantial ownership interest in one of our major stockholders which could give him significant influence over certain major decisions on which our stockholders may vote and may discourage an acquisition of us.

Mr. Jun Wang, our director and Chief Executive Officer, was at one time the owner of 50% of the equity in Beijing YSKN Machinery & Electronic Equipment Co., Ltd ("YSKN"), a company which is the record holder of 30.19% of our outstanding common stock.  He transferred his 50% interest in YSKN to a friend and, by means of his personal relationship with that friend, believes that he has the right to the return of that 50% interest upon request.  If Mr. Wang were to do so, he would have substantial influence over the actions of that substantial stockholder.  As a result, Mr. Wang could have significant influence over all corporate actions requiring stockholder approval, irrespective of how the Company's other stockholders may vote, including the following actions:

· elect or defeat the election of our directors;

· amend or prevent amendment of our certificate of incorporation or bylaws;

· effect or prevent a merger, sale of assets or other corporate transaction; and

· control the outcome of any other matter submitted to the shareholders for vote.

The interests of Mr. Wang may differ from the interests of other stockholders.  This may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Our charter documents contain provisions that could discourage or prevent a potential takeover, even if such a transaction would be beneficial to the Company's stockholders.

The Company's certificate of incorporation and By-Laws could make more difficult the acquisition of the Company by means of a tender offer, a proxy contest or otherwise, and the removal of incumbent officers and directors.  See "Description of Securities."

New accounting standards could result in changes to our methods of quantifying and recording accounting transactions, and could affect our financial results and financial position.

Changes to Generally Accepted Accounting Principles in the United States (GAAP) arise from new and revised standards, interpretations, and other guidance issued by the Financial Accounting Standards Board, the SEC, and others.  In addition, the U.S. Government may issue new or revised Cost Accounting Standards or Cost Principles.  The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the acceptability of a current method and replacing it with an entirely different method, among others.  Such changes could result in unanticipated effects on our results of operations, financial position, and other financial measures.

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Risks Related to Our Business being Conducted in China

We are subject to international economic and political risks over which we have little or no control and may be unable to alter our business practice in time to avoid the possibility of reduced revenues.

Our business is conducted in China.  Doing business outside the United States, particularly in China, subjects us to various risks, including changing economic and political conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation.  We have no control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter out business practice in time to avoid the possibility of reduced revenues.

China's economic policies could affect our business.

Substantially all of our assets are located in China and all of our revenue is derived from our operations in China.  Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China.

While China's economy has experienced significant growth in the past twenty years, such growth has been uneven, both geographically and among various sectors of the economy.  The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources.  Some of these measures benefit the overall economy of China, but they may also have a negative effect on us.  For example, operating results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations.  The economy of China has been changing from a planned economy to a more market-oriented economy.  In recent years our government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets, and the establishment of corporate governance in business enterprises; however, a substantial portion of productive assets in China are still owned by our government.  In addition, our government continues to play a significant role in regulating industry development by imposing industrial policies.  It also exercises significant control over China's economic growth through the allocation of resources, the control of payment of foreign currency-denominated obligations, the setting of monetary policy and the provision of preferential treatment to particular industries or companies.

We may have difficulty establishing adequate management, legal and financial controls in China.

China historically has not adopted a Western style of management and financial reporting concepts and practices, as well as in modern banking, computer and other control systems.  We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in China.  As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards.

Our bank accounts are not insured or protected against loss.

We maintain our cash with various banks and trust companies located in China.  Our cash accounts are not insured or otherwise protected.  Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company.

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As we have limited business insurance coverage in China, any loss which we suffer may not be insured or may be insured to only a limited extent.

The insurance industry in China is still in an early state of development and insurance companies located in China offer limited business insurance products.  In the event of damage or loss to our properties, our insurance may not provide as much coverage as if we were insured by insurance companies in the United States.

Tax laws and regulations in China are subject to substantial revision, some of which may adversely affect our profitability.

The Chinese tax system is in a state of flux, and it is anticipated that China's tax regime will be altered in the coming years.  Tax benefits that we presently enjoy may not be available in the wake of these changes, and we could incur tax obligations to our government that are significantly higher than anticipated.  These increased tax obligations could negatively impact our financial condition and our revenues, gross margins, profitability and results of operations may be adversely affected as a result.

Certain tax exemptions that we presently enjoy in China are scheduled to expire over the next several years.

As a substantial portion of our operations are located in a privileged economic zone, we are entitled to certain tax benefits.  When these exemptions expire, our income tax expenses will increase, reducing our net income below what it would be if we continued to enjoy these exemptions.

We may face judicial corruption in China.

Another obstacle to foreign investment in China is corruption.  There is no assurance that we will be able to obtain recourse in any legal disputes with suppliers, customers or other parties with whom we conduct business, if desired, through China's poorly developed and sometimes corrupt judicial systems.

If relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease.

At various times during recent years, the United States and China have had significant disagreements over political and economic issues.  Controversies may arise in the future between these two countries.  Any political or trade controversies between the United States and China, whether or not directly related to our business, could reduce the price of our common stock.

China could change its policies toward private enterprise or even nationalize or expropriate private enterprises.

Our business is subject to significant political and economic uncertainties and may be affected by political, economic and social developments in China.  Over the past several years, the Chinese government of T has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization.  The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice.

Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, or devaluations of currency could cause a decline in the price of our common

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stock, should a market for our common stock ever develop.  Nationalization or expropriation could even result in the total loss of your investment.

The nature and application of many laws of China create an uncertain environment for business operations and they could have a negative effect on us.

The legal system in China is a civil law system.  Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents.  In 1979, China began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in China and to regulate foreign investment.  Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade.  The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could cause a decline in the price of our common stock.  In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.

As we import goods into and export goods out of China, fluctuation of the Renminbi may affect our financial condition by affecting the volume of cross-border money flow.

Although we use the United States dollar for financial reporting purposes, most of the transactions affected by our operating subsidiaries are denominated in China's Renminbi.  The value of the Renminbi fluctuates and is subject to changes in China's political and economic conditions.  We do not currently engage in hedging activities to protect against foreign currency risks.  Even if we chose to engage in such hedging activates, we may not be able to do so effectively.  Future movements in the exchange rate of the Renminbi could adversely affect our financial condition as we may suffer financial losses when transferring money raised outside of China into the country or paying vendors for services performed outside of China.

We may not be able to obtain regulatory approvals for our products.

The manufacture and sale of our products in China are regulated by The People's Republic of China and the local provincial governments.  Although our licenses and regulatory filings are current, the uncertain legal environment in China and our industry may be vulnerable to local government agencies or other parties who wish to renegotiate the terms and conditions of, or terminate their agreements or other understandings with us.

It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in China.

As our executive officers and several of our directors, including the chairman of our Board of Directors, are Chinese citizens, it may be difficult, if not impossible, to acquire jurisdiction over these persons in the event a lawsuit is initiated against us and/or our officers and directors by a stockholder or group of stockholders in the United States.  Also, because our operating subsidiaries and assets are located in China, it may be extremely difficult or impossible for you to access those assets to enforce judgments rendered against us or our directors or executive offices by United States courts.  In addition, the courts in China may not permit the enforcement of judgments arising out of United States federal and state corporate, securities or similar laws.  Accordingly, United States investors may not be able to enforce judgments against us for violation of United States securities laws.

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Risks Related to Our Securities

Our common stock price is subject to significant volatility, which could result in substantial losses for investors.

Prices for our shares are determined in the marketplace and may accordingly be influenced by many factors, including, but not limited to:

· limited "public float" in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock

· technological innovations or new products and services by us or our competitors;

· intellectual property disputes;

· additions or departures of key personnel;

· the depth and liquidity of the market for the shares;

· quarter-to-quarter variations in our operating results;

· announcements about our performance as well as the announcements of our competitors about the performance of their businesses;

· investors' evaluations of our future prospects and the food industry generally;

· changes in earnings estimates by, or failure to meet the expectations of, securities analysts;

· our dividend policy; and

· general economic and market conditions.

In addition, the stock market often experiences significant price and volume fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded.  These market fluctuations could adversely affect the trading price of our shares.

The price at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market.  Investors may be unable to sell their shares of common stock at or above their purchase price, which may result in substantial losses.

Shares of our common stock lack a significant trading market.

Shares of our common stock are not eligible as yet for trading on any national securities exchange.  Our common stock may be   quotation in the over-the-counter market on the OTC Bulletin Board or in what are commonly referred to as "pink sheets."  These markets are highly illiquid.  Although we intend to apply for listing of our common stock on an exchange, there can be no assurance if and when the initial listing criteria could be met or if such application would be granted, or that the trading of the common stock will be sustained.  There is no assurance that an active trading market in our common stock will develop, or if such a market develops, that it will be sustained.  In addition, there is a greater chance for market volatility for securities that quoted on the OTC Bulletin Board as opposed to securities that trade on a national exchange.  This volatility may be caused by a variety of factors, including the lack

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of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations and generally lower trading volume.  As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the common stock, or to obtain coverage for significant news events concerning us, and the common stock would become substantially less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes.

Future sales of shares of our common stock by our stockholders could cause our stock price to decline.

We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price prevailing from time to time.  If our stockholders sell substantial amounts of our common stock in the public market upon the effectiveness of a registration statement, or upon the expiration of any holding period under Rule 144, such sales could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.  The shares of common stock issued in the Share Exchange will be freely tradable upon the earlier of (i) effectiveness of a registration statement covering such shares; and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 under the Securities Act and the sale of such shares could have a negative impact on the price of our common stock.

We may issue additional shares of our capital stock or debt securities to raise capital or complete acquisitions, which would reduce the equity interest of our stockholders.

Our articles of incorporation authorizes the issuance of up to 75,000,000 shares of common stock, par value $.001 per share.  There are approximately 52,450,100 authorized and unissued shares of our common stock which have not been reserved and are available for future issuance.  Although we have no commitments as of the date of this offering to issue our securities, we may issue a substantial number of additional shares of our common stock, to complete a business combination or to raise capital.  The issuance of additional shares of our common stock:

· may significantly reduce the equity interest of our existing stockholders; and

· may adversely affect prevailing market prices for our common stock.

The application of the "penny stock" rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

Our common stock may be subject to the "penny stock" rules adopted under Section 15(g) of the Securities Exchange Act of 1934.  The penny stock rules apply to non-Nasdaq companies whose common stock trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission, which contains the following:

· a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

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· a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities laws;

· a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the "bid" and "ask" price;

· a toll-free telephone number for inquiries on disciplinary actions;

· definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and

· such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation.

Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer with the following:

· the bid and offer quotations for the penny stock;

· the compensation of the broker-dealer and our salesperson in the transaction;

· the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

· monthly account statements showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  If we remain subject to the penny stock rules for any significant period, that could have an adverse effect on the market, if any, for our securities.  If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

Our management can obtain influence over a significant amount of our common stock, giving them influence or control in corporate transactions and other matters, and their interests could differ from those of other stockholders.

Although, our principal executive officers and directors currently do not own any of our outstanding common stock, this might change.  Mr. Jun Wang, our director and Chief Executive Officer, was at one time the owner of 50% of the equity in Beijing YSKN Machinery & Electronic Equipment Co., Ltd ("YSKN"), a company which is the record holder of 30.19% of our outstanding common stock.  He transferred his 50% interest in YSKN to a friend and, by means of his personal relationship with that friend, believes that he has the right to the return of that 50% interest upon request.  If Mr. Wang were to do so, he would have substantial influence over the actions of that substantial stockholder and the ability

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to influence matters requiring a shareholder vote, including the election of directors, the adoption of any amendment to our articles of incorporation or bylaws, and the approval of significant corporate transactions.  Their control may delay or prevent a change of control on terms favorable to our other stockholders and may adversely affect your voting and other stockholders rights.

We have not paid dividends in the past and do not expect to pay dividends in the future.  Any return on investment may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future.  The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant.  If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

Capital outflow policies in China may hamper our ability to declare and pay dividends to our shareholders.

China has adopted currency and capital transfer regulations.  These regulations may require us to comply with complex regulations for the movement of capital.  Although our management believes that we will be in compliance with these regulations, should these regulations or the interpretation of them by courts or regulatory agencies change, we may not be able to pay dividends to our shareholders outside of China.  In addition, under current Chinese law, we must retain a reserve equal to 10 percent of net income after taxes, not to exceed 50 percent of registered capital.  Accordingly, this reserve will not be available to be distributed as dividends to our shareholders.  We presently do not intend to pay dividends in the foreseeable future.  Our management intends to follow a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business.

Security Ownership of Certain Beneficial Owners and Management

The following tables set forth certain information as of April 15, 2008 regarding the number of shares of common stock beneficially owned by (i) each person or entity known to us to own more than 5% of our common stock; (ii) our Chief Executive Officer and our two other officers (the "Named Executive Officers"); (iii) our director; and (iv) all of our executive officers and our director as a group.

Unless otherwise indicated, each of the stockholders named in the table below has sole voting and investment power with respect to such shares of common stock.  Except as otherwise indicated, the address of each of the stockholders listed below is: c/o Shenyang Taiyu Electronic & Machinery Co., Ltd., A-1, 10, Street 7, Shenyang Economic and Technological Development Zone, Shenyang China. 110027.

Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of April 14, 2008, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding such options and warrants, but are not deemed outstanding for computing the percentage of any other stockholder.

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Name of Beneficial Owner	Number of Shares Beneficially Owned(1)(2)		Percentage Beneficially Owned(1)(2)(3)
5% Stockholders:
Beijing YSKN Machinery & Electronic Equipment Co., Ltd(4)		6,808,000		30.19	%
Yang In Cheol		3,848,000		17.06	%
ShenYang ZhiCe Investment Co., Ltd		2,960,000		13.12	%
Directors and Named Executive Officers
All Directors and named Executive Officers as a group		--		--

___________________________

(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities and Exchange Act of 1934.  Unless otherwise noted, we believe that all person named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

(2) Unless otherwise indicated, includes shares owned by a spouse, minor children, and relatives sharing the same home, as well as entities owned or controlled by the named beneficial owner.  Unless otherwise noted, shares are owned of record and beneficially by the named beneficial owner.

(3) Based on 22,549,900 shares of common stock issued and outstanding as of April 14, 2008.

(4) Beijing YSKN Machinery & Electronic Equipment Co., Ltd ("YSKN") is a sales agent of Taiyu and is owned by Messrs. Liu Tong Yue and Li Fang, each holding 50% of the equitable and legal rights, title and interests in and to the share capital of YSKN.  Mr. Wang, our sole director, President and Chief Executive Officer Mr. Jun Wang, our director and Chief Executive Officer, was at one time the owner of 50% of the equity in YSKN. He transferred his 50% interest in YSKN to Mr. Liu Tong Yue, a friend, and, by means of his personal relationship with him, believes that he has the right to the return of that 50% interest upon request.

Executive Officers and Directors

The following persons became our executive officers and directors on April 14, 2008, upon effectiveness of the Share Exchange and hold the positions set forth opposite their respective names.

Name	Age	Position
Jun Wang	40	Sole Member of Board of Directors, President & Chief Executive Officer
Zhijuan Guo	43	Chief Financial Officer and Treasurer
Huajun Ai	37	Corporate Secretary

Our directors hold office for one-year terms and until their successors have been elected and qualified.  Our officers are elected annually by the board of directors and serve at the discretion of the board.

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Biographies

Jun Wang, Chairman & CEO

Mr. Wang is one of the original founders of Taiyu in 2002.  Prior to that, from 2000 to 2002, he was the Vice General Manager of Beijing HotNet Company.  From 1996 to 1999, he was a sales manager for Honeywell International Inc.  From 1994 to 1996, he was a sales manager for Alfa Laval.  Mr. Wang obtained his Master's degree in Engineering from Tsinghua University in 1989.

Zhijuan Guo, CFO

Ms. Guo was appointed Chief Financial Officer of Taiyu in 2002.  Prior to that time, from December, 2000 to June, 2002, she served as the Production Planning Director of Shenyang Thermoelectric Co. Ltd.  From March, 1999 to November, 2000, she served as Auditing Director of Shenyang Dongyu Group Corp.  From July, 1993 to February, 1999, Ms. Guo served as Finance Manager of Shenyang Dongyu Real Estate Development Company.  Ms. Guo obtained her MBA degree from Shenyang NorthEastern University in 2001.

Huajun Ai, Corporate Secretary

Ms. Ai joined Taiyu in 2002 as Corporate Secretary.  Prior to that time, from December, 2000 to October, 2002, she served as an accountant at Shenyang Dongyu International Trade Co., Ltd.  Prior to that time, from July, 1994 to November, 2000 Ms. Ai served as an accountant at Northeast Jincheng Industrial Corp.  Ms. Ai obtained her Bachelor's degree in Foreign Trade Accounting from Shenyang North Eastern University in 1994.

There are no family relationships among our directors and executive officers.

Employment Agreements

On January 1, 2008, Taiyu entered into a three year employment agreement with Mr. Jun Wang, which agreement may be renewed at the end of the initial term upon mutual agreement between Mr. Jun Wang and Taiyu.  Either party shall give written notice to the other party of its intension not to renew the agreement at least 30 days prior to the end of the initial term.  Pursuant to the terms of the employment agreement, Mr. Jun Wang shall receive a salary in an amount that is not less than the lowest minimum wage per month paid in Shenyang and shall be based on the uniform wage and incentive system in Shenyang. In addition, Mr. Jun Wang shall be entitled to overtime pay in accordance with the applicable law.

On January 1, 2008, Taiyu entered into a three year employment agreement with Ms. Zhijuan Guo, at terms identical to the terms of the employment agreement with Mr. Jun Wang.

Executive Compensation

The following Summary Compensation Table sets forth, for the years indicated, all cash and other compensation paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Named Executive Officers who received or are entitled to receive remuneration in excess of $100,000 during the stated periods:

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Name and Principal Position	Year	Salary ($)(1)	Other Annual Compensation ($)	Total ($)(1)
Jun Wang President and Chief Executive Officer	2005	17,808	--	17,808
	2006	18,000	--	18,000
	2007	18,000	--	18,000
Zhijuan Guo Treasurer and Chief Financial Officer	2005	10,684	--	10,684
	2006	10,684	--	10,684
	2007	10,684	--	10,684

___________________________

(1)           based on an exchange rate of 7.3 Yuan = $1.00

Outstanding Equity Awards at Fiscal Year-End

As of December 31, 2007, there were no outstanding equity awards held by executive officers of our company.

Board Independence

Mr. Wang doe not qualify as "independent" director, as that term is defined by applicable listing standards of The NASDAQ Stock Market and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.  As a requirement to listing the Company's common stock on The NASDAQ Capital Market or other exchange, the Company intends to add independent directors.  The board's composition (and that of its committees) will be subject to the corporate governance provisions of its primary trading market, including the requirement for appointment of independent directors in accordance with the Sarbanes-Oxley Act of 2002, and regulations adopted by the SEC and NASD pursuant thereto.

Director Compensation

We do not currently compensate our directors for acting as such, although we may do so in the future, including with cash and/or equity.  We reimburse our directors for reasonable expenses incurred in connection with their service as directors.  As of April 14, 2008, none of our directors received any compensation from us.

Code of Ethics

We intend to adopt a code of ethics that applies to our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer, but have not done so to date due to our relatively small size.

Board Committees

Audit Committee

We intend to establish an audit committee of the board of directors, which will consist of independent directors, of which at least one director will qualify as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.  The audit committee's duties would be to recommend to our

39

board of directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles.  The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls.  The audit committee would at all times be composed exclusively of directors who are, in the opinion of our board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

Compensation Committee

We intend to establish a compensation committee of the board of directors.  The compensation committee would review and approve our salary and benefits policies, including compensation of executive officers.  The compensation committee would also administer our stock option plans and recommend and approve grants of stock options under such plans.

Stock Incentive Plans

We have currently no stock incentive plan adopted.  We intend to adopt a stock incentive plan in order to further the growth and general prosperity of the Company by enabling our employees, contractors and service providers to acquire our common stock, increasing their personal involvement in the Company and thereby enabling the Company to attract and retain its employees, contractors and service providers.

Certain Relationships and Related Transactions

YSKN, our 30.19% shareholder was one of our sales agent in 2006 and 2007 and one of our suppliers in 2006.  Sales through such sales agent amounted to $226,105 and $174,901 in the years 2006 and 2007, respectively.  During the year 2006 we purchased raw material from YSKN in the amount of 215,031; in the year 2007, however, we did not make any purchases of raw material from YSKN.  As of April 14, 2008, we currently owe to YSKN $138,585 from a loan provided by YSKN.  Our sales agency relationship with YSKN will not continue after the Share Exchange.

YSKN is held by Mr. Liu TongYue and Mr. Li Fang, each holding 50% of the equitable and legal rights, title and interests in and to the share capital of YSKN.  Mr. Wang, our sole director, President and Chief Executive Officer, was at one time the owner of 50% of the equity in YSKN. He transferred his 50% interest in YSKN to Mr. Liu Tong Yue, a friend ,and, by means of his personal relationship with him,, believes that he has the right to the return of that 50% interest upon request.

Item 3.02 Unregistered Sales of Equity Securities.

Pursuant to the Share Exchange Agreement, we issued an aggregate of 18,500,000 shares of common stock to nine non-U.S. persons (as contemplated by Rule 902 under the Securities Act of 1933).  The consideration for the issuance of these shares of common stock was the exchange by such nine non-U.S. persons of 100% of the share capital of Taiyu.  These issuances were exempt from registration requirements under Regulation S under the Securities Act of 1933, as amended.  The shares issued pursuant to Regulation S were issued in an "offshore transaction" as defined in, and pursuant to, Rule 902 under the Securities Act of 1933, on the basis that the purchaser was not offered the shares in the United States and did not execute or deliver any agreement in the United States.

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Description of our Securities

The following description of our securities and provisions of our articles of incorporation and bylaws is only a summary.  We refer to the copies of our articles of incorporation and bylaws, copies of which have been incorporated by reference as exhibits to this Report on Form 8-K.  The following discussion is qualified in its entirety by reference to such exhibits.

Authorized Capital Stock

The total number of stock authorized that may be issued by us is 75,000,000 shares of common stock with a par value of $0.001 per share.  No other class of stock is authorized.

Capital Stock Issued and Outstanding

After giving effect to the Share Exchange and the Split-Off, our issued and outstanding securities, on a fully diluted basis, is as follows:

· 22,549,900 shares of common stock; approximately 82.04% of which shares will be held by the Taiyu Shareholders and approximately 17.96% of which are held by the existing shareholders of SmartHeat;

· No shares of preferred stock;

· No options to purchase any capital stock or securities convertible into capital stock; and

· No warrants to purchase any capital stock or securities convertible into capital stock.

Description of Common Stock

The holders of common stock are entitled to one vote per share.  Our Articles of Incorporation does not provide for cumulative voting.  The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds; however, the current policy of our board of directors is to retain earnings, if any, for operations and growth.  Upon liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets that are legally available for distribution.  The holders of common stock have no preemptive, subscription, redemption or conversion rights.

Market Price and Dividends

Taiyu is, and has always been a privately-held company and now is a wholly-owned subsidiary of the Company.  There is not, and never has been, a public market for the securities of Taiyu.  Our common stock is currently approved for quotation on the OTC Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol PFGD.OTCBB, but there is currently no liquid trading market.

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends.  We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying dividends on our common stock in the foreseeable future.  We currently intend to utilize all available funds to develop our business.  We can give no assurances that we will ever have excess funds available to pay dividends.

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Indemnification of Directors and Officers

Under Nevada law, a corporation may indemnify its directors, officers, employees and agents under certain circumstances, including indemnification of such persons against liability under the Securities Act of 1933, as amended.  In addition, a corporation may purchase or maintain insurance on behalf of its directors, officers, employees or agents for any liability incurred by him in such capacity, whether or not the corporation has the authority to indemnify such person.

Our By-Laws provides, among other things, that a director, officer, employee or agent of the corporation may be indemnified against expenses (including attorneys’ fees inclusive of any appeal), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such claim, action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best of our interests, and with respect to any criminal action or proceeding, he had no reasonable cause to believe that his conduct was unlawful.

The effect of these provisions may be to eliminate the rights of us and our stockholders (through stockholder derivative suits on behalf of us) to recover monetary damages against a director, officer, employee or agent for breach of fiduciary duty.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.

Anti-Takeover Effect of Certain By-Law Provisions

Certain provisions of our By-Laws are intended to strengthen the board of directors’ position in the event of a hostile takeover attempt.  These provisions have the following effects:

· they provide that only business brought before an annual meeting by a stockholder who complies with the procedures set forth in the By-Laws may be transacted at an annual meeting of stockholders; and

· they provide for advance notice or certain stockholder actions, such as the nomination of directors and stockholder proposals.

Market Information

Our common stock is currently approved for quotation on the OTC Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol PFGD.OTCBB, but there is currently no trading market.  We have notified the OTC bulletin board of our name change and will obtain a new symbol.  As soon as practicable, and assuming we satisfy all necessary initial listing requirements, we intend to apply to have our common stock listed for trading on the American Stock Exchange, National Stock Exchange or The Nasdaq Stock Market, although we cannot be certain that any of these applications will be approved.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Signature Stock Transfer, Inc., 2301 Ohio Drive, Suite 100, Plano, Texas 75093.  Our transfer agent's telephone number is (972) 612-4120.

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Item 4.01 Changes in Registrant's Certifying Accountant

On April 14, 2008, we dismissed Dale Matheson Carr Hilton Labonte LLP ("DMCHL") as our independent accountants.  DMCHL had previously been engaged as the principal accountant to audit our financial statements.  The reason for the dismissal of DMCHL is that, following the consummation of the Share Exchange on April 14. 2008, (i) the former stockholders of Taiyu own a significant amount of the outstanding shares of our common stock and (ii) our primary business became the business previously conducted by Taiyu.  The independent registered public accountant of Taiyu for US accounting purposes was the firm of Goldman Parks Kurland Mohidin-GPKM LLP ( ("GPKM").  We believe that it is in our best interest to have GPKM continue to work with our business, and we therefore retained GPKM as our new principal independent registered accounting firm, effective as of April 15, 2008.  GPKM is located at 16133 Ventura Blvd., Suite 880, Encino, CA 91436.  The decision to change accountants was approved by our board of directors on April 14, 2008.

The report of DMCHL on our financial statements for the period from August 4, 2006 (inception) through our fiscal year ended October 31, 2007 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except that the report was qualified as to our ability to continue as a going concern.

From our inception through April 15, 2008, there were no disagreements with DMCHL on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of DMCHL, would have caused it to make reference to the matter in connection with its reports.

From our inception through April 14, 2008, we did not consult GPKM regarding either: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was the subject of a disagreement as described in Item 304(a)(1)(iv) of Regulation S-K.

We have made the contents of this Current Report on Form 8-K available to DMCHL and requested it to furnish us a letter addressed to the SEC as to whether DMCHL agrees or disagrees with, or wishes to clarify our expression of, our views, or containing any additional information.  A copy of DMCHL's letter to the SEC is included as Exhibit 16.1 to this Current Report on Form 8-K.

Item 5.01 Changes in Control of Registrant

Reference is made to the disclosure set forth under Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

Following the Share Exchange, on April 14, 2008, Mr. Jun Wang, the Chairman and Chief Executive Officer of Taiyu was appointed to the board of directors of the Company effective as of the closing on April 14, 2008.  Mr. Jason Schlombs resigned as a director, effective as of the close of business on April 15, 2008.  As a result, Mr. Jun Wang became our sole member of our board of directors.

Following the Share Exchange, Mr. Schlombs resigned as President, Chief Executive Officer, Secretary and Treasurer of the Company and Mr. Jun Wang was appointed as President and Chief Executive Officer, Ms. Zhijuan Guo as Chief Financial Officer and Ms. Huajun Ai as Corporate Secretary.

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The biographies of each of the new directors and officers are set forth in the section entitled “Directors and Executive Officers” under Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

There are no transactions since the beginning of our last fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years, and in which Mr. Jun Wang, Ms. Zhijuan Guo and Ms. Huajun Ai had or will have a direct or indirect material interest, other than the ownership of shares of our common stock as a result of the share exchange transaction.  Such beneficial ownership is set forth in the table under the caption “Security Ownership of Certain Beneficial Owners and Management” under Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

Item 5.03 Amendments to Articles of Incorporation or Bylaws, Change in Fiscal Year

On April 14, 2008, we changed our name from Pacific Goldrim Resources, Inc. to SmartHeat Inc by merging our wholly owned subsidiary SmartHeat Inc., a Nevada corporation, into Goldrim.  On April 16, 2008our board of directors adopted new by-laws, a copy of which is attached hereto as Exhibit 3.2 and is incorporated herein by reference.

On April 14, 2008, our board of directors approved a change in our fiscal year from a fiscal year ending October 31 to a fiscal year ending on December 31.  The change in our fiscal year took effect on April 14, 2008 and, therefore, there will be no transition period in connection with this change of fiscal year-end.  Our 2008 fiscal year will end on December 31, 2008.

Item 5.06 Change in Shell Company Status

On April 14, 2008, we consummated the transactions contemplated by the Share Exchange Agreement.  As a result of the consummation of the Share Exchange described in Items 1.01 and 2.01 of this Current Report on Form 8-K, we believe that we are no longer a shell corporation as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

Item 9.01 Financial Statements and Exhibits

(a)           Financial Statements of Businesses Acquired.  In accordance with Item 9.01(a), Taiyu's audited financial statements for the fiscal years ended December 31, 2006 and 2007.

The unaudited financial statements of Taiyu for the three-month interim periods ended March 31, 2008, and 2007 will be filed in a Current Report on Form 8-K/A within the next 45 days.

(b)           Pro Forma Financial Information.  In accordance with Item 9.01(b), our pro forma financial statements are filed in this Current Report on Form 8-K as Exhibit 99.2.

Such pro forma financial statements are based on the historical financial statements of the Company and Taiyu after giving effect to the share exchange transaction.  In accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements, Taiyu is considered the accounting acquiror.  The share exchange transaction was completed

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on April 14, 2008.  Because Taiyu's owners as a group retained or received the larger portion of the voting rights in the combined entity and Taiyu's senior management represents a majority of the senior management of the combined entity, Taiyu is considered the acquiror for accounting purposes and will account for the share exchange transaction as a reverse acquisition.  The acquisition will be accounted for as the recapitalization of Taiyu.  Our fiscal year will end on December 31.

The unaudited pro forma combined balance sheet presents the accounts of the Company and Taiyu as if the acquisition of Taiyu by the Company occurred on December 31, 2007.  The unaudited pro forma consolidated statements of operations present the accounts of the Company and Taiyu for the year ended December 31, 2007 as if the acquisition occurred on January 1, 2007 for income statement purpose.

Reclassifications have been made to historical financial statements to conform to our historical financial statement presentation.

The unaudited pro forma combined financial statements should be read in conjunction with "Management's Discussion and Analysis of Plan of Operations" under Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference, and the historical consolidated financial statements and accompanying notes of Taiyu.  The unaudited pro forma combined financial statements are not intended to represent or be indicative of our results of operations or financial condition that would have been reported had the share exchange transaction been completed as of the dates presented, and should not be taken as representative of the future results of operations or financial condition of the Registrant.

(d)           Exhibits.  The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.

Exhibit Number	Description
2.1	Share Exchange Agreement and Plan of Reorganization by and among SmartHeat Inc. ("SmartHeat"), Shenyang Taiyu Electronic & Machinery Co., Ltd. ("Taiyu") and all of the shareholders of Taiyu (the "Taiyu Shareholders") dated April 14, 2008
2.2	Articles of Exchange between Taiyu and SmartHeat, dated April 14, 2008
2.3	Articles of Merger between Pacific Goldrim Resources, Inc. and SmartHeat, dated April 14, 2008
3.1	Certificate of Incorporation (Incorporated herein by reference to Exhibit 3.2 to the Company's Form SB-2 filed on December 22, 2006)
3.2	By-Laws adopted April 15, 2008
4.1	Specimen Stock Certificate.
10.1	English Translation of Employment Agreement between Taiyu and Jun Wang, dated January 1, 2008
10.2	English Translation of Employment Agreement between Taiyu and Zhijuan Guo, dated January 1, 2008
10.3	Certificate of Appointment by Sondex A/S of Taiyu as Authorized Dealer in China, dated March 2006 and letter naming Taiyu as  Dealer of North China, dated May 5, 2006

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Exhibit Number	Description
10.4	Form of Purchase Order for with Sondex A/S
10.5	English Translation of Sales Contract between Taiyu and Dalkia (Jiamusi) Urban Heating Company Ltd, dated June 18, 2007
10.6	Form of Purchase Order
10.7	English Translation of Loan Agreement with Citibank (China) Co., Ltd., dated June 25, 2007
10.8	English Translation of Loan Agreement with China CITIC Bank, dated April 17, 2007
10.9	Resignation Letter from Jason Schlombs, dated April 15, 2008
10.10	Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations between SmartHeat and Goldrim Holding, Inc., dated April 14, 2008
10.11	Stock Purchase Agreement between Jason Schlombs and SmartHeat, dated April 14, 2008
16.1	Letter from Dale Matheson Carr Hilton Labonte LLP, dated April 18, 2008
99.1	Combined balance sheets of Taiyu for the year ended December 31, 2007 and the three months ended December 31, 2007 (unaudited) and the combined statements of income and other comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2007 and 2006
99.2	Unaudited pro forma combined financial statements of Taiyu

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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.

	SmartHeat Inc.
		/s/ Jun Wang
Date: April 18, 2008	By:	Jun Wang
		Name: Jun Wang
		Title:   Chairman & CEO

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INDEX TO EXHIBITS

Exhibit Number	Description
2.1	Share Exchange Agreement and Plan of Reorganization by and among SmartHeat Inc. ("SmartHeat"), Shenyang Taiyu Electronic & Machinery Co., Ltd. ("Taiyu") and all of the shareholders of Taiyu (the "Taiyu Shareholders") dated April 14, 2008
2.2	Articles of Exchange between Taiyu and SmartHeat, dated April 14, 2008
2.3	Articles of Merger between Pacific Goldrim Resources, Inc. and SmartHeat, dated April 14, 2008
3.1	Certificate of Incorporation (Incorporated herein by reference to Exhibit 3.2 to the Company's Form SB-2 filed on December 22, 2006)
3.2	By-Laws adopted April 15, 2008
4.1	Specimen Stock Certificate.
10.1	English Translation of Employment Agreement between Taiyu and Jun Wang, dated January 1, 2008
10.2	English Translation of Employment Agreement between Taiyu and Zhijuan Guo, dated January 1, 2008
10.3	Certificate of Appointment by Sondex A/S of Taiyu as Authorized Dealer in China, dated March 2006 and letter naming Taiyu as  Dealer of North China, dated May 5, 2006
10.4	Form of Purchase Order for with Sondex A/S
10.5	English Translation of Sales Contract between Taiyu and Dalkia (Jiamusi) Urban Heating Company Ltd, dated June 18, 2007
10.6	Form of Purchase Order
10.7	English Translation of Loan Agreement with Citibank (China) Co., Ltd., dated June 25, 2007
10.8	English Translation of Loan Agreement with China CITIC Bank, dated April 17, 2007
10.9	Resignation Letter from Jason Schlombs, dated April 15, 2008
10.10	Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations between SmartHeat and Goldrim Holding, Inc., dated April 14, 2008
10.11	Stock Purchase Agreement between Jason Schlombs and SmartHeat, dated April 14, 2008
16.1	Letter from Dale Matheson Carr Hilton Labonte LLP, dated April 18, 2008
99.1	Combined balance sheets of Taiyu for the year ended December 31, 2007 and the three months ended December 31, 2007 (unaudited) and the combined statements of income and other comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2007 and 2006
99.2	Unaudited pro forma combined financial statements of Taiyu

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EX-4

number	SHARES
	******

SMARTHEAT INC.

Incorporated under the Laws of the State Of Nevada

75,000,000 SHARES COMMON STOCK

US$.001 Par Value Per Share

THIS CERTIFIES that	.		is the owner of
		shares of COMMON STOCK

of SmartHeat Inc., fully paid and non-assessable, transferable only on the books of the Corporation in person or by Attorney upon surrender of this Certificate properly endorsed.

The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers this

day of , 200____.

_________________________________ SECRETARY ____________________________________ PRESIDENT

FOR VALUE RECEIVED, ______ hereby sell, assign and transfer unto

Please Insert Social Security or other
	Identifying Number of Assignee

___________________________________________________________________________________________________________________________________________________________Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ___________________________________________ Attorney, to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises.

Dated: _______________, 20____

In presence of

_______________________________________

_______________________________________

EX-2

Exhibit 2.1

SHARE EXCHANGE AGREEMENT

BY AND AMONG

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

and

SMARTHEAT INC.

and

THE SHAREHOLDERS OF

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

Dated as of April 14, 2008

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SHARE EXCHANGE AGREEMENT

This SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into as of April 14, 2008, by and among SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD, a company organized under the laws of the Peoples Republic of China ("Taiyu") and SMARTHEAT INC., a Nevada corporation ("Purchaser") and each of the shareholders of Taiyu listed on Schedule 4.2 hereto (the "Taiyu Shareholders").

RECITALS

WHEREAS, Taiyu is a Chinese company that is engaged in the business of research, manufacturing and marketing of energy saving Heat Exchange Plates ("HEP") products;

WHEREAS, Purchaser and Taiyu have agreed to the acquisition by Purchaser of all of equitable and other legal rights, title and interests in and to the share capital of Taiyu pursuant to a voluntary share exchange transaction (the "Share Exchange") between Purchaser and Taiyu upon the terms and subject to the conditions set forth herein;

WHEREAS, in furtherance thereof, the Board of Directors of Purchaser has approved the Share Exchange in accordance with the applicable provisions of the NRS andupon the terms and subject to the conditions set forth herein;

WHEREAS, in furtherance thereof, the Board of Directors and shareholders of Taiyu have each approved the Share Exchange in accordance with the applicable provisions of the laws of the People's Republic of China ("PRC") andupon the terms and subject to the conditions set forth herein; and

WHEREAS, for United States federal income tax purposes, the parties intend that the Share Exchange shall constitute a tax-free reorganization within the meaning of Sections 368 and 1032 of the Code.

NOW, THEREFORE, in consideration of the premises, and the mutual covenants and agreements contained herein, the parties do hereby agree as follows:

ARTICLE I. DEFINITIONS

(a)"Affiliate" shall mean, as to any Person, any other Person controlled by, under the control of, or under common control with, such Person.  As used in this definition, "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person which owns or holds directly or indirectly five per cent (5%) or more of the voting securities or five per cent (5%) or more of the partnership or other equity interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such other Person.;

(b)"Agreement" means this Share Exchange Agreement and Plan of Reorganization.

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(c)"Applicable Law" or "Applicable Laws" means any and all laws, ordinances, constitutions, regulations, statutes, treaties, rules, codes, licenses, certificates, franchises, permits, principles of common law, requirements and Orders adopted, enacted, implemented, promulgated, issued, entered or deemed applicable by or under the authority of any Governmental Body having jurisdiction over a specified Person or any of such Person's properties or assets.

(d)"Best Efforts" means the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible, provided, however, that a Person required to use Best Efforts under this Agreement will not be thereby required to take actions that would result in a Material Adverse Effect in the benefits to such Person of this Agreement and the Share Exchange.

(e)"Breach" means any breach of, or any inaccuracy in, any representation or warranty or any breach of, or failure to perform or comply with, any covenant or obligation, in or of this Agreement or any other Contract.

(f)"Business" means the research, manufacture, sale and distribution of energy saving Heat Exchange Plates ("HEP") products for industrial and residential applications as presently conducted by Taiyu.

(g)"Business Day" means any day other than (a) Saturday or Sunday or (b) any other day on which banks in Philadelphia, Pennsylvaniaare permitted or required to be closed.

(h)"Closing" shall mean the completion of the Share Exchange and the consummation of the transactions set forth herein.

(i)"Closing Date" shall mean the date on which the Closing is completed.

(j)"Code" shall mean the Internal Revenue Code of 1986, as amended.

(k)"Confidential Information" means any information pertaining to the business, operations, marketing, customers, financing, forecasts and plans of any Party provided to or learned by any other Party during the course of negotiation of the Share Exchange.  Information shall be treated as Confidential Information whether such information has been marked "confidential" or in a similar manner.

(l)"Consent" means any approval, consent, license, permits, ratification, waiver or other authorization.

(m)"Contract" means any agreement, contract, lease, license, consensual obligation, promise, undertaking, understanding, commitment, arrangement, instrument or document (whether written or oral and whether express or implied), whether or not legally binding.

(n)"Distribution Compliance Period" shall have the meaning set forth in Section 3.4(e).

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(o)"Employee Benefit Plan" has the meaning set forth in Section 4.16

(p)"Encumbrance" means and includes:

(i)with respect to any personal property, any security or other property interest or right, claim, lien, pledge, option, charge, security interest, contingent or conditional sale, or other title claim or retention agreement or lease or use agreement in the nature thereof, interest or other right or claim of third parties, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future; and

(ii)with respect to any Real Property (whether and including owned real estate or Real Estate subject to a Real Property Lease), any mortgage, lien, easement, interest, right-of-way, condemnation or eminent domain proceeding, encroachment, any building, use or other form of restriction, encumbrance or other claim (including adverse or prescriptive) or right of Third Parties (including Governmental Bodies), any lease or sublease, boundary dispute, and agreements with respect to any real property including: purchase, sale, right of first refusal, option, construction, building or property service, maintenance, property management, conditional or contingent sale, use or occupancy, franchise or concession, whether voluntarily incurred or arising by operation of law, and including any agreement to grant or submit to any of the foregoing in the future.

(q)"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations issued by the Department of Labor pursuant to ERISA or any successor law.

(r)"Exchange Act" means the Securities Exchange Act of 1934, as amended.

(s)"GAAP" means at any particular time generally accepted accounting principles in the United States, consistently applied on a going concern basis, using consistent audit scope and materiality standards.

(t)"Governing Documents" means with respect to any particular entity, the articles or certificate of incorporation and the bylaws (or equivalent documents for entities of foreign jurisdictions); all equity holders' agreements, voting agreements, voting trust agreements, joint venture agreements, registration rights agreements or other agreements or documents relating to the organization, management or operation of any Person or relating to the rights, duties and obligations of the equity holders of any Person; and any amendment or supplement to any of the foregoing.

(u)"Governmental Authorization" means any Consent, license, registration or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Applicable Law.

(v)"Governmental Body" means: (i) nation, state, county, city, town, borough, village, district, tribe or other jurisdiction; (ii) federal, state, local, municipal, foreign, tribal or other government; (iii) governmental or quasi-governmental authority of any nature (including any agency, branch, department, board, commission, court, tribunal or other entity exercising governmental or quasi-governmental powers); (iv) multinational organization or body; (v) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; or (vi) official of any of the foregoing.

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(w)"Improvements" means all buildings, structures, fixtures and improvements located on Land, including those under construction.

(x)"IRS" means the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury.

(y)"Knowledge" means actual knowledge without independent investigation.

(z)"Land" means all parcels and tracts of land in which any Person has an ownership or leasehold interest.

(aa)"Material Adverse Effect" or "Material Adverse Change" means, in connection with any Person, any event, change or effect that is materially adverse, individually or in the aggregate, to the condition (financial or otherwise), properties, assets, liabilities, revenues, income, business, operations, results of operations or prospects of such Person, taken as a whole.

(bb)"NRS" shall mean the Nevada Revised Statute, as amended.

(cc)"Order" means any writ, directive, order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Body or arbitrator.

(dd)"Ordinary Course of Business" means an action taken by a Person will be deemed to have been taken in the Ordinary Course of Business only if that action: (i) is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; (ii) does not require authorization by the board of directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature; and (iii) is similar in nature, scope and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the normal, day-to-day operations of other Persons that are in the same line of business as such Person.

(ee)"Party" or "Parties" means Taiyu, the Purchaser and/or the Taiyu Shareholders.

(ff)"Person" shall mean an individual, company, partnership, limited liability company, limited liability partnership, joint venture, trust or unincorporated organization, joint stock corporation or other similar organization, government or any political subdivision thereof, or any other legal entity.

(gg)"PRC" shall mean the Peoples Republic of China

(hh)"Proceeding" means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

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(ii)"Purchaser" means SmartHeat Inc.

(jj)"Purchaser Balance Sheet" has the meaning set forth in Section 5.2(b)(ii)

(kk)"Purchaser Balance Sheet Date" has the meaning set forth in Section 5.2(b(ii).

(ll)"Purchaser Business" means Purchaser's business in the exploration of mineral properties.

(mm)"Purchaser Common Stock" means the common stock, par value $.001 per share, of Purchaser.

(nn)"Purchaser Contracts" has the meaning set forth in Section 5.2(l).

(oo)"Purchaser's Counsel" means Cane Clark, LLP.

(pp)"Purchaser Employee Plans" has the meaning set forth in Section 5.2(o).

(qq)"Purchaser Financial Information" has the meaning set forth in Section 5.1(b).

(rr)"Purchaser Intellectual Property" has the meaning set forth in Section 5.2(j).

(ss)"Purchaser SEC Reports" has the meaning set forth in Section 5.2(k)).

(tt)"Real Property" means any Land and Improvements and all privileges, rights, easements, hereditaments and appurtenances belonging to or for the benefit of any Land, including all easements appurtenant to and for the benefit of any Land (a "Dominant Parcel") for, and as the primary means of access between, the Dominant Parcel and a public way, or for any other use upon which lawful use of the Dominant Parcel for the purposes for which it is presently being used is dependent, and all rights existing in and to any streets, alleys, passages and other rights-of-way included thereon or adjacent thereto (before or after vacation thereof) and vaults beneath any such streets.

(uu)"Related Agreements" means the Control Share Agreement.

(vv)"Real Property Lease" means any lease, rental agreement or rights to use land pertaining to the occupancy of any improved space on any Land.

(ww)"Representative" means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other Representative of that Person.

(xx)"Schlombs" means Jason Schlombs

(yy)"SEC" means the United States Securities and Exchange Commission.

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(zz)"Securities Act" means the Securities Act of 1933, as amended.

(aaa)"Security Interest" means any mortgage, pledge, security interest, Encumbrance, charge, claim, or other lien, other than:  (a) mechanic's, materialmen's and similar liens; (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate Proceedings; (c) liens arising under worker's compensation, unemployment insurance, social security, retirement and similar legislation; (d) liens arising in connection with sales of foreign receivables; (e) liens on goods in transit incurred pursuant to documentary letters of credit; (f) purchase money liens and liens securing rental payments under capital lease arrangements; and (g) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

(bbb)"Share Exchange" has the meaning set forth in the preamble.

(ccc)"Shares" has the meaning set forth in Section 2.1

(ddd)"Split-Off Agreement" has the meaning set forth in Section 2.5.

(eee)"Subsidiary" means with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred), are held by the Owner or one or more of its Subsidiaries.

(fff)"Taiyu" has the meaning set forth in the preamble.

(ggg)"Taiyu Balance Sheet" has the meaning set forth in Section 4.6.

(hhh)"Taiyu Balance Sheet Date" has the meaning set forth in Section 4.6.

(iii)"Taiyu Board" has the meaning set forth in Section 4.4.

(jjj)"Taiyu Employee Plans" has the meaning set forth in Section 4.16.

(kkk)"Taiyu Financial Information" has the meaning set forth in Section 4.6.

(lll)"Taiyu Intellectual Property" has the meaning set forth in Section 4.12(a).

(mmm)"Taiyu Shareholders" has the meaning set forth in Section 2.1.

(nnn)"Tangible Personal Property" means all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property of every kind owned or leased by a Party (wherever located and whether or not carried on a Party's books), together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof and all maintenance records and other documents relating thereto.

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(ooo)"Tax" or "Taxes" means, with respect to any Person, (i) all income taxes (including any tax on or based upon net income, gross income, gross receipts, income as specially defined, earnings, profits or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, commercial rent, premium, property or windfall profit taxes, alternative or add-on minimum taxes, customs duties and other taxes, fees, assessments or charges of any kind whatsoever, together with all interest and penalties, additions to tax and other additional amounts imposed by any taxing authority (domestic or foreign) on such person (if any), (ii) all value added taxes and (iii) any liability for the payment of any amount of the type described in clauses (i) or (ii) above as a result of (A) being a "transferee" (within the meaning of Section 6901 of the Code or any Applicable Law) of another person, (B) being a member of an affiliated, combined or consolidated group or (C) a contractual arrangement or otherwise.

(ppp)"Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule, exhibit or attachment thereto, and including any amendment thereof.

(qqq)"Third Party" means a Person that is not a Party to this Agreement.

ARTICLE II.  THE SHARE EXCHANGE

2.1The Share Exchange.

Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the NRS, at the Closing, the parties shall cause the Share Exchange to be consummated by taking all appropriate actions to ensure that all equitable and legal rights, title and interests in and to the share capital of Taiyu is assigned, delivered and transferred to the Purchaser, in exchange for the issuance of an aggregate of 18,500,000 shares of Purchaser Common Stock (the "Shares") to the shareholders of Taiyu listed on Schedule 2.1.

2.2Tax Free Reorganization.

The Parties each hereby agree to use their Best Efforts and to cooperate with each other to cause the Share Exchange to be a tax-free reorganization within the meaning of Sections 368 and 1032 of the Code.

2.3Closing.

The Closing will occur via e-mail and facsimile on April 14, 2008 at 10:00 a.m. EST or such later date and time to be agreed upon by the parties (the "Closing Date"), following satisfaction or waiver of the conditions set forth in Article VIII.

2.4Reorganization of the Board of Directors and Management.

(a)Purchaser shall (and shall cause Schlombs to) take such action as may be necessary to (i) appoint the individual set forth on Schedule 2.4(a) as a directors of the Purchaser, effective as of the Closing and until his respective successor has been duly elected or appointed and qualified or until his earlier death, resignation or removal in accordance with Purchaser’s Articles of Incorporation and By-laws and (ii) have Schlombs resign as a director, effective as of the end of the day on the Closing Date and after the appointment of such new directors.

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(b)Those individuals set forth on Schedule 2.4(b) shall, as of the Closing, be appointed as the officers of the Purchaser until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Purchaser's Certificate of Incorporation and By-laws.  As of the Closing, Schlombs shall resign from all positions as an officer of Purchaser.

(c)If at any time after the Closing, any party shall consider that any further deeds, assignments, conveyances, agreements, documents, instruments or assurances in law or any other things are necessary or desirable to vest, perfect, confirm or record in the Purchaser the title to any property, rights, privileges, powers and franchises of, and equity in, Taiyu by reason of, or as a result of, the Share Exchange, or otherwise to carry out the provisions of this Agreement, the remaining parties, as applicable, shall execute and deliver, upon request, any instruments or assurances, and do all other things necessary or proper to vest, perfect, confirm or record title to such property, rights, privileges, powers, franchises, and equity in the Purchaser, and otherwise to give effect to the provisions of this Agreement and the Share Exchange.

2.5Cancellation of Purchaser Common Stock.

At the Closing, contemporaneously with the consummation of the Share Exchange, Purchaser shall, pursuant to the terms and conditions of that certain Stock Purchase Agreement dated of even date herewith entered into by and between Schlombs and the Purchaser (the "Split-Off Agreement") which shall be substantially in the form attached hereto as Exhibit 2.5, cause 2,500,000 shares of the Purchaser's Common Stock held by Schlombs to be transferred back to the Purchaser and cancel and extinguish such shares.

ARTICLE III. COVENANTS, REPRESENTATIONS AND

WARRANTIES OF TAIYU SHAREHOLDERS

3.1Investment Purpose.

The Taiyu Shareholders acknowledge and agree that they are acquiring the Shares for investment purposes and will not offer, sell or otherwise transfer, pledge or hypothecate any of the Shares issued to them (other than pursuant to an effective Registration Statement under the Securities Act) directly or indirectly unless:

(a)The sale is to Purchaser;

(b)the sale is made pursuant to the exemption from registration under the Securities Act, provided by Rule 144 thereunder; or

(c)the Shares are sold in a transaction that does not require registration under the Securities Act, or any applicable United States state laws and regulations governing the offer and sale of securities, and the vendor has furnished to Purchaser an opinion of counsel to that effect or such other written opinion as may be reasonably required by Purchaser.

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3.2Share Legend.

The Taiyu Shareholders acknowledge and agree that the certificates representing the Shares shall bear the following legend:

"THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATIONS UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").  ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AN IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT."

3.3Representations and Warranties.

The Taiyu Shareholders represent and warrant that:

(a)the Taiyu Shareholders are located outside the United States;

(b)the Taiyu Shareholders are not aware of any advertisement of any of the shares being issued hereunder;

(c)the Taiyu Shareholders will not acquire the shares as a result of, and will not itself engage in, any "directed selling efforts: (as defined in Regulation S under the Securities Act) in the United States in respect of the shares which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of the shares; provided, however, that the Taiyu Shareholders may sell or otherwise dispose of the shares pursuant to registration of the shares pursuant to the Securities Act and any applicable state and provincial securities laws or under an exemption from such registration requirements and as otherwise provided herein.

3.4Acknowledgements.

(a)The Taiyu Shareholders acknowledge and agree that Purchaser will refuse to register any transfer of the shares not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act and in accordance with applicable state and provincial securities laws;

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(b)The Taiyu Shareholders acknowledge and agree that offers and sales of any of the Shares, prior to the expiration of a period of one year after the date of transfer of the shares (the "Distribution Compliance Period"), shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the Securities Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the Securities Act or an exemption therefrom and in each case only in accordance with all applicable securities laws;

(c)The Taiyu Shareholders acknowledge and agree not to engage in any hedging transactions involving the Shares prior to the end of the Distribution Compliance Period unless such transactions are in compliance with the provisions of the Securities Act; and

(d)The Taiyu Shareholders hereby acknowledge and agree to Purchaser making a notation on its records or giving instructions to the registrar and transfer agent of Purchaser in order to implement the restrictions on transfer set forth and described herein.

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF TAIYU

As a material inducement for Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby, Taiyu makes the following representations and warranties as of the date hereof and as of the Closing Date, each of which is relied upon by Purchaser regardless of any investigation made or information obtained by Purchaser (unless and to the extent specifically and expressly waived in writing by Purchaser on or before the Closing Date):

4.1Organization and Good Standing.

(a)Taiyu is a corporation duly organized, validly existing and in good standing under the laws of PRC.  Taiyu is duly qualified to do business in the PRC and is in good standing under the laws of each jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification and the failure to be so qualified would have a Material Adverse Effect on Taiyu.

(b)Taiyu does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity.

4.2Corporate Documents.

Schedule 4.2 shall consist of a true and correct copy of a shareholder list setting forth all owners of the authorized capital of, or other equity in, Taiyu.

4.3Capitalization of Taiyu.

The entire authorized capital of Taiyu consists of 25,000,000 Yuan, all of which has been duly authorized, fully paid in and is nonassessable. All of the authorized capital is held of record by the stockholders listed on the shareholder list attached as Schedule 4.3.

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4.4Authorization of Transaction.

Taiyu has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. On the Closing Date, this Agreement shall be duly and validly authorized by all necessary action on the part of Taiyu in accordance with Applicable Laws and Taiyu's Governing Documents.  This Agreement constitutes the valid and legally binding obligation of Taiyu, enforceable in accordance with its terms and conditions.  The Board of Directors of Taiyu (the "Taiyu Board") has duly and validly authorized the execution and delivery of this Agreement and approved the consummation of the transactions contemplated hereby, and has taken all corporate actions required to be taken by the Taiyu Board for the consummation of the Share Exchange.

4.5Noncontravention.

Neither the execution and delivery of this Agreement, nor consummation of the Share Exchange, by Taiyu will:

(a)violate any Applicable Law, Order, stipulation, charge or other restriction of any Governmental Body to which Taiyu is subject or any provision of its Governing Documents; or

(b)conflict with, result in a Breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest or other arrangement to which Taiyu is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, Breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a Material Adverse Effect on the financial condition of Taiyu or on the ability of the Parties to consummate the Share Exchange.

4.6Taiyu Financial Information.

Schedule 4.6 contains the audited combined balance sheets and statements of income, stockholders’ equity and cash flow as of and for the year ended December 31, 2006 and December 31, 2007 for Taiyu (collectively, the “Taiyu Financial Information”). The audited balance sheet dated as of December 31, 2007 of Taiyu shall be referred to herein as the "Taiyu Balance Sheet" and December 31, 2007 shall be sometimes referred to herein as the "Taiyu Balance Sheet Date."

4.7Events Subsequent to Taiyu Balance Sheet.

Since the Taiyu Balance Sheet Date, and except as disclosed on Schedule 4.7, there has not been, occurred or arisen, with respect to any member of the Taiyu:

(a)any change or amendment in its Governing Documents;

(b)any reclassification, split up or other change in, or amendment of or modification to, the rights of the holders of any of its capital stock;

(c)any direct or indirect redemption, purchase or acquisition by any Person of any of its capital stock or of any interest in or right to acquire any such stock;

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(d)any issuance, sale, or other disposition of any capital stock, or any grant of any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any capital stock;

(e)any declaration, set aside, or payment of any dividend or any distribution with respect to its capital stock (whether in cash or in kind) or any redemption, purchase, or other acquisition of any of its capital stock;

(f)the organization of any Subsidiary or the acquisition of any shares of capital stock by any Person or any equity or ownership interest in any business;

(g)any damage, destruction or loss of any of the its properties or assets whether or not covered by insurance;

(h)any material sale, lease, transfer, or assignment of any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

(i)the execution of, or any other commitment to any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business;

(j)any acceleration, termination, modification, or cancellation of any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $10,000 to which it is a party or by which it is bound;

(k)any Security Interest or Encumbrance imposed upon any of its assets, tangible or intangible;

(l)any grant of any license or sublicense of any rights under or with respect to any material Taiyu Intellectual Property;

(m)any sale, assignment or transfer (including transfers to any employees, Affiliates or shareholders) of any material Taiyu Intellectual Property;

(n)any capital expenditure (or series of related capital expenditures) involving more than $25,000 and outside the Ordinary Course of Business;

(o)any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) involving more than $25,000 and outside the Ordinary Course of Business;

(p)any issuance of any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation involving more than $25,000;

(q)any delay or postponement of the payment of accounts payable or other liabilities, other than those being contested in good faith;

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(r)any cancellation, compromise, waiver, or release of any right or claim (or series of related rights and claims) involving more than $25,000 and outside the Ordinary Course of Business;

(s)any loan to, or any entrance into any other transaction with, any of its directors, officers, and employees either involving more than $1,000 individually or $5,000 in the aggregate;

(t)the adoption, amendment, modification, or termination of any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken away any such action with respect to any other Employee Benefit Plan);

(u)any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

(v)any increase in the base compensation of any of its directors, officers, and employees that is greater than Twenty Five Thousand Dollars ($25,000) per annum;

(w)any charitable or other capital contribution in excess of $2,500;

(x)any taking of other action or entrance into any other transaction other than in the Ordinary Course of Business, or entrance into any transaction with any insider of Taiyu, except as disclosed in this Agreement and the Disclosure Schedules;

(y)any other event or occurrence that may have or could reasonably be expected to have a Material Adverse Effect on Taiyu (whether or not similar to any of the foregoing); or

(z)any agreement or commitment, whether in writing or otherwise, to do any of the foregoing.

4.8Tax Matters.

(a)Except as set forth on Schedule 4.8 Taiyu:

(i)has timely paid or caused to be paid all material Taxes required to be paid by it though the date hereof and as of the Closing Date (including any Taxes shown due on any Tax Return);

(ii)has filed or caused to be filed in a timely and proper manner (within any applicable extension periods) all Tax Returns required to be filed by it with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; and all tax returns filed on behalf of Taiyu were complete and correct in all material respects; and

(iii)has not requested or caused to be requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed.

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(iv)has not been notified since January 1, 2006 by any Governmental Body that any material issues have been raised (and no such issues are currently pending) by any Governmental Body in connection with any Tax Return filed by or on behalf of Taiyu; there are no pending Tax audits and no waivers of statutes of limitations have been given or requested with respect to Taiyu; no Tax liens have been filed against Taiyu or unresolved deficiencies or additions to Taxes have been proposed, asserted or assessed against Taiyu;

(v)has made full and adequate accrual (A) on the Taiyu Balance Sheet, and the books and records of Taiyu  for all income taxes currently due and all accrued Taxes not yet due and payable by Taiyu for all periods ending on or prior to the Taiyu Balance Sheet Date, and (B) on the books and records of Taiyu  for all Taxes payable by Taiyu for all periods beginning after the Taiyu Balance Sheet Date;

(vi)has not incurred any liability for Taxes from and after the Taiyu Balance Sheet Date other than Taxes incurred in the Ordinary Course of Business and consistent with past practices;

(vii)has complied in all material respects with all Applicable Laws relating to the collection or withholding of Taxes (such as Taxes or withholding of Taxes from the wages of employees); and

(viii)does not have any liability in respect of any Tax sharing agreement with any Person;

(b)           No member of the Taiyu has incurred any liability to make any payments either alone or in conjunction with any other payments that would constitute a "parachute payment" within the meaning of Section 280G of the Code (or any corresponding provision of state local or foreign Applicable Law related to Taxes);

    (c)           No claim has been made within the last three years by any taxing authority in a jurisdiction in which Taiyu does not file Tax Returns that Taiyu is or may be subject to taxation by that jurisdiction;

(d)           The consummation of the Share Exchange will not trigger the realization or recognition of intercompany gain or income to Taiyu or any Affiliate of Taiyu under the Federal consolidated return regulations with respect to Federal, state or local taxes; and

(e)           Taiyu is not currently, nor has it been at any time during the previous five years, a "U.S. real property holding corporation" and, therefore, the Shares are not "U.S. real property interests," as such terms are defined in Section 897 of the Code.

4.9Title to Assets.

Taiyu has good and marketable title to, or a valid leasehold interest in, the properties and assets owned or leased and used by it to operate the Business in the manner presently operated by it, as reflected in the Taiyu Financial Information.

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4.10Leased Real Property.

Except as disclosed on Schedule 4.10, Taiyu does not own or holds any leasehold interest in or right to use any Real Property.

4.11Condition of Facilities.

(a)Use of the Real Property of Taiyu for the various purposes for which it is presently being used is permitted as of right under all Applicable Laws related to zoning and is not subject to "permitted nonconforming" use or structure classifications.  All Improvements are in compliance with all Applicable Laws, including those pertaining to zoning, building and the disabled, are in good repair and in good condition, ordinary wear and tear excepted, and are free from latent and patent defects.  No part of any Improvement encroaches on any real property not included in the Real Property of Taiyu or the Taiyu , and there are no buildings, structures, fixtures or other Improvements primarily situated on adjoining property which encroach on any part of the Land.

(b)Each item of Tangible Personal Property is in good repair and good operating condition, ordinary wear and tear excepted, is suitable for immediate use in the Ordinary Course of Business and is free from latent and patent defects.  No item of Tangible Personal Property is in need of repair or replacement other than as part of routine maintenance in the Ordinary Course of Business.  All Tangible Personal Property used in the Business is in the possession of Taiyu.

4.12Taiyu Intellectual Property.

(a)Taiyu owns, or is licensed or otherwise possesses legal enforceable rights to use all: (i) trademarks and service marks (registered or unregistered), trade dress, trade names and other names and slogans embodying business goodwill or indications of origin, all applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (ii) material patentable inventions, technology, computer programs and software (including password unprotected interpretive code or source code, object code, development documentation, programming tools, drawings, specifications and data) and all applications and patents in any jurisdiction pertaining to the foregoing, including re-issues, continuations, divisions, continuations-in-part, renewals or extensions; (iii) trade secrets, including confidential and other non-public information (iv) copyrights in writings, designs, software programs, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto; (v) databases and all database rights; and (vi) Internet web sites, domain names and applications and registrations pertaining thereto (collectively, "Taiyu  Intellectual Property") that are used in the Business except for any such failures to own, be licensed or process that would not be reasonably likely to have a Material Adverse Effect.

(b)Except as may be evidenced by patents issued after the date hereof, there are no conflicts with or infringements of any material Taiyu  Intellectual Property by any third party and the conduct of the Business as currently conducted does not conflict with or infringe any proprietary right of a third party.

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(c)Taiyu owns or has the right to use all software currently used in and material to the Business.

4.13Affiliate Transactions.

No officer, director, or employee of Taiyu or any member of the immediate family of any such officer, director or employee, or any entity in which any of such persons owns any beneficial interest (other than any publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than one percent of the stock of which is beneficially owned by any of such persons), has any agreement with Taiyu or any interest in any of their property of any nature, used in or pertaining to the Business (other than the ownership of capital stock of the corporation as disclosed in Section 4.3).  None of the foregoing Persons has any direct or indirect interest in any competitor, supplier or customer of Taiyu or in any Person from whom or to whom the Taiyu leases any property or transacts business of any nature.

4.14Powers of Attorney.

There are no outstanding powers of attorney executed on behalf of Taiyu.

4.15Litigation.

Except as set forth on Schedule 4.15:

(a)there is no pending or, to Taiyu's Knowledge, threatened Proceeding:

(i)by or against Taiyu or that otherwise relates to or may affect the Business which, if adversely determined, would have a Material Adverse Effect; or

(ii)that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Share Exchange.

(b)to the Knowledge of Taiyu, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.  Taiyu has delivered to Purchaser copies, if any, of all pleadings, correspondence and other documents relating to each Proceeding.

(c)there is no material Order to which Taiyu, any member of the Taiyu  or the Business is subject; and

(d)to the Knowledge of Taiyu, no officer, director, agent or employee of Taiyu is subject to any Order that prohibits such officer, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the Business.

(e)Taiyu has been and is in compliance with all of the terms and requirements of each Order to which it or the Business is or has been subject;

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(f)no event has occurred or circumstance exists that is reasonably likely to constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Taiyu or the Business is subject; and

(g)Taiyu has not received any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any term or requirement of any Order to which Taiyu or the Business is subject.

4.16Employee Benefits.

(a)Schedule 4.16 lists all material (i) Employee Benefit Plans of the Taiyu , (ii) bonus, stock option, stock purchase, stock appreciation right, incentive, deferred compensation, supplemental retirement, severance, and fringe benefit plans, programs, policies or arrangements, and (iii) employment or consulting agreements, for the benefit of, or relating to, any current or former employee (or any beneficiary thereof) of Taiyu that, in the case of a plan described in (i) or (ii) above, is currently maintained by Taiyu or with respect to which Taiyu has an obligation to contribute, and that, in the case of an agreement described in (iii) above, is currently in effect (the “Taiyu  Employee Plans”).

(b)There is no Proceeding pending or, to Taiyu's Knowledge, threatened against the assets of any Taiyu  Employee Plan or, with respect to any Taiyu  Employee Plan, against Taiyu, other than Proceedings that would not reasonably be expected to result in a Material Adverse Effect, and to Taiyu's Knowledge there is no Proceeding pending or threatened in writing against any fiduciary of any Taiyu Employee Plan other than Proceedings that would not reasonably be expected to result in a Material Adverse Effect.

(c)Each of the Taiyu Employee Plans has been operated and administered in all material respects in accordance with its terms and Applicable Law.

(d)No director, officer, or employee of Taiyu will become entitled to retirement, severance or similar benefits or to enhanced or accelerated benefits (including any acceleration of vesting or lapsing of restrictions with respect to equity-based awards) under any Taiyu  Employee Plan solely as a result of consummation of the Share Exchange.

4.17Insurance.

Except as set forth on Schedule 4.17 Taiyu has sufficient insurance of any kind or nature, including, but not limited to, fire, liability, workmen's compensation and other forms of insurance covering Taiyu all or any portion of its business, property and assets.

4.18Employees.

To the Knowledge of Taiyu, no officer, director, agent, employee, consultant, or contractor of Taiyu is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor (i) to engage in or continue or perform any conduct, activity, duties or practice relating to the Business or (ii) to assign to Taiyu or to any other Person any rights to any invention, improvement, or discovery.  No former or current employee of Taiyu is a party to, or is otherwise bound by, any Contract that in any way adversely affected, affects, or will affect the ability of Taiyu or Purchaser to conduct the Business as heretofore carried on by Taiyu.

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4.19Labor Relations.

Taiyu is not a party to any collective bargaining or similar agreement.  To the Knowledge of Taiyu, there are no strikes, work stoppages, unfair labor practice charges or grievances pending or threatened against Taiyu by any employee of Taiyu or any other Person or entity.  

4.20Legal Compliance.

To the Knowledge of Taiyu, Taiyu is in material compliance with all Applicable Laws (including rules and regulations thereunder) of any Governmental Bodies having jurisdiction over Taiyu , including any requirements relating to antitrust, consumer protection, currency exchange, equal opportunity, health, occupational safety, pension and securities matters.

4.21Brokers' Fees.

Taiyu has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the Share Exchange for which Taiyu could become liable or obligated.

4.22Undisclosed Liabilities.

To the Knowledge of Taiyu, Taiyu does not have any liability (and to the Knowledge of Taiyu, there is no basis for any present or future Proceeding, charge, complaint, claim, or demand against any of them giving rise to any liability), except for

(a)liabilities reflected or reserved against in the Taiyu  Balance Sheet; or

(b)liabilities which have arisen in the Ordinary Course of Business since the Taiyu Balance Sheet Date.

4.23Disclosure.

The representations and warranties of Taiyu contained in this Agreement do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein not misleading.

ARTICLE V. REPRESENTATIONS AND WARRANTEES OF PURCHASER

As a material inducement for Taiyu to enter into this Agreement and to consummate the transactions contemplated hereby, Purchaser hereby makes the following representations and warranties as of the date hereof and as of the Closing Date, each of which is relied upon by Taiyu regardless of any investigation made or information obtained by Taiyu (unless and to the extent specifically and expressly waived in writing by Taiyu on or before the Closing Date):

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5.1Representations of Purchaser Concerning the Transaction.

(a)Organization and Good Standing

(i)Purchaser is a corporation duly organized, validly existing and in good standing under the laws of State of Nevada. Purchaser is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification and the failure to be so qualified would have a Material Adverse Effect on Purchaser.

(ii)Purchaser has no Subsidiary and does not own any shares of capital stock or other securities of any other Person.

(b)Authorization of Transaction.  Purchaser has the corporate power to execute, deliver and perform this Agreement, the Related Agreements, and, subject to the satisfaction of the conditions precedent set forth herein, has taken all action required by law, its Governing Documents or otherwise, to authorize the execution, delivery, and performance  of this Agreement and such related documents.  The execution and delivery of this Agreement has been approved by the Board of Directors of Purchaser.  This Agreement is a valid obligation of Purchaser and is legally binding on Purchaser in accordance with its terms..

(c)Capitalization of Purchaser.  The entire authorized capital stock of Purchaser consists of 75,000,00 shares of common stock having a par value of $0.001 per share, of which 6,549,900 shares are issued and outstanding.  All issued and outstanding shares of Purchaser Common Stock have been duly authorized, are validly issued, fully paid and nonassessable.  There are no outstanding or authorized options, warrants, rights, contracts, calls, puts, rights to subscribe, conversion rights or other agreements or commitments to which Purchaser is a party or which are binding upon Purchaser providing for the issuance, disposition or acquisition of any of its capital stock, nor any outstanding or authorized stock appreciation, phantom stock or similar rights with respect to Purchaser.

(d)Noncontravention.  Neither the execution and delivery of this Agreement, nor consummation of the Share Exchange, will:

(i)violate any Applicable Law, Order, stipulation, charge or other restriction of any Governmental Body to which Purchaser is subject or any provision of its Governing Documents; or

(ii)conflict with, result in a Breach of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which Purchaser is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except where the violation, conflict, Breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Security Interest would not have a Material Adverse Effect on the financial condition of Purchaser or on the ability of the Parties to consummate the Share Exchange.

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5.2Representations of Purchaser Concerning the Purchaser.

(a)Affiliate Transactions.  No officer, director, or employee of Purchaser or any member of the immediate family of any such officer, director or employee, or any entity in which any of such persons owns any beneficial interest (other than any publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than one percent of the stock of which is beneficially owned by any of such Persons), has any agreement with Purchaser or any interest in any of their property of any nature, used in or pertaining to the Purchaser Business.  None of the foregoing Persons has any direct or indirect interest in any competitor, supplier or customer of Purchaser or in any Person from whom or to whom Purchaser leases any property or transacts business of any nature.

(b)Purchaser Financial Information. Schedule 5.2(b) shall include the following financial information (collectively, the “Purchaser Financial Information”):

(i)audited balance sheet and statements of income, changes in stockholders' equity and cash flow as of and for the fiscal years ended 2006 and 2007 for Purchaser; and

(ii)the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which Purchaser maintains safe deposit boxes or accounts of any nature and the names of all persons authorized to have access thereto, draw thereon or make withdrawals therefrom, as listed on Schedule 5.2(b).

The audited balance sheet as of October 31, 2007 of Purchaser shall be referred to herein as the "Purchaser Balance Sheet" and October 31, 2007 shall be sometimes referred to herein as the "Purchaser Balance Sheet Date."   Purchaser Financial Information presents fairly the financial condition of Purchaser as of such dates and the results of operations of Purchaser for such periods, in accordance with GAAP and are consistent with the books and records of Purchaser (which books and records are correct and complete).

(c)Events Subsequent to Purchaser Balance Sheet.  Since the Purchaser Balance Sheet Date, there has not been, occurred or arisen, with respect to Purchaser:

(i)any change or amendment in its Governing Documents;

(ii)any reclassification, split up or other change in, or amendment of or modification to, the rights of the holders of any of its capital stock;

(iii)any direct or indirect redemption, purchase or acquisition by any Person of any of its capital stock or of any interest in or right to acquire any such stock;

(iv)any issuance, sale, or other disposition of any capital stock, or any grant of any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any capital stock;

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(v)any declaration, set aside, or payment of any dividend or any distribution with respect to its capital stock (whether in cash or in kind) or any redemption, purchase, or other acquisition of any of its capital stock;

(vi)the organization of any Subsidiary or the acquisition of any shares of capital stock by any Person or any equity or ownership interest in any business;

(vii)any damage, destruction or loss of any of the its properties or assets whether or not covered by insurance;

(viii)any sale, lease, transfer, or assignment of any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

(ix)the execution of, or any other commitment to any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business;

(x)any acceleration, termination, modification, or cancellation of any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses), involving more than $10,000 to which it is a party or by which it is bound;

(xi)any Security Interest or Encumbrance imposed upon any of its assets, tangible or intangible;

(xii)any grant of any license or sublicense of any rights under or with respect to any Purchaser Intellectual Property;

(xiii)any sale, assignment or transfer (including transfers to any employees, affiliates or shareholders) of any Purchaser Intellectual Property;

(xiv)any capital expenditure (or series of related capital expenditures) involving more than $10,000 and outside the Ordinary Course of Business;

(xv)any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) involving more than $10,000 and outside the Ordinary Course of Business;

(xvi)any issuance of any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation involving more than $25,000;

(xvii)any delay or postponement of the payment of accounts payable or other liabilities;

(xviii)any cancellation, compromise, waiver, or release of any right or claim (or series of related rights and claims) involving more than $25,000 and outside the Ordinary Course of Business;

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(xix)any loan to, or any entrance into any other transaction with, any of its directors, officers, and employees either involving more than $500 individually or $2,500 in the aggregate;

(xx)the adoption, amendment, modification, or termination of any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken away any such action with respect to any other Employee Benefit Plan);

(xxi)any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

(xxii)any increase in the base compensation of any of its directors, officers, and employees;

(xxiii)any charitable or other capital contribution in excess of $2,500;

(xxiv)any taking of other action or entrance into any other transaction other than in the Ordinary Course of Business, or entrance into any transaction with any insider of Purchaser, except as disclosed in this Agreement and the Disclosure Schedules;

(xxv)any other event or occurrence that may have or could reasonably be expected to have an Material Adverse Effect on Purchaser (whether or not similar to any of the foregoing); or

(xxvi)any agreement or commitment, whether in writing or otherwise, to do any of the foregoing.

(d)Tax Matters.

Purchaser:

(i)has timely paid or caused to be paid all Taxes required to be paid by it though the date hereof and as of the Closing Date (including any Taxes shown due on any Tax Return);

(ii)has filed or caused to be filed in a timely and proper manner (within any applicable extension periods) all Tax Returns required to be filed by it with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; and all tax returns filed on behalf of Purchaser and each Purchaser Tax Affiliate were completed and correct in all material respects; and

(iii)has not requested or caused to be requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed.

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(iv)has previously delivered true, correct and complete copies of all Federal Tax Returns filed by or on behalf of Purchaser through the date hereof for the periods ending after December 31, 2004.

(v)since January 1, 2005, has not been notified by the IRS or any other Governmental Body that any issues have been raised (and no such issues are currently pending) by the IRS or any other Governmental Body in connection with any Tax Return filed by or on behalf of Purchaser or any Purchaser Tax Affiliate; there are no pending Tax audits and no waivers of statutes of limitations have been given or requested with respect to Purchaser or any present or former Affiliate of Purchaser (for years that it was an  Affiliate); no Tax liens have been filed against Purchaser or unresolved deficiencies or additions to Taxes have been proposed, asserted or assessed against Purchaser or any present or former Affiliate (for the years that it was an  Affiliate);;

(vi)has made full and adequate accrual (i) on the Purchaser Balance Sheet, and the books and records of Purchaser for all income Taxes currently due and all accrued Taxes not yet due and payable by Purchaser for all periods ending on or prior to the Purchaser Balance Sheet Date, and (ii) on the books and records of Purchaser and for all Taxes payable by Purchaser for all periods beginning after the Purchaser Balance Sheet Date;

(vii)has not incurred any liability for Taxes from and after the Purchaser Balance Sheet Date other than Taxes incurred in the Ordinary Course of Business and consistent with past practices;

(viii)has not (i) made an election (or had an election made on its behalf by another person) to be treated as a “consenting corporation” under Section 341(f) of the Code or (ii) a “personal holding company” within the meaning of Section 542 of the Code;

(ix)has complied in all material respects with all Applicable Laws relating to the collection or withholding of Taxes (such as Taxes or withholding of Taxes from the wages of employees);

(x)has no liability in respect of any Tax sharing agreement with any Person and all Tax sharing agreements to which Purchaser has been bound have been terminated;

(xi)has not incurred any Liability to make any payments either alone or in conjunction with any other payments that:

(A)shall be non-deductible under, or would otherwise constitute a “parachute payment” within the meaning of Section 280G of the Code (or any corresponding provision of state local or foreign income Tax Law); or

(B)are or may be subject to the imposition of an excise Tax under Section 4999 of the Code;

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(xii)has not agreed to (nor has any other Person agreed to on its behalf) and is not required to make any adjustments or changes on, before or after the Closing Date, to its accounting methods pursuant to Section 481 of the Code, and the Internal Revenue Service has not proposed any such adjustments or changes in the accounting methods of Purchaser; and

(xiii)is not currently, nor has it been at any time during the previous five years, a “U.S. real property holding corporation” and, therefore, the Purchaser Common Stock is not “U.S. real property interests,” as such terms are defined in Section 897 of the Code.

No claim has been made within the last three years by any taxing authority in a jurisdiction in which Purchaser does not file Tax Returns that Purchaser is or may be subject to taxation by that jurisdiction;

(e)Intercompany Gain as Result of Transaction.  The consummation of the Share Exchange will not trigger the realization or recognition of intercompany gain or income to Purchaser under the Federal consolidated return regulations with respect to Federal, state or local Taxes; and

(f)Title to Assets.  Purchaser has good and marketable title to, or a valid leasehold interest in, the properties and assets owned or leased and used by it to operate the Purchaser Business in the manner presently operated by Purchaser, as reflected in the Purchaser Financial Information.

(g)Real Property.  Except as set forth in Schedule 5.2(g) Purchaser does not own or hold an ownership interest in any Real Property.

(h)Leased Real Property. Except as set forth in Schedule 5.2(h), Purchaser does not own or a leasehold interest in any Real Property.

(i)Condition of Facilities.

(i)Use of the Real Property of Purchaser for the various purposes for which it is presently being used is permitted as of right under all Applicable Laws related to zoning and is not subject to “permitted nonconforming” use or structure classifications.  All Improvements are in compliance with all Applicable Laws, including those pertaining to zoning, building and the disabled, are in good repair and in good condition, ordinary wear and tear excepted, and are free from latent and patent defects.  To the Knowledge of Purchaser, no part of any Improvement encroaches on any real property not included in the Real Property of Purchaser, and there are no buildings, structures, fixtures or other Improvements primarily situated on adjoining property which encroach on any part of the Land.

(ii)Each item of Tangible Personal Property is in good repair and good operating condition, ordinary wear and tear excepted, is suitable for immediate use in the Ordinary Course of Business and is free from latent and patent defects.  No item of Tangible Personal Property is in need of repair or replacement other than as part of routine maintenance in the Ordinary Course of Business.  Except as disclosed in Schedule 5.2(i)(ii), all Tangible Personal Property used in the Purchaser Business is in the possession of Purchaser.

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(j)Purchaser Intellectual Property.

(i)Purchaser owns, or is licensed or otherwise possesses legal enforceable rights to use all: (i) trademarks and service marks (registered or unregistered), trade dress, trade names and other names and slogans embodying business goodwill or indications of origin, all applications or registrations in any jurisdiction pertaining to the foregoing and all goodwill associated therewith; (ii) patentable inventions, technology, computer programs and software (including  password unprotected interpretive code or source code, object code, development documentation, programming tools, drawings, specifications and data) and all applications and patents in any jurisdiction pertaining to the foregoing, including re-issues, continuations, divisions, continuations-in-part, renewals or extensions; (iii) trade secrets, including confidential and other non-public information (iv) copyrights in writings, designs, software programs, mask works or other works, applications or registrations in any jurisdiction for the foregoing and all moral rights related thereto; (v) databases and all database rights; and (vi) Internet Web sites, domain names and applications and registrations pertaining thereto (collectively, “Purchaser Intellectual Property”) that are used in the Purchaser Business except for any such failures to own, be licensed or process that would not be reasonably likely to have a Material Adverse Effect.

(ii)Purchaser owns or has the right to use all software currently used in and material to the Purchaser Business.

(k)SEC Reports and Financial Statements.  Since January 1, 2005, Purchaser has filed with the SEC all reports and other filings required to be filed by Purchaser in accordance with the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder (the “Purchaser SEC Reports”). As of their respective dates, Purchaser SEC Reports complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the respective rules and regulations promulgated thereunder applicable to such Purchaser SEC Reports and, except to the extent that information contained in any Purchaser SEC Report has been revised or superseded by a later Purchaser SEC Report filed and publicly available prior to the date of this Agreement, none of the Purchaser SEC Reports contained any untrue statement of a material fact or omitted 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 financial statements of Purchaser included in Purchaser SEC Reports were prepared from and are in accordance with the accounting books and other financial records of Purchaser, were prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by the rules of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and presented fairly the consolidated financial position of Purchaser and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the Purchaser SEC Reports, Purchaser has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) other than liabilities or obligations incurred in the Ordinary Course of Business since the Purchaser Balance Sheet Date.  The Purchaser SEC Reports accurately disclose (i) the terms and provisions of all stock option plans, (ii) transactions with Affiliates, and (iii) all material contracts required to be disclosed pursuant to Item 601(b)(10) of Regulation S-B promulgated by the SEC.

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(l)Contracts.  Schedule 5.2(l) is a true, complete and accurate list of all written or oral contracts, understandings, agreements and other arrangements (including a brief description of all such oral arrangements) executed by an officer or duly authorized employee of Purchaser or to which Purchaser is a party either:

(i)involving more than $10,000, or

(ii)in the nature of a collective bargaining agreement, employment agreement, or severance agreement with any of its directors, officers and employees.

Purchaser has delivered or will, prior to Closing, deliver to Taiyu a correct and complete copy of each Contract (redacted copies for names are acceptable) listed in Schedule 5.2(l) (the “Purchaser Contracts”).  Except as disclosed in Schedule 5.2(l): (i) Purchaser has fully complied with all material terms of Purchaser Contracts; (ii) to the Knowledge of Purchaser, other parties to Purchaser Contracts have fully complied with the terms of Purchaser Contracts; and (iii) there are no disputes or complaints with respect to nor has Purchaser received any notices (whether oral or in writing) that any other party to Purchaser Contracts is terminating, intends to terminate or is considering terminating, any of Purchaser Contracts listed or required to be listed in Schedule 5.2(l).

(m)Powers of Attorney.  There are no outstanding powers of attorney executed on behalf of Purchaser.

(n)Litigation.  Except as set forth in Schedule 5.2(n):

(i)There is no pending or, to Purchaser’s Knowledge, threatened Proceeding:

(A)by or against Purchaser or that otherwise relates to or may affect the Purchaser Business which, if adversely determined, would have a Material Adverse Effect; or

(B)that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Share Exchange.

To the Knowledge of Purchaser, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.

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(ii)Except as set forth in Schedule 5.2(n):

(A)there is no material Order to which Purchaser or the Purchaser Business is subject; and

(B)to the Knowledge of Purchaser, no officer, director, agent or employee of Purchaser is subject to any Order that prohibits such officer, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the Purchaser Business.

(iii)Except as set forth in Schedule 5.2(n):

(A)Purchaser has been and is in compliance with all of the terms and requirements of each Order to which it or the Purchaser Business is or has been subject;

(B)No event has occurred or circumstance exists that is reasonably likely to constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Purchaser or the Purchaser Business is subject; and

(C)Purchaser has not received any notice, or received but subsequently resolved to the satisfaction of the Governmental Body or other Person (evidence of such approval is attached as Schedule 5.1(n), or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any term or requirement of any Order to which Purchaser or the Purchaser Business is subject.

(o)Employee Benefits.

(i)Purchaser has no (i) Employee Benefit Plans, (ii) bonus, stock option, stock purchase, stock appreciation right, incentive, deferred compensation, supplemental retirement, severance, and fringe benefit plans, programs, policies or arrangements, and (iii) employment or consulting agreements, for the benefit of, or relating to, any current or former employee (or any beneficiary thereof) of Purchaser, in the case of a plan described in (i) or (ii) above, that is currently maintained by Purchaser or with respect to which Purchaser has an obligation to contribute, and in the case of an agreement described in (iii) above, that is currently in effect (the “Purchaser Employee Plans”).

(ii)No director, officer, or employee of Purchaser will become entitled to retirement, severance or similar benefits or to enhanced or accelerated benefits (including any acceleration of vesting or lapsing of restrictions with respect to equity-based awards) under any Purchaser Employee Plan solely as a result of consummation of the Share Exchange.

(p)Insurance.  Schedule 5.2(p) is an accurate and complete description of all policies of insurance of any kind or nature, including, but not limited to, fire, liability, workmen's compensation and other forms of insurance owned or held by or covering Purchaser or all or any portion of its property and assets.

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(q)Employees.  Schlombs is the sole employee of Purchaser and he presently does not receive any compensation for his services.  To the Knowledge of Purchaser, no officer, director, agent, employee, consultant, or contractor of Purchaser is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor (i) to engage in or continue or perform any conduct, activity, duties or practice relating to the Purchaser Business or (ii) to assign to Purchaser or to any other Person any rights to any invention, improvement, or discovery.  No former or current employee of Purchaser is a party to, or is otherwise bound by, any Contract that in any way adversely affected, affects, or will affect the ability of Purchaser to conduct the Purchaser Business.

(r)Labor Relations.  Purchaser is not a party to any collective bargaining or similar agreement.  To the Knowledge of Purchaser, there are no strikes, work stoppages, unfair labor practice charges or grievances pending or threatened against Purchaser by any employee of Purchaser or any other person or entity.

(s)Legal Compliance.  To the Knowledge of Purchaser, Purchaser is in material compliance with all Applicable Laws of any Governmental Bodies having jurisdiction over Purchaser, including any requirements relating to antitrust, consumer protection, currency exchange, equal opportunity, health, occupational safety, pension and securities matters.

(t)Brokers' Fees.  Purchaser has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the Share Exchange for which Purchaser could become liable or obligated.

(u)Undisclosed Liabilities.  Purchaser has no liability (and to the Knowledge of Purchaser, there is no basis for any present or future Proceeding, charge, complaint, claim, or demand against any of them giving rise to any liability), except for

(i)liabilities reflected or reserved against in the Purchaser Balance Sheet; or

(ii)liabilities which have arisen in the Ordinary Course of Business since the date of the Purchaser Balance Sheet.

(v)Disclosure.  The representations and warranties of Purchaser contained in this Agreement do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained herein not misleading.

ARTICLE VI. ACCESS TO INFORMATION AND DOCUMENTS

6.1Access to Information.

Between the date hereof and the Closing Date, each Party will give to the other and its counsel, accountants and other Representatives full access to all the properties, documents, contracts, personnel files and other records and shall furnish copies of such documents and with such information with respect to its affairs as may from time to time be reasonably requested.  Each Party will disclose to the other and make available to such Party and its Representatives all books, contracts, accounts, personnel records, letters of intent, papers, records, communications with regulatory authorities and other documents relating to the business and operations of Taiyu or Purchaser, as the case may be.  In addition, Taiyu shall make available to Purchaser all such banking, investment and financial information as shall be necessary to allow for the efficient integration of Taiyu's banking, investment and financial arrangements with those of Purchaser at the Closing.  Access of Purchaser pursuant to the foregoing shall be granted at a reasonable time and upon reasonable notice.

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6.2Effect of Access.

(a)Nothing contained in this Article VI shall be deemed to create any duty or responsibility on the part of either Party to investigate or evaluate the value, validity or enforceability of any Contract or other asset included in the assets of the other Party.

(b)With respect to matters as to which any Party has made express representations or warranties herein, the Parties shall be entitled to rely upon such express representations and warranties irrespective of any investigations made by such Parties, except to the extent that such investigations result in actual knowledge of the inaccuracy or falsehood of particular representations and warranties.

ARTICLE VII. COVENANTS

7.1Preservation of Business.

(a)Prior to the Closing or the termination of this Agreement, Taiyu will use its Best Efforts to preserve the Business, to keep available to Purchaser the services of the present employees of Taiyu, and to preserve for Purchaser the goodwill of the suppliers, customers and others having business relations with Taiyu.  Taiyu shall conduct its Business only in the Ordinary Course of Business, including, without limitation, its policies and practices relating to the collection of accounts receivable and the payment of accounts payable and other liabilities, and not introduce any new methods of management, operations or accounting, without Purchaser’s prior written consent (which shall not be unreasonably withheld); maintain its assets in as good working order and condition as at present, ordinary wear and tear excepted; perform all material obligations under material agreements and leases relating to or affecting it, and keep in full force and effect present insurance policies.

(b)Prior to the Closing or the termination of this Agreement, Purchaser will use its Best Efforts to preserve the Purchaser Business, to keep available to Purchaser the services of the present employees of Purchaser, and to preserve for Purchaser the goodwill of the suppliers, customers and others having business relations with Purchaser.  Purchaser shall conduct the Purchaser Business only in the Ordinary Course of Business, including, without limitation, its policies and practices relating to the collection of accounts receivable and the payment of accounts payable and other liabilities, and not introduce any new methods of management, operations or accounting, without the prior written consent of Taiyu (which shall not be unreasonably withheld); maintain its assets in as good working order and condition as at present, ordinary wear and tear excepted; perform all material obligations under material agreements and leases relating to or affecting it, and keep in full force and effect present insurance policies.

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7.2Current Information.

(a)During the period from the date of this Agreement to the Closing, each Party hereto shall promptly notify each other Party of any (i) significant change in the normal course of business or operations of its business, (ii) Proceeding (or communications indicating that the same may be contemplated), or the institution or threat or settlement of Proceedings, in each case involving such Party, the outcome of which, if adversely determined, could reasonably be expected to have a Material Adverse Effect on the Party, taken as a whole or (iii) event which such Party reasonably believes could be expected to have a Material Adverse Effect on the ability of any Party  to consummate the Share Exchange.

(b)During the period from the date of this Agreement to the Closing, Purchaser shall promptly notify Taiyu of any correspondence received from the SEC and shall deliver a copy of such correspondence to Taiyu within one (1) Business Day of receipt.

7.3Material Transactions.

Prior to the Closing, neither Taiyu nor Purchaser will (other than (i) as contemplated by the terms of this Agreement and the Related Agreements, (ii) with respect to transactions for which there is a binding commitment existing prior to the date hereof disclosed in the Disclosure Schedules, and (iii) transactions described on Schedule 7.3 which do not vary materially from the terms set forth on such Schedule 7.3, or in the Ordinary Course of Business without first obtaining the written consent of the other Parties):

(a)declare or pay any dividend or make any other distribution to shareholders, whether in cash, stock or other property;

(b)amend its Governing Documents or enter into any agreement to merge or consolidate with, or sell a significant portion of its assets to, any other Person;

(c)except pursuant to options, warrants, conversion rights or other contractual rights, issue any shares of its capital stock or share capital or any options, warrants or other rights to subscribe for or purchase such common or share capital or other capital stock or any securities convertible into or exchangeable for any such common, share capital or other capital stock;

(d)directly redeem, purchase or otherwise acquire any of its common or other capital stock;

(e)effect a reclassification, recapitalization, split-up, exchange of shares, readjustment or other similar change in or to any capital stock or otherwise reorganize or recapitalize;

(f)enter into any employment contract which is not terminable upon notice of ninety (90) days or less, at will, and without penalty except as provided herein or grant any increase (other than ordinary and normal increases consistent with past practices) in the compensation payable or to become payable to officers or salaried employees, grant any stock options or, except as required by law, adopt or make any change in any bonus, insurance, pension or other Employee Benefit Plan, agreement, payment or agreement under, to, for or with any of such officers or employees;

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(g)make any payment or distribution to the trustee under any bonus, pension, profit ­sharing or retirement plan or incur any obligation to make any such payment or contribution which is not in accordance with such Party's usual past practice, or make any payment or contributions or incur any obligation pursuant to or in respect of any other plan or contract or arrangement providing for bonuses, options, executive incentive compensation, pensions, deferred compensation, retirement payments, profit sharing or the like, establish or enter into any such plan, contract or arrangement, or terminate or modify any plan;

(h)prepay any debt in excess of Twenty Five Thousand Dollars ($25,000), borrow or agree to borrow any amount of funds except in the Ordinary Course of Business or, directly or indirectly, guarantee or agree to guarantee obligations of others, or fail to pay any monetary obligation in a timely manner prior to delinquency;

(i)enter into any agreement, contract or commitment having a term in excess of three (3) months or involving payments or obligations in excess of Twenty Five Thousand Dollars ($25,000) in the aggregate, except in the Ordinary Course of Business;

(j)amend or modify any material Contract;

(k)agree to increase the compensation or benefits of any employee (except for normal annual salary increases in accordance with past practices);

(l)place on any of its assets or properties any pledge, charge or other Encumbrance, except as otherwise authorized hereunder, or enter into any transaction or make any contract or commitment relating to its properties, assets and business, other than in the Ordinary Course of Business or as otherwise disclosed herein;

(m)guarantee the obligation of any person, firm or corporation, except in the Ordinary Course of Business;

(n)make any loan or advance in excess of Twenty-Five Thousand Dollars ($25,000)or cancel or accelerate any material indebtedness owing to it or any claims which it may possess or waive any material rights of substantial value;

(o)sell or otherwise dispose of any Real Property or any material amount of any tangible or intangible personal property other than leasehold interests in closed facilities, except in the Ordinary Course of Business;

(p)commit any act or fail to do any act which will cause a Breach of any Contract and which will have a Material Adverse Effect on its business, financial condition or earnings;

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(q)violate any Applicable Law which violation might have a Material Adverse Effect on such Party;

(r)purchase any real or personal property or make any other capital expenditure where the amount paid or committed is in excess of Twenty-Five Thousand Dollars ($25,000)per expenditure;

(s)except in the Ordinary Course of Business, enter into any agreement or transaction with any of such Party's Affiliates; or

(t)engage in any transaction or take any action that would render untrue in any material respect any of the representations and warranties of such Party contained in this Agreement, as if such representations and warranties were given as of the date of such transaction or action.

7.4Public Disclosures.

Purchaser and Taiyu will consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement, 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.  The Parties shall issue a joint press release, mutually acceptable to Taiyu and Purchaser, promptly upon execution and delivery of this Agreement.

7.5Confidentiality.

Purchaser and Taiyu shall hold, and shall use their Best Efforts to cause their respective auditors, attorneys, financial advisors, bankers and other consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all Confidential Information, and each Party shall not release or disclose such Confidential Information to any other Person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with the transactions contemplated by this Agreement.

ARTICLE VIII. CONDITIONS TO CLOSING

8.1Mutual Conditions.

The respective obligations of each Party to effect the Share Exchange shall be subject to the satisfaction, at or prior to the Closing Date, of the following conditions (any of which may be waived in writing by Purchaser and Taiyu:

(a)None of Purchaser, or Taiyu shall be subject to any Order by a court of competent jurisdiction which (i) prevents or materially delays the consummation of the Share Exchange or (ii) would impose any material limitation on the ability of Purchaser effectively to exercise full rights of ownership of the common stock of Taiyu  or any material portion of the assets or Business, taken as a whole.

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(b)No statute, rule or regulation, shall have been enacted by any Governmental Body that makes the consummation of the Share Exchange illegal.

(c)Purchaser and Taiyu shall have received all Consents of Third Parties that are required of such Third Parties prior to the consummation of the Share Exchange, in form and substance acceptable to Purchaser or Taiyu, as the case may be, except where the failure to obtain such consent, approval or authorization would not have a Material Adverse Effect.

8.2Conditions to the Obligations of Purchaser.

The obligations of Purchaser under this Agreement are subject to the satisfaction, at or before the Closing, of each of the following conditions:

(a)The representations and warranties of Taiyu contained herein that are qualified as to materiality shall be true in all respects on and as of the Closing Date with the same force and effect as though made on and as of such date, and each of the representations and warranties of Taiyu that are not so qualified shall be true in all material respects on and as of the Closing Date.

(b)Taiyu shall have performed and complied in all material respects with all covenants, agreements, obligations and conditions required by this Agreement to be performed or complied with by Taiyu at or prior to the Closing.

(c)There shall not be threatened, instituted or pending any Proceeding by or before any court or Govern­mental Body requesting or looking toward an Order that (a) restrains or prohibits the consummation of the Share Exchange, (b) could have a Material Adverse Effect on Purchaser's ability to exercise control over or manage the Taiyu after the Closing or (c) could have a Material Adverse Effect on Taiyu.

(d)On the Closing Date, there shall be no effective Order issued by a court of competent jurisdiction restraining or prohibiting the consummation of the Share Exchange.

(e)The Related Agreements to which Taiyu is a party and all other documents to be delivered by Taiyu to Purchaser at the Closing shall be satisfactory in form and substance to Purchaser.

(f)All Consents of all Third Parties and Governmental Bodies shall have been obtained that are necessary, in the opinion of Purchaser Counsel, in connection with (a) the execution and delivery by Taiyu of this Agreement and the Related Agreements to which it is a Party or (b) the consummation by Taiyu of the Share Exchange and copies of all such Consents shall have been delivered to Purchaser.

(g)Schlombs shall have executed and delivered to Purchaser the Control Share Agreement and shall simultaneously with the Closing consummate the transactions contemplated therein.

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8.3Conditions to the Obligations of Taiyu.

The obligations of Taiyu and the Taiyu Shareholders under this Agreement are subject to the satisfaction, at or before the Closing, of each of the following conditions:

(a)The representations and warranties of Purchaser contained herein that are qualified as to materiality shall be true in all respects on and as of the Closing Date (except for such representations and warranties made as of a specific date which shall be true as of such date) with the same force and effect as though made on and as of such date, and each of the representations and warranties of Purchaser that are not so qualified shall be true in all material respects on and as of the Closing Date (except for such representations and warranties made as of a specific date which shall be true in all material respects as of such date).

(b)Purchaser shall have performed and complied in all material respects with all covenants, agreements, obligations and conditions required by this Agreement to be so performed or complied with by Purchaser at or prior to the Closing.

(c)There shall not be threatened, instituted or pending any Proceeding by or before any court or Govern­mental Body requesting or looking toward an Order, that (a) restrains or prohibits the consummation of the Share Exchange or (b) could have a Material Adverse Effect on Purchaser.

(d)On the Closing Date, there shall be no effective Order issued by a court of competent jurisdiction restraining or prohibiting the consummation of the Share Exchange.

(e)The Related Agreements to which Purchaser is a party and all other documents to be delivered by Purchaser to Taiyu at the Closing shall be satisfactory in form and substance to Taiyu.

(f)All Consents of all Third Parties and Governmental Bodies shall have been obtained that are necessary, in the opinion of counsel to Taiyu, in connection with (a) the execution and delivery by Purchaser of this Agreement or the Related Agreements to which either of them is a party, and (b) the consummation by Purchaser of the transactions contemplated hereby or thereby, and copies of all such Consents shall have been delivered to Taiyu.

(g)Purchaser shall have delivered to Taiyu the resignation of Schlombs from all positions as an officer and director of Purchaser effective upon Closing.

(h)Purchaser shall have delivered to Taiyu evidence of the expansion of Purchaser's Board of Directors to two (2) members and evidence of the appointment of up one (1) new director nominated by Taiyu.

(i)Purchaser shall deliver to each Taiyu Shareholder a certificate evidencing ownership of the Shares described in Section 3.2.

(j)Purchaser shall deliver to Taiyu evidence of the cancellation of 2,400,000 shares of Purchaser Common Stock held by Schlombs.

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(k)The stockholders of Purchaser shall have given all necessary approvals and consents required under NRS.

(l)The Share Exchange shall qualify as a tax-free transaction to each of Purchaser, Taiyu and Taiyu's stockholders.

(m)As of the Closing Date, Purchaser shall not have any debts or liabilities that are not disclosed in the Purchaser SEC Reports and shall not have any Security Interests or Encumbrances recorded against its properties or assets.

ARTICLE IX. SURVIVAL OF REPRESENTATIONS

All representations and warranties made by any Party in this Agreement or pursuant hereto, as modified by any Disclosure Schedule, exhibit, certificate or other document executed and delivered pursuant hereto shall survive the Closing and any investigation made by or on behalf of any Party for a period of one (1) year following the Closing Date.  All statements contained herein or in any schedule, exhibit, certificate or other document executed and delivered pursuant hereto shall be deemed representations and warranties for purposes of Sections 9.1, 8.2(a), and 8.3(a).  The right to any remedy based upon such representations and warranties shall not be affected by any investigation conducted with respect to, or any knowledge acquired at any time, whether before or after execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of any such representation or warranty.

ARTICLE X. TERMINATION, AMENDMENT AND WAIVER

10.1Termination.

This Agreement may be terminated at anytime prior to the Closing:

(a)by mutual written consent of Purchaser and Taiyu;

(b)by Purchaser or Taiyu:

(i)if the Share Exchange shall not have been consummated on or before August 31, 2008, unless the failure to consummate the Share Exchange is the result of a willful and material Breach of this Agreement by the Party seeking to terminate this Agreement;

(ii)if any court of competent jurisdiction or other Governmental Body shall have issued an Order or taken any other action permanently enjoining, restraining or otherwise prohibiting the Share Exchange and such order, decree, ruling or other action shall have become final and non-appealable;

(iii)in the event of a Breach by the other Party of any representation, warranty, covenant or other agreement contained in this Agreement which cannot be or has not been cured within ten (10) days after the giving of written notice to the breaching Party of such Breach (provided that the terminating Party is not then in Breach of any representation, warranty, covenant or other agreement contained in this Agreement);

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(iv)in the event that (i) all of the conditions to the obligation of such Party to effect the Share Exchange set forth in Section 8.1 shall have been satisfied and (ii) any condition to the obligation of such Party to effect the Share Exchange set forth in Section 8.2 (in the case of Purchaser) or Section 8.3 (in the case of Taiyu) is not capable of being satisfied prior to the end of the period referred to in Section 10.1(b)(i); or

(v)if there shall have occurred prior to the Closing changes in Applicable Law that, in the aggregate, shall have a Material Adverse Effect on either Party.

10.2Effect of Termination.

In the event of termination of this Agreement as provided in Section 10.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of any Party except to the extent that such termination results from the willful and material Breach by a Party of any of its representations, warranties, covenants or other agreements set forth in this Agreement, in which case the terminating Party shall have the right to pursue any remedies available to it at law or in equity.

10.3Amendment.

This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Parties.

10.4Extension; Waiver.

At any time prior to the Closing, the Parties may (i) extend the time for the performance of any of the obligations or other acts of the other Parties, (ii) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (iii) waive compliance with any of the agreements or conditions contained in this Agreement.  Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party.

10.5Procedure for Termination, Amendment Extension or Waiver.

A termination of this Agreement pursuant to Section 10.1, an amendment of this Agreement pursuant to Section 10.3, or an extension or waiver pursuant to Section 10.4 shall, in order to be effective, require in the case of Purchaser or Taiyu, action by its Board of Directors or the duly authorized designee of the Board of Directors.

ARTICLE XI. MISCELLANEOUS

11.1Notices.

Any communications required or desired to be given hereunder shall be deemed to have been properly given if sent by hand delivery or by facsimile and overnight courier or overnight courier to the parties hereto at the following addresses, or at such other address as either party may advise the other in writing from time to time:

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If to Purchaser:

SMARTHEAT INC.

1445 Pendrell Street, Suite 202

Vancouver, British Columbia

Canada V6C 1S3

Attention: Jason Schlombs

Phone:

Fax:

with a copy to:

Cane Clark LLP

3273 E. Warm Springs Rd.

Las Vegas, NV 89120

Attention:

Phone: (702) 312-6255

Fax: (702) 944-7100

If to Taiyu:

TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

A-1, 10, Street 7

Shenyang Economic and Technological Development Zone

Shenyang, China 110027

Attention:

Phone:

Fax:

with a copy to:

Buchanan Ingersoll & Rooney

1835 Market Street, 14th Floor

Philadelphia, PA  19103-2985

Attention: William Uchimoto, Esq.

Phone: (215) 665-3813

Fax: (215 665-8760

All such communications shall be deemed to have been delivered on the date of hand delivery or facsimile or on the next Business Day following the deposit of such communications with the overnight courier.

11.2Further Assurances.

Each Party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement.

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11.3Governing Law.

This Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of Nevada, applied without giving effect to any conflicts-of-law principles.

11.4Commissions.

Each of the Parties hereto represents and warrants that no broker or finder is entitled to any brokerage or finder's fee or other commission in connection with the Share Exchange.  Each of the Parties hereto shall pay or discharge, and shall indemnify and hold the other harmless from and against, all claims or liabilities for brokerage commissions or finder's fees incurred by reason of any action taken by it.

11.5Captions.

The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement.

11.6Integration of Exhibits and Schedules.

All Exhibits and Schedules to this Agreement are integral parts of this Agreement as if fully set forth herein.

11.7Entire Agreement.

This Agreement, the Related Agreements, including all Exhibits and Schedules attached hereto and thereto contain the entire agreement of the Parties and supersede any and all prior or contemporaneous agreements between the Parties, written or oral, with respect to the transactions contemplated hereby.  Such agreement may not be changed or terminated orally, but may only be changed by an agreement in writing signed by the Party or Parties against whom enforcement of any waiver, change, modification, extension, discharge or termination is sought.

11.8Expenses.

Except as expressly provided otherwise, each party hereto will bear its own costs and expenses (including fees and expenses of auditors, attorneys, financial advisors, bankers, brokers and other consultants and advisors) incurred in connection with this Agreement, the Related Agreements and the transactions contemplated hereby and thereby.

11.9Counterparts.

This Agreement may be executed in several counterparts, each of which, when so executed, shall be deemed to be an original, and such counterparts shall together constitute and be one and the same instrument.

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11.10Binding Effect.

This Agreement shall be binding on, and shall inure to the benefit of, the Parties hereto, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement.  No Party may assign any right or obligation hereunder without the prior written consent of the other Parties.

11.11No Rule of Construction.

The Parties agree that, because all Parties participated in negotiating and drafting this Agreement, no rule of construction shall apply to this Agreement which construes ambiguous language in favor of or against any Party by reason of that Party's role in drafting this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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SIGNATURE PAGE OF PURCHASER AND TAIYU TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, Purchaser and Taiyu have caused this Share Exchange Agreement and Plan of Reorganization to be executed by their respective duly authorized officers, all as of the day and year first above written.

By Purchaser:

SMARTHEAT INC.

By:           /s/ Jason Schlombs     

Jason Schlombs

Chief Executive Officer

By Taiyu:

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

By:           /s/ James Wang    

James Wang

Chairman and Chief Executive Officer

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

Beijing YSKN Machinery & Electronic Equipment Co., Ltd

/s/ Company Stamp

Name:

(36.8%)

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Yang In Cheol

Name: Yang In Cheol

(20.8%)

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

Shen Yang ZhiCe Investment Co., Ltd

/s/ Company Stamp

Name:

(16%)

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

Advantage Consultants Limited

/s/ Company Stamp

Name:

(4.10%)

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Song Nian Hui

Name: Song Nian Hui

(6%)

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SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Dong Xin

Name: Dong Xin

(5.4%)

42

SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Yang Xiu Yun

Name: Yang Xiu Yun

(5.4%)

42

SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Li Yan

Name: Li Yan

(3.9%)

42

SIGNATURE PAGE OF TAIYU SHAREHOLDERS TO

SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION

IN WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange Agreement and Plan of Reorganization as of the day and year first above written.

/s/ Yu Ping

Name: Yu Ping

(1.6%)

42

EX-2

Exhibit 2.2

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Filed in the office of Ross Miller Secretary of State State of Nevada	Document Number 20080257587-73-10
	Filing Date and Time 04/14/2008 11:26 AM
	Entity Number E0579092006-7

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A.200)

Page 1

USE BLACK INK -- ONLY DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

(Pursuant to Nevada Revised Statutes Chapter 92A)

(excluding 92A.200(4b))

1) Name and jurisdiction of organization of each constituent entity (NRS 92A.200). If there are more than four merging entities, check box ( and attach an 81/2” x 11” blank sheet listing the required information from article one.

Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd.

Name of acquired entity

Peoples Republics of China Limited company

Jurisdiction Entity type*

and,

SmartHeat Inc.

Name of acquiring entity

Nevada corporation

Jurisdiction Entity type*

2) The undersigned declares that a plan of exchange has been adopted by each constituent entity (NRS 92A.200)

*Corporation non-profit corporation limited partnership, limited-liability limited partnership, limited-liability company or business trust.

Filing Fee: $350.00

ROSS MILLER

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(715) 684 5708

Website: secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A 200)

Page 2

USE BLACK INK ONLY – DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE ONLY

3) Owner’s approval (NRS 92A.200) (options a b, or c must be used for each entity) (if there are more than two constituent entities, check box o and attach an 8 ½” x 11” blank sheet listing the entities continued from article three):

(a) Owner’s approval was not required from

Name of acquired entity, if applicable

and, or:

Name of acquiring entity, if applicable

(b) The plan was approved by the required consent of the owners of *

Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd.

Name of acquired entity, if applicable

and, or;

SmartHeat Inc

Name of acquiring entity, if applicable

*Unless otherwise provided in the certificate of trust or governing instrument of a business trust, an exchange must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the exchange.

This form must be accompanied by appropriate fees

ROSS MILLER

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(715) 684 5708

Website: secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A 200)

Page 3

USE BLACK INK ONLY – DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE ONLY

(c) Approval of plan of exchange for Nevada non-profit corporation (NRS 92A 160):

The plan of exchange has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of exchange is required by the articles of incorporation of the domestic corporation.

Name of acquired entity, if applicable

and, or;

Name of acquiring entity, if applicable

4) Location of Plan of Exchange (check a or b):

o (a) The entire plan of exchange is attached;

or,

( (b) The entire plan of exchange is on file at the registered office of the acquiring corporation, limited-liability company or business trust, or at the records office address if a limited partnership, or other place of business of the acquiring entity (NRS 92A.200)

This form must be accompanied by appropriate fees

ROSS MILLER

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(715) 684 5708

Website: secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A 200)

Page 4

USE BLACK INK ONLY – DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE ONLY

5) Effective date (optional)*:

6) Signature – Must be signed by: An officer of each Nevada Corporation; All general partners of each Nevada limited partnership; All general partners of each Nevada limited partnership; A manager of each Nevada limited-liability company with managers or all the members if there are no managers; A trustee of each Nevada business trust (NRS 92A 230 ** (if there are more than two constituent entities, check box o and attach an 8 ½ x 11” blank sheet listing the entities continued from article eight):

Shenyang Taiyu Machinery & Electronic Equipment Co. Ltd.

Name of acquired entity

Û		4-14-08
Signature	Title	Date

SmartHeat Inc.

Name of acquiring entity

Û	President	4-14-08
Signature	Title	Date

*An exchange takes effect upon filing the articles of exchange or upon a later date as specified in the articles, which must not be more than 90 days after the articles are filed (NRS 92A 240).

**The articles of exchange must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230) Additional signature blocks may be added to this page or as an attachment, as needed.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees

ROSS MILLER

Secretary of State

204 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(715) 684 5708

Website: secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A.200)

Page 4

USE BLACK INK ONLY – DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE ONLY

5) Effective date (optional):

6) Signatures – Must be signed by: An officer of each Nevada Corporation; All general partners of each Nevada limited partnership; All general partners of each Nevada limited partnership; A manager of each Nevada limited-liability company with managers or all the members if there are no managers; A trustee of each Nevada business trust (NRS 92A 230)** (if there are more than two constituent entitles, check box o and attach an 8 ½ x 11” blank sheet listing the entities continued from article eight):

Shenyang Taiyu Machinery & Electronic Equipment Co. Ltd.

Name of acquired entity

Û		4-14-08
Signature	Title	Date

SmartHeat Inc.

Name of acquiring entity

Û	CEO	4-14-08
Signature	Title	Date

Û	CEO	4-14-08
Signature	Title	Date

*An exchange takes effect upon filing the articles of exchange or upon a later date as specified in the articles, which must not be more than 90 days after the articles are filed (NRS 92A 240).

**The articles of exchange must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230) Additional signature blocks may be added to this page or as an attachment, as needed.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees

STATE OF NEVADA

ROSS MILLER		SCOTT W. ANDERSON
Secretary of State			Deputy Secretary
	for commercial Recordings

OFFICE OF THE

SECRETARY OF STATE

Certified Copy

April 14, 2008

Job Number: C20080414-2202

Reference Number:

Expedite:

Through Date:

The undersigned filing officer hereby certifies that the attached copies are true and exact copies of all requested statements and related subsequent documentation filed with the Secretary of State’s Office, Commercial Recordings Division listed on the attached report.

Document Number(s)	Description	Number of Pages
20080256587-73	Articles of Exchange	6 Pages/1 Copies

Respectfully

ROSS MILLER

Secretary of State

BY

Certification Clerk

Commercial Recording Division

202 N. Carson Street

Carson City. Nevada 89701-4069

Telephone (775) 684-5708

Fax (775) 684-7138

ROSS MILLER

Secretary of State

204 North Carson street, Ste 1

Carson City, Nevada 89701-4299

(715) 684 5708

Website: secretaryofstate.biz

Articles of Exchange

(PURSUANT TO NRS 92A 200)

Page 4

USE BLACK INK ONLY – DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE ONLY

5) Effective date (optional):

6) Signature – Must be signed by: An officer of each Nevada Corporation; All general partners of each Nevada limited partnership; All general partners of each Nevada limited partnership; A manager of each Nevada limited-liability company with managers or all the members if there are no managers; A trustee of each Nevada business trust (NRS 92A 230 XXXX (if there are more than two constituent entitles, check box o and attach an 8 ½ x 11” blank sheet listing the entities continued from article eight):

XXXX Taiyu Machinery & Electronic Equipment Co. Ltd.

Name of acquired entity

Û		4-14-08
Signature	Title	Date

SmartHead Inc.

Name of acquiring entity

Û	CEO	4-14-08
Signature	Title	Date

*An exchange takes effect upon filing the articles of exchange or upon a later date as specified in the articles, which must not be more than 90 days after the articles are filled (NRS 92A 240).

**The articles of exchange must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A 230) Additional signature blocks may be added to this page or as an attachment, as needed.

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees

STATE OF NEVADA

ROSS MILLER		SCOTT W. ANDERSON
Secretary of State			Deputy Secretary
	for commercial Recordings

OFFICE OF THE

SECRETARY OF STATE

Certified Copy

April 15, 2008

Job Number: C20080414-2202

Reference Number:

Expedite:

Through Date:

The undersigned filing officer hereby certifies that the attached copies are true and exact copies of all requested statements and related subsequent documentation filed with the Secretary of State’s Office, Commercial Recordings Division listed on the attached report.

Document Number(s)	Description	Number of Pages
20080256587-73	Articles of Exchange	6 Pages/1 Copies

Respectfully

ROSS MILLER

Secretary of State

BY

Certification Clerk

Commercial Recording Division

202 N- Carson Street

Carson City. Nevada 89701-4069

Telephone (775) 684-5708

Fax (775) 684-7138

EX-2

Exhibit 2.3

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Filed in the office of Ross Miller Secretary of State State of Nevada	Document Number 20080255564-10
	Filling Date and Time 04/14/2008 11:26 AM
	Entity Number E0579092006-7

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A.200)

Page 1

USE BLACK INK ONLY DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

(Pursuant to Nevada Revised Statutes Chapter 92A)

(excluding 92A.200(4b))

1) Name and jurisdiction of organization of each constituent entity (NRS 92A.200), If there are more than four merging entities, check box ( and attach an 81/2” x 11” blank sheet containing the required information for each additional entity.

Smart Heat XXXX

Name of Morging entity

Nevada	Corporations
Jurisdiction	Entity type”

Name of merging entity

Jurisdiction Entity type

Name of merging entity

Jurisdiction Entity type

Name of merging entity

Jurisdiction Entity type

And.

XXXX XXXX XXXX

Name of merging entity

Nevada	Corporations
Jurisdiction	Entity type”

Corporation non-profit corporation, limited penmanship, limited liability company or business trust Filing Fee-$350.00

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A.200)

Page 2

USE BLACK INK ONLY– DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

2) Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the survivor in the merger - NRS 92A.1 90):

Attn.: Kayla Dickson

C/o: Cane Clark LLP

3273 E Warm Springs RD

Las Vegas, NV 89120

3) (Choose one)

( The undersigned declares that a plan of merger has been adopted by each constituent entity (NRS 92A.200).

x The undersigned declares that a plan of merger has been adopted by the parent domestic entity (NRS 92A.180)

4) Owner’s approval (NRS 92A.200) (options a, b, or c must be used, as applicable, for each entity) (if there are more than four merging entities, check boxo and attach an 81/2” x 11” blank sheet containing the required information for each additional entity.

(a) Owner’s approval was not required from

SmartHeat Inc.

Name of merging entity, if applicable

Name of merging entity, if applicable

Name of merging entity, if applicable

Name of merging entity, if applicable

and or:

Pacific Goldrim Resources, Inc

Name of surviving entity, if applicable

This form must be accompanied by appropriate fees.

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A-200)

Page 3

USE BLACK INK ONLY –DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

(b) The plan was approved by the required consent to the owners of:

Name of merging entity, if applicable

Name of merging entity, if applicable

Name of merging entity, if applicable

Name of merging entity, if applicable

and or:

Name of merging entity, if applicable

*Unless otherwise provided in the certificate of trust or governing instrument of a business trust, a merger must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the merger.

This form must be accompanied by appropriate fees.

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A.200)

Page 4

USE BLACK INK ONLY– DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

(C) Approval of plan of merger for Nevada non profit corporation (NRS 92A.160):

The plan of merger has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of merger is required by the articles of incorporation of the domestic corporation

Name of surviving entity, if applicable

Name of surviving entity, if applicable

Name of surviving entity, if applicable

Name of surviving entity, if applicable

And, or,

Name of surviving entity, if applicable

This form must be accompanied by appropriate fees.

ROSS MILLER

Secretary Of State

201 North Carson Street, Slo 1

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A.200)

Page 5

USE BLACK INK ONLY– DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

5)Amendments, if any, to the articles or certificate of the surviving entity, Provide article numbers, if available (NRS 92A.200):

Article I is hereby amended in its entirety to read:

Article I: Name

“The name of the corporation is SmartHeat Inc. hereinafter the “Corporation”

6) Location of Plan of Merger (check a or b):

• (a) The entire plan of merger is attached:

or

x (b) The entire plan of merger is on file at the registered office of the surviving corporation, limited-liability company or business XXXX. or at the records office address if a limited partnership, or other place of business of the surviving entity (NRS 92A.200)

7) Effective date (optional):

*Amended and restated articles may be attached as an exhibit or integrated into the articles of merger. Please entitle them “Restated” or “Amended and Restated,” accordingly. The form to accompany restated articles prescribedX by the secretary of state must accompany the amended and/or restated articles Pursuant to NRS 92A 180 (merger of subsidiary into parent – Nevada parent owning 90% or more of subsidiary), the articles of merger may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.

**A merger takes effect upon filing the articles of merger or upon a later date as specified in the articles, which must not be more that 90 days after the articles are filed (NRS 92A.240)

This form must be accompanied by appropriate fees.

ROSS MILLER

Secretary Of State

201 North Carson Street, Ste 1

Carson City, Nevada 89701-4299

(775) 684 5708

Website: www.secretaryofstate.biz

Articles of Merger

(PURSUANT TO NRS 92A.200)

Page 6

USE BLACK INK ONLY -- DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

a) Signatures – Must be signed by: An officer of each Nevada Corporation; All general Partners of each Nevada Limited Partnership: All general partners of each Nevada limited partnership: A manager of each Nevada limited – liability company with managers or all the members if there are no managers: A trustee of each Nevada business trust (NRS 92A.230)*

(If there are more than four merging entities check Box ( and attach an 81/2” x 11” blank sheet containing the required information for each additional entity):

SmartHeat. Inc

Name of merging entity

Signature Title Date

Name of merging entity

Signature Title Date

Name of merging entity

Signature Title Date

*The articles of merger must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230). Additional signature blocks may be added to this page or as an attachment, as needed

IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.

STATE OF NEVADA

ROSS MILLER		SCOTT W. ANDERSON
Secretary of State			Deputy Secretary
	For commercial Recordings

OFFICE OF THE

SECRETARY OF STATE

Certified Copy

April 14, 2008

Job Number:	C20080414-1166
Reference Number:	00001817448-23

Expedite:

Through Date:

The undersigned filing officer hereby certifies that the attached copies are true and exact copies of all requested statements and related subsequent documentation filed with the Secretary of State’s Office, Commercial Recordings Division listed on the attached report.

Document Number(s)	Description	Number of Pages
20080255567-10	Merge In	6 Pages/1 Copies

Respectfully

ROSS MTLLHR

Secretary of State

BY

Certification Clerk

Commercial Recording Division

202 N. Carson Street

Carson City, Nevada 89701-4069

Telephone (775) 684-5708

Fax (775) 684-7138

EX-2

Exhibit 2.5

Split-Off Agreement

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of April __, 2008, is made by and between SmartHeat Inc., a Nevada corporation (“Seller”), and Jason Schlombs (“Buyer”).

RECITALS

A.           Seller owns one thousand (1,000) shares of common stock, $0.001 par value per share (the “Shares”) of PGR Holdings, Inc., a Delaware corporation (the “Company”), which shares constitute, as of the date hereof, all of the issued and outstanding capital stock of the Company.

B.           Buyer holds 2,500,000 shares of common stock, $0.001 par value per share, of Seller (the “Purchase Price Shares”), and Buyer has agreed to transfer such shares back to Seller for immediate cancellation (the “Repurchase”).

C.           In connection with the Repurchase, Buyer wishes to acquire from Seller, and Seller wishes to transfer to Buyer, the Shares, upon the terms and subject to the conditions set forth herein.

Accordingly, the parties hereto agree as follows:

1.           Purchase and Sale of Stock.

(a)           Purchased Shares. Subject to the terms and conditions provided below, Seller shall sell and transfer to Buyer and Buyer shall purchase from Seller, on the Closing Date (as defined in Section 1(c)), all of the Shares.

(b)           Purchase Price.  The purchase price for the Shares shall be the transfer and delivery by Buyer to Seller of the Purchase Price Shares, deliverable as provided in Section 2(b).

(c)           Closing. The closing of the transactions contemplated in this Agreement (the “Closing”) shall take place contemporaneously with the execution and delivery of this Agreement.  The date on which the Closing occurs shall be referred to herein as the Closing Date (the “Closing Date”).

2.           Closing.

(a)           Transfer of Shares. At the Closing, Seller shall deliver to Buyer certificates representing the Shares, duly endorsed to Buyer or as directed by Buyer, which delivery shall vest Buyer with good and marketable title to all of the issued and outstanding shares of capital stock of the Company, free and clear of all Liens and encumbrances.

E-1

(b)           Payment of Purchase Price. At the Closing, Buyer shall deliver to Seller a certificate or certificates representing the Purchase Price Shares duly endorsed to Seller, which delivery shall vest Seller with good and marketable title to the Purchase Price Shares, free and clear of all Liens and encumbrances.

3.           Representations and Warranties of Seller. Seller represents and warrants to Buyer as of the date hereof as follows:

(a)           Corporate Authorization; Enforceability. The execution, delivery and performance by Seller of this Agreement is within its corporate powers and has been, duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

(b)           Governmental Authorization. The execution, delivery and performance by Seller of this Agreement requires no consent, approval, Order, authorization or action by or in respect of, or filing with, any Governmental Authority.

(c)           Non-Contravention; Consents. The execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby do not (i) violate the certificate of incorporation or bylaws of Seller or (ii) violate any applicable law or order.

4.           Representations and Warranties of Buyer. Buyer represents and warrants to Seller as of the date hereof as follows:

(a)           Enforceability. The execution, delivery and performance by Buyer of this Agreement are within Buyer’s powers. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles.

(b)           Governmental Authorization. The execution, delivery and performance by Buyer of this Agreement require no consent, approval, Order, authorization or action by or in respect of, or filing with, any Governmental Authority.

(c)           Non-Contravention; Consents. The execution, delivery and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby do not violate any applicable Law or Order.

E-2

(d)           Purchase for Investment.  Buyer is financially able to bear the economic risks of acquiring an interest in the Company and the other transactions contemplated hereby, and have no need for liquidity in this investment. Buyer has such knowledge and experience in financial and business matters in general, and with respect to businesses of a nature similar to the business of the Company, so as to be capable of evaluating the merits and risks of, and making an informed business decision with regard to, the acquisition of the Shares. Buyer is acquiring the Shares solely for their own account and not with a view to or for resale in connection with any distribution or public offering thereof, within the meaning of any applicable securities laws and regulations, unless such distribution or offering is registered under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration is available. Buyer has (i) received all the information they have deemed necessary to make an informed investment decision with respect to the acquisition of the Shares, (ii) had an opportunity to make such investigation as she has desired pertaining to the Company and the acquisition of an interest therein, and to verify the information which is, and has been, made available to her and (iii) had the opportunity to ask questions of Seller concerning the Company. Buyer has received no public solicitation or advertisement with respect to the offer or sale of the Shares. Buyer realizes that the Shares are “restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, the resale of the Shares is restricted by federal and state securities laws and, accordingly, the Shares must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale. Buyer understands that any resale of the Shares by her must be registered under the Securities Act (and any applicable state securities law) or be effected in circumstances that, in the opinion of counsel for the Company at the time, create an exemption or otherwise do not require registration under the Securities Act (or applicable state securities laws). Buyer acknowledges and consents that certificates now or hereafter issued for the Shares will bear a legend substantially as follows:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES LAWS.

E-3

Buyer understands that the Shares are being sold to her pursuant to the exemption from registration contained in Section 4(1) of the Securities Act and that Seller is relying upon the representations made herein as one of the bases for claiming the Section 4(1) exemption.

(e)           Liabilities.  Following the Closing, Seller will have no debts, liabilities or obligations relating to the Company or its business or activities, whether before or after the Closing, and there are no outstanding guaranties, performance or payment bonds, letters of credit or other contingent contractual obligations that have been undertaken by Seller directly or indirectly in relation to the Company or its business and that may survive the Closing.

(f)           Title to Purchase Price Shares.  Buyer is the sole record and beneficial owner of the Purchase Price Shares. At Closing, Buyer will have good and marketable title to the Purchase Price Shares, which Purchase Price Shares are, and at the Closing will be, free and clear of all options, warrants, pledges, claims, Liens and encumbrances, and any restrictions or limitations prohibiting or restricting transfer to Seller, except for restrictions on transfer as contemplated by applicable securities laws.

(g)           Capitalization. As of the date hereof, Seller owns the Shares, which interests represent 100% of the authorized, issued and outstanding capital stock of the Company. The Shares are duly authorized, validly issued, fully-paid, non-assessable and free and clear of any Liens.

5.           Indemnification and Release.

(a)           Indemnification. Buyer covenants and agrees to indemnify, defend, protect and hold harmless Seller, and its officers, directors, employees, stockholders, agents, representatives and affiliates (collectively, together with Seller, the “Seller Indemnified Parties”) at all times from and after the date of this Agreement from and against all losses, liabilities, damages, claims, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys’ fees and expenses of investigation), whether or not involving a third party claim and regardless of any negligence of any Seller Indemnified Party (collectively, “Losses”), incurred by any Seller Indemnified Party as a result of or arising from (i) any breach of the representations and warranties of Buyer set forth herein or in certificates delivered in connection herewith, (ii) any breach or nonfulfillment of any covenant or agreement on the part of Buyer under this Agreement, (iii) any debt, liability or obligation of the Company, whether incurred or arising prior to the date hereof or after, (iv) any debt, liability or obligation of Seller for actions taken prior to that certain share exchange transaction by the Seller with the shareholders of Taiyu Machinery & Electronic Equipment Co., Ltd  (the “Share Exchange”), including, without limitation, any amounts due or owing to any former officer, director or Affiliate of Seller, (v) the conduct and operations of the business of the Company whether before or after the Closing, (vi) claims asserted against the Company whether arising before or after the Closing, or (vii) any federal or state income tax payable by Seller and attributable to the transaction contemplated by this Agreement or activities prior to the Share Exchange or with respect to the Company after the Share Exchange.

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(b)           Third Party Claims.

(i)           If any claim or liability (a “Third-Party Claim”) should be asserted against any of the Seller Indemnified Parties (the “Indemnitee”) by a third party after the Closing for which Buyer has an indemnification obligation under the terms of Section 5(a), then the Indemnitee shall notify Buyer (the “Indemnitor”) within 20 days after the Third-Party Claim is asserted by a third party (said notification being referred to as a “Claim Notice”) and give the Indemnitor a reasonable opportunity to take part in any examination of the books and records of the Indemnitee relating to such Third-Party Claim and to assume the defense of such Third-Party Claim and in connection therewith and to conduct any proceedings or negotiations relating thereto and necessary or appropriate to defend the Indemnitee and/or settle the Third-Party Claim. The expenses (including reasonable attorneys’ fees) of all negotiations, proceedings, contests, lawsuits or settlements with respect to any Third-Party Claim shall be borne by the Indemnitor. If the Indemnitor agrees to assume the defense of any Third-Party Claim in writing within 20 days after the Claim Notice of such Third-Party Claim has been delivered, through counsel reasonably satisfactory to Indemnitee, then the Indemnitor shall be entitled to control the conduct of such defense, and shall be responsible for any expenses of the Indemnitee in connection with the defense of such Third-Party Claim so long as the Indemnitor continues such defense until the final resolution of such Third-Party Claim. The Indemnitor shall be responsible for paying all settlements made or judgments entered with respect to any Third-Party Claim the defense of which has been assumed by the Indemnitor. Except as provided in subsection (ii) below, both the Indemnitor and the Indemnitee must approve any settlement of a Third-Party Claim. A failure by the Indemnitee to timely give the Claim Notice shall not excuse Indemnitor from any indemnification liability except only to the extent that the Indemnitor is materially and adversely prejudiced by such failure.

(ii)           If the Indemnitor shall not agree to assume the defense of any Third-Party Claim in writing within 20 days after the Claim Notice of such Third-Party Claim has been delivered, or shall fail to continue such defense until the final resolution of such Third-Party Claim, then the Indemnitee may defend against such Third-Party Claim in such manner as it may deem appropriate and the Indemnitee may settle such Third-Party Claim, in its sole discretion, on such terms as it may deem appropriate. The Indemnitor shall promptly reimburse the Indemnitee for the amount of all settlement payments and expenses, legal and otherwise, incurred by the Indemnitee in connection with the defense or settlement of such Third-Party Claim. If no settlement of such Third-Party Claim is made, then the Indemnitor shall satisfy any judgment rendered with respect to such Third-Party Claim before the Indemnitee is required to do so, and pay all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such Third-Party Claim.

(c)           Non-Third-Party Claims. Upon discovery of any claim for which Buyer has an indemnification obligation under the terms of this Section 5 which does not involve a claim by a third party against the Indemnitee, the Indemnitee shall give prompt notice to Buyer of such claim and, in any case, shall give Buyer such notice within 30 days of such discovery. A failure by Indemnitee to timely give the foregoing notice to Buyer shall not excuse Buyer from any indemnification liability except to the extent that Buyer is materially and adversely prejudiced by such failure.

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(d)           Release.  Buyer, on behalf of himself and his Related Parties (as defined below), hereby releases and forever discharges Seller and its individual, joint or mutual, past and present representatives, Affiliates, officers, directors, employees, agents, attorneys, stockholders, controlling persons, subsidiaries, successors and assigns (individually, a “Releasee” and collectively, “Releasees”) from any and all claims, demands, proceedings, causes of action, orders, obligations, contracts, agreements, debts and liabilities whatsoever, whether known or unknown, suspected or unsuspected, both at law and in equity, which Buyer or any of his Related Parties now have or have ever had against any Releasee. Buyer hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any kind against any Releasee, based upon any matter released hereby. “Related Parties” shall mean, with respect to Buyer, (i) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with Buyer, (ii) any Person in which Buyer holds a Material Interest or (iii) any Person with respect to which Buyer serves as a general partner or a trustee (or in a similar capacity). For purposes of this definition, “Material Interest” shall mean direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person.

6.           Definitions. As used in this Agreement:

(a)           “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the purposes of this definition, “Control,” when used with respect to any Person, means the possession, directly or indirectly, of the power to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or comparable positions) of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” have meanings correlative to the foregoing;

(b)           “Governmental Authority” means any domestic or foreign governmental or regulatory authority;

(c)           “Law” means any federal, state or local statute, law, rule, regulation, ordinance, code, Permit, license, policy or rule of common law;

(d)           “Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset;

(e)           “Order” means any judgment, injunction, judicial or administrative order or decree;

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(f)           “Permit” means any government or regulatory license, authorization, permit, franchise, consent or approval; and

(h)           “Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

7.           Miscellaneous.

(a)           Counterparts. This Agreement may be signed in any number of counterparts, each of which will be deemed an original but all of which together shall constitute one and the same instrument.

(b)           Amendments and Waivers.

(i)           Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(ii)           No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by Law.

(c)           Successors and Assigns. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer (including by operation of Law) any of its rights or obligations under this Agreement without the consent of each other party hereto.

(d)           No Third Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted successors and assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto, those referenced in Section 5 above, and such permitted successors and assigns, any legal or equitable rights hereunder.

(e)           Governing Law. This Agreement will be governed by, and construed in accordance with, the internal substantive law of the State of Nevada.

(f)           Headings. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof.

(g)           Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement.

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(h)           Severability. If any provision of this Agreement or the application of any such provision to any Person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, the remainder of the provisions of this Agreement (or the application of such provision in other jurisdictions or to Persons or circumstances other than those to which it was held invalid, illegal or unenforceable) will in no way be affected, impaired or invalidated, and to the extent permitted by applicable Law, any such provision will be restricted in applicability or reformed to the minimum extent required for such provision to be enforceable. This provision will be interpreted and enforced to give effect to the original written intent of the parties prior to the determination of such invalidity or unenforceability.

[Signature Page Follows]

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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, effective as of the date first above written.

SmartHeat Inc.

By:________________________________

     Jason Schlombs

     Chief Executive Officer

____________________________________

Jason Schlombs

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Schedule 2.1

Shares of Purchaser to Be Issued to Taiyu Shareholders

	Total Shell Shares Outstanding Prior to Closing		Shell Shares to Be Cancelled Upon Closing		Percentage of Current Taiyu shareholding			Shell Issues New Shares to Taiyu holders		Total Post Merger Shares Outstanding
Shareholder Names to Appear on New Certificates		6,549,900		2,500,000					18,500,000		22,549,900
Beijing YSKN Machinery & Electronic Equipment Co., Ltd						36.80	%		6,808,000
Yang In Cheol						20.80	%		3,848,000
ShenYang ZhiCe Investment Co., Ltd						16	%		2,960,000
Advantage Consultants Ltd.						4.10	%		758,500
Song Nian Hui						6	%		1,110,000
Dong Xin						5.40	%		999,000
Yang Xiu Yun						5.40	%		999,000
Li Yan						3.90	%		721,500
Yu Ping						1.60	%		296,000
Total						100.00	%		18,500,000

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Schedule 2.4(a)

Appointees to Board of Directors of Purchaser Post Closing

Jun Wang

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Schedule 2.4(b)

Officers of Purchaser Post Closing

Jun Wang, President and Chief Executive Officer

Zhijuan Guo, Chief Financial Officer

Huajun Ai, Corporate Secretary

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Schedule 4.2

Taiyu Shareholders

Beijing YSKN Machinery & Electronic Equipment Co., Ltd	36.80	%
Yang In Cheol	20.80	%
ShenYang ZhiCe Investment Co., Ltd	16	%
Advantage Consultants Ltd.	4.10	%
Song Nian Hui	6	%
Dong Xin	5.40	%
Yang Xiu Yun	5.40	%
Li Yan	3.90	%
Yu Ping	1.60	%

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Schedule 4.3

Taiyu Capitalization

See Schedule 4.2

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Schedule 4.6

Taiyu Financial Information

See attached Financial Statements

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Schedule 4.7

Events Subsequent to Taiyu Balance Sheet

None

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Schedule 4.8

Taiyu Tax Matters

None

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Schedule 4.10

Taiyu Real Property

Taiyu is located at A-1, 10, Street 7 Shenyang Economic and Technological Development Zone, Shenyang City, Liaoning Province, PRC. where it has leasehold on two buildings which include the office headquarters and primary manufacturing facilities as well as any other significant fixed assets or special equipment. The Company has a leasehold to use the land in Shenyang by the Municipal administration of state-owned land through June, 2055.

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Schedule 4.15

Taiyu Litigation

None

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Schedule 4.16

Taiyu Employment Benefit Matters

None

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Schedule 4.17

Taiyu Insurance

None

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Schedule 5.2(b)

Purchaser Financial Information

See attached Financial Statements

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Schedule 5.2(g)

Real Property Owned By Purchaser

None

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Schedule 5.2(h)

Real Property Leased by Purchaser

None

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Schedule 5.2(i)(ii)

Tangible Personal Property Used in the Purchaser Business

But Not in Possession of Purchaser

None

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Schedule 5.2(l)

Material Contracts of Purchaser

Stock Purchase Agreement with Jason Schlombs of even date herewith transferring all of the Assets of Purchaser to Schlombs in exchange for the transfer to Purchaser of 2,500,000 shares of common stock of Purchaser held by Jason Schlombs for immediate cancellation.

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Schedule 5.2(n)

Purchaser Litigation

None

E-27

Schedule 5.2(p)

List of Purchaser Insurance Policies

None

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Schedule 7.3

Material Transaction Prior to Closing

Shortform Merger of Purchaser with SmartHeat Inc., a wholly owned subsidiary of Purchaser, merging SmartHeat Inc, into Purchaser in order to change name of Purchaser from Pacific Goldrim Resources, Inc. to SmartHeat Inc.

EX-3

Amended and Restated Bylaws of

SmartHeat Inc.,

a Nevada Corporation

ARTICLE I

STOCKHOLDERS

1.01Annual Meeting. An annual meeting of the stockholders of the corporation shall be held at 2:00 p.m., local time, on the third Thursday of May, in each year, commencing after the first anniversary of incorporation, but if such date is a Saturday, Sunday or legal holiday, then on the next succeeding business day, for the purpose of electing directors of the corporation to serve during the ensuing year and for the transaction of such other business as may properly come before the meeting. If the election of the directors is not held on the day designated herein for any annual meeting of the stockholders, or at any adjournment thereof, the president shall cause the election to be held at a special meeting of the stockholders as soon thereafter as is convenient.

1.02 Special Meetings.

(a)        Special meetings of the stockholders may be called by the chairman of the board, if any, or the president and shall be called by the chairman, if any, the president or the Board of Directors at the written request of the holders of not less than a majority of the voting power of any class of the corporation's stock entitled to vote.

(b)        No business shall be acted upon at a special meeting except as set forth in the notice calling the meeting, unless one of the conditions for the holding of a meeting without notice set forth in Section 1.05 shall be satisfied, in which case any business may be transacted and the meeting shall be valid for all purposes.

1.03Place of Meetings. Any meeting of the stockholders of the corporation may be held at its registered office in the State of Nevada or at such other place in or out of the State of Nevada and the United States as the Board of Directors may designate. A waiver of notice signed by stockholders entitled to vote may designate any place for the holding of such meeting.

1.04 Notice of Meetings; Waiver of Notice.

(a)        The president, a vice president, the secretary, an assistant secretary or any other individual designated by the Board of Directors shall sign and deliver, or cause to be delivered, written notice to the stockholders of any stockholders' meeting at least ten (10) days, but not more than sixty (60) days, before the date of such meeting. The notice shall state the place, date and time of the meeting and the purpose or purposes for which the meeting is called.

(b)        In the case of an annual meeting, any proper business may be presented for action, except that action on any of the following items shall be taken only if the general nature of the proposal is stated in the notice:

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(i)         Action with respect to any contract or transaction between the corporation and one or more of its directors or officers or between the corporation and any corporation, firm or association in which one or more of the corporation's directors or officers is a director or officer or is financially interested;

(ii)         Adoption of amendments to the Articles of Incorporation; or

(iii)        Action with respect to a merger, share exchange, reorganization, partial or complete liquidation, or dissolution of the corporation.

(c)        A copy of the notice shall be personally delivered or mailed postage prepaid to each stockholder of record entitled to vote at the meeting at the address appearing on the records of the corporation, and the notice shall be deemed delivered the date the same is deposited in the United States mail for transmission to such stockholder. If the address of any stockholder does not appear upon the records of the corporation, it will be sufficient to address any notice to such stockholder at the registered office of the corporation.

(d)        The written certificate of the individual signing a notice of meeting, setting forth the substance of the notice or having a copy thereof attached, the date the notice was mailed or personally delivered to the stockholders and the addresses to which the notice was mailed, shall be prima facie evidence of the manner and fact of giving such notice.

(e)        Any stockholder may waive notice of any meeting by a signed writing, either before or after the meeting. Such waiver of notice shall be deemed the equivalent of the giving of such notice. Attendance of a person at a meeting shall also constitute waiver of notice of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not properly included in the notice itself if such objection is expressly made at the time such matters are presented at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting needs to be specified in any written waiver or notice or consent except as may be provided otherwise by these Bylaws.

1.05 Meeting Without Notice.

(a)        Whenever all persons entitled to vote at any meeting consent, either by: (i) a writing on the records of the meeting or filed with the secretary, (ii) presence at such meeting and oral consent entered on the minutes, or (iii) taking part in the deliberations at such meeting without objection, such meeting shall be as valid as if a meeting regularly called and noticed.

(b)        At such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time.

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(c)        If any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of the meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote at such meeting.

(d)        Such consent or approval may be by proxy or power of attorney, but all such proxies and powers of attorney must be in writing.

1.06 Determination of Stockholders of Record.

(a)        For the purpose of determining the stockholders entitled to notice of and to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

(b)        If no record date is fixed, the record date for determining stockholders: (i) entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (ii) entitled to express consent to corporate action in writing without a meeting shall be the day on which the first written consent is expressed; and (iii) for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

1.07 Quorum; Adjourned Meetings.

(a)        Unless the Articles of Incorporation provide for a different proportion, stockholders holding at least a majority of the voting power of the corporation's capital stock, represented in person or by proxy, are necessary to constitute a quorum for the transaction of business at any meeting. If, on any issue, voting by classes is required by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, at least a majority of the voting power within each such class is necessary to constitute a quorum of each such class.

(b)        If a quorum is not represented, a majority of the voting power so represented may adjourn the meeting from time to time until a quorum shall be represented. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted which might have been transacted as originally called. When a stockholders' meeting is adjourned to another time or place hereunder, notice need not be given of the adjourned meeting if the time and place thereof are announced at the

3

meeting at which the adjournment is taken. The stockholders present at a duly convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum of the voting power.

1.08 Voting; Manner of Acting.

(a)        Unless otherwise provided in the Articles of Incorporation, or in the resolution providing for the issuance of the preferred stock adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of the Articles of Incorporation, each stockholder of record, or such stockholder's duly authorized proxy or attorney-in-fact, shall be entitled to one (1) vote for each share of voting stock standing registered in such stockholder's name on the record date.

(b)        Except as otherwise provided herein, all votes with respect to shares standing in the name of an individual on the record date (including pledged shares) shall be cast only by that individual or such individual's duly authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting trust. With respect to shares held by a representative of the estate of a deceased stockholder, guardian, conservator, custodian or trustee, votes may be cast by such holder upon proof of such representative capacity, even though the shares do not stand in the name of such holder. In the case of shares under the control of a receiver, the receiver may cast votes carried by such shares even though the shares do not stand in the name of the receiver; provided, that the order of a court of competent jurisdiction which appoints the receiver contains the authority to cast votes carried by such shares. If shares stand in the name of a minor, votes may be cast only by the duly appointed guardian of the estate of such minor if such guardian has provided the corporation with written proof of such appointment.

(c)        With respect to shares standing in the name of another corporation, partnership, limited liability company or other legal entity on the record date, votes may be cast: (i) in the case of a corporation, by such individual as the bylaws of such other corporation prescribe, by such individual as may be appointed by resolution of the board of directors of such other corporation or by such individual (including the officer making the authorization) authorized in writing to do so by the chairman of the board, if any, president or any vice president of such corporation and (ii) in the case of a partnership, limited liability company or other legal entity, by an individual representing such stockholder upon presentation to the corporation of satisfactory evidence of his or her authority to do so.

(d)        Notwithstanding anything to the contrary herein contained, the Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares. If shares in the Corporation are held by the Corporation in a fiduciary capacity, no votes shall be cast with respect thereto on any matter except to the extent that the beneficial owner thereof possesses and exercises a right to vote and gives the Corporation binding instructions on how to vote.

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(e)        Any holder of shares entitled to vote on any matter may cast a portion of the votes in favor of such matter and refrain from casting the remaining votes or cast the same against the proposal, except in the case of elections of directors. If such holder entitled to vote votes any of its shares affirmatively and fails to specify the number of affirmative votes, it will be conclusively presumed that the holder is casting affirmative votes with respect to all shares held.

(f)         With respect to shares standing in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees, persons entitled to vote under a stockholder voting agreement or otherwise and shares held by two or more persons (including proxy holders) having the same fiduciary relationship in respect to the same shares, votes may be cast in the following manner:

(i) If only one person votes, the vote of such person binds all.

(ii)         If more than one person casts votes, the act of the majority so voting binds all.

(iii)        If more than one person casts votes, but the vote is evenly split on a particular matter, the votes shall be deemed cast proportionately, as split.

(g)        If a quorum is present, unless the Articles of Incorporation provide for a different proportion, action by the stockholders entitled to vote on a matter other than the election of directors, is approved by and is the act of the stockholders, if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless voting by classes is required for any action of the stockholders by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, in which case the number of votes cast in favor of the action by the voting power of each such class must exceed the number of votes cast in opposition to the action by the voting power of each such class.

(h)        If a quorum is present, unless elected by written consent pursuant to these Bylaws and Section 78.320 of the Nevada Revised Statutes, directors shall be elected by a plurality of the votes cast.

1.09Proxies. At any meeting of stockholders, any holder of shares entitled to vote may designate, in a manner permitted by the laws of the State of Nevada, another person or persons to act as a proxy or proxies. Every proxy shall continue in full force and effect until its expiration or revocation in a manner permitted by the laws of the State of Nevada.

1.10Telephonic Meetings. Stockholders may participate in a meeting of the stockholders by means of a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 1.10 constitutes presence in person at the meeting.

5

1.11Action Without Meeting. Any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if a written consent thereto is signed by the holders of the voting power of the corporation that would be required at a meeting to constitute the act of the stockholders. Whenever action is taken by written consent, a meeting of stockholders need not be called or notice given. The written consent may be signed in counterparts, including, without limitation, facsimile counterparts, and shall be filed with the minutes of the proceedings of the stockholders.

1.12Organization; Order of Business. Meetings of stockholders shall be presided over by the chairman of the board, or in the absence of the chairman by the president, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by the Board of Directors by a chairman chosen at the meeting by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitation on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls.

ARTICLE II

DIRECTORS

2.01Number, Tenure, and Qualifications. Unless a larger number is required by the laws of the State of Nevada or the Articles of Incorporation or until changed in the manner provided herein, the Board of Directors of the corporation shall consist of at least one (1) individual and not more than ten (10) individuals. Except as provided in Section 2.06 below, the directors shall be elected at the annual meeting of the stockholders of the corporation and shall hold office until their successors are elected and qualify or until their earlier resignation or removal. A director need not be a stockholder of the corporation.

2.02Change In Number. Subject to any limitations in the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, the number of directors within the fixed minimum and maximum set forth in Section 2.01 may be changed from time to time by resolution adopted by the Board of Directors or the stockholders without amendment to these Bylaws or the Articles of Incorporation.

2.03Reduction In Number. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his or her term of office.

6

2.04Resignation. Any director may resign effective upon giving written notice to the chairman of the board, if any, the president or the secretary, or in the absence of all of them, any other officer, unless the notice specifies a later time for effectiveness of such resignation. A majority of the remaining directors, though less than a quorum, may appoint a successor to take office when the resignation becomes effective, each director so appointed to hold office during the remainder of the term of office of the resigning director.

2.05 Removal.

(a)        The Board of Directors of the corporation, by majority vote, may declare vacant the office of a director who has been declared incompetent by an order of a court of competent jurisdiction or convicted of a felony.

(b)        Any director may be removed from office by the vote or written consent of stockholders representing not less than two-thirds of the voting power of the issued and outstanding stock entitled to vote.

2.06 Vacancies.

(a)        All vacancies, including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum, or by the stockholders entitled to vote at any annual meeting or special meeting held in accordance with Article I, unless it is otherwise provided in the Articles of Incorporation unless, in the case of removal of a director, the stockholders by a majority of voting power shall have appointed a successor to the removed director. Subject to the provisions of Subsection (b) below, (i) in the case of the replacement of a director, the appointed director shall hold office during the remainder of the term of office of the replaced director, and (ii) in the case of an increase in the number of directors, the appointed director shall hold office until the next meeting of stockholders at which directors are elected.

(b)        If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the stockholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the total voting power entitled to vote may call a special meeting of the stockholders to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor.

2.07Annual and Regular Meetings. Immediately following the adjournment of, and at the same place as, the annual or any special meeting of the stockholders at which directors are elected other than pursuant to Section 2.06 of this Article, the Board of Directors, including directors newly elected, shall hold its annual meeting without call or notice, other than this provision, to elect officers and to transact such further business as may be necessary or appropriate. The Board of Directors may provide by resolution the place, date, and hour for holding regular meetings between annual meetings.

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2.08Special Meetings. Special meetings of the Board of Directors may be called by the chairman of the board or by the president or secretary, and shall be called by the chairman of the board, if any, the president or the secretary upon the request of any three (3) directors. If the chairman of the board or, if there be no chairman, both the president and secretary, refuse or neglect to call such special meeting, a special meeting may be called by notice signed by any two (2) directors.

2.09Place of Meetings. Any regular or special meeting of the directors of the corporation may be held at such place as the Board of Directors, or in the absence of such designation, as the notice calling such meeting, may designate. A waiver of notice signed by the directors may designate any place for the holding of such meeting.

2.10Notice of Meetings. Except as otherwise provided in Section 2.07, there shall be delivered to all directors, at least twenty-four (24) hours before the time of such meeting, a copy of a written notice of any meeting (i) by delivery of such notice personally; (ii) by mailing such notice postage prepaid; (iii) by facsimile; (iv) by electronic mail; (v) by overnight courier; or (vi) by telegram. Such notice shall be addressed in the manner provided for notice to stockholders in Section 1.04(c). If mailed inside the United States, the notice shall be deemed delivered two (2) business days following the date the same is deposited in the United States mail, postage prepaid. If mailed outside the United States, the notice shall be deemed delivered four (4) business days following the date the same is deposited in the United States mail, postage prepaid. If sent via facsimile, the notice shall be deemed delivered upon sender's receipt of confirmation of the successful transmission. If the address of any director does not appear upon the records of the Corporation it will be sufficient to address any notice to such director at the registered office of the Corporation. Any director may waive notice of any meeting, and the attendance of a director at a meeting and oral consent entered on the minutes of such meeting shall constitute waiver of notice of the meeting unless such director objects, prior to the transaction of any business, that the meeting was not lawfully called, noticed or convened. Attendance for the express purpose of objecting to the transaction of business thereat because the meeting was not properly called or convened shall not constitute presence or a waiver of notice for purposes hereof.

2.11 Quorum; Adjourned Meetings.

(a)        A majority of the directors in office, at a meeting duly assembled, is necessary to constitute a quorum for the transaction of business.

(b)        At any meeting of the Board of Directors where a quorum is not present, a majority of those present may adjourn, from time to time, until a quorum is present, and no notice of such adjournment shall be required. At any adjourned meeting where a quorum is present, any business may be transacted which could have been transacted at the meeting originally called.

2.12Manner of Acting. The affirmative vote of a majority of the directors present at a meeting at which a quorum is present is the act of the Board of Directors.

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2.13Telephonic Meetings. Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by means of a telephone conference or similar method of communication by which all persons participating in such meeting can hear each other. Participation in a meeting pursuant to this Section 2.13 constitutes presence in person at the meeting.

2.14Action Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all of the members of the Board of Directors or the committee. The written consent may be signed in counterparts, including, without limitation, facsimile counterparts, and shall be filed with the minutes of the proceedings of the Board of Directors or committee.

2.15 Powers and Duties.

(a)        Except as otherwise restricted in the laws of the State of Nevada or the Articles of Incorporation, the Board of Directors has full control over the business and affairs of the corporation. The Board of Directors may delegate any of its authority to manage, control or conduct the business of the corporation to the President, including the power to subdelegate, and in the absence or disqualification of the President, to any standing or special committee or to any officer or agent and to appoint any persons to be agents of the corporation with such powers, including the power to subdelegate, and upon such terms as may be deemed fit.

(b)        The Board of Directors may present to the stockholders at annual meetings of the stockholders, and, when called for by a majority vote of the stockholders at an annual meeting or a special meeting of the stockholders, shall so present, a full and clear report of the condition of the corporation.

(c)        The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may (i) require that any votes cast at such meeting shall be cast by written ballot, and/or (ii) submit any contract or act for approval or ratification at any annual meeting of the stockholders or any special meeting properly called and noticed for the purpose of considering any such contract or act, provided a quorum is present.

(d)        The Board of Directors may, by resolution passed by a majority of the board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Subject to applicable law and to the extent provided in the resolution of the Board of Directors, any such committee shall

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have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

2.16Compensation. The directors and members of committees shall be allowed and paid all necessary expenses incurred in attending any meetings of the Board of Directors or committee and may be paid a fixed fee for attendance at any meeting of the Board of Directors or committee. Subject to any limitations contained in the laws of the State of Nevada, the Articles of Incorporation or any contract or agreement to which the corporation is a party, directors may receive compensation for their services as directors as determined by the Board of Directors, which may include options and restricted stock grants.

2.17Organization; Order of Business. Meetings of the Board of Directors shall be presided over by the chairman of the board, or in the absence of the chairman of the board by the president, or in his or her absence by a chairman chosen at the meeting. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting.

ARTICLE III

OFFICERS

3.01Election. The Board of Directors shall appoint a president, a secretary and a treasurer to hold office until their successors are duly appointed and qualified, and shall fix their compensation. The Board of Directors may, by resolution, appoint a chairman of the board. Any individual may hold two or more offices.

3.02Removal; Resignation. Any officer elected or appointed by the Board of Directors may be removed by it with or without cause. Any officer may resign at any time upon written notice to the corporation. Any such removal or resignation shall be subject to the rights, if any, of the respective parties under any contract between the corporation and such officer or agent.

3.03Vacancies. Any vacancy in any office because of death, resignation, removal or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office.

3.04President; Chief Executive Officer. The president shall hold the title of Chief Executive Officer and have active executive management of the operations of the corporation, subject to the supervision and control of the Board of Directors. The president shall direct the corporate affairs of the corporation, with full power and authority on behalf of the corporation to execute proxies and to execute powers of

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attorney appointing other entities the agent of the corporation. He shall have the right to attend all meetings of the stockholders, Board of Directors, and committees. Aside from the officers who are appointed directly by the board, the President shall appoint and dismiss all other officers, employees, agents, independent contractors, and have concurrent power with the board to appoint and dismiss professional service providers, including law, accounting, financial advisory and property assessment firms for the corporation.

3.05Vice Presidents. In the absence or disqualification of the President, the Board of Directors may elect one or more vice presidents who shall be vested with all the powers and perform all the duties of the president whenever the president is absent, disabled or otherwise unable to act and such other duties as shall be provided in these Bylaws or prescribed by the Board of Directors or the president.

3.06Secretary. The secretary shall perform all duties incident to the office of secretary, including attending meetings of the stockholders and Board of Directors and keeping, or causing to be kept, the minutes of proceedings thereof in books provided for that purpose. The secretary shall attend to the giving and service of all notices of the corporation, shall have the custody or designate control of the corporate seal, shall affix the corporate seal to all certificates of stock duly issued by the corporation, shall have charge or designate control of stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors or appropriate committee may direct, and shall perform such other duties as these Bylaws may provide or the Board of Directors may prescribe.

3.07Assistant Secretaries. The Board of Directors may appoint one or more assistant secretaries who shall have such powers and perform such duties as may be provided in these Bylaws or prescribed by the Board of Directors or the secretary.

3.08Treasurer. The treasurer shall keep correct and complete records of account, showing accurately at all times the financial condition of the corporation and accounts of all monies received and paid on account of the corporation, and shall perform all acts incident to the position of treasurer, subject to the control of the Board of Directors. Whenever required by the Board of Directors, the treasurer shall render a statement of any or all accounts. The treasurer shall have custody of all the funds and securities of the corporation. When necessary or proper, the treasurer shall endorse on behalf of the corporation for collection checks, notes, and other obligations, and shall deposit all monies to the credit of the corporation in such bank or banks or other depository as the Board of Directors may designate, and shall sign all receipts and vouchers for payments made by the corporation. The treasurer shall have care and custody of the stocks, bonds, certificates, vouchers, evidence of debts, securities, and such other property belonging to the corporation. The treasurer shall, if required by the Board of Directors, give bond to the corporation in such sum and with such security as shall be approved by the Board of Directors for the faithful performance of all the duties of treasurer and for restoration to the corporation, in the event of the treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the treasurer's custody or control and belonging to the

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corporation. The expense of such bond shall be borne by the corporation. If a chief financial officer of the corporation has not been appointed, the treasurer may be deemed the chief financial officer of the corporation.

3.09Assistant Treasurers. The Board of Directors may appoint one or more assistant treasurers who shall have such powers and perform such duties as may be prescribed by the Board of Directors or the treasurer. The Board of Directors may require an assistant treasurer to give a bond to the corporation in such sum and with such security as it may approve, for the faithful performance of the duties of assistant treasurer, and for restoration to the corporation, in the event of the assistant treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the assistant treasurer's custody or control and belonging to the corporation. The expense of such bond shall be borne by the corporation.

3.10Chairman of the Board. The chairman of the board may be chosen by and from the members of the Board of Directors and shall preside at the meetings of the Board of Directors and stockholders. If no chairman of the board is appointed or if the chairman is absent from a Board meeting, then the Board of Directors may appoint a chairman from the members of the Board for the sole purpose of presiding at any such meeting. If no chairman of the board is appointed or if the chairman is absent from any stockholder meeting, then the president shall preside at such stockholder meeting. If the president is absent from any stockholder meeting, then the stockholders may appoint a substitute chairman solely for the purpose of presiding over such stockholder meeting.

3.11Execution of Negotiable Instruments, Deeds and Contracts. Unless otherwise required by law or otherwise authorized or directed by these Bylaws or by the Board of Directors, the President or his designee may sign all checks, drafts, notes, bonds, bills of exchange, and orders for the payment of money of the corporation; all deeds, mortgages and other written contracts, documents, instruments and agreements to which the corporation shall be a party; and all assignments or endorsements of stock certificates, registered bonds or other securities owned by the corporation, and to execute all resolutions and orders of the Board of Directors, and to attend, act and vote, or designate another officer or an agent of the corporation to attend, act and vote, at any meetings of the owners of any entity in which the corporation may own an interest or to take action by written consent in lieu thereof.

ARTICLE IV

CAPITAL STOCK

4.01Issuance. Shares of the corporation's authorized stock shall, subject to any provisions or limitations of the laws of the State of Nevada, the Articles of Incorporation or any contracts or agreements to which the corporation may be a party, be issued in such manner, at such times, upon such conditions and for such consideration as shall be prescribed by the Board of Directors.

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4.02Certificates. Ownership in the corporation shall be evidenced by certificates for shares of stock in such form as shall be prescribed by the Board of Directors, may be under the seal of the corporation and shall be manually signed by the president or a vice president and/or the secretary or an assistant secretary, and/or by any other officers or agents designated by the Board of Directors for this purpose; provided, however, whenever any certificate is countersigned or otherwise authenticated by a transfer agent or transfer clerk, and by a registrar, then a facsimile of the signatures of said officers or agents of the corporation may be printed or lithographed upon the certificate in lieu of the actual signatures. If the corporation uses facsimile signatures of its officers and agents on its stock certificates, it shall not act as registrar of its own stock, but its transfer agent and registrar may be identical if the institution acting in those dual capacities countersigns any stock certificates in both capacities. Each certificate shall contain the name of the record holder, the number, designation, if any, class or series of shares represented, a statement, summary of or reference to any applicable rights, preferences, privileges or restrictions thereon, and a statement, if applicable, that the shares are assessable. All certificates shall be consecutively numbered. If provided by the stockholder, the name, address and federal tax identification number of the stockholder, the number of shares, and the date of issue shall be entered in the stock transfer records of the corporation.

4.03Surrendered; Lost or Destroyed Certificates. All certificates surrendered to the corporation, except those representing shares of treasury stock, shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been canceled, except that in case of a lost, stolen, destroyed or mutilated certificate, a new one may be issued therefor. However, any stockholder applying for the issuance of a stock certificate in lieu of one alleged to have been lost, stolen, destroyed or mutilated shall, prior to the issuance of a replacement, provide the corporation with his, her or its affidavit of the facts surrounding the loss, theft, destruction or mutilation and, if required by the Board of Directors, an indemnity bond in an amount not less than twice the current market value of the stock, and upon such terms as the treasurer or the Board of Directors shall require which shall indemnify the corporation against any loss, damage, cost or inconvenience arising as a consequence of the issuance of a replacement certificate.

4.04Replacement Certificate. When the Articles of Incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares of capital stock of the corporation or it becomes desirable for any reason, in the discretion of the Board of Directors, including, without limitation, the merger of the corporation with another corporation or the reorganization of the corporation, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange the same for new certificates within a reasonable time to be fixed by the Board of Directors. The order may provide that a holder of any certificate(s) ordered to be surrendered shall not be entitled to vote, receive distributions or exercise any other rights of stockholders of record until the holder has complied with the order, but the order operates to suspend such rights only after notice and until compliance.

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4.05Transfer of Shares. No transfer of stock shall be valid as against the corporation except on surrender and cancellation of the certificates therefor accompanied by an assignment or transfer by the registered owner made either in person or under assignment. Whenever any transfer shall be expressly made for collateral security and not absolutely, the collateral nature of the transfer shall be reflected in the entry of transfer in the records of the corporation.

4.06Transfer Agent; Registrars. The President or his designee may appoint one or more transfer agents, transfer clerk and registrars of transfer and may require all certificates for shares of stock to bear the signature of such transfer agent, transfer clerk and/or registrar of transfer.

4.07Stock Transfer Records. The stock transfer records shall be closed for a period of at least ten (10) days prior to all meetings of the stockholders and shall be closed for the payment of distributions as provided in Article V hereof and during such periods as, from time to time, may be fixed by the Board of Directors, and, during such periods, no stock shall be transferable for purposes of Article V and no voting rights shall be deemed transferred during such periods. Subject to the foregoing limitations, nothing contained herein shall cause transfers during such periods to be void or voidable.

4.08Miscellaneous. The President shall have the power and authority to make such rules and regulations not inconsistent herewith as it may deem expedient concerning the issue, transfer, and registration of certificates for shares of the corporation's stock.

ARTICLE V

DISTRIBUTIONS

Distributions may be declared, subject to the provisions of the laws of the State of Nevada and the Articles of Incorporation, by the Board of Directors and may be paid in cash, property, shares of corporate stock, or any other medium. The Board of Directors may fix in advance a record date, as provided in Section 1.06, prior to the distribution for the purpose of determining stockholders entitled to receive any distribution. The Board of Directors may close the stock transfer books for such purpose for a period of not more than ten (10) days prior to the date of such distribution.

ARTICLE VI

RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS

6.01Records. All original records of the corporation shall be kept by or under the direction of the secretary or at such places as may be prescribed by the Board of Directors.

6.02Directors' and Officers' Right of Inspection. Every director and officer shall have the absolute right at any reasonable time for a purpose reasonably related to the exercise of such individual's duties to inspect and copy all of the corporation's books, records, and documents of every kind and to inspect the physical properties of the corporation and/or its subsidiary corporations. Such inspection may be made in person or by agent or attorney.

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6.03Corporate Seal. The Board of Directors may, by resolution, authorize a seal, and the seal may be used by causing it, or a facsimile, to be impressed or affixed or reproduced or otherwise. Except when otherwise specifically provided herein, any officer of the corporation shall have the authority to affix the seal to any document requiring it.

6.04Fiscal Year-End. The fiscal year-end of the corporation shall be such date as may be fixed from time to time by resolution of the Board of Directors.

6.05Reserves. The Board of Directors may create, by resolution, such reserves as the directors may, from time to time, in their discretion, deem proper to provide for contingencies, or to equalize distributions or to repair or maintain any property of the corporation, or for such other purpose as the Board of Directors may deem beneficial to the corporation, and the directors may modify or abolish any such reserves in the manner in which they were created.

ARTICLE VII

INDEMNIFICATION

7.01	Indemnification and Insurance.
	(a)	Indemnification of Directors and Officers.

(i)         For purposes of this Article, (A) "Indemnitee" shall mean each director or officer who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any Proceeding (as hereinafter defined), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving in any capacity at the request of the Corporation as a director, officer, employee, agent, partner, member, managing member, manager or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise; and (B) "Proceeding" shall mean any threatened, pending, or completed action, suit or proceeding (including, without limitation, an action, suit or proceeding by or in the right of the Corporation), whether civil, criminal, administrative, or investigative.

(ii)         Each Indemnitee shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Nevada law, against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Indemnitee in connection with any Proceeding; provided that such Indemnitee either is not liable pursuant to NRS 78.138 or acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any Proceeding that is criminal in nature, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the Indemnitee is liable pursuant to NRS 78.138 or did not act in good faith and in a manner in which he or she

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reasonably believed to be in or not opposed to the best interests of the Corporation, or that, with respect to any criminal proceeding he or she had reasonable cause to believe that his or her conduct was unlawful. The Corporation shall not indemnify an Indemnitee for any claim, issue or matter as to which the Indemnitee has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Corporation or for any amounts paid in settlement to the Corporation, unless and only to the extent that the court in which the Proceeding was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such amounts as the court deems proper. Except as so ordered by a court and for advancement of expenses pursuant to this Section, indemnification may not be made to or on behalf of an Indmenitee if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of law and was material to the cause of action.

(iii)        Indemnification pursuant to this Section shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators.

(iv)        The expenses of directors and officers incurred in defending a Proceeding involving alleged acts or omissions of such director or officer in his or her capacity as a director or officer of the Corporation or while serving in any capacity at the request of the Corporation as a director, officer, employee, agent, partner, member, managing member, manager or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, trust, or other enterprise, must be paid by the Corporation or through insurance purchased and maintained by the Corporation or through other financial arrangements made by the Corporation, as they are incurred and in advance of the final disposition of the Proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Corporation. To the extent that a director or officer of the Corporation is successful on the merits or otherwise in defense of any Proceeding, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify him or her against expenses, including attorneys' fees, actually and reasonably incurred in by him or her in connection with the defense.

(b)        Indemnification of Employees and Other Persons. The Corporation may, by action of its Board of Directors and to the extent provided in such action, indemnify employees and other persons as though they were Indemnitees.

(c)        Non-Exclusivity of Rights. The rights to indemnification provided in this Article shall not be exclusive of any other rights that any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or these Bylaws, agreement, vote of stockholders or directors, or otherwise.

(d)        Insurance. The Corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director,

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officer, employee, or agent of the Corporation or member or managing member of a predecessor limited liability company or affiliate of such limited liability company, or is or was serving at the request of the Corporation as a director, officer, employee, member, managing member or agent of another Corporation, partnership, limited liability company, joint venture, trust, or other enterprise for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a director, officer, employee or agent, or arising out of his or her status as such, whether or not the Corporation has the authority to indemnify him or her against such liability and expenses.

(e)        Other Financial Arrangements. The other financial arrangements which may be made by the Corporation may include the following (i) the creation of a trust fund; (ii) the establishment of a program of self-insurance; (iii) the securing of its obligation of indemnification by granting a security interest or other lien on any assets of the Corporation; (iv) the establishment of a letter of credit, guarantee or surety. No financial arrangement made pursuant to this subsection may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud, or a knowing violation of law, except with respect to advancement of expenses or indemnification ordered by a court.

(f)         Other Matters Relating to Insurance or Financial Arrangements. Any insurance or other financial arrangement made on behalf of a person pursuant to this Section may be provided by the Corporation or any other person approved by the Board of Directors, even if all or part of the other person's stock or other securities is owned by the Corporation. In the absence of fraud (i) the decision of the Board of Directors as to the propriety of the terms and conditions of any insurance or other financial arrangement made pursuant to this Section and the choice of the person to provide the insurance or other financial arrangement is conclusive; and (ii) the insurance or other financial arrangement is not void or voidable and does not subject any director approving it to personal liability for his action; even if a director approving the insurance or other financial arrangement is a beneficiary of the insurance or other financial arrangement.

7.02Amendment. The provisions of this Article VII relating to indemnification shall constitute a contract between the Corporation and each of its directors and officers which may be modified as to any director or officer only with that person's consent or as specifically provided in this Section. Notwithstanding any other provision of these Bylaws relating to their amendment generally, any repeal or amendment of this Article which is adverse to any director or officer shall apply to such director or officer only on a prospective basis, and shall not limit the rights of an Indemnitee to indemnification with respect to any action or failure to act occurring prior to the time of such repeal or amendment. Notwithstanding any other provision of these Bylaws (including, without limitation, Article VIII below), no repeal or amendment of these Bylaws shall affect any or all of this Article VII so as to limit or reduce the indemnification in any manner unless adopted by (a) the unanimous vote of the directors of the Corporation then serving, or (b) by the stockholders as set forth in Article VIII hereof; provided that no such amendment shall have a retroactive effect inconsistent with the preceding sentence.

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ARTICLE VIII

AMENDMENT OR REPEAL

Except as otherwise restricted in the Articles of Incorporation or these Bylaws:

(a)        Any provision of these Bylaws may be altered, amended or repealed by the Board of Directors at the a meeting of the Board of Directors without prior notice, or at any special meeting of the Board of Directors if notice of such alteration, amendment or repeal is contained in the notice of such special meeting.

(b)        These Bylaws may also be altered, amended, or repealed at a duly convened meeting of the stockholders by the affirmative vote of the holders of a majority of the voting power of the corporation entitled to vote. The stockholders may provide by resolution that any Bylaw provision altered, amended or repealed by them, or any Bylaw provision adopted by them, may not be altered, amended or repealed by the Board of Directors.

ARTICLE IX

CHANGES IN NEVADA LAW

9.01Changes in Nevada Law. References in these Bylaws to Nevada law or the Nevada Revised Statutes or to any provision thereof shall be to such law as it existed on the date these Bylaws were adopted or as such law thereafter may be changed; provided that (a) in the case of any change which expands the liability of directors or officers or limits the indemnification rights or the rights to advancement of expenses which the corporation may provide in Article VII hereof, the rights to limited liability, to indemnification and to the advancement of expenses provided in the corporation's Articles of Incorporation and/or these Bylaws shall continue as theretofore to the extent permitted by law; and (b) if such change permits the corporation, without the requirement of any further action by stockholders or directors, to limit further the liability of directors or officers or to provide broader indemnification rights or rights to the advancement of expenses than the corporation was permitted to provide prior to such change, then liability thereupon shall be so limited and the rights to indemnification and the advancement of expenses shall be so broadened to the extent permitted by law.

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EX-10

Exhibit 10.1

No.:                                                         

EMPLOYMENT CONTRACT

Employer：Filled out by Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd

Supervised by Shenyang Economic and Technology Development Zone Relation Society

                                 January 1st, 2008

Party A (Employer) Full Name: Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd

                  Address: 1 Jia 10, No. 7 Street, Shenyang Economic and Technology Development Zone, Shenyang

Party B (Employee)   Name: WangJun  Tel: 13701368262

                  Address: Zhongguancun329#, Haidian District, Beijing

According to the Labour Law of People's Republic of China and the rules of law related to labor, Part A and Part B come forward to establish labor relation through negotiation by both parties, and reach the following contract terms for both parties’ rights and obligations for mutual compliance.

1.   Contract Period:

Confirmed by the following term___1)__:

1) Fixed term:

The term of this contract is for __3__years (months), from January 1, 2008 to December 31, 2010,

with probation period _____months, from _____to _____.

2) Non-fixed term: from_____ with probation period for_____ months, from_____ to_____

2.   Job (Working Place) Description and Working time

1) The Party A arranges the Party B to perform the financial job according to the actual need of the working positions. The duty and obligation criterion, assessment criterion as well as the professional ethics etc. of this post are all executed by the related regulations of Party A. The change of  working position must be agreed by both parties.(except the following situations: natural calamities accident, disaster rescue, temporary remove or the mistake made by Part B, or unfitness the work to relegate to a lower official post through the examine, promotion in title for the needs of the work.)

2)The working time of Part B performed by the following___1__type working form.

(1). Standard working system;

(2). Non-fixed working system;

(3). work system with integrative computation of work hours (calculative cycle _____ years)

3. Working Protection and Working Conditions

Party A shall provide Party B necessary working protection facilities and working conditions,   protection health articles or its allowance. Party B shall carry out the related bylaws of manipulation criterion of safety in production appointed by Part A, and have right to reflect or refuse the incorrect instructions and forced risky operations which threatening life safety arranged by management team.

4.   Labor Compensation

Party A ensures Party B to obtain relevant compensation after working in accordance with laws.

1)   Wage standard: Both parties agree to that the salary of the Employee is RMB no less than Shenyang lowest salary  per month.

2)   Payment forms: Party A shall pay Party B with currency every month.

3)   Payment time: on the date of __5th__ each month for the salary payment of last month.

4)   We should determined the amount of monthly real wages of Party B according to the inner and uniform wage distribution, incentive system, floating through the examination by Party A in accordance with legal democracy procedure if the agreed monthly pay levels in this contract is higher than the local minimum wage criterion, but the salary mustn’t under the local minimum wage criterion (except abatement of check on work attendance).

5)   The monthly real wages of Party B only accepted by system of check on work attendance of Party A, if the agreed amount of monthly wages in this contract is lower than the local minimum wage criterion.

5.   Labor Insurance and Welfare Treatment

1)   Party A shall transact social insurance for Party B in accordance with law, such as endowment insurance, medical insurance, employment insurance and birth insurance, etc., pay the full charge in time(the part burdened by Party B shall withhold and remit from his salary by Party A), and ensure Party B enjoy related treatment in accordance with law. If Party B belongs to obtain employment again, Party A pay the insurances from the month Party B handed in the stopping insurance procedure, obligation part should burden the benefit damage caused by exceeding the time limit.

2)   The other welfare treatment of Party B should be executed by related bylaws of Party A. Such as, the rest and vacation system: employee’s legal feast with salary, holiday, annual leave etc., the sick pay treatment system in the period of employee sickness and medical treatment, the system of wage and treatment of women staff and workers in their “Three period of time”, the treatment of benefit system of employee’s industrial injury benefit and wound and disability, etc..

3)   Party A shall pay Party B overtime compensation in accordance with law if Party A make Party B prolong the working time, work overtime on holidays or couldn’t arrange rest on holidays after negotiation due to the needs (of work) (Except for the situations that Party B prolong working time by himself without approval or Party B did not complete the normal activity and job task).

6. Labor Discipline & Treatment for Violating Disciplines

1) After establishing labor relation by both parties, Party B shall subject to Party A’s staff and accept the management from Party A. Party B shall assure to abide by the laws and regulations, ensure perform the various managing bylaws made by Party A in conformity with legal provisions.

2) Party A shall enjoy independent management right, have the right to give Party B administrative sanction, economic penalty, or the treatment of compensate because of the economic losses caused by the waster, equipments and tools damage produced by Party B’s breach of duty in allusion to Party B’s act in violation of regulations according to the factory’s criterion and discipline( or according to the regulations of “Regulation on Rewards and Penalties Given to Enterprise Staff and Workers” issued by State Department). But aiming at Party B’s administrative sanction, economic penalty and the decision of economic compensation should be in the name of main body of Party A to make and pass after legal democratic procedure, serve in written form to tell Party B. Without serving and telling, the procedure is invalidation.

7 Alteration, Renewal, Automatic Extension, Termination and Dissolution of Labor Contract

(1) Alteration. The contract may be altered upon mutual agreement between Party A and Party B during the valid term of this contract. Both parties shall be notified in written forms and the altered contract shall be attached to this contract.

(2) Renewal. The contract may be renewed upon mutual agreement between Party A and Party B upon the expiration of this contract.

(3). Automatic extension. Upon the expiration of the contract, employees happen to injure at work, to be sick or come across the “three periods” for women employers in the legal medical period, the labor contract shall be automatically extended until the end of the legal period (except the condition that Party B propose not to extend).

(4). Termination. The contract may be terminated upon its expiration. The party that requests termination of this contract must give the other party 30 days of written notice. Party A shall terminate and transfer the unemployment formalities upon the cooperation of Party B. Both parties haven’t terminated the contract by the end of the term and form a actual labor relationship, which shall be regarded as the automatic extension of this contract (except the condition that both parties shall not renew the contract upon mutual agreement).

(5). Dissolution. During the valid term of this contract, the party that requests termination of this contract on the basis of Labor Law must give the other party 30 days of written notice (except consistent with the legal circumstances under which the contract can be terminated at any time). Party A shall terminate and transfer the unemployment formalities upon the cooperation of Party B. In the following conditions Party A doesn’t have to transfer the unemployment formalities: when Party B is or has been under punishment because of violating disciplines, Party B doesn’t obey and refuse to implement its obligation and leave its position.

Upon the occurrence of the following circumstances, Party A may dissolute the contract: Party B violates the regulation of giving 30 days of written notices, requests for dissolution of this labor contract and leave or leave without request. If Party B still doesn’t cooperate after the procedures of implementation, service and notice, Party A doesn’t have to transfer the unemployment formalities.

8 Other Appointments

(1). Training and training expenses. During the valid term of this contract, Party B shall accept the training arranged by Party A and implement the Training Agreement that is signed by both parties and attached to this contract.

(2) Confidentiality and non-competition. The Confidentiality and Non-competition Agreement shall be signed in the event that Party B holds the confidential and non-competition position. The Agreement shall be attached to this contract.

(3). Party B must provide real personal information, including name, permanent address, present address, family members, contacting information and diploma, experiences and state of health. The change of the permanent address, present address and contacting information shall be given a month’s notice to Party A. Otherwise, Party B shall undertake the liability caused by the invalid personal information when Party A implements the obligation of noticing. Party B shall also undertake the liability once violating the regulations of Party A because of the false information.

(4). Party B shall self-consciouslyobey the decisions and regulations that is related to all employees, made by the management and through democratic procedures.

9 Liabilities for Breach

(1). In the event that when Party A violates and terminates this contract, it shall give Party B compensation according to Labor Law of the People's Republic of China. In the event that when Party A violates Labor Law and terminates this contract, it is invalid. Party B shall decide whether or not to resume the implementation of the contract or demand for redouble compensation.

(2) In the event that when Party B violates and terminates this contract or violates the Training Agreement and Confidentiality and Non-competition Agreement, it shall compensate Party A.

(3). In the event when Party B violates and terminates this contract, the compensation it gives to Party A shall be consistent with the equivalent principles of economic compensation mentioned in Labor Law of the People's Republic of China.

10 Verification, Validity, Keeping and Dispute Settling of This Contract

This Contract shall be in duplicate copies, with one copy for each of the parties after the verification of both signatures. The two copies are of the same legal effect. Alternation shall be invalid.

For the matters not mentioned in this contract, they shall be implemented based on the national relative laws and legislations or the regulations announced by Party A.

Disputes during the valid term of this contract shall be settled by mutual agreement. If they cannot agree with each other, the Labor Dispute Conciliation Committee shall interfere. For invalid conciliation, both parties shall go to the Labor Dispute Arbitration Committee which is in Party B’s registration place for arbitration.

Party A（Seal） Legal Representative （Seal）                      Date  Month  Year	Party B（Signature） ID Card: 110108196708058910               29th Dec. 2007
This contract shall be submitted by the employer. It is identified that this unit has been registered in the district and can be issued.  Issue Authority（Seal）                                 Issued By (Seal)                Date  Month  Year

EX-10

Exhibit 10.2

No.:                                                         

EMPLOYMENT CONTRACT

Employer：Filled out by Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd

Supervised by Shenyang Economic and Technology Development Zone Relation Society

                                 January 1st, 2008

Party A (Employer) Full Name: Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd

                  Address: 1 Jia 10, No. 7 Street, Shenyang Economic and Technology Development Zone, Shenyang

Party B (Employee)   Name: Guo Zhijuan   Tel: 13390150815

                  Address: Huashan Road 145-3, Huanggu District, Shenyang

According to the Labour Law of People's Republic of China and the rules of law related to labor, Part A and Part B come forward to establish labor relation through negotiation by both parties, and reach the following contract terms for both parties’ rights and obligations for mutual compliance.

1.   Contract Period:

Confirmed by the following term___1)__:

1) Fixed term:

The term of this contract is for __3__years (months), from January 1, 2008 to December 31, 2010,

with probation period _____months, from _____to _____.

2) Non-fixed term: from_____ with probation period for_____ months, from_____ to_____

2.   Job (Working Place) Description and Working time

1) The Party A arranges the Party B to perform the financial job according to the actual need of the working positions. The duty and obligation criterion, assessment criterion as well as the professional ethics etc. of this post are all executed by the related regulations of Party A. The change of  working position must be agreed by both parties.(except the following situations: natural calamities accident, disaster rescue, temporary remove or the mistake made by Part B, or unfitness the work to relegate to a lower official post through the examine, promotion in title for the needs of the work.)

2)The working time of Part B performed by the following___1__type working form.

(1). Standard working system;

(2). Non-fixed working system;

(3). work system with integrative computation of work hours (calculative cycle _____ years)

3. Working Protection and Working Conditions

Party A shall provide Party B necessary working protection facilities and working conditions,   protection health articles or its allowance. Party B shall carry out the related bylaws of manipulation criterion of safety in production appointed by Part A, and have right to reflect or refuse the incorrect instructions and forced risky operations which threatening life safety arranged by management team.

4.   Labor Compensation

Party A ensures Party B to obtain relevant compensation after working in accordance with laws.

1)   Wage standard: Both parties agree to that the salary of the Employee is RMB no less than Shenyang lowest salary per month.

2)   Payment forms: Party A shall pay Party B with currency every month.

3)   Payment time: on the date of __5th__ each month for the salary payment of last month.

4)   We should determined the amount of monthly real wages of Party B according to the inner and uniform wage distribution, incentive system, floating through the examination by Party A in accordance with legal democracy procedure if the agreed monthly pay levels in this contract is higher than the local minimum wage criterion, but the salary mustn’t under the local minimum wage criterion (except abatement of check on work attendance).

5)   The monthly real wages of Party B only accepted by system of check on work attendance of Party A, if the agreed amount of monthly wages in this contract is lower than the local minimum wage criterion.

5.   Labor Insurance and Welfare Treatment

1)   Party A shall transact social insurance for Party B in accordance with law, such as endowment insurance, medical insurance, employment insurance and birth insurance, etc., pay the full charge in time(the part burdened by Party B shall withhold and remit from his salary by Party A), and ensure Party B enjoy related treatment in accordance with law. If Party B belongs to obtain employment again, Party A pay the insurances from the month Party B handed in the stopping insurance procedure, obligation part should burden the benefit damage caused by exceeding the time limit.

2)   The other welfare treatment of Party B should be executed by related bylaws of Party A. Such as, the rest and vacation system: employee’s legal feast with salary, holiday, annual leave etc., the sick pay treatment system in the period of employee sickness and medical treatment, the system of wage and treatment of women staff and workers in their “Three period of time”, the treatment of benefit system of employee’s industrial injury benefit and wound and disability, etc..

3)   Party A shall pay Party B overtime compensation in accordance with law if Party A make Party B prolong the working time, work overtime on holidays or couldn’t arrange rest on holidays after negotiation due to the needs (of work) (Except for the situations that Party B prolong working time by himself without approval or Party B did not complete the normal activity and job task).

6. Labor Discipline & Treatment for Violating Disciplines

1) After establishing labor relation by both parties, Party B shall subject to Party A’s staff and accept the management from Party A. Party B shall assure to abide by the laws and regulations, ensure perform the various managing bylaws made by Party A in conformity with legal provisions.

2) Party A shall enjoy independent management right, have the right to give Party B administrative sanction, economic penalty, or the treatment of compensate because of the economic losses caused by the waster, equipments and tools damage produced by Party B’s breach of duty in allusion to Party B’s act in violation of regulations according to the factory’s criterion and discipline( or according to the regulations of “Regulation on Rewards and Penalties Given to Enterprise Staff and Workers” issued by State Department). But aiming at Party B’s administrative sanction, economic penalty and the decision of economic compensation should be in the name of main body of Party A to make and pass after legal democratic procedure, serve in written form to tell Party B. Without serving and telling, the procedure is invalidation.

7 Alteration, Renewal, Automatic Extension, Termination and Dissolution of Labor Contract

(1) Alteration. The contract may be altered upon mutual agreement between Party A and Party B during the valid term of this contract. Both parties shall be notified in written forms and the altered contract shall be attached to this contract.

(2) Renewal. The contract may be renewed upon mutual agreement between Party A and Party B upon the expiration of this contract.

(3). Automatic extension. Upon the expiration of the contract, employees happen to injure at work, to be sick or come across the “three periods” for women employers in the legal medical period, the labor contract shall be automatically extended until the end of the legal period (except the condition that Party B propose not to extend).

(4). Termination. The contract may be terminated upon its expiration. The party that requests termination of this contract must give the other party 30 days of written notice. Party A shall terminate and transfer the unemployment formalities upon the cooperation of Party B. Both parties haven’t terminated the contract by the end of the term and form a actual labor relationship, which shall be regarded as the automatic extension of this contract (except the condition that both parties shall not renew the contract upon mutual agreement).

(5). Dissolution. During the valid term of this contract, the party that requests termination of this contract on the basis of Labor Law must give the other party 30 days of written notice (except consistent with the legal circumstances under which the contract can be terminated at any time). Party A shall terminate and transfer the unemployment formalities upon the cooperation of Party B. In the following conditions Party A doesn’t have to transfer the unemployment formalities: when Party B is or has been under punishment because of violating disciplines, Party B doesn’t obey and refuse to implement its obligation and leave its position.

Upon the occurrence of the following circumstances, Party A may dissolute the contract: Party B violates the regulation of giving 30 days of written notices, requests for dissolution of this labor contract and leave or leave without request. If Party B still doesn’t cooperate after the procedures of implementation, service and notice, Party A doesn’t have to transfer the unemployment formalities.

8 Other Appointments

(1). Training and training expenses. During the valid term of this contract, Party B shall accept the training arranged by Party A and implement the Training Agreement that is signed by both parties and attached to this contract.

(2) Confidentiality and non-competition. The Confidentiality and Non-competition Agreement shall be signed in the event that Party B holds the confidential and non-competition position. The Agreement shall be attached to this contract.

(3). Party B must provide real personal information, including name, permanent address, present address, family members, contacting information and diploma, experiences and state of health. The change of the permanent address, present address and contacting information shall be given a month’s notice to Party A. Otherwise, Party B shall undertake the liability caused by the invalid personal information when Party A implements the obligation of noticing. Party B shall also undertake the liability once violating the regulations of Party A because of the false information.

(4). Party B shall self-consciouslyobey the decisions and regulations that is related to all employees, made by the management and through democratic procedures.

9 Liabilities for Breach

(1). In the event that when Party A violates and terminates this contract, it shall give Party B compensation according to Labor Law of the People's Republic of China. In the event that when Party A violates Labor Law and terminates this contract, it is invalid. Party B shall decide whether or not to resume the implementation of the contract or demand for redouble compensation.

(2) In the event that when Party B violates and terminates this contract or violates the Training Agreement and Confidentiality and Non-competition Agreement, it shall compensate Party A.

(3). In the event when Party B violates and terminates this contract, the compensation it gives to Party A shall be consistent with the equivalent principles of economic compensation mentioned in Labor Law of the People's Republic of China.

10 Verification, Validity, Keeping and Dispute Settling of This Contract

This Contract shall be in duplicate copies, with one copy for each of the parties after the verification of both signatures. The two copies are of the same legal effect. Alternation shall be invalid.

For the matters not mentioned in this contract, they shall be implemented based on the national relative laws and legislations or the regulations announced by Party A.

Disputes during the valid term of this contract shall be settled by mutual agreement. If they cannot agree with each other, the Labor Dispute Conciliation Committee shall interfere. For invalid conciliation, both parties shall go to the Labor Dispute Arbitration Committee which is in Party B’s registration place for arbitration.

Party A（Seal） Legal Representative （Seal）                      Date  Month  Year	Party B（Signature） ID Card: 210102196409304128               29th Dec. 2007
This contract shall be submitted by the employer. It is identified that this unit has been registered in the district and can be issued.  Issue Authority（Seal）                                 Issued By (Seal)                Date  Month  Year

EX-10

SONDEX A/S Reg.nr.151.129 Plate Heat Echcange S

Sondex

Hereby Appoints and Presents

This Certificate to

Shenyang Taiyu M & EE Co., Ltd.

As

Sondex

Authorized Dealer

For

Sendex Plate Heat Exchanger

Territory: China

Date: Mar. 2006

SONDEX A/S Reg.nr.151.129 Plate Heat Echcange S

Kolding Denmark d. 18/5-06

Sondex Distribution in China

To whom it may concern

Sondex A/S Denmark have divided the distribution of Plate Heat Exchanger equipment for Industrial and Energy sectors into 3 main areas;

North China is handled by Shenyang Taiyu Machinery Ltd.

Central China is handled by Shanghai Bluevale Mechanical Engineering Co. Ltd.

South China is handled by IES Company in Hong Kong and Dongguan China.

If you need further information concerning Sondex Distribution in China you are wellcome to contact the Danish head-quarters located Jernet 9, 6000 Kolding Denmark.

Sincerely Yours

Sondex A/S Denmark

Kristian Iverse

Area Sales Manager

SONDEX A/S

JERNET9

DK-6000 KOLDING

TLF 7630 6100

FAX 7563 3068

SONDEX A/S JERNET 9 DK-6000 Telefax +45 75 53 89 68/+45 75 50 50 19/+45 75 54 21 68 V.A.T. No. import 10 03 56 43 V.A.T. No. export 30 89 73 58 E-mail: info@sondex.dk Bank Danske Bank, Nytorv 1, DK- 6000 Kolding Acc. No. 3211 4676138846 Swift DABA DK KK

SONDEX A/S S

Price Structure Agreement

Name of Company:	Shenyang Taiyu Machinery Ltd
Country:	China
Territory:	North China
Sector:	Industry and Energy
Contact Person:	Richard Wu & James Wang

This agreement concerns all equipment in our Paradox calculation program and according to the co-operation agreement between our two Companies

Pricing Structure-New Equipment Sales

• Sondex latest version of prices for "new sales" shall be used unless a special agreement is made in writing

• Net total value below 75K USD pr. Order the discount will be 20% ex. Works ex. Packing

• Net total value between 75K and 150K USD the discount will be 25% ex.works ex. packing

• Net total value above 150K USD the discount will 25% ex. Packing. CIF Dalian China

Minimum quantities:

* 0 to 75 plates WITH gasket pr. Order of one type will give 0% ex. Works, ex. Packing

* 76 to 150 plates WITH gasket pr. Order of wone type will give 10% ex. Works, ex. Packing.

*150 to 300 plates WITH gasket pr. Order of one type will give 15% ex. Works, ex. Packing

* Above this figure you may refer to your normal price structure, but minimum 150 pcs of the same type and quality.

* If gasket or plate orders are coming separately Sondex will consider it to be spare parts

Above prices structure for loose parts equipment are based on that gasket are mounted at agent side

Pricing Structure-Brazed Heat Exchangers

• Sondex latest version of prices for "new sales" shall be used unless special agreement is made

Number of units	Discount rate
0-5 pcs	0%
6-15 pcs	15%
16-30 pcs	20%
31-50 pcs	25%
50-75 pcs	30%
76-150 pcs	35%
150-250 pcs	40%

For delivery conditions refer to New Equipment Sales

SONDEX A/S S

Pricing Structure-Spare Equipment Sales

* Sondex latest version of prices for "spare sales" shall be used unless special agreement is made in writing.

* Orders were plates are purchased without gasket or opposite will be considered as spares

Number of units	Discount rate
0-5 pcs	0%
11-50 pcs	25%
51-100 pcs	35%
101-500 pcs	50%
501-1000 pcs	60%

For delivery conditions refer to New Equipment Sales

Packing & logistic Appendix

In order to improve Sondex Kolding logistic plates for Doughter Companies as well as major Agents shall be packed directly in the pressing factory instead of going to stock first.

In order to make this happen we must ask you to adjust the order quantities to match enclosed packing appendix.

This appendix is not applicable orders to be delivered from Sondex Distribution Center Hong Kong

Credit Limitations

Your credit maximum is 200.000,- USD for 90 days

Above this figure you must issue a Letter of Credit

Trade Conditions

Currency: USD

Terms of Payment: Telegrafic Transfer and Letter of Credit

Validity: It will always be the latest version of the Paradox Calculation program which is valid Sales and Delivery Conditons: NL 92

/s/

Sondex A/S

Kristian Eversen

EX-10

Exhibit 10.5

售货合同

合同编号：Taiyu2007-11-06

Contract No.:taiyu2007--11-06

签订日期： 2007-11-06

Date:         20007-11-06

SALES CONTRACT

　　

　

　

买方：沈阳太宇机电设备有限公司

The  Buyers：Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd

卖方：Sondex A/S

The Sellers：Sondex A/S

双方同意按下列条款由买方售出下列商品：

The Buyers agree to buy and the Sellers agree to sell the following goods on terms and conditions as set forth below：

（1）商品名称、规格及包装 （1）Name of Commodity ,Specifications and Packing	（2）数量 （2）Quantity	（3）单价 （3）Unit Price	（4）总值 (4)Total Value
Sondex板式换热器零件 Sondex PHE component 详见附件一 See Attachment 1 for Detail

总货值：USD

（5）装运 期限：2007年11月19日海运

（5）Time of Shipment：shipments before 2001-11-19  by  sea

（6）装运口岸：        德国汉堡                       

（6）Port of loading：Hamburg (Germany)

（7）目的口岸：      大连          

（7）Port of Destination： DALIAN

（8）保险；由卖方负责，按本合同总值110%投保。

（8）Insurance：To be covered by the Sellers for 110% of the invoice value. 

（9）付款：凭不可撤销的即期信用证，信用证以卖方为受益人并允许分批装运和转船。该信用证必须在2007年11月15日前开到卖方，信 9992;证的有效期应为上述装船期后第90天。

（9）Terms of Payment：By irrevocable credit in favour of  the Sellers payable at sight allowing partial shipment and transshipment. The covering Letter of Credit must reach the Sellers before 2007-11-15and is to remain valid until the 90th day after the aforesaid time of shipment.

（10）商品检验：以中国进出口商品检验局所签发的品质/数量/重量/包装/卫生检验合格证书作为卖方的交货依据。

（10）Inspection：The Inspection Certificate of Quality / Quantity / Weight / Packing / Sanitation issued by China Import & Export Commodity Inspection Bureau shall be regarded as evidence of the Sellers’ delivery.

（11）装运唛头：Taiyu

（11）Shipping Marks：Taiyu

其他条款：

OTHER TERMS：

1. 异议：品质异议须于货到目的口岸之日起60天内提出，数量异议须于货到目的口岸之日起30天内提出，但均须提供经卖方同意的公证行的检验证明。如责任属于卖方者，卖方于收到异议20天内答复买方并提出处理意见。

1. Discrepancy：In case of quality discrepancy, claim should be lodged by the Buyers within 60 days after the arrival of the goods at the port of destination, while for quantity discrepancy, claim should be lodged by the Buyers within 30 days after the arrival of the goods at the port of destination. In all cases, claims must be accompanied by Survey Reports of Recognized Public Surveyors agreed to by the Sellers. Should the responsibility of the subject under claim be found to rest on the part of the Sellers, the Sellers shall, within 20 days after receipt of the claim, send their reply to the Buyers together with suggestion for settlement.

2. 信用证内应明确规定卖方有权可多装或少装所注明的百分数，并按实际装运数量议付。（信用证之金额按本售货合约金额增加相应的百分数。）

2. The covering Letter of Credit shall stipulate the Sellers’s option of shipping the indicated percentage more or less than the quantity hereby contracted and be negotiated for the amount covering the value of quantity actually shipped. (The Buyers are requested to establish the L/C in amount with the indicated percentage over the total value of the order as per this Sales Contract.)

3. 信用证内容须严格符合本售货合约的规定，否则修改信用证的费用由买方负担，卖方并不负因修改信用证而延误装运的责任，并保留因此而发生的一切损失的索赔权。

3. The contents of the covering Letter of Credit shall be in strict conformity with the stipulations of the Sales Contract. In case of any variation there of necessitating amendment of the L/C, the Buyers shall bear the expenses for effecting the amendment. The Sellers shall not be held responsible for possible delay of shipment resulting from awaiting the amendment of the L/C and reserve the right to claim from the Buyers for the losses resulting therefrom.

4. 因人力不可抗拒事故使卖方不能在本售货合约规定期限内交货或不能交货，卖方不负责任，但是卖方必须立即以电报通知买方。如果买方提出要求，卖方应以挂号函向买方提供由中国国际贸易促进委员会或有关机构出具的证明，证明事故的存在。买方不能领到进口许可证，不能被认为系&# 23646;人力不可抗拒范围。

4. The Sellers shall not be held responsible if they fail, owing to Force Majeure cause or causes, to make delivery within the time stipulated in this Sales Contract or cannot deliver the goods. However, the Sellers shall inform immediately the Buyers by cable. The Sellers shall deliver to the Buyers by registered letter, if it is requested by the Buyers, a certificate issued by the China Council for the Promotion of International Trade or by any competent authorities, attesting the existence of the said cause or causes. The Buyers’ failure to obtain the relative Import Licence is not to be treated as Force Majeure.

5. 仲裁：凡因执行本合约或有关本合约所发生的一切争执，双方应以友好方式协商解决；如果协商不能解决，应提交瑞典斯德哥尔摩商业仲裁院，根据该组织的仲裁规则进行仲裁。仲裁裁决是终局的，对双方都有约束力。

5. Arbitration：All disputes arising in connection with this Sales Contract or the execution thereof shall be settled by way of amicable negotiation. In case no settlement can be reached, the case at issue shall then be submitted for arbitration to The Arbitration Institute of the Stockholm Chamber of Commerce in accordance with the provisions of the said Party. The award by the said Party shall be deemed as final and binding upon both parties.

6. 附加条款（本合同其他条款如与本附加条款有抵触时，以本附加条款为准。）：本合同为中英文，如中英文有不符之处，以英文为准。

6. Supplementary Condition(s)(Should the articles stipulated in this Contract be in conflict with the following supplementary condition(s)，the supplementary condition(s)should be taken as valid and binding.)：the Contract is written in both Chinese and English. English will govern if disputes exist between the languages.

　

卖方（Sellers）：　　　　　　 买方（Buyers）：

Attachment 1
Type	pro.No	Describe items	Qty	USD	TOTAL
S145		PLATE HEAT EXCHANGERS145-IS10	2
		FREIGHT	2
		S145 0.5mm316 TK 1234 plate	6
		S145 nbr	6
		M36 spanner	2
		TOTAL

地址：沈阳经济技术开发区七号街10甲1号

邮编：110027   电话：86-024-25363366

传真：86-024-25365355

http://www.taiyu-heating.com

EX-10

SALES CONTRACT

Prefabricated Plate Heat Exchanger Unites

And Components of Separate Sub stations

The Buyer: Dalkia (Jiamusi) Urban Heating Company Ltd

The Seller: Shenyang Taiyu Machinery & Electronic Equipment Co. Ltd.

Contract No.: CS0101/063-0607

Sign date: June 18 2007

1

The Contract is made and entered into through friendly negotiation by and between Dalkia (Jiamusi) Urban Heating Company Ltd, a corporation organized and existing under the laws of China (hereinafter referred to as the Buyer) and Shenyang TAIYU Machinery & Electronic Equipment Co., Ltd. a corporation organized and existing under the laws of China (hereinafter referred to as the Seller or Taiyu) under [Contract Law of the People's Republic of China]

Taiyu promise design and function for its product and service to meet the end user’s requirements in the Appendix 2 technical specification. And bear legal duty.

1.           Taiyu Scope of Supply and Price

See Appendix 1 for details.

2.           The technology standard for the Contract Equipment

Technical Requirements from the Buyer: see Appendix 2 for details.

Standards for manufacturing goods: CJ/T 191-2004.

3.           Guarantee and Warranty

The Supplier warrants that it will repair and correct any Defects in the Supply, that occur during the Warranty Period (including any required re-design or re-engineering) at no cost to the Buyer. The Buyer’s warranty rights shall not be reduced by the presence of spare parts at the Plant or the lack thereof.

The Supplier shall not be responsible of defects which are the consequences of mishandlings, faulty operation or insufficient maintenance.

The Supplier’s internal costs for removal, replacement, and reinstallation of materials and equipments necessary to all others internal costs incurred by the Supplier as a result thereof, including transportation and taxes of whatever nature, shall be borne by the Supplier, exclusive of any costs incurred by Buyer, the user and any third parties, in particular site personnel costs, cost for stopping/shut-downs /re-starting, and any other consequential costs.

The Supplier shall perform such remedial actions and make any tests in such a manner and at such time so as to minimize revenue loss to the Buyer and disruption of normal operations at the Plant. However, in case those shut-downs of the plant are required to allow the Supplier to fulfill its obligation of warranty, Buyer shall obtain corresponding shut-downs.

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3.1 The Seller guarantees that the Contract Equipment shall be completely new, advanced in technology and superior in quality, free from any defect in design, material and workmanship, suitable for the use and purpose specified in the Contract and in conformity with the stipulation of the Appendix 1.

3.2 The Warranty Period of the Contract Equipment shall be two (2) heating seasons from the date of delivery from the seller or latest August 2009, all the warranty of this contract expire at August 2009

3.3 During the Warranty Period, the buyer should give written information in 7 working days if the buyer found the quality problems which are not caused by the buyer. The seller has the responsibility to take necessary measures to avoid damage coming and extending. Otherwise, the buyer has no right to demand penalties of damage.

3.4 After receiving the notifying message from the buyer, the seller should repair or replace the poor quality components in 7 working days, while the buyer should provide necessary help.

3.5 The seller has no responsibility for below items

3.5.1 Damage cause by the buyer or the third party modifying without the agreement of the seller.

3.5.2 Damage caused by the buyer or the third party deviating notice, instruction, requirement, operating book or manual provide by the seller.

3.5.3 Damage caused by the buyer or the third party’s duty, including accident or scrimshanks.

3.5.4 Other damage caused by the buyer or force majeure.

3.6 The seller will provide the guarantee and warranties 3.1 to 3.4 free of charge if the buyer doesn’t break any items in this contract. If the buyer wants to repair or change components under items 3.5.1 to 3.5.4, the seller will charge the buyer for service, repairing, material and all other charges.

The Buyer shall promptly notify the Supplier in writing of the discovery of any Defects in the equipment.

In the event of any Defects, the Supplier shall, at the Supplier’s own cost and expense and in the shortest reasonably possible time, but in any event within two (2) days for Defects that jeopardize the performance of the Plant or any Section thereof, or twenty (20) days for other Defects following the Supplier’s receipt of written notice of any Defect or the Supplier’s otherwise obtaining knowledge of any Defect:

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(i) Initiate the performance of, and thereafter diligently pursue the completion of, any necessary Services to correct any Defects;

(ii) Initiate and thereafter diligently pursue the completion of re-design, re-engineering, organization of repair, reworking, and re-testing (as appropriate) of defective materials and equipment or systems (and Materials and Equipment or systems supplied by the Suppliers damaged as a result of such defective materials and equipment or systems) and construction workmanship, and/or construct at the Supplier’s expense any changes, modifications, or additions to the Equipment supplied by the Supplier that are necessary and furnish the Materials and Equipment in accordance with the standards set forth in 16.1.? Any similar Materials and Equipment which suffer from a like Defect shall also be corrected ; and

(iii) Provide to the Buyer the relevant data and records regarding the Defect.

If the Supplier fails to initiate as above mentioned within the above time periods or to diligently pursue such repair work, Buyer may undertake such repairs at the Supplier’s expense, and such work Buyer, or others on behalf of Buyer, shall not void the Supplier’s warranty hereunder.

4           Delivery and Acceptance

4.1 Delivery schedule:

Delivery Schedule of Jiamusi East Central Heating Project

4.1.1 One week after DALKIA settle the down payment, Taiyu deliver the PHEs for all the separate stations.(Within 21 days after signed the contract)

4.1.2 Taiyu promises to deliver the pumps of separate stations from the 4th week after signing the contract, and finish this delivery at 5-6th week（42 days）.

4.1.3 Start from 6th week, Finish the delivery of Automation components of separate station before 9th week after signed the contract.

4.1.4 From 6th week after signing the contract, Taiyu promise to delivery the heating units, and finish the delivery at 9th week.

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Remark: If we can sign contract at June 18th, Taiyu promise to finish the delivery before Aug 25th 2007.

4.2 The seller could arrange delivery authored by the buyer; transit the goods to the destination by truck or by railway. The installation company should unload the goods in the appointed place. The delivery way in this contract is: by truck.

4.3 The buyer should check the contract equipment within 15 days after receive the goods and note the seller in writing in 20 days if there is any problem, otherwise it will be deemed as acceptance.

5.           Payment

Term N°1: Thirty percent (30%) of the total Contract Price viz. CNY 3,645,665.00 (Say: three million six hundred and forty-five thousands six hundred and sixty-five Chinese Yuan only) shall be paid by the buyer to the seller （before June 30th 2007）as the down payment not later than 15 days after the contract signed by both sides, Taiyu will give the general arrangement drawings within 5 working days after sign the contract.

Term N°2 : 30 % of the total Contract Price viz. CNY 3,645,665.00 (Say: three million six hundred and forty-five thousands six hundred and sixty-five Chinese Yuan only) at the signature of the Factory Acceptance Test. This payment should be not later than 15 days after the FAT（before July 20th 2007）.

Term N°3 : Taiyu will issue 10% performance bond of the total Contract Price viz. CNY 1,215,222.00 (Say: one million two hundred fifteen thousands two hundred and twenty-two Chinese Yuan only) to DALKIA after DALKIA settle the payment in Term N°2 (before August 15th 2007).

Term N°4 : 10 % of the total Contract Price viz. CNY 1,215,222.00  (Say: one million two hundred fifteen thousands two hundred and twenty-two  Chinese Yuan only) at the delivery in Jiamusi, this payment should be not later than 30 days after the SAT (before October 2007).

TermN° 5 : 20 % of the total Contract Price viz. CNY 2,430,444.00 (Say: two million forty hundred and thirty thousands four hundred forty-four Chinese Yuan only) at the end of blank tests, this payment should be not later than 30 days ,after the blank tests and before September 15th,2007.

Term N°6 : 10 % of the total Contract Price viz. CNY1,215,222.00  (Say: one million two hundred fifteen thousands two hundred and twenty-two  Chinese Yuan only) at the signature of the Provisional Acceptance Certificate, Taiyu will issue 5% warranty Bond first. And at the same time the 10% performance bond in Term N°3 will be ended. This payment should be not later than 30 days (before January 1 2008)

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A letter of guarantee issued by the seller’s bank covering five percent (5%) of the total Contract Price viz. CNY 607,611.00(Say: six hundred and seven thousands six hundred and eleven Chinese Yuan only) should be effected to the Seller as quality warranty before the last payment from the buyer to the seller.

The Buyer will provide payments after receipt of supplier’s invoices

6.           Discrepancy

6.1 All disputes arising in connection with this Sales Contract or the Appendix thereof shall be settled by way of amicable negotiation. Once one party requests negotiation in writing, the other party should response immediately. In case of no settlement can be reached in 20 days, the case at issue shall then be submitted to China International Commerce Arbitration Institute. The arbitration award shall be final and binding on both parties.

6.2 Notwithstanding any reference to arbitration, the two Parties shall continue to perform their respective obligations under the Contract unless the two Parties otherwise agree.

7.           Penalties

7.1 Late delivery: In case the Seller fails to meet the delivery schedules as contract, the Seller shall pay late delivery penalties of two percent (2%) per month of the delayed goods’ value; the upper limit is five percent (5 %) of the delayed goods’ value. Once the seller accepts the penalties, the buyer has no right to reject the goods. Late delivery caused by force majeure is excluding in the penalties items.

7.2 The buyer collect good late or settle payment late: In case of the buyer collect goods late except force majeure, the buyer should settle additional stock charges, the stock charges is 2% per month of the contract value. In case of the buyer settle payment late, the buyer should charge 0.6‰ of the contract value one day, the seller can stop delivery and services temporarily, and the seller has right to terminate the contract after the 60th days.

7.3 Taiyu will accept penalty, in case Taiyu’s equipments can not reach the designed parameters specified in this contract.

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7.4 Returning

7.4.1 The scope of returning: Returning because of market price greatly dropping, and there is no quality problems, no operating and unpacking goods in general standard is excluded in this items. The validity date of returning: 60 days after collecting goods.

7.4.2 In case of the returning goods is OK after the seller inspects, the seller will deduct 80% of returning goods charges in the total contract value. All freight charges will be paid by the buyer.

7.4.3 The buyer claims returning without collecting goods, the buyer will deduct 80% of returning goods value in the total contract value.

8.           Indirectly losing

The indirectly losing caused by the buyer signing, executing, applying the contract under any case, the seller doesn’t have responsibility.

9.           Responsibility limit

The upper limit of penalty to the seller is 5% of the contract value at any case.

10.           Contract validity

The contract validates after signed by the two parties.

The period of validity of this contract is from validating till reaching the quality guarantee date and the buyer settle all the payment.

11.           Intellectual Property and confidential Technology

The intellectual Property and Technological confidence relate with this contract, including but not limit to product design, technology documents, drawings and so on are belong to the seller. The buyer has responsibility to keep confidential. The buyer shouldn’t copy the any above documents, and shouldn’t leak to the third party.

12.           Others

12.1 This contract is made in eight (6) copies, four (4) for the Buyer and four (2) for the Seller and execute in fax.

12.2 All amendments, supplements and alterations to the terms and conditions of the Contract shall be made in written form and signed by the authorized representatives of the two Parties through consultation.

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12.3 Any notice, request and communication relate with this contract between the two parties should be made in written form.

12.4           Appendices to the Contract are integral parts of the Contract and shall have the same legal force as the Contract itself.

The buyer (seal):	The seller (seal):
Representative:                                Wu Shao Bin,	Representative: Wu Jun
Thierry Stievenard
Address: Jiamusi Heilongjiang	Address: 10A-1, No.7 Str.,
	Shenyang Econonomic &
	Technological Development Zone
Telephone: 0086 13359552816	Telephone: +86 24 25363366
Fax:	Fax: +86 24 25365355
Tax Registration No.:
Post Code: 154002	Post Code: 110027
Bank Name: Jiamusi ICBC,	Bank Name:                                Agricultural Bank
of	China Shenyang
	Development
	Zone Branch
Central branch
Account: 0904021109223051063	Account: 06-182001040008276

EX-10

Exhibit 10.8

Citibank (China) Co., Ltd.

Shanghai Branch

31/F Citigroup Tower

No. 33 Hua Yuan Shi Qiao Road

Lu Jia Zui Finance and Trade Zone

Shanghai 200120 P.R. China

(Contract No.: 744658070625)

Short-term Revolving Financing Agreement without Commitment

Jun. 25, 2007

Both Parties of the agreement are:

(1)   Citibank (China) Co., Ltd. Shanghai Branch, whose address is: 33rd F Citigroup Tower, No. 33 Hua Yuan Shi Qiao Road, Lu Jia Zui Finance and Trade Zone, Shanghai, P.R. China (hereinafter referred to as “loan bank”), and

(2)   Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd., whose address is: 1-10 A, No. 7 Street, Shenyang Economic and Technological Development Zone, China (hereinafter referred to as “customer”)

The agreement is hereby reached by both parties as follows:

1.   Both “General Terms and Conditions of the Financing Agreement” attached and contents of any ancillary document are definitely part of terms of the agreement.

2.   Ceiling of amount financed: RMB ten point two million yuan only (RMB 10,200,000)

3.   Financing currency: RMB

4.   Financing mode and limit:

·Loan: Not exceeding RMB ten point two million yuan only (RMB 10,200,000)

In any case, total outstanding financing in all various financing modes above must not exceed the ceiling of amount financed.

5.   Maximum term of various financing modes:

·Loan: Twelve months

6.   Loan interest rate/commission rate/financing interest rate:

·With regard to each loan, the loan interest rate is:

RMB: Interest rate should float downward 10% according to applicable benchmark lending rates published by the People’s Bank of China at intervals (5.265).

7.   Purpose of financing: circulating capital demands and purchase of raw materials

8.   Assurance and Assurance Provider:

   · Provide Stand-by Letter of Credit meets requirements of the loan bank as assurance

9.   Penalty rates of interest:

Under the stipulation of Article 12 of “General Terms and Conditions of the Financing Agreement”, the penalty rates of interest shall be:

RMB: penalty rates of interest shall be the lowest penalty rates of interest that allow to be charged on overdue loans (including the principal and interests) according to applicable relevant stipulations of the People’s Bank of China.

USD: penalty rates of interest shall be based on the interest rate determined by the loan bank on its own.

In view of this, the agreement was signed by duly authorized representatives of both Parties of the agreement on the date written in its beginning and shall take effect on the date of signing by duly authorized representatives of both Parties.

Rebecca Wu (Signature)                 Director On behalf of the loan bank Lin Wenbin (Seal)    On behalf of the customer  Seal of the customer: Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd.   Witnessed/Verified By: CH01, SUNG-CHUL                    Print Name                    Signature

EX-10

Buyer:	Contract No.:
Seller: Shenyang Taiyu Machinery &    Electronic Equipment Co., Ltd	Date of signature:

1. Supply scope

For details, refer to “Attachment I”.

2. Technical Standard of Goods

For the plate heat exchanger, the standard GB16409-1996 is implemented.

For the plate heat exchanging set, the standard CJ/T191-2004 is implemented.

3. Warranty Clauses

3.1           The seller must guarantee that the design, manufacture and material of the provided goods are proper and can meet the requirements of national technical standards and "Attachment I".

3.2           The warranty period of the warranty clauses is 12 months beginning from the delivery.

3.3            In the conditions of item 3, within the warranty period, if the buyer finds the quality defects of the goods which are not the responsibility of the seller, the buyer can require the treatment from the seller within 7 days. The buyer is liable to keep the loss from occurring and increasing. Or the seller is not responsible for the compensation of the increased loss.

3.4           Received notice of the quality of the buyer, the seller shall repair or change the goods with quality problems in 7 working days after receiving the quality notice, and the buyer shall provide the necessary assistance.

3.5           The seller is not responsible in the following condition:

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3.5.1 The damages of goods which are caused by the modification by the buyer or the third part without the agreement of the seller in advance;

3.5.2 the damages of goods which are caused by the operations, maintenances and services of the buyer or the third part without the coherences of the instruction, guidance, requirement the operating manual and specifications supplied by the seller;

3.5.3 The damages caused by the responses of the buyer or the third part such as the accident and the dereliction of duty.

3.6           In no event of default by the buyer, the seller shall provide the guarantees in item 3.1 to item 3.4 freely.  If the repair or replacement of the goods in the conditions of item 3.5.1 to item 3.5.4, the seller can require all the costs of the actual amount, such as the costs of service charges, maintenance and materials, etc.

4. Delivery Methods and Acceptance of Goods

4.1           Delivery methods: FOB on the location specified by the Customer (not responsible for the unloading and installation of the product).

4.2           The seller can contact the delivery units and deliver the goods with the truck transport or railway transport after being authorized by the buyer. Freight and transportation risk shall be of the buyer's responsibilities. The seller is responsible for the loading of the finished products at the plant. The transportation of the goods in the contract shall be: truck transport.

4.3           The buyer shall accept the goods in 15 days after receipt of the goods. And the buyer shall inform the seller in written form within 20 days after the receipt of the goods if there is any problem with the received goods. Otherwise the acceptance shall be considered to be qualified.

5. Payment and Term

The buyer shall pay 30% of the total contract amount to the seller within five working days after the sign of the contract; the seller must immediately start the production after receiving the down payment. The buyer shall pay the rest contract amount 5 days before delivery and within 60 days after the signing of the contract.

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6. Dispute Resolution

6.1           Any disputes on the contract and its attachments shall be immediately resolved with friendly consultation. If one part requests a consultation by a written notice to the other party, the other party shall immediately start consultation. If the dispute has not been resolved after written notice is given 20 days, either party have the right to sue at the local People's Court of Shenyang.

6.2           In the negotiation and litigation process, in addition to the controversies, the two parts shall continue to fulfill their obligations in the contract except the controversial part.

7. CompensationAgreement and Return

7.1           Delay in delivery: if the seller can not deliver the goods in accordance with the provisions of the contract on time, the seller shall compensate for the buyer. The compensation for every month’s delay shall be the [2] % of the price of the delayed goods and the total amount of the compensation can not exceed the [5] % of the price of the delayed goods. Once the seller agrees to pay compensation, the buyer shall not refuse to accept the goods for any reason. The delay in delivery due to the force majeure is not compensable.

7.2           The delayed collection or delayed payment: for the delayed collection of the goods, with the exception of force majeure reasons, the buyer shall pay the seller the goods storage cost with [1.5%] of the contract amount monthly. For the delayed payment, the buyer shall pay the seller [2 ‰] of the contract amount as the compensation payment each day; the seller can suspend the shipment and services as well as cancel the contract if the delayed payment date exceeding 60 days.

7.3 Return

7.3.1 For the common standard products without any quality problem, use and broken packaging, when the buyer requires the return for special reasons, the seller can deduct the [50%] of the amount for the accepted returns after the storage acceptance for returned goods is approved. The cost of shipments in return shall be charged by the buyer.

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Return deadline: Within 10 days after the collection of goods by the buyer.

7.3.2   The seller can deduct the [50%] of the return costs from the contract amount if the buyer requires the return of the uncollected goods in the collection time stipulated in the contract.

8. Indirect Loss

In any case, the seller is not responsible for the indirect losses caused by the sign and the performance of the contract as well as the use of the goods in the contract.

9. Liability Limitation

In any case, the maximum of the seller's compensation liability is 5% of the contract amount.

10. Validity of the Contract

The contract shall be valid after the contract is signed by both authorized representatives.

The contract is valid from the effective date of the contract to the expiration and the time when the buyer makes all the payments.

11. Intellectual property rights and technical secrets

The relative intellectual property rights and technical secrets of the goods in the contract, including but not limited to, product design, technical documents, drawings and so on, belong to the seller. The buyer shall have the duty of confidentiality, shall not copy any of the above information and shall not disclose them to any third parties.

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12. Other Clauses

12.1                      The contract is made out in six duplicates, and each Party shall hold three copies of the text.

12.2                      Any modification or addition of this contract takes effect only when it is signed in written form by the authorized representatives of the both parts.

12.3                      Any notice, requests and letters related to the contract must be in written form.

12.4                      All the attachments of the contract are the components of the contract and have the same legal effect with the clauses in the contract.

  Buyer:     Representative：                                            Address： Tel： Fax： Post code： Tax registeration No.:     Seller: Shenyang Taiyu Machinery &    Electronic Equipment Co., Ltd   Representative: Address:                                10-1 #, 7th street, Shenyang Economic and Technological Development Zone Tel:                       ( 8624 )   25370678 Fax:                      ( 8624 )   25365355 Post code：                                110027 Depositary bank: Shenyang Economic and Technological Development Zone  Branch of Agricultural Bank of China Account No.：06-182001040008276

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Attachment I: Supply Scope

No.	Product name	Type	Quantity	Unit price   （￥） (with VAT)	Total price（￥） (with VAT)
1
2
3
Total price（with VAT）                           ￥

The total sale price is ￥，RMB which includes the packaging cost excluding Freight and insurance. We will manufacture strictly in accordance with the manufacturing process, perform the strict test before delivery and supply a complete test report.

Date of delivery： ____, 2008

EX-10

EXHIBIT 10.10

RESIGNATION

FROM THE BOARD OF DIRECTORS

AND ALL OFFICER POSITIONS OF

SMARTHEAT INC.

______________________________________________________________________________

I, Jason Schlombs, hereby resign from all officer and director positions that I hold with SmartHeat Inc. (the "Corporation"), effective as of date hereof; provided that my resignation as a director shall not take effect until the end of the business on April 15, 2008 and subsequent to the effectiveness of the appointment of new directors and officers.

/s/ Jason Schlombs

Jason Schlombs

Dated: April 15, 2008.

N-s11-8349_ex1010.htm Resignation – Kristine Barton (Greenleaf Forrest Products, Inc.)

EX-10

AGREEMENT OF CONVEYANCE, TRANSFER

AND ASSIGNMENT OF ASSETS AND ASSUMPTION OF OBLIGATIONS

This Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (“Transfer and Assumption Agreement”) is made as of April 14, 2008, by SmartHeat Inc, a Nevada corporation (“Assignor”), and PGR Holdings, Inc., a Nevada corporation and a wholly-owned subsidiary of Assignor (“Assignee”).

WHEREAS, Assignor is engaged in the business of distributing mining exploration in North America (the “Business”); and

WHEREAS, contemporaneously with the execution and delivery of this Transfer and Assignment Agreement, Assignor is acquiring all of the outstanding shares of Taiyu Machinery & Electronic Equipment Co., Ltd;, a company engaged in the heat exchange plate business; and

WHEREAS, Assignor desires to divest, convey, transfer and assign to Assignee, and Assignee desires to acquire from Assignor, all of the assets of Assignor relating to the operation of the Business, and in connection therewith, Assignee has agreed to assume all of the liabilities of Assignor relating to the Business, on the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1. Assignment.

1.1.Assignment of Assets. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by Assignor, Assignor does hereby assign, grant, bargain, sell, convey, transfer and deliver to Assignee, and its successors and assigns, all of Assignor’s right, title and interest in, to and under the assets, properties and business, of everykind and description, wherever located, real, personal or mixed, tangible or intangible, owned, held or used in the conduct of the Business (the “Assets”), including, but not limited to, the Assets listed on Exhibit A hereto.

1.2Further Assurances. Assignor shall from time to time after the date hereof at the request of Assignee and without further consideration execute and deliver to Assignee such additional instruments of transfer and assignment, including without limitation any bills of sale, assignments of leases, deeds, and other recordable instruments of assignment, transfer and conveyance, in addition to this Transfer and Assumption Agreement, as Assignee shall reasonably request to evidence more fully the assignment by Assignor to Assignee of the Assets.

Section 2. Assumption.

2.1Assumed Liabilities. As of the date hereof, Assignee hereby assumes and agrees to pay, perform and discharge, fully and completely, (i) all liabilities, commitments, contracts, agreements, obligations or other claims against Assignor, whether known or unknown, asserted or unasserted, accrued or unaccrued, absolute or contingent, liquidated or unliquidated, due or to become due, and whether contractual, statutory, or otherwise associated with the Business or operations of Assignor prior to the date hereof (the “Liabilities”), including, but not limited to, the

Liabilities listed on Exhibit B, with the exception of fees due and owing to Assignor’s audit firm as of the date hereof, not to exceed ten thousand dollars ($10,000).

2.4Further Assurances. Assignee shall from time to time after the date hereof at the request of Assignor and without further consideration execute and deliver to Assignor such additional instruments of assumption in addition to this Transfer and Assumption Agreement as Assignor shall reasonably request to evidence more fully the assumption by Assignee of the Liabilities.

Section 3. Headings. The descriptive headings contained in this Transfer and Assumption Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Transfer and Assumption Agreement.

Section 4.Governing Law. This Transfer and Assumption Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to contracts made and to be performed entirely within that state, except that any conveyances of leaseholds and real property made herein shall be governed by the laws of the respective jurisdictions in which such property is located.

[The remainder of this page is blank intentionally.]

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IN WITNESS WHEREOF, this Transfer and Assumption Agreement has been duly executed and delivered by the parties hereto as of the date first above written.

SMARTHEAT INC.

	/s/ Jason Schlombs
By:

Name:

Title:

PGR HOLDINGS, INC.

	/s/ Jason Schlombs
By:

Name:

Title:

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Exhibit A

(a)        All of the equipment, computers, servers, hardware, appliances, implements, and all other tangible personal property that are owned by Assignor and have been used in the conduct of the Business;

(b) all inventory associated with the Business;

(c)        all real property and real property leases to which Assignor is a party, and which affect the Business or the Assets;

(d)        all contracts to which Assignor is a party, or which affect the Business or the Assets, including leases of personal property;

(e)        all rights, claims and causes of action against third parties resulting from or relating to the operation of the Business or the Assets, including without limitation, any rights, claims and causes of action arising under warranties from vendors and other third parties;

(f)         all governmental licenses, permits, authorizations, consents or approvals affecting or relating to the Business or the Assets;

(g)        all accounts receivable, notes receivable, prepaid expenses and insurance and indemnity claims to the extent related to any of the Assets or the Business;

(h) all goodwill associated with the Assets and the Business;

(i)         all business records, regardless of the medium of storage, relating to the Assets and/or the Business, including without limitation, all schematics, drawings, customer data, subscriber lists, statistics, promotional graphics, original art work, mats, plates, negatives, accounting and financial information concerning the Assets or Business;

(j)         Assignor’s right to use the name “Pacific Goldrim Resources” and all other names used in conducting the Business, and all derivations thereof, in connection with Assignee’s future conduct of the Business;

(k)        all internet domain names and URLs of the Business, software, inventions, art works, patents, patent applications, processes, shop rights, formulas, brand names, trade secrets, know-how, service marks, trade names, trademarks, trademark applications, copyrights, source and object codes, customer lists, drawings, ideas, algorithms, processes, computer software programs or applications (in code and object code form), tangible or intangible proprietary information and any other intellectual property and similar items and related rights owned by or licensed to Assignor used in the Business, together with any goodwill associated therewith and all rights of action on account of past, present and future unauthorized use or infringement thereof; and

(l)         all other privileges, rights, interests, properties and assets of whatever nature and wherever located that are owned, used or intended for use in connection with, or that are necessary to the continued conduct of, the Business as presently conducted or planned to be conducted.

Exhibit B

(a)        All liabilities in respect of indebtedness of Assignor related to the Business or other operations of Assignor prior to the date hereof;

(b)        product liability and warranty claims relating to any product or service of Assignor associated with the Business;

(c)        taxes, duties, levies, assessments and other such charges, including any penalties, interests and fines with respect thereto, payable by Assignor to any federal, provincial, municipal or other government, domestic or foreign, incurred in the conduct of the Business;

(d)        liabilities for salary, bonus, vacation pay, severance payments damages for wrongful dismissal, or other compensation or benefits relating to Assignor’s employees employed in the conduct of the Business; and

(e)        any liability or claim for liability (whether in contract, in tort or otherwise, and whether or not successful) related to any lawsuit or threatened lawsuit or claim (including any claim for breach or non-performance of any contract) based upon actions, omissions or events relating to the Business.

EX-10

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of April 14, 2008, is made by and between SmartHeat Inc., a Nevada corporation (“Seller”), and Jason Schlombs (“Buyer”).

RECITALS

A.         Seller owns one thousand (1,000) shares of common stock, $0.001 par value per share (the “Shares”) of PGR Holdings, Inc., a Delaware corporation (the “Company”), which shares constitute, as of the date hereof, all of the issued and outstanding capital stock of the Company.

B.         Buyer holds 2,500,000 shares of common stock, $0.001 par value per share, of Seller (the “Purchase Price Shares”), and Buyer has agreed to transfer such shares back to Seller for immediate cancellation (the “Repurchase”).

C.         In connection with the Repurchase, Buyer wishes to acquire from Seller, and Seller wishes to transfer to Buyer, the Shares, upon the terms and subject to the conditions set forth herein.

Accordingly, the parties hereto agree as follows:

1. Purchase and Sale of Stock.

(a)        Purchased Shares. Subject to the terms and conditions provided below, Seller shall sell and transfer to Buyer and Buyer shall purchase from Seller, on the Closing Date (as defined in Section 1(c)), all of the Shares.

(b)        Purchase Price. The purchase price for the Shares shall be the transfer and delivery by Buyer to Seller of the Purchase Price Shares, deliverable as provided in Section 2(b).

(c)        Closing. The closing of the transactions contemplated in this Agreement (the “Closing”) shall take place contemporaneously with the execution and delivery of this Agreement. The date on which the Closing occurs shall be referred to herein as the Closing Date (the “Closing Date”).

2. Closing.

(a)        Transfer of Shares. At the Closing, Seller shall deliver to Buyer certificates representing the Shares, duly endorsed to Buyer or as directed by Buyer, which delivery shall vest Buyer with good and marketable title to all of the issued and outstanding shares of capital stock of the Company, free and clear of all Liens and encumbrances.

(b)        Payment of Purchase Price. At the Closing, Buyer shall deliver to Seller a certificate or certificates representing the Purchase Price Shares duly endorsed to Seller, which delivery shall vest Seller with good and marketable title to the Purchase Price Shares, free and clear of all Liens and encumbrances.

3.          Representations and Warranties of Seller. Seller represents and warrants to Buyer as of the date hereof as follows:

(a)        Corporate Authorization; Enforceability. The execution, delivery and performance by Seller of this Agreement is within its corporate powers and has been, duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

(b)        Governmental Authorization. The execution, delivery and performance by Seller of this Agreement requires no consent, approval, Order, authorization or action by or in respect of, or filing with, any Governmental Authority.

(c)        Non-Contravention; Consents. The execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby do not (i) violate the certificate of incorporation or bylaws of Seller or (ii) violate any applicable law or order.

4.          Representations and Warranties of Buyer. Buyer represents and warrants to Seller as of the date hereof as follows:

(a)        Enforceability. The execution, delivery and performance by Buyer of this Agreement are within Buyer’s powers. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles.

(b)        Governmental Authorization. The execution, delivery and performance by Buyer of this Agreement require no consent, approval, Order, authorization or action by or in respect of, or filing with, any Governmental Authority.

(c)        Non-Contravention; Consents. The execution, delivery and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby do not violate any applicable Law or Order.

(d)        Purchase for Investment. Buyer is financially able to bear the economic risks of acquiring an interest in the Company and the other transactions contemplated hereby, and have no need for liquidity in this investment. Buyer has such knowledge and experience in financial and business matters in general, and with respect to businesses of a nature similar to the business of the Company, so as to be capable of evaluating the merits and risks of, and making an informed business decision with regard to, the acquisition of the Shares. Buyer is acquiring the Shares solely for their own account and not with a view to or for resale in connection with any distribution or public offering thereof, within the meaning of any applicable securities laws and regulations, unless such distribution or offering is registered under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration is available.

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Buyer has (i) received all the information they have deemed necessary to make an informed investment decision with respect to the acquisition of the Shares, (ii) had an opportunity to make such investigation as she has desired pertaining to the Company and the acquisition of an interest therein, and to verify the information which is, and has been, made available to her and (iii) had the opportunity to ask questions of Seller concerning the Company. Buyer has received no public solicitation or advertisement with respect to the offer or sale of the Shares. Buyer realizes that the Shares are “restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, the resale of the Shares is restricted by federal and state securities laws and, accordingly, the Shares must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale. Buyer understands that any resale of the Shares by her must be registered under the Securities Act (and any applicable state securities law) or be effected in circumstances that, in the opinion of counsel for the Company at the time, create an exemption or otherwise do not require registration under the Securities Act (or applicable state securities laws). Buyer acknowledges and consents that certificates now or hereafter issued for the Shares will bear a legend substantially as follows:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES LAWS.

Buyer understands that the Shares are being sold to her pursuant to the exemption from registration contained in Section 4(1) of the Securities Act and that Seller is relying upon the representations made herein as one of the bases for claiming the Section 4(1) exemption.

(e)        Liabilities. Following the Closing, Seller will have no debts, liabilities or obligations relating to the Company or its business or activities, whether before or after the Closing, and there are no outstanding guaranties, performance or payment bonds, letters of credit

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or other contingent contractual obligations that have been undertaken by Seller directly or indirectly in relation to the Company or its business and that may survive the Closing.

(f)         Title to Purchase Price Shares. Buyer is the sole record and beneficial owner of the Purchase Price Shares. At Closing, Buyer will have good and marketable title to the Purchase Price Shares, which Purchase Price Shares are, and at the Closing will be, free and clear of all options, warrants, pledges, claims, Liens and encumbrances, and any restrictions or limitations prohibiting or restricting transfer to Seller, except for restrictions on transfer as contemplated by applicable securities laws.

(g)        Capitalization. As of the date hereof, Seller owns the Shares, which interests represent 100% of the authorized, issued and outstanding capital stock of the Company. The Shares are duly authorized, validly issued, fully-paid, non-assessable and free and clear of any Liens.

5. Indemnification and Release.

(a)        Indemnification. Buyer covenants and agrees to indemnify, defend, protect and hold harmless Seller, and its officers, directors, employees, stockholders, agents, representatives and affiliates (collectively, together with Seller, the “Seller Indemnified Parties”) at all times from and after the date of this Agreement from and against all losses, liabilities, damages, claims, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys’ fees and expenses of investigation), whether or not involving a third party claim and regardless of any negligence of any Seller Indemnified Party (collectively, “Losses”), incurred by any Seller Indemnified Party as a result of or arising from (i) any breach of the representations and warranties of Buyer set forth herein or in certificates delivered in connection herewith, (ii) any breach or nonfulfillment of any covenant or agreement on the part of Buyer under this Agreement, (iii) any debt, liability or obligation of the Company, whether incurred or arising prior to the date hereof or after, (iv) any debt, liability or obligation of Seller for actions taken prior to that certain share exchange transaction by the Seller with the shareholders of Taiyu Machinery & Electronic Equipment Co., Ltd (the “Share Exchange”), including, without limitation, any amounts due or owing to any former officer, director or Affiliate of Seller, (v) the conduct and operations of the business of the Company whether before or after the Closing, (vi) claims asserted against the Company whether arising before or after the Closing, or (vii) any federal or state income tax payable by Seller and attributable to the transaction contemplated by this Agreement or activities prior to the Share Exchange or with respect to the Company after the Share Exchange.

(b) Third Party Claims.

(i)         If any claim or liability (a “Third-Party Claim”) should be asserted against any of the Seller Indemnified Parties (the “Indemnitee”) by a third party after the Closing for which Buyer has an indemnification obligation under the terms of Section 5(a), then the Indemnitee shall notify Buyer (the “Indemnitor”) within 20 days after the Third-Party Claim is asserted by a third party (said notification being referred to as a “Claim Notice”) and give the Indemnitor a reasonable opportunity to take part in any examination of the books and records of the Indemnitee relating to such Third-Party Claim and to assume the defense of such Third-Party

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Claim and in connection therewith and to conduct any proceedings or negotiations relating thereto and necessary or appropriate to defend the Indemnitee and/or settle the Third-Party Claim. The expenses (including reasonable attorneys’ fees) of all negotiations, proceedings, contests, lawsuits or settlements with respect to any Third-Party Claim shall be borne by the Indemnitor. If the Indemnitor agrees to assume the defense of any Third-Party Claim in writing within 20 days after the Claim Notice of such Third-Party Claim has been delivered, through counsel reasonably satisfactory to Indemnitee, then the Indemnitor shall be entitled to control the conduct of such defense, and shall be responsible for any expenses of the Indemnitee in connection with the defense of such Third-Party Claim so long as the Indemnitor continues such defense until the final resolution of such Third-Party Claim. The Indemnitor shall be responsible for paying all settlements made or judgments entered with respect to any Third-Party Claim the defense of which has been assumed by the Indemnitor. Except as provided in subsection (ii) below, both the Indemnitor and the Indemnitee must approve any settlement of a Third-Party Claim. A failure by the Indemnitee to timely give the Claim Notice shall not excuse Indemnitor from any indemnification liability except only to the extent that the Indemnitor is materially and adversely prejudiced by such failure.

(ii)         If the Indemnitor shall not agree to assume the defense of any Third-Party Claim in writing within 20 days after the Claim Notice of such Third-Party Claim has been delivered, or shall fail to continue such defense until the final resolution of such Third-Party Claim, then the Indemnitee may defend against such Third-Party Claim in such manner as it may deem appropriate and the Indemnitee may settle such Third-Party Claim, in its sole discretion, on such terms as it may deem appropriate. The Indemnitor shall promptly reimburse the Indemnitee for the amount of all settlement payments and expenses, legal and otherwise, incurred by the Indemnitee in connection with the defense or settlement of such Third-Party Claim. If no settlement of such Third-Party Claim is made, then the Indemnitor shall satisfy any judgment rendered with respect to such Third-Party Claim before the Indemnitee is required to do so, and pay all expenses, legal or otherwise, incurred by the Indemnitee in the defense against such Third-Party Claim.

(c)        Non-Third-Party Claims. Upon discovery of any claim for which Buyer has an indemnification obligation under the terms of this Section 5 which does not involve a claim by a third party against the Indemnitee, the Indemnitee shall give prompt notice to Buyer of such claim and, in any case, shall give Buyer such notice within 30 days of such discovery. A failure by Indemnitee to timely give the foregoing notice to Buyer shall not excuse Buyer from any indemnification liability except to the extent that Buyer is materially and adversely prejudiced by such failure.

(d)        Release. Buyer, on behalf of himself and his Related Parties (as defined below), hereby releases and forever discharges Seller and its individual, joint or mutual, past and present representatives, Affiliates, officers, directors, employees, agents, attorneys, stockholders, controlling persons, subsidiaries, successors and assigns (individually, a “Releasee” and collectively, “Releasees”) from any and all claims, demands, proceedings, causes of action, orders, obligations, contracts, agreements, debts and liabilities whatsoever, whether known or unknown, suspected or unsuspected, both at law and in equity, which Buyer or any of his Related Parties now have or have ever had against any Releasee. Buyer hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting or

- 5 -

causing to be commenced, any proceeding of any kind against any Releasee, based upon any matter released hereby. “Related Parties” shall mean, with respect to Buyer, (i) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with Buyer, (ii) any Person in which Buyer holds a Material Interest or (iii) any Person with respect to which Buyer serves as a general partner or a trustee (or in a similar capacity). For purposes of this definition, “Material Interest” shall mean direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person.

6. Definitions. As used in this Agreement:

(a)        “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the purposes of this definition, “Control,” when used with respect to any Person, means the possession, directly or indirectly, of the power to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or comparable positions) of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” have meanings correlative to the foregoing;

(b)        “Governmental Authority” means any domestic or foreign governmental or regulatory authority;

(c)        “Law” means any federal, state or local statute, law, rule, regulation, ordinance, code, Permit, license, policy or rule of common law;

(d)        “Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset;

(e)        “Order” means any judgment, injunction, judicial or administrative order or decree;

(f)         “Permit” means any government or regulatory license, authorization, permit, franchise, consent or approval; and

(h)        “Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

- 6 -

7. Miscellaneous.

(a)        Counterparts. This Agreement may be signed in any number of counterparts, each of which will be deemed an original but all of which together shall constitute one and the same instrument.

(b) Amendments and Waivers.

(i)         Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(ii)         No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by Law.

(c)        Successors and Assigns. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer (including by operation of Law) any of its rights or obligations under this Agreement without the consent of each other party hereto.

(d)        No Third Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted successors and assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto, those referenced in Section 5 above, and such permitted successors and assigns, any legal or equitable rights hereunder.

(e)        Governing Law. This Agreement will be governed by, and construed in accordance with, the internal substantive law of the State of Nevada.

(f)         Headings. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof.

(g)        Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement.

(h)        Severability. If any provision of this Agreement or the application of any such provision to any Person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, the remainder of the provisions of this Agreement (or the application of such provision in other jurisdictions or to Persons or circumstances other than those to which it was held invalid, illegal or unenforceable) will in no way be affected,

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impaired or invalidated, and to the extent permitted by applicable Law, any such provision will be restricted in applicability or reformed to the minimum extent required for such provision to be enforceable. This provision will be interpreted and enforced to give effect to the original written intent of the parties prior to the determination of such invalidity or unenforceability.

[Signature Page Follows]

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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered, effective as of the date first above written.

SmartHeat Inc.

By:	/s/ Jason Schlombs
		Jason Schlombs
		Chief Executive Officer

/s/ Jason Schlombs

Jason Schlombs

EX-16

April 18, 2008

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549

RE: SmartHeat Inc., fka Pacific Goldrim Resources, Inc.

Ladies and Gentlemen:

We have read the statements made by SmartHeat Inc., fka Pacific Goldrim Resources, Inc., in Item 4.01 of the accompanying Form 8-K, which is being filed with the Securities and Exchange Commission. We agree with the statements contained therein concerning our firm.

Very truly yours,

/s/ Dale Matheson Carr-Hilton Labonte LLP

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DALE MATHESON CARR-HILTON LABONTE LLP

EX-99

Exhibit 99.1

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Contents

Report of Independent Registered Public Accounting Firm

Financial Statements:

	Page
Consolidated Balance Sheet as of December 31, 2007	2
Consolidated Statements of Income and Other Comprehensive Income for the Years Ended December 31, 2007 and 2006	3
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007 and 2006	4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006	6
Notes to Consolidated Financial Statements	6-18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd.

We have audited the balance sheet of Shenyang Taiyu Machinery & Electronic Equipment Co., Ltd and Subsidiary (the “Company”) as of December 31, 2007 and the related statements of income and other comprehensive income,  shareholders’ equity and cash flows for each of the two years ended December 31, 2007 and 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 audits.

We conducted our audits in accordance with the 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 audits provide 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 the Company as of December 31, 2007, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 in conformity with U.S. generally accepted accounting principles.

Goldman Parks Kurland Mohidin LLP

Encino, California

March 25, 2008

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

 AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2007

ASSETS
CURRENT ASSETS
Cash & cash equivalents	$	393,147
Restricted cash		537,098
Accounts receivable, net		4,762,822
Retentions receivable		191,319
Inventories		7,928,408
Advances to suppliers		158,750
Other receivables		766,231
Due from related party		118,560
Total current assets		14,856,335
PROPERTY AND EQUIPMENT, net		2,040,809
Accounts receivable, net		949,998
Retentions receivable		169,309
Intangible assets, net		534,208
Total noncurrent assets		1,653,515
TOTAL ASSETS	$	18,550,659
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,128,585
Customer deposits		3,125,406
Tax payable		503,010
Other payables		807,700
Due to related party		445,990
Loan payable		4,619,856
Total current liabilities		12,630,547
CONTINGENCIES
MINORITY INTEREST		-
STOCKHOLDERS' EQUITY
Paid in capital		3,120,632
Statutory reserve		506,532
Accumulated other comprehensive income		473,859
Retained earnings		1,819,089
Total stockholders' equity		5,920,112
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	18,550,659

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

2

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

 AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
Net sales	$	13,273,151		$	8,205,166
Cost of goods sold		(8,667,353	)		(5,710,540	)
Gross profit		4,605,798			2,494,626
Operating expenses
Selling expenses		(1,681,624	)		(1,181,230	)
General and administrative expenses		(687,466	)		(461,491	)
Total operating expenses		(2,369,090	)		(1,642,721	)
Income from operations		2,236,708			851,905
Non-operating income
Interest income		175,084			96,346
Interest expense		(230,905	)		(81,039	)
Other income		45,126			25,740
Other expenses		(16,939	)		(1,460	)
Subsidy income		52,591			-
Total non-operating income		24,957			39,587
Income before income tax		2,261,665			891,492
Income tax expense		(175,647	)		(72,564	)
Income after income tax		2,086,018			818,928
Minority interest		1,873			13,684
Net income		2,087,891			832,612
Other comprehensive item
Foreign currency translation		333,449			101,669
Comprehensive Income	$	2,421,340		$	934,281

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

3

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

 AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31,2007 AND 2006

	Paid in capital		Statutory reserves		Other comprehensive income		Retained earnings			Total
Balance at December 31, 2005	$	1,824,905	$	211,701	$	38,741	$	113,767		$	2,189,114
Capital contribution		375,377		-		-		-			375,377
Net income for the year		-		-		-		832,612			832,612
Transfer to statutory  reserves		-		84,663		-		(84,663	)		-
Foreign currency translation gain		-		-		101,669		-			101,669
Balance at December 31, 2006		2,200,282		296,364		140,410		861,716			3,498,772
Equity reclassification		920,350		-		-		(920,350	)		-
Net income for the year		-		-				2,087,891			2,087,891
Transfer to statutory  reserves		-		210,168		-		(210,168	)		-
Foreign currency translation gain		-		-		333,449		-			333,449
Balance at December 31, 2007	$	3,120,632	$	506,532	$	473,859	$	1,819,089		$	5,920,112

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

4

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD

 AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,087,891		$	832,612
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		104,055			67,621
Unearned interest on accounts receivable		(122,379	)		81,778
Minority interest		(1,873	)		(13,684	)
(Increase) decrease in current assets:
Accounts receivable		(2,526,521	)		(1,207,427	)
Retentions receivable		70,446			(119,285	)
Advances to suppliers		(45,386	)		776,981
Other receivables		(327,734	)		19,506
Inventory		(2,184,063	)		(2,849,317	)
Restricted cash		(135,915	)		159,464
Increase (decrease) in current liabilities:
Accounts payable		979,881			1,336,090
Unearned revenue		1,265,085			1,097,472
Tax payable		326,053			(105,052	)
Other payables		513,507			(128,346	)
Net cash provided by (used) in operating activities		3,047			(51,587	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property & equipment		(909,280	)		(115,929	)
Construction in progress		-			(773,561	)
Net cash used in investing activities		(909,280	)		(889,490	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from / (to) shareholder		(699,247	)		(329,947	)
Short term loan		1,774,966			921,937
Capital contribution		-			375,338
Net cash provided by financing activities		1,075,719			967,328
EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS		21,366			7,302
NET INCREASE IN CASH & CASH EQUIVALENTS		169,486			26,251
CASH & CASH EQUIVALENTS, BEGINNING OF YEAR		202,295			168,742
CASH & CASH EQUIVALENTS, END OF YEAR	$	393,147		$	202,295
Supplemental Cash flow data:
Income tax paid	$	134,033		$	73,164
Interest paid	$	280,719		$	41,892

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

5

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Shenyang Taiyu Machinery and Electronic Equipment Co., Ltd. (the “Company” or “Taiyu”) was incorporated in the Liaoning Province, People’s Republic of China (“PRC”) in July, 2002.  Taiyu is engaged in manufacturing and sale of plate heat exchangers and various packages, thermo meter testing devices and heat usage calculators.  The Company is an authorized OEM of the SONDEX brand; SONDEX is the second largest plate heat exchanger manufacturer in the world.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 55% owned subsidiary, Qingdao Yushi Heat Power Equipment Co., Ltd (Yushi).  Yushi is engaged in manufacturing and selling of heat power equipment. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  As of December 31, 2007, the Company maintained restricted cash of $537,098 in several bank accounts, of which, $4,973 was collateralized for certain letters of credit, $532,125 was pledged for the guarantee of certain contacts execution and completion.

Accounts and Retentions Receivable

The Company’s policy is to maintain reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  Based on historical collection activity, the Company had allowance of $330,518 at December 31, 2007.

At December 31, 2007, the Company had retentions receivable from customers for product quality assurance in the amount of $360,628.  The retention rate varies from 5% to 20% of the sales price with variable terms from 3 months to two years.

6

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts receivable is net of unearned interest of $148,421 at December 31, 2007.  Unearned interest represents imputed interest on accounts receivable with due dates over one year from the invoice date discounted at the Company's borrowing rate which was 7.04 % in 2006 and 2007.

Inventories

Inventories are valued at the lower of cost or market with cost determined on a moving weighted average basis. Cost of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production overheads.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and betterments are capitalized.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.  Depreciation of property and equipment is provided using the straight-line method with a 10% salvage value and estimated lives ranging from 5 to 20 years as follows:

Building	20 years
Vehicle	5 years
Office Equipment	5 years
Production Equipment	5-10 years

Land Use Right

Right to use land is stated at cost less accumulated amortization. Amortization is provided using the straight-line method over 50 years.

Impairment of Long-Lived Assets

Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  Based on its review, the Company believes that, as of December 31, 2007, there were no significant impairments of its long-lived assets.

7

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company does not have any significant deferred tax asset or liability that relate to tax jurisdictions not covered by the tax holiday.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007.  As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48.  As a result of the implementation of Interpretation 48, the Company recognized no material adjustments to liabilities or stockholders equity.  When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.

Revenue Recognition

The Company's revenue recognition policies are in compliance with Securities and Exchange Commission (SEC) 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 recorded as unearned revenue.

8

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Sales revenue represents the invoiced value of goods, net of value-added tax (“VAT”).  All of the Company’s products that are sold in the PRC are subject to Chinese value-added tax of 17% of the gross sales price.  This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.  The Company recorded VAT payable and VAT receivable net of payments in the financial statements.  The VAT tax return is filed offsetting the payables against the receivables.

VAT payable on sales and VAT on purchases was $2,317,620 and $1,524,804 for the year ended December 31, 2007 and $1,425,993 and $1,202,313 for the year ended December 31, 2006, respectively.  Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.  VAT taxes are not affected by the income tax holiday.

Sales returns and allowances was $ 0 for both 2007 and 2006. The Company does not provide unconditional right of return, price protection or any other concessions to its customers.

The Company provides free after-sale service for a period of one year.  During 2007 and 2006, the Company recorded $383,177 and $76,023, of such expenses, respectively, which is included in selling expenses.

Cost of Goods Sold

Cost of goods sold consists primarily of material costs, direct labor, and manufacturing overhead which are directly attributable to the production of products.  Write-down of inventories to lower of cost or market is also recorded in cost of goods sold.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.

The operations of the Company are located in the PRC.  Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy.

Statement of Cash Flows

In accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the Company's operations is calculated based upon the local currencies.  As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

9

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and Diluted Net Income per Share

The Company is a limited company formed under the laws of the PRC. Like limited liability companies (LLC) in the United States, limited liability companies in the PRC do not issue shares to the owners. The owners however, are called shareholders. Ownership interest is determined in proportion to capital contributed.  Accordingly, earnings per share data are not presented.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires that the Company disclose estimated fair values of financial instruments.  The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Foreign Currency Translation and Comprehensive Income (Loss)

The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB has been translated into United States dollars ("USD") as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income". Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

The Company uses Statement of Financial Accounting Standards No. 130 (SFAS 130) “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

Segment Reporting

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires use of the “management approach” model for segment reporting.  The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

SFAS 131 has no effect on the Company's financial statements as substantially all of the Company's operations are conducted in one industry segment.  All of the Company's assets are located in the PRC.

10

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:

· Acquisition costs will be generally expensed as incurred;

· Noncontrolling interests (formerly known as “minority interests” – see SFAS 160 discussion below) will be valued at fair value at the acquisition date;

· Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

· In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;

· Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

· Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, since we are a calendar year-end company we will continue to record and disclose business combinations following existing GAAP until January 1, 2009. We expect SFAS 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in

11

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Like SFAS 141R discussed above, earlier adoption is prohibited. We have not completed our evaluation of the potential impact, if any, of the adoption of SFAS 160 on our consolidated financial position, results of operations and cash flows.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under the accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for fiscal year, including financial statements for an interim period within the fiscal year. The Company is currently evaluating the impact, if any, that SFAS No. 157 will have on its financial statements.

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R

In September 2006, the FASB, issued SFAS, No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R,” which requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. We adopted the provisions of SFAS No. 158 for the year end 2006, and the effect of recognizing the funded status in accumulated other comprehensive income was not significant. The new measurement date requirement applies for fiscal years ending after December 15, 2008.

Fair Value Option for Financial Assets and Financial Liabilities

In February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.”  The statement

12

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company is analyzing the potential accounting treatment.

Considering the Effects of Prior Year Misstatements in Current Year Financial Statements

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The Company adopted SAB 108 in the fourth quarter of 2006 with no impact on its financial statements.

3. INVENTORIES

Inventories at December 31, 2007 were as follows: 

Raw materials	$	3,865,575
Work in process		48,627
Finished Goods		4,014,206
Total	$	7,928,408

4. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at December 31, 2007:

Building	$	1,624,651
Production equipment		298,242
Office equipment		156,368
Vehicles		134,724
		2,213,985
Less: Accumulated depreciation		(173,176)
	$	2,040,809

Depreciation expense for the years ended December 31, 2007 and 2006 was $51,488 and $48,953, respectively.

13

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

5. MINORITY INTEREST

Minority interest represented 45% interest in Yushi. At December 31, 2007, minority interest was zero as the minority’s share of cumulative losses exceeded its equity interest in Yushi. Minority’s share of loss for the year ended December 31, 2007 was limited to $1,873.

6. OTHER RECEIVABLES

Other receivables consisted of cash advances to vendors, prepayment and deposits for freight insurance expense and bid, and cash advance to its employees for normal business purposes such as travelling expense.

7. RELATED PARTY TRANSACTIONS

Due from Related Party

Due from related party of $118,560 represent short term advance to one of the Company’s shareholder in the amount of $13,074 at December 31, 2007; and accounts receivables from this shareholder in the amount of $105,486 at December 31, 2007 resulting from sales to this shareholder of $174,901 for 2007 and $226,104 for 2006, respectively.

Due to Related Party

Due to related party consisted of the balance of advance from same shareholder at December 31, 2007 of $106,123 with interest rate of 6.903% per annum, principal and interest payable upon request.  During 2007 and 2006, the Company recorded interest expense to this shareholder of $63,513 and $55,545, respectively.  Due to related party also consisted of accounts payable arising from purchase of goods and technical support from same shareholder in the amount of $339,867.  Purchase from this shareholder during 2007 and 2006 were $0 and $215,031, respectively.

8. INTANGIBLE ASSETS

Intangible assets mainly consisted of Land Use Right and working software. All land in the PRC is government owned and can not be sold to any individual or company. However, the government grants the user a “land use right” (the Right) to use the land. The Company acquired land use rights during 2005 for $439,850.  The Company has the right to use the land for 50 years and is amortizing the Right on a straight-line basis for 50 years.  Intangible assets consisted of following at December 31, 2007:

Land use right	$	486,618
Software		140,476
		627,094
Less: accumulated amortization		(92,886)
	$	534,208

14

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

Amortization expense for 2007 and 2006 was $52,567 and $18,669, respectively. Amortization expense for the next five years is expected to be as follows: $11,323, $11,323, $11,323, $11,323 and $11,323, respectively.

9. MAJOR CUSTOMERS AND VENDORS

Five major customers accounted for 51% and 53% of the Company’s net revenue for years 2007 and 2006, respectively.  For year 2007, each customer accounted for about 21%, 9%, 8%, 7% & 6% of the sales.  For year 2006, each customer accounted for about 19%, 11%, 10%, 8% and 5% of the sales.  At December 31, 2007, the total receivable balance due from these five customers was $2,824,396

One major vendor provided 22% and 33% of the Company’s purchase of raw materials for 2007 and 2006.  The Company did not have accounts payable to this vendor at December 31, 2007.

10. TAX PAYABLE

Tax payable consisted of the following at December 31, 2007:

Income tax payable	$	74,981
Value added tax payable		421,009
Other taxes payable		7,020
	$	503,010

11. OTHER PAYABLES

Other payable mainly consisted of short term, non interest bearing advances from third parties and payables for the Company’s miscellaneous expenses.

12. LOAN PAYABLE – SHORT TERM

The Company is obligated for the following short term loans payable as of December 31, 2007:

		Balance at December 31, 2007
Sort term loan with a commercial bank in the PRC for 6, 000,000 RMB, or $822,526. This loan was entered into on Apr 28, 2007 and is due on Apr 12, 2008. This loan bears interest at 7.029% per annum.	$	822,526
Short term loan with a foreign commercial bank with branch in the PRC for 10,200,000 RMB. This loan was entered into on Jun 25, 2007 and is due on Jun 24, 2008. This loan bears interest at 5.265% per annum.		1,302,333

15

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

		Balance at December 31, 2007
The Company entered into a series of short term loans during 2006 and 2007 with a third party company in the PRC for total of 10, 300,000 RMB. Some of the loans will mature on various dates in year 2008 and some of the loans are payable on demand. These loans bear interest at 6.903% per annum.		1,412,003
The Company entered into a series of short term loans during 2006 with another third party company in the PRC for total of 2,850,000 RMB, or $390,700.  These loans are due on various dates in year 2008. These loans bear interest at 6.903% per annum.		390,670
The Company entered into a short term loan with another third party company in the PRC for 5,050,000 RMB.  This loan was entered into on Aug 31, 2005 and was due on Aug 31, 2006. This loan bears no interest. Imputed interest on r the loan was immaterial.  This loan became payable on demand after Aug 31, 2006. .		692,292
	$	4,619,856

13. INCOME TAXES

The Company is governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to tax at a statutory rate of 33% on income reported in the statutory financial statements after appropriated tax adjustments.

The Company as a manufacturing business is subject to a 15% income tax rate.  The Company was exempted from income tax for two years staring from the 1st profitable year since incorporation, and was subject to 50% discount of 15% income tax rate for 2005 through 2007.  Net income for the years ended December 31, 2007 and 2006 would have been lower by $175,000 and $82,000, respectively, if the Company did not benefit the from 50% income tax discount.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the year ended December 31, 2007:

US statutory rates	34%
Tax rate difference	(1%)
Effect of tax holiday	(25%)
Tax per financial statements	8%

16

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

14. STATUTORY RESERVES

Pursuant to the new corporate law of the PRC effective January 1, 2006, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

Surplus Reserve Fund

The Company is now only required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Common Welfare Fund

Common welfare fund is a voluntary fund that the Company can elect to transfer 5% to 10% of its net income to this fund.  The Company did not make any contribution to this fund for the year ended December 31, 2007.

This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.

Pursuant to the "Circular of the Ministry of Finance (MOF) on the Issue of Corporate Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective on April 1, 2006, issued by the MOF, companies transferred the balance of SCWF (Statutory Common Welfare Fund) as of December 31, 2005 to Statutory Surplus Reserve. Any deficit in the SCWF was charged in turn to Statutory Surplus Reserve, additional paid-in capital and undistributed profit of previous years. If a deficit still remains, it should be transferred to retained earnings and be reduced to zero by a transfer from after tax profit of following years. At December 31, 2005, the Company did not have a deficit in the SCWF.

15. SHAREHOLDERS’ EQUITY

The Company was formed in July 2002 with paid in capital of $1,824,905 (RMB 15,000,000).

On September 13, 2006, the shareholders injected $375,377 (RMB 3,000,000) cash to the Company as paid in capital.  Thus, the Company’s paid in capital was increased to $2,200,282 (RMB 18,000,000) as of December 31, 2006.

On May 25, 2007, the shareholders approved an increased in the Company’s paid in capital by additional $920,350 (RMB 7,000,000) by a transfer from retained earnings.

17

SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMER 31, 2007 and 2006

16. CONTINGENCIES

The Company sold goods to its customers and received Commercial Notes from the customers in lieu of the payments for accounts receivable.  The Company discounts the Notes with the bank or endorses the Notes to vendors, which could be for payment of their own obligations or get cash from the third parties.  Most of the Commercial Notes have maturity of less than six months.

At December 31, 2007, the Company is contingently liable to vendors for endorsed notes receivable amounting to $77,196.

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

The Company’s sales, purchases and expenses transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.

18

EX-99

SmartHeat, Inc.

and

Taiyu Machinery & Electronic Equipment Co., Ltd.

Pro Forma Combined Financial Statements

(unaudited)

Contents

Pro Forma Combined Financial Statements:	Page
Pro Forma Combined Balance Sheet as of December 31, 2007 (unaudited)	F- 2
Pro Forma Combined Statements of Operations for the year ended December 31, 2006 (unaudited)	F- 3
Notes to Pro Forma Combined Financial Statements (unaudited)	F- 4

F-1

SMARTHEAT INC. (FKA: PACIFIC GOLDRIM RESOURCES, INC.)

AND TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD.

Pro forma Combined Balance Sheet

As of December 31, 2007

(unaudited)

		SmartHeat			Taiyu		Pro forma				Pro forma
			(1)			(2)	Adjustments				Combined
		(historical)			(historical)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	7,632		$	393,147	$	(7,632	)	(b)	$	393,147
	Restricted cash					537,098						537,098
	Accounts receivable, net					4,762,822						4,762,822
	Retentions receivable					191,319						191,319
	Inventory					7,928,408						7,928,408
	Advances to suppliers					158,750						158,750
	Other receivables					766,231						766,231
	Due from related parties					118,560						118,560
TOTAL CURRENT ASSETS			7,632			14,856,335		(7,632	)			14,856,335
PROPERTY AND EQUIPMENT, NET						2,040,809						2,040,809
Accounts receivable, net						949,998						949,998
Retentions receivable						169,309						169,309
Intangible assets, net						534,208						534,208
TOTAL NONCURRENT ASSETS						1,653,515
TOTAL ASSETS		$	7,632		$	18,550,659	$	(7,632	)		$	18,550,659
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable	$	272		$	3,128,585	$	(272	)	(b)	$	3,128,585
	Customer deposits					3,125,406						3,125,406
	Other payables					807,700						807,700
	Tax payable					503,010						503,010
	Due to related party					445,990						445,990
	Loan payable					4,619,856						4,619,856
TOTAL CURRENT LIABILITIES			272			12,630,547		(272	)			12,630,547
STOCKHOLDERS' EQUITY
	Common Stock		6,549					16,000		(a)		22,549
	Additional paid in capital		38,426			3,120,632		(60,975	)	(a)		3,098,083
	Statutory reserve		(37,615	)		506,532		37,615				506,532
	Accumulated other comprehensive income					473,859						473,859
	Retained earnings					1,819,089						1,819,089
TOTAL STOCKHOLDERS' EQUITY			7,360			5,920,112		(7,360	)			5,920,112
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	7,632		$	18,550,659	$	(7,632	)		$	18,550,659
(1)	Source: unaudited financial statements of SmartHeat Inc. (FKA: Pacific Goldrim Resources, Inc.) as of January 31, 2008 as filed in Quarterly Report on Form 10QSBfiled with the SEC on March 04, 2008.
(2)	Source: audited financial statements of Taiyu Machinery & Electronic Equipment Co., Ltd. as of December 31, 2007 included in this 8-K.
(a)	After cancellation of 2,500,000 shares by the old shareholders of Smartheat and issuance of 18,500,000 shares to the shareholder of Taiyu, total shares outstanding after the reverse merge is 22,549,900.
(b)	Spin off of Smartheat's assets and liabilities to shareholder as consideration of cancellation of shares.
See accompanying notes to pro forma combined financial statements

F-2

SMARTHEAT INC. (FKA: PACIFIC GOLDRIM RESOURCES, INC.)

AND TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD.

Pro forma Combined Statement of Operations

As of December 31, 2007

(unaudited)

	SmartHeat			Taiyu			Pro forma		Pro forma
		(1)			(2)		Adjustments		Combined
	(historical)			(historical)
Net Revenue	$	-		$	13,273,151		$	-	$	13,273,151
Cost of Revenue		-			8,667,353					8,667,353
Gross Profit		-			4,605,798			-		4,605,798
Operating expenses:
Selling expenses		-			1,681,624					1,681,624
General and administrative expenses		30,456			687,466					717,922
Total operating expenses		30,456			2,369,090			-		2,399,546
Income (loss) from operations		(30,456	)		2,236,708			-		2,206,252
Non-operating income (expenses):
Interest income					175,084					175,084
Interest expense					(230,905	)				(230,905	)
Other income					45,126					45,126
Other expenses					(16,939	)				(16,939	)
Subsidy income					52,591					52,591
Total non-operating income		-			24,957			-		24,957
Income before income tax		(30,456	)		2,261,665					2,231,209
Income tax expense		-			(175,647	)				(175,647	)
Income after income tax		(30,456	)		2,086,018					2,055,562
Minority interest		-			1,873					1,873
Net income	$	(30,456	)	$	2,087,891		$	-	$	2,057,435
Earnings per share	$	(0.00	)						$	0.09
Weighted average shares outstanding		6,549,900								22,549,900
(1)    Source: audited financial statements of SmartHeat Inc. (FKA: Pacific Goldrim Resources, Inc.) as of October 31, 2007 as filed in annual Report on Form 10KSB filed with the SEC on January 29, 2008.
(2)   Source: audited financial statements of Taiyu Machinery & Electronic Equipment Co., Ltd. as of December 31, 2007 included in this 8-K.
See accompanying notes to pro forma combined financial statements

F-3

SmartHeat, Inc. and

Taiyu Machinery & Electronic Equipment Co., Ltd.

Notes to Pro forma Consolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION

Pursuant to a share exchange agreement dated April 14, 2008, between SmartHeat Inc. ("SmartHeat"), formerly known as Pacific Goldrim Resources, Inc, and Taiyu Machinery & Electronic Equipment Co., Ltd. ("Taiyu"), SmartHeat issued 18,500,000 shares of its common stock to acquire Taiyu. Concurrent with the share exchange agreement, one of SmartHeat’s shareholder cancelled 2,500,000 shares out of 6,549,900 of total issued and outstanding shares of SmartHeat.

The accompanying pro forma consolidated balance sheet presents the accounts of SmartHeat and Taiyu as if the acquisition of Taiyu by SmartHeat occurred on December 31, 2007.  The accompanying pro forma consolidated statements of operations present the accounts of SmartHeat and Taiyu for the year ended December 31, 2007 as if the acquisition occurred on January 1, 2007 for income statement purpose. For accounting purposes, the transaction is being accounted for as a recapitalization of Taiyu as Taiyu’s shareholders will own the majority of the shares and will exercise significant influence over the operating and financial policies of the consolidated entity.

The following adjustments would be required if the acquisition occurred as indicated above:

a.           Recapitalization of Taiyu to account for issuance

·   of an aggregate of 18,500,000 shares of SmartHeat to the shareholders of Taiyu,

·   the total issued and outstanding shares after the reverse merger were 22,549,900;

b.           Cancellation of 2,500,000 shares of SmartHeat

·   common stock owed by major shareholder, officers of Goldrim and

·   public float as part of the transaction. The assets and liabilities of SmartHeat

·   were spun off to the shareholder as consideration of the cancellation of

·   2,500,000 shares owned by the shareholder.

F-4