8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  June 9, 2008

SOUTHERN SAUCE COMPANY, INC

(Exact Name of Registrant as Specified in Charter)

Florida	000-51972	11-3737500
(State or Other Jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation)		Identification No.)

No. 27, Wang Gang Road,

Jin Nan (Shuang Gang) Economic and

Technology Development Area

Tianjin, People’s Republic of China 300350

(Address of Principal Executive Offices)

Registrant's telephone number, including area code:  (86) 22-2858-8899

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

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

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

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

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

TABLE OF CONTENTS

Item No.	Description of Item	Page No.
Item 1.01	Entry Into a Material Definitive Agreement	3
Item 2.01	Completion of Acquisition or Disposition of Assets	4
Item 3.02	Unregistered Sales of Equity Securities	46
Item 4.01	Changes in Registrant’s Certifying Accountant	52
Item 5.01	Changes in Control of Registrant	52
Item 5.02	Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers	53
Item 5.03	Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year	53
Item 5.06	Change in Shell Company Status	53
Item 8.01	Other Events	53
Item 9.01	Financial Statements and Exhibits	53

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 8-K and other reports filed by us from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management. When used in the filings the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to us or our management identify forward looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this report entitled “Risk Factors”) as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results. The following discussion should be read in conjunction with our pro forma financial statements and the related notes that will be filed herein.

Currency, exchange rate, and “China” and other references

Unless otherwise noted, all currency figures in this filing are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan, which is also known as the renminbi. According to the currency exchange website www.xe.com, on June 11, 2008, $1.00 was equivalent to 6.91790 yuan.

References to “PRC” are to the People’s Republic of China.

References to “Shengkai” are to Tianjin Shengkai Industrial Technology Development Co. Ltd., a PRC company that we control.

Unless otherwise specified or required by context, references to “we,” “the Company”, “our” and “us” refer collectively to (i) Southern Sauce Company, Inc. (“Southern Sauce”), (ii) the subsidiaries of Southern Sauce, Shen Kun International Limited, a British Virgin Islands limited liability company (“Shen Kun) and Sheng Kai (Tianjin) Ceramic Valves Co., Ltd., a wholly foreign-owned enterprise under the laws of the PRC (“SK Ceramic Valves”), and (iii) Shengkai.

References to the “Bulletin Board,” the “OTC Bulletin Board” are to the Over-the-Counter Bulletin Board, a securities quotation service, which is accessible at the website www.otcbb.com.

References to Shengkai’s “registered capital” are to the equity of Shengkai, which under PRC law is measured not in terms of shares owned but in terms of the amount of capital that has been contributed to a company by a particular shareholder or all shareholders. The portion of a limited liability company’s total capital contributed by a particular shareholder represents that shareholder’s ownership of the company, and the total amount of capital contributed by all shareholders is the company’s total equity. Capital contributions are made to a company by deposits into a dedicated account in the company’s name, which the company may access in order to meet its financial needs. When a company’s accountant certifies to PRC authorities that a capital contribution has been made and the company has received the necessary government permission to increase its contributed capital, the capital contribution is registered with regulatory authorities and becomes a part of the company’s “registered capital.”

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Item 1.01.Entry into a Material Definitive Agreement

Background

As more fully described below, on June 9, 2008, we consummated a number of related transactions through which we acquired control of Shengkai, a PRC-based company. Shengkai is engaged in the design, manufacturing and sales of ceramic valves, the manufacturing and sales of high-tech ceramic materials, technical consultation and services, and the export of ceramic valves and related technologies. These industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as high-performance, more durable alternatives to traditional metal valves. Shengkai sells its products in China, North America and the Asia-Pacific region.

The Reverse Merger Transaction

As more fully described in Item 2.01 below, on June 9, 2008 (“Closing Date”), Southern Sauce executed and consummated a Merger Agreement (the “Closing”) by and among Shen Kun International Limited, a British Virgin Islands limited liability company (“Shen Kun”) and the stockholders of 100% of Shen Kun’s common stock (the “Shen Kun Shareholders”), on the one hand, and Southern Sauce, its wholly-owned subsidiary Acquisition Sub, and the holders of a majority of Southern Sauce’s issued and outstanding common stock (“Majority Shareholders”), on the other hand (the “Merger Agreement”).

In the Reverse Merger Transaction, through our wholly-owned subsidiary Acquisition Sub, we acquired control of Shen Kun, a British Virgin Islands company and the parent company of Shengkai (Tianjin) Ceramic Valves Co., Ltd., a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s Republic of China (“PRC”) (“SK Ceramic Valves”), by issuing to the Shen Kun Shareholders shares our of Common Stock as consideration for all of the outstanding capital stock of Shen Kun. The Shen Kun Shareholders with whom we consummated the merger included (i) the majority holder, Long Sunny Limited, a British Virgin Islands company, a majority of the stock of which may be acquired in the future by our Chief Executive Officer, Mr. Wang Chen, pursuant to a call option held by Mr. Wang, (ii) five individual minority stockholders: Mr. Miao Yang, Ms. Zhang Ying, Ms. Chen Fang, Mr. Wu Yanping, Mr. Liu Naifan, and (iii) two entity minority stockholders, Groom Profit Holdings Limited, a British Virgin Islands company (solely owned by Ms. Zhao Yanqiu), and Right Idea Holdings Limited, a British Virgin Islands company (solely owned by Ms. Ji Haihong).

At the closing, Southern Sauce issued 20,550,000 shares of common stock to the Shen Kun Shareholders as merger consideration for 100% of the common stock of Shen Kun. Immediately after the Closing, we had a total of 22,112,500 shares of common stock outstanding, with the Shen Kun Shareholders (and their assignees) owning approximately 92.9% of our outstanding common stock, and the balance held by those who held our common stock prior to the Closing.

Our board of directors (the “Board”) as well as the directors and the shareholders of Shen Kun, each approved the Merger Agreement and the Financing, including the transactions contemplated thereunder. Following the Closing Date, Acquisition Sub dissolved and Shen Kun became the surviving entity and our wholly-owned subsidiary.

Shen Kun owns 100% SK Ceramic Valves, which is a WFOE under the laws of the PRC. SK Ceramic Valves has entered into a series of contractual arrangements with Shengkai, a limited liability company headquartered in, and organized under the laws of, the PRC. The contractual arrangements are discussed below in Item 2.01 under the section titled “Description of Business.” Throughout this Form 8-K, Shen Kun, SK Ceramic Valves and Shengkai are sometimes collectively referred to as the “Shengkai Group.”

As a result of the Reverse Merger Transaction, we acquired 100% of the capital stock of Shen Kun and consequently, control of the business and operations of the Shengkai Group. Prior to the Reverse Merger Transaction, we were a public reporting blind pool company in the development stage. From and after the Closing Date of the Merger Agreement, our primary operations consist of the business and operations of the Shengkai Group, which are conducted by Shengkai in China.

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In conjunction with the Reverse Merger Transaction, on June 10, 2008 we entered into and on June 11, 2008 consummated a registration rights agreement (the “Shareholder RRA”) with certain shareholders who were shareholders of the Southern Sauce prior to the Reverse Merger Transaction. Under the terms of the Shareholder RRA, we granted registration rights to certain shareholders existing prior to the Reverse Merger Transaction, by which the shareholders were granted registration rights for the registration of an aggregate of 1,304,750 shares of Common Stock. The shareholders will be entitled to cash liquidated damages in the amount equal to .75% of the value of each shareholder’s registrable securities (using a value of $2.54 per share to calculate the value of such shareholder’s registrable securities) on the date that it fails to register the securities under the terms of the agreement, and for each calendar month or portion thereof until the failure is cured.

In connection with the Closing, on June 11, 2008 we sold to investors Units (the “Units”) for aggregate gross proceeds of $15,000,000, at a price of $2.5357 per Unit (the “Financing”). Each Unit consists of one share of Southern Sauce Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Shares”), convertible into one share of common stock, par value $0.001 per share (the “Common Stock”), and one Series A Warrant to purchase Common Stock equal to 120% of the number of shares of Common Stock issuable upon conversion of the Preferred Shares (“Warrant”). The description of other material terms and conditions of the Financing are set forth in Item 3.02 below.

Item 2.01Completion of Acquisition or Disposition of Assets.

As described in detail in Item 1,01 above, on June 9, 2008, we acquired the stock of Shen Kun pursuant to the Merger Agreement.

As a result of the reverse acquisition, our principal business became the business of Shengkai, which is the design, manufacturing and sales of ceramic valves, the manufacturing and sales of high-tech ceramic materials, technical consultation and services, and the export of ceramic valves and related technologies. Our industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as a high-performance, more durable alternative to traditional metal valves.

DESCRIPTION OF OUR BUSINESS

Our Corporate Structure

We were incorporated in Florida under the name Southern Sauce Company, Inc. on December 8, 2004.  Our initial business plan was to establish a successful specialty food business based on proprietary recipes for barbecue sauces and other condiments for the retail market.

By a Stock Purchase and Sale Agreement dated February 14, 2008, we experienced a change in control whereby Vision and a number of other investors, acquired an aggregate of 2,575,000 shares of Common Stock from former shareholders for a purchase price of $635,000. Upon this change in control, our Board determined that the implementation of our business plan prior to the change in control was no longer financially feasible, and we adopted an acquisition strategy focused on pursuing growth by acquiring undervalued businesses with a history of operating revenues. We utilized several criteria to evaluate prospective acquisitions including whether the business to be acquired (1) was an established business with viable services or products, (2) had an experienced and qualified management team, (3) had room for growth and/or expansion into other markets, (4) was accretive to earnings, (5) offered the opportunity to achieve and/or enhance profitability, and (6) increases shareholder value.

Our Board approved the Merger Agreement on May 30, 2008, and we entered into the Merger Agreement with Shen Kun and the Shen Kun Shareholders on June 9, 2008.

Shen Kun was incorporated under the laws of the British Virgin Islands on November 7, 2007, and Shen Kun formed SK Ceramic Valves as a wholly foreign owned enterprise under the laws of the PRC on April 9, 2008.

Shengkai was organized under the laws of the PRC in June 1994 under the name Tianjin Shengkai Industrial Technology Development Company. Shengkai’s business was formerly operated as a collective-owned enterprise. The business was reorganized under the laws of the PRC as a limited liability company under its current name, Tianjin Shengkai Industrial Technology Development Co., Ltd. in April 1999.

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Under the laws of the PRC, certain restrictions are placed on round trip investments, which are defined under PRC law as an acquisition of a PRC entity by an offshore special purpose vehicle owned by one or more PRC residents. As a result, SK Ceramic Valves entered into a series of agreements with Shengkai which we believe give us effective control over the business of Shengkai. These agreements are described below in the section entitled “Contractual Agreements with Shengkai.”

Our executive offices are located at No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Economic and Technology Development Area, Tianjin, People’s Republic of China 300350, and our telephone number is (86) 22-2859-8899. Our website is www.shengkai.com. Information on our website or any other website is not a part of this report.

Contractual Agreements with Shengkai

Prior to the reverse acquisition, our business was conducted through Shengkai, its largest shareholders being Wang Chen (71.39% interest), the founder of Shengkai, and Guo Wei (13.33% interest). Shengkai has the licenses and approvals necessary to operate its business in the PRC.

PRC law places certain restrictions on roundtrip investments through the acquisition of a PRC entity by PRC residents. To comply with these restrictions, in conjunction with the reverse acquisition, we (via our wholly-owned subsidiary, SK Ceramic Valves) entered into and consummated certain contractual arrangements with Shengkai and their respective stockholders pursuant to which we provide these companies with technology consulting and management services. Through these contractual arrangements, we have the ability to substantially influence these companies’ daily operations and financial affairs, appoint their senior executives and approve all matters requiring stockholder approval. As a result of these contractual arrangements, which enable us to control Shengkai and operate our business in the PRC through Shengkai, we are considered the primary beneficiary of Shengkai. Accordingly, we consolidate the results, assets and liabilities of the Shengkai in our financial statements.

On May 30, 2008, we entered into the following contractual arrangements, each of which are enforceable and valid in accordance with the laws of the PRC:

Consigned Management Agreement

The Consigned Management Agreement, among SK Ceramic Valves, Shengkai, and all of the shareholders of Shengkai, provides that SK Ceramic Valves will provide financial, business, technical and human resources management services to Shengkai that will enable SK Ceramic Valves to control Shengkai’s operations, assets and cash flow, and in exchange, Shengkai will pay a management fee to SK Ceramic Valves equal to 2% of Shengkai’s annual revenue. The management fee for each year is due by January 31 of the following year. The term of the agreement is until SK Ceramic Valves acquires all of the equity or assets of Shengkai.

Technology Service Agreement

The Technology Service Agreement, among SK Ceramic Valves, Shengkai, and all of the shareholders of Shengkai, provides that SK Ceramic Valves will provide technology services, including the selection and maintenance of Shengkai’s computer hardware and software systems and training of Shengkai employees in the use of those systems. SK Ceramic Valves will also provide research and development into new formulations of ceramics and methods that will increase the toughness and machinability of ceramics, raise manufacturing ceramic materials burn rate and lower sintering temperature, and lower production costs. The agreement also provides that SK Ceramic Valves will train Shengkai’s staff to increase productive use of the new equipments and increase Shengkai’s overall production capacity.

As consideration for such services, Shengkai will pay a technology service fee to SK Ceramic Valves equal to 1% of Shengkai’s annual revenue. The technology service fee for each year is due by January 31of the following year. The term of the agreement is until SK Ceramic Valves acquires all of the equity or assets of Shengkai.

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Loan Agreement

The Loan Agreement, among SK Ceramic Valves and all of the shareholders of Shengkai, provides that SK Ceramic Valves will make a loan in the aggregate principal amount of RMB49,000,000 ($7,083,074.34) to the shareholders of Shengkai, each shareholder receiving a share of the loan proceeds proportional to its shareholding in Shengkai, and in exchange each shareholder agreed (i) to contribute all of its proceeds from the loan to the registered capital of Shengkai in order to increase the registered capital of Shengkai, (ii) to cause Shengkai to complete the process of registering the increase in its registered capital with PRC regulatory authorities within 30 days after receiving the loan, and (iii) to pledge their equity to SK Ceramic Valves under the Equity Pledge Agreement described below.

The loan is repayable at the option of SK Ceramic Valves either in cash or by transfer of Shengkai equity or all of its assets to SK Ceramic Valves. The loan does not bear interest, except that if (x) SK Ceramic Valves is able to purchase the equity or assets of Shengkai, and (y) the lowest allowable purchase price for that equity or those assets under PRC law is greater than the principal amount of the loan, then, insofar as it is allowable under PRC law, interest will be deemed to have accrued on the loan in an amount equal to the difference between the lowest allowable purchase price for Shengkai and the principal amount of the loan. The effect of this interest provision is that, if and when permitted under PRC law, SK Ceramic Valves may acquire all of the equity or assets of Shengkai by forgiving the loan, without making any further payment.

If the principal amount of the loan is greater than the lowest allowable purchase price for the equity or assets of Shengkai under PRC law, then even though one might expect that SK Ceramic Valves would be entitled to receive the difference between those two amounts in repayment of the loan, Shengkai is not obligated to make such a payment. The effect of this provision is that (insofar as allowable under PRC law) Shengkai may satisfy its repayment obligations under the loan by transferring all of its equity or assets to SK Ceramic Valves, without making any further payment.

The Loan Agreement also contains agreements from the shareholders of Shengkai that during the term of the agreement, they will elect as directors of Shengkai only candidates nominated by SK Ceramic Valves, and they will use their best efforts to ensure that Shengkai does not take certain actions without the prior written consent of SK Ceramic Valves, including (i) supplementing or amending its articles of association or bylaws, (ii) changing its registered capital or shareholding structure, (iii) transferring, mortgaging or disposing of any interests in its assets or income, or encumbering its assets or income in a way that would affect SK Ceramic Valves’ security interest, (iv) incurring or guaranteeing any debts not incurred in its normal business operations, (v) entering into any material contract (exceeding RMB 3,000,000, or approximately $433,658, in value), unless it is necessary for the company’s normal business operations; (vi) providing any loan or guarantee to any third party; (vii) acquiring or consolidating with any third party, or investing in any third party; and (viii) distributing any dividends to the shareholders in any manner. In addition, the Loan Agreement provides that at SK Ceramic Valves’ request, Shengkai will promptly distribute all distributable dividends to the shareholders of Shengkai.

The funds that SK Ceramic Valves used to make the loan came from the proceeds received by us, its indirect parent company, in the Financing described in Items 1.01 and 3.02 of this report.

Exclusive Purchase Option Agreement

The Exclusive Purchase Option Agreement, among SK Ceramic Valves, Shengkai, and all of the shareholders of Shengkai, provides that Shengkai will grant SK Ceramic Valves an irrevocable and exclusive right to purchase all or part of Shengkai’s assets, and the shareholders of Shengkai will grant SK Ceramic Valves an irrevocable and exclusive right to purchase all or part of their equity interests in Shengkai. Either right may be exercised by SK Ceramic Valves in its sole discretion at any time that the exercise would be permissible under PRC law, and the purchase price for SK Ceramic Valves’ acquisition of equity or assets will be the lowest price permissible under PRC law. Shengkai and its shareholders are required to execute purchase agreements and related documentation within 30 days of receiving notice from SK Ceramic Valves that it intends to exercise its right to purchase.

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The Exclusive Purchase Option Agreement contains agreements from Shengkai and its shareholders that they will refrain from taking actions, such as voting to dissolve or declaring dividends, that could impair SK Ceramic Valves’ security interest in the equity of Shengkai or reduce its value. These agreements are substantially the same as those contained in the Loan Agreement described above.

The agreement will remain effective until SK Ceramic Valves or its designees have acquired 100% of the equity interests of Shengkai or substantially all of the assets of Shengkai. The exclusive purchase options were granted under the agreement on the Closing Date.

Equity Pledge Agreement

The Equity Pledge Agreement, among SK Ceramic Valves, Shengkai, and all of the shareholders of Shengkai, provides that the shareholders of Shengkai will pledge all of their equity interests in Shengkai to SK Ceramic Valves as a guarantee of the performance of the shareholders’ obligations and Shengkai’s obligations under each of the other PRC restructuring agreements. Under the Equity Pledge Agreement, the shareholders of Shengkai have also agreed (i) to cause Shengkai to have the pledge recorded at the appropriate office of the PRC Bureau of Industry and Commerce, (ii) to deliver any dividends received from Shengkai during the term of the agreement into an escrow account under the supervision of SK Ceramic Valves, and (iii) to deliver Shengkai’s official shareholder registry and certificate of equity contribution to SK Ceramic Valves.

The Equity Pledge Agreement contains promises from Shengkai and its shareholders that they will refrain from taking actions, such as voting to dissolve or declaring dividends, that could impair SK Ceramic Valves’ security interest in the equity of Shengkai or reduce its value. These promises are substantially the same as those contained in the Loan Agreement described above.

Completion of the PRC Restructuring

The PRC restructuring transaction closed on the Closing Date. However, SK Ceramic Valves is required under the agreements to complete additional post-closing steps required in order to maintain its good standing under PRC law. These steps include SK Ceramic Valves making required regulatory filings and giving proof to regulatory authorities that it has received the required portion of its registered capital as of the deadline required under PRC law. Specifically, SK Ceramic Valves must receive 15% of its total registered capital of $15 million by July 9, 2008, and the remaining $12.75 million by April 9, 2010, in order to maintain the validity of its business license and its certificate of approval to exist as a wholly foreign-owned entity in the PRC issued by the Tianjin Municipal Government and the Tianjin Administration for Industry and Commerce, respectively. This license and approval would become invalid and be immediately cancelled if SK Ceramic Valves were to fail to make timely payment of the first installment of its registered capital, in which case we could cease to have any claim to control Shengkai under PRC law. We anticipate that all required post-closing steps, including the payment and verification of the first installment of SK Ceramic Valves’s registered capital, will be completed within approximately 30 days after the date of this report.

Upon consummation of the PRC Restructuring Agreements above, the contributions of Shengkai’s registered capital, and therefore the ownership of Shengkai, took their current form, which is represented in the table below:

Name of Shareholder	Amount of Contribution (RMB)		Percent of Capital Contribution
Wang Chen		45,689,600		71.39
Guo Wei		8,531,200		13.33
Zhao Yanqiu		4,192,000		6.55
Ji Haihong		4,192,000		6.55
Zhang Ying		307,200		0.48
Miao Yang		307,200		0.48
Chen Fang		307,200		0.48
Wu Yanping		236,800		0.37
Liu Naifan		236,800		0.37
Total		RMB 64,000,000		100	%

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Subsidiaries

As a result of the Reverse Merger Transaction, Shen Kun and SK Ceramic Values are our wholly-owned subsidiaries. Shengkai, the entity through which we operate our business, currently has no subsidiaries, either wholly-owned or partially-owned.

Business of Shengkai

Overview

We believe that Shengkai is the one of the few ceramic valve manufacturers in the world with research and development, engineering, and production capacity for structural ceramics and is the only valve manufacturer who is able to produce large-sized ceramic valves with calibers of 150mm or more. Its product categories include a broad range of valves in all industries that are sold throughout China, to North America and other countries in the Asia-Pacific region. Totaling over 300 customers, the company became a supplier of China Petroleum & Chemical Corporation (“CPCC”) in 2005 and a member of the PetroChina Co. Ltd. (“PetroChina”) supply network in 2006. Shengkai is currently the only domestic ceramic valve manufacturer entering into the CPCC and PetroChina supply system, after a six-year application process.

Shengkai develops ceramic products with more than 700 types and specifications in 32 series, under nine categories. Of these, national patents have been obtained for 12 products, and applications for nine more are pending. Shengkai’s product won the title of “National Key New Product” four times from 1999-2003 and won a silver medal in the Shanghai International Industry Fair in 2002. In 2003, Shengkai obtained API authentication allowing export to North America and the Asia-Pacific region and CE authentication allowing export to EU in 2003.

Presently, the technology of other domestic and overseas industrial ceramic valves manfacturers limit production to small-bore ball valves with pressure levels below 2.5MPa. In contrast, Shengkai produces a variety of ceramics in every category (gate valve, ball valve, back valve, adjustable valve, cut-off valve and special valve) and produce more than 700 specifications that sustain a maximum pressure level of 42MPa. The largest ceramic valve caliber produced by Shengkai is 1,000mm; currently, we believe that other manufacturers in the world only produce ceramic ball valves and ceramic adjustable valves with 150mm caliber or less.

  
Business History

Shengkai was established in June 1994 with registered capital of RMB310,000 and an initial business scope covering the production and sales of spray mixtures and ceramic valves. The stock ownership was jointly held by 8 shareholders including Wang Chen, the largest shareholder of the company.

In October 1995, Shengkai increased its registered capital to RMB1 million through capital and equity increase; Wang Chen contributed RMB810,000 and the remaining shares are held by the other seven shareholders. In November 2000, the registered capital increased to RMB15 million and the company’s business scope was changed to the design, manufacturing and sales of ceramic valves, manufacturing and sales of high-tech ceramic material, technical consultation and service, and export of such products and related technologies.

Overview of the Ceramic Valve Industry in China

At present, the world valve industry is in a stage of stable development. According to statistical data in “Industrial Valves: World Markets” report published by the McIlvaine Company (the “McIlvaine Report”), the growth rate of the world sales volume of valves has remained at a level of approximately 5% since 2000. As of 2006, there are more than 50,000 valve manufacturers with valve sales volume reaching $43 billion.

Since reforming and opening its markets, China’s valve industry has developed rapidly, especially during the country’s “Tenth Five-Year Plan”. At the end of 2006, the number of Chinese valve manufacturers was up to over 4,000, representing 8% of the world’s total suppliers; 1,438 of them have sales of over RMB5 million, nearly 200 of them have output value of RMB50 million. According to the statistical data by the China National Bureau of Statistics, total output in China’s valve industry reached 2.06 million tons in 2006, which increased 17.34% compared with the previous year; gross industrial output value reached RMB62 billion, which increased 20% compared with the previous year. The Bureau of Statistics further estimated that China’s valve industry experienced a growth rate of over 20% in 2007.

Market dispersion is more pronounced in the valve industry than many other industries and subject to intense competition: the top 15 of the world manufacturers have a sales volume less than $7 billion in 2006 with a world market share of approximately 20%, according to the McIlvaine Report; according to statistical data in “Valve Communication” published by the China Valve Industrial Association, the top 10 Chinese valve industry manufacturers only had a sales volume of RMB4.63 billion with a Chinese market share of less than 7%.

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Operations of Shengkai

Shengkai designs, manufactures and distributes ceramic valves in 32 series under 9 categories, covering almost all the general types of valves for industrial use in the world. Shengkai’s valve sizes range from 32mm to 1000mm and can withstand pressure up to 42MPa. The company is able to provide a series of services, including manufacture, installation and maintenance of general industrial ceramic valves, as well as the design and manufacture of various non-standard ceramic valves as required by customers’ special operating conditions.

Production is comprised of three processes, ceramic piece production, machine-work of ceramic and metal components, and assembly. Currently, the total area of the production plant is 4,940 m², with 51 sets of machine tools, of which 17 sets are for ceramics, and two sets of digitally controlled machine tools. Ceramic valve output in 2007 was 6,969 sets.

Ceramics are friable and non-plastic and, given that to-date we believe that there is no special equipment available for ceramic processing in the world, as such can not only be difficult to process but also have a limited field of application. Aiming at the following features, Shengkai has overcome these disadvantages in the following ways:

· adding zirconia to alumina ceramics for increase toughness and resistance to corrosion;

· successfully using Martensite transformation toughening technology to increase toughness and reduce deformability; and

· applying nano-sized powder technology to improve toughness and other features.

· altering existing metal processors so as to enable Shengkai to apply cold-working techniques to its ceramic products.

Shengkai has developed a solid solution and agent that lowers firing temperature and enhances the homogeneous dispersion of ceramic pulp, applying the theories of solid solution, chemical dispersion and the rational sintering temperature curve. This technology effectively controls the contraction ratio during the ceramic sintering process to greatly improve the rate of finished products. Currently, the rate of sintered finished goods of various calibers of Shengkai’s valve products has reached over 90%, and firing temperatures for Shengkai’s products are 80°C-120°C lower than the world standard in the industry.

Shengkai has also developed various joint technologies under various temperatures, so as to solve problems that arise from the combination of ceramics and metal with different coefficients of thermal expansion and ensure that the valves produced are leak-proof. Shengkai mainly selects ceramic material of partially stabilized zirconia (PSZ), tetragonal zirconia polycrystal (TZP), zirconia-toughened alumina (ZTA) and zirconia toughened mullite (ZTM).

We believe that Shengkai's ability to produce a comprehensive category of high-quality ceramic products, together with its self-developed ceramic processor, leak-proof valve sealing technology and strong technology development capacity, set it apart from its domestic and international competitors.

Products of Shengkai

Shengkai mainly produces industrial ceramic valves with calibers up to 1,000mm in various types and in different combinations of ceramic and metal coefficients, depending on their use. Ceramic valves perform significantly better than metal valves due to higher wear resistance, corrosion resistance, high temperature resistance and thermal shock resistance. We estimate that the average service life of our ceramic valves are at least 20 times of that of comparably-sized metal valves currently in the market.

Raw Materials and Equipment

Raw materials required for valve production includes metal materials and ceramic materials like aluminum oxide and zinc oxide; a large number of spare parts in various specifications are also purchased during production. Our supply contracts typically bear renewable one year terms. The company implements the IO9001 quality system and as such is very strict with selection of equipment and material suppliers. Purchased machinery or kiln equipment in addition to raw materials are subsequently strictly inspected and examined by the quality control department, so as to prevent unqualified products from being put into the production flow.

Customers and Suppliers

As of March 31, 2008, the following material sales contracts were active and still being fulfilled:

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No.	The Other Party	Object	Amount(Yuan)	Date of Execution
1	Beijing Guodian Longyuan Environment Technology Co., Ltd.	Valves	1,220,804	3/10/2008
2	Tianjin Chentang Thermoelectricity Co., Ltd.	Valves	500,000	3/7/2008
3	Anhui Hannan Luoneng Power Generation Co., Ltd.	Valves	1,991,108	3/10/2008
4	Hunan Yiyang Power Generation Co., Ltd.	Valves	944,366	2/20/2008
5	Yan Mine (group) Co., Ltd.	Valves	992,364	2/20/2008
6	Guodian Shuanya Mountain Power Generation Co., Ltd.	Valves	1,191,410	2/12/2008
7	Tianjin Datang International Panshan Power Generation Co., Ltd.	Valves	694,200	2/11/2008
8	Hunan Yiyang Power Generation Co., Ltd.	Valves	930,337	2/12/2008
9	Beijing Guodian Longyuan Environment Technology Co., Ltd.	Valves	1,089,608	2/10/2008
10	Guodian Shizui Mountain First Power Generation Co., Ltd.	Valves	1,477,920	2/10/2008
11	Nanjing Bohong Electromechanical Device Co., Ltd.	Valves	770,614	2/8/2008
12	Beijing Guodian Futong Scientific Technology Development Co., Ltd.	Valves	579,196	2/9/2008
13	Guodian Huangjin Bu Power Generation Co., Ltd.	Valves	1,485,400	2/7/2008
14	Hunan Yiyang Power Generation Co., Ltd.	Valves	977,582	2/4/2008

In the last three years, Shengkai’s top 10 customers were as follows:

Major customers and sales amount in 2005-2007

Name	Amount (RMB ten  thousand)		Percentage of Sales (%)
Hunan Yiyang No. 2 Power Generating Co., Ltd.		1,575.3	4.14
China Resources Power Hunan Co., Ltd.		1011.98	2.66
Guodian Quanzhou Generating Co., Ltd.		856.24	2.25
Dezhou Power Plant under Huaneng Power International, Inc.		798.39	2.10
Beijing Guodian Longyuan Environmental Engineering Co., Ltd.		791.72	2.08
Zhenjiang Power Station Auxiliary Machinery Plant		752.11	1.98
Qinghai Qiaotou Co., Ltd.		718.43	1.89
Huadian Fujian Shaowu Power Generation Co, Ltd.		676.59	1.78
Guodian Yongfu Generating Co., Ltd.		625.79	1.64
Shanxi Lujin Wangqu Power Generation Co., Ltd.		570.05	1.50

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In the last three years, Shengkai’s top 10 suppliers were as follows:

Suppliers and purchase amount in 2005-2007

Name	Address	Amount (RMB ten thousand)	Percentage of Purchases (%)
Tianjin Baili Ertong Machinery Co., Ltd	Douli District Tianjin City	2,109.47	15.86
Botou Alloy Casting Plant	Botou City Hebei Province	1,744.72	13.11
Tianjin Dongrui Foundry Co., Ltd.	Douli District Tianjin City	1,188.19	8.93
Tianjin Jinwan’an Pneumatic Hydraulic Complete Equipment Co., Ltd.	Nankai District Tianjin City	992.43	7.46
Tianjin Zhiliang Metal Forging Co., Ltd.	Douli District Tianjin City	855.21	6.43
Tianjin Tiansha Haiyan Grinding Tools Manufacturing Co., Ltd.	Douli District Tianjin City	625.02	4.70
No. 11 Automation Instrumentation Plant under Shanghai Automation Instrumentation Co., Ltd.	Qingpu District Shanghai City	589.17	4.43
Shanghai Yuelong New Materials Co., Ltd.	Hongkou District Shanghai City	416.15	3.13
Shanghai Luoxun Automation Control Co., Ltd	Pudong District Shanghai City	376.32	2.83
Tianjin Jinhan Trade Co., Ltd.	Douli District Tianjin City	354.23	2.66

Marketing and Sales

In 2007, Shengkai spent RMB1,741,302 for marketing and sales efforts and in 2008 plans to invest an additional RMB468,632. Such funding will be used to implement the following strategies to achieve our sales objectives:

Targeted marketing: Two market departments will be set up for domestic and overseas markets: Department No. 1 will be responsible for domestic marketing and engaging in direct sales for regular customers and sales via agents for spot sales. Sales teams will be set up by geographical region. Currently, Shengkai has set up distribution offices in Hunan, Jilin, Heilongjiang, Hebei, Jiangxi and Hubei and plans to increase its sales force, enlarge investment in marketing and increase sales volume. Due to geographical limitations and cultural differences, Department No. 2 will engage in no direct sales, but will instead utilize foreign agents to conduct sales in international markets. We have already obtained approval and authentication to export to Europe, North America, and the Asia-Pacific region.

Sales training: Each sales personnel member in the company will be trained in grass-roots production before starting work, so as to become familiar with production flow and product characteristics. The HR department has prepared a training plan aimed at sales personnel to educate them in sales and product knowledge. To ensure the professionalism of our employees, all of our sales personnel must pass an exam following training, before they may start work.

Value-added services: Shengkai will enhance the quality of our before-sales, during sales and after-sales service. Shengkai will develop before-sales technical design service to achieve a perfect connection of product with customer demand.

New industries: Shengkai aims to increase sales to customers in the environmental protection and electric power industry. Shengkai will also dedicate its energies to expanding our market into new fields like petrochemicals, metallurgy and ore mining. In the fiscal year 2008, revenue is expected to be approximately $33,000,000, with the power industry comprising approximately 82% of revenue, and the aluminum, petrochemical and chemical, metallurgy and other industries comprising approximately 2%, 5%, 8% and 3%, respectively. We have already taken the first step toward entering the petrochemical industry market by gaining the qualification of first-class supplier for PetroChina Co. Ltd. and CPCC.  We estimate that by fiscal year 2009, the petrochemical industry will comprise approximately 20% of Shengkai's revenue, and the metallurgy, aluminum and power industries will comprise 10%, 5%, and 65% of Shengkai's revenue, respectively.

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Competition

Competitive Environment

Currently, the world ceramic valve industry is still in its infancy. Ceramic valves represent a very small proportion in the industrial valve industry. According to our estimates, sales volume for ceramic valves in China represented less than 1% of the total volume for industrial valves in China in 2006.

Shengkai’s main competitors are manufacturers of metal valves, which currently still represent the majority market share in the valve market. Although the unit price of metal valves is typically cheaper than the unit price of ceramic valves, ceramic valves are more durable than metal valves and as such are most cost-effective than metal valves. Primary Chinese metal valve competitors include Sufa Technology Industry Co., Ltd. CNNC, Neway Valve (Suzhou) Co., Ltd., Hunan Kefeng High-Pressure Valves Co., Ltd., and Lanzhou High-Pressure Valves Co., Ltd.

Within the ceramic valve industry, at present we estimate that we represent over 70% of the Chinese market. The business of our primary ceramic valve competitors is briefly described below:

Ceresist Inc. Primary line of business: high quality ceramic ball valve and ceramic pipeline manufacture. Single equipment is used for structural ceramics production, resulting in few varieties, small caliber and high production cost of ceramic valves. There is no branch in China so far.

Fujikin of America Inc. Primary line of business: semiconductor material and ceramic valves, particularly small ceramic adjustable ball valves. Fuji kin specializes in the manufacture of control devices for valves, but it relies primarily on outsourcing for its ceramic valve cores. There is no branch in China so far.

Shenzhen Nanbo Structure Ceramics Co., Ltd. Primary line of business:series of high-quality small-sized ceramic ball valves with ball, with favorable market share. Its production mainly relies on imported ceramic equipment with single variety and small caliber. The company conducts no R&D of ceramics and does not have large-scale production capacity for ceramic valves.

Many of the international companies, in particular, have longer operating histories and have more established relationships with customers and end users and are engaged in major markets of general industrial products and cutting edge technology fields. With respect to the niche market of ceramic valves manufacture, presently U.S. valve manufacturers Ceresist and Fuji Kin have a mature production scale for ceramic valves, but they do not make industrial ceramics development and ceramic valve production their main line of business, and they rely on either single-use equipment or outsourcing for production of ceramic components. There are fewer than 10 other ceramic valve manufacturers in China, all of which have sales volumes below RMB5 million. With the exception of Shenzhen Nanbo Structure Ceramics Co., Ltd., these companies mainly depend on outsourcing for ceramic pieces.

Our Competitive Advantages

At present, we estimate that we represent over 70% of the market share in the domestic ceramic valve market. Given our early entry into the ceramic valve market, we believe we enjoy a leading position in China because of our head start in ceramic material technology and valve assembly.

Presently, the technology of other domestic and overseas industrial ceramic valves manfacturers limit production to small-bore ball valves with pressure levels below 2.5MPa. In contrast, Shengkai produces a variety of ceramics in every category (gate valve, ball valve, back valve, adjustable valve, cut-off valve and special valve) and produce more than 700 specifications that sustain a maximum pressure level of 42MPa. The largest ceramic valve caliber produced by Shengkai is 1,000mm; currently, we believe that other manufacturers in the world only produce ceramic ball valves and ceramic adjustable valves with 150mm caliber or less. We believe that Shengkai's ability to produce a comprehensive category of high-quality ceramic products, together with its self-developed ceramic processor, leak-proof valve sealing technology and strong technology development capacity, set it apart from its domestic and international competitors.

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Shengkai has established a cooperative relationship with Tianjin University of Science & Technology. The company will further strengthen cooperation with colleges and universities, so as to realize a better integration of practical experience of the company and intellectual resources of the universities.

Our Future Goals and Expansion Plans

We have the following near-term goals for our company:

· Develop new technology for the industry. We plan to increase investment in technology development and continue conducting research on engineering structural ceramics that will advance the ceramic industrial valve market.

· Lower production costs. We plan to digitalize its machinery and streamline its valve production so as to lower the production cost of ceramic valves and hasten their substitution for metal valves.

· Internationalization. Currently, we have started to gain brand awareness in the overseas valve market. We will keep expanding market share in the international market via well-known foreign agents, so as to enhance sales volume and profit in the international market.

Technology Development

In 2007, Shengkai entered into an agreement with a technology development company to purchase a computer system in improving the quality of ceramic value production, (“the Computer System”). Shengkai expects the Computer System to be delivered within 2 years and total cost is $8,544,330 (RMB 60,000,000). Shengkai has already paid $4,272,165 (RMB 30,000,000) for the Computer System and commit to pay the balance during next eighteen months.

Shengkai focuses its technology development on those product areas that have the highest demand, so as to speed-up market share expansion of ceramic valves, lower the risks of product development and promotion, and improve the company’s input-output ratio. Shengkai has also increased investment in nano ceramics performance enhancement via nano technology, so as to continue to increase the caliber, pressure and temperature scope of ceramic valves (and the displacement of metal valves in the market).

Shengkai is currently working to introduce a digital-control processing center to greatly enhance process precision and efficiency and will improve the over all quality of Shengkai’s valves. We anticipate the mode of an entire digital-controlled machine tool process will also reduce the need for a larger workforce while increasing the specialization of our workforce. We estimate that machinization will reduce labor costs for machine work personnel by 50-60% and installation personnel costs by 30%, in roughly the same proportion as productivity is expected to increase.

Intellectual Property

Effective on June 9, 2008, we assigned the trademark, “Kosher Magic Oy, That’s Good!,” Serial No. 78793035, to Michael Jordan for due consideration in the amount of $100.

In addition, Shengkai has certain intellectual property rights as listed below:

Patents

We have applied for and obtained nine patents in the PRC for the following products:

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No.	Utility Models	Certificate No.	Utility Models No.	Designer	Application Date	Authorized Announcement	Owner
1	High temperature and high Pressure ceramic check valves in power station	755441	ZL 200420029890.0	Wang Chen	10/10/2004	2/1/2006	Shengkai
2	Preventing slag at the bottom of the wedge and abrasion-resistant ceramic slag-off valves	756887	ZL 200420029889.8	Wang Chen	10/10/2004	2/1/2006	Shengkai
3	Anti-fouling ceramic seal discharge valves	746044	ZL 200420029887.9	Wang Chen	10/10/2004	12/7/2005	Shengkai
4	Reciprocating sliding dual- plate ceramic sealing valves	756440	ZL 200420029886.4	Wang Chen	10/10/2004	2/1/2006	Shengkai
5	New ceramic replica valves	740358	ZL 200420029885.X	Wang Chen	10/10/2004	11/9/2005	Shengkai
6	External composite armor plate for tank	714858	ZL 2004 2 0029600.2	Wang Chen	8/24/2004	8/3/2005	Shengkai
7	The new V-shaped channel spherical valves	7155047	ZL 2004 2 0029601.7	Wang Chen	8/3/2004	8/3/2005	Shengkai
8	Cavitation and erosion-resistant high-pressure adjusting valves	715215	ZL 2004 2 0029602.1	Wang Chen	8/24/2004	8/3/2005	Shengkai
9	New ceramic three links valves	715416	ZL 2004 2 0029603.6	Wang Chen	8/24/2004	8/3/2005	Shengkai

Additionally, in January 2008, we applied for, and expect to obtain, patents for nine newer valve products, listed below:

No.	Utility Models	Type	Application No.	Application Date	Applicants
1	Ceramic valves with purge devices	Utility Model	200820002560.0	1/22/2008	Shengkai
2	Throttle ceramic valves	Utility Model	200820002561.5	1/22/2008	Shengkai
3	Fast-opening ceramic adjusting valves	Utility Model	200820002565.3	1/22/2008	Shengkai
4	Eccentric anti-seize abrasion-resistant spherical valves	Utility Model	200820002564.9	1/22/2008	Shengkai
5	Spherical ceramic adjusting valves	Utility Model	200820002562.X	1/22/2008	Shengkai
6	Ceramic butterfly valves	Utility Model	200820002563.4	1/22/2008	Shengkai
7	Ceramic seal switching valves	Utility Model	200820002566.8	1/22/2008	Shengkai
8	Fine-tuning ceramic adjusting valves	Utility Model	200820002567.2	1/22/2008	Shengkai
9	Hemispherical ceramic adjusting valves	Utility Model	200820002559.8	1/22/2008	Shengkai

Shengkai has entered into patent transfer agreements with Mr. Wang Chen for the following products:

Name	Patent No.		Application Date		Approval date
Sealing device for heat, pressure and wear resistant valve		ZL 98 2 190654		September 24, 1998		October 23, 1999
High temperature, pressure, corrosion and wear resistant valve		ZL 98 2 190662		September 24, 1998		September 11, 1999

Such patent transfer agreements have not yet been registered with the State Intellectual Property Office. 

Mr. Wang also owned a utility model patent named “Wear resistant slab delivering gate valve,” which was transferred to Shengkai pursuant to a patent transfer agreement.  The application date for such patent was August 24, 1995 and has since expired. 

Trademarks and Domain Names

Shengkai has registered seven trademarks for “SK” and “Shengkai” with the Trademark Bureau under the State of Administration for Industry & Commerce, all of which are effective from 2009 through 2012:

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Trademark	Certificate No.	Category	Registrant	Valid Term
	No.1239606	No.6: metal valves (parts of non-machinery)	Shengkai	1/14/1999 to 1/13/2009
“SK”	No.1717597	No.6 :metal valves (parts of non-machinery), metallic pipe fittings, metallic pipe reinforcement material, metallic pipes fittings of compressed air pipes, metallic pipes, metallic pipes of air conditioning equipment, metallic drip valves, metallic sleeve, conduits and pipes of central heating equipments, metallic pipes of central heating	Shengkai	2/21/2002 to 2/20/2012
	No.4152529	No.2: black clear lacquer, chinaware silver lacquer, platinum glaze for brightening ceramic materials, ceramic coating, white dye or paint, non-viscous chemical coating, within and external walls of bright water-soluble spray plastic, metal anti-rust formulations, metal used protection formulations, ceramic materials with paint, antirust oil	Shengkai	5/7/2007 to 5/6/2017
	No.4152532	No.20: non-metallic valves, non-metallic ball valves, plastic water pipe valves, plastic drip valves	Shengkai	5/7/2007 to 5/6/2017
	No.4152527	No.7:mud pumps for petroleum, power station boilers and auxiliary equipments, centrifugal pumps, pumps, valves, the flap valves, pressure valves and give up valves, hydraulic valves, control valves, engine nozzles, electrostatic industrial equipments, conveyor	Shengkai	10/14/2006 to 10/13/2016
	No.4152528	No.6:Armored plates, metallic valves (non-machinery parts), metallic ceramics, metallic drip valves, metallic pipes, metallic water pipes, metallic spray-head, metallic nozzles, metallic piping elbows	Shengkai	10/14/2006 to 10/13/2016
	No.4152533	No.11: slag of furnace automatic transmission installations, valves steam heating equipments, taps, plumbing plugs, sewer equipments, plumbing modulator switches, water equipments, air purification equipments and machinery, gas purification devices, ionizing air handling equipments, flues, flues in chimney, air filtration equipments	Shengkai	10/14/2006 to 10/13/2016

Shengkai has registered the following domain names:

Domain Name	Owner	Registration Date	Expiration Date
“Ceramicvalve.net”	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)
“Shengkai.com”	Shengkai	N/A	6/15/2009
	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)
	Shengkai	4/16/2007	4/16/2009 (extended from 4/16/2008)
	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)
	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)
	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)
	Shengkai	4/13/2007	4/13/2009 (extended from 4/13/2008)

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Employees

As of April 30, 2008, Shengkai had 87 employees, 48 of which possess a diploma over junior college level, representing 55.3% of the work force recruited. We currently have three senior-level professionals and 10 mid-level professionals with graduate degrees.

Employee benefits include five state-mandated insurance plans:

· Old-age insurance: We withhold a portion of each employee’s average monthly salary from the prior year, as determined by the provincial government, generally 8%, and contribute an additional amount determined by law, up to approximately 20% of such average monthly salary.

· Medical insurance: We withhold approximately 1% of each employee’s average monthly salary from the prior year and contribute an additional amount totaling approximately 10% of such average monthly salary.

· Unemployment insurance: We withhold approximately 1% of each employee’s average monthly salary from the prior year, and contribute an additional amount totaling approximately 2% of such average monthly salary.

· Maternity insurance: We contribute an amount totaling approximately 0.8% of each employee’s average monthly salary from the prior year.

· Industrial injury insurance: we contribute an amount totaling approximately 0.5% of each emplloyee’s average monthly salary from the prior year.

In 2007, our average compensation per employee per month was RMB3,800, or approximately $549.30. We also pay benefits in the form of social security insurance fees for employees required such insurance under PRC law.

We have a system of human resource performance review and incentive policies that allows personnel reviews to be carried out monthly or bi-monthly, depending on the length of service..

Government Regulations

We are subject to a wide range of regulation covering every aspect of our business. The most significant of these regulations are set forth below. In each case, we have passed the most recent required inspections and have received appropriate and up-to-date licenses, certificates and authorizations, as set forth in the next subsection of this report.

Approvals, Licenses and Certificates

We require a number of approvals, licenses and certificates in order to operate our business. Our principal approvals, licenses and certificates are set forth below.

· Business License (No. 120191000015144) issued on December 17, 2007 by Tianjin Administration for Industry and Commerce.

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· Organization Code Certificate issued by Tianjin Quality Supervision and Inspection Bureau (code No. 23967678-2, and registration No. Zu Dai Guan 120191-030551), the valid period of which is from October 19, 2006 to October 18, 2010. The company has passed the 2007 annual inspection.

· Taxation Registration Certificate (Jin Guo Shui Zi No. 120115239676782) issued by the Tianjin Economic-Technological Development Area Branch of the State Administration of Taxation on October 30, 2006.

· Taxation Registration Certificate (Jin Di Shui Zi No. 120115239676782) issued by the Tianjin Economic-Technological Development Area Branch of the Local Tax Bureau on October 26, 2006.

· Customs Declaration Registration Certificate for Consignees or Consignors of Import & Export of the PRC Customs (the Certificate code No.1207268124) issued by Tianjin Customs District of the PRC on July 31, 2001. The expiration date is August 22, 2009.

· Registration Form for Operators of Foreign Trading (the code No. 00498476, and import & export enterprise code No.1200239676782) issued by Tianjin Commission of Commerce on December 5, 2007.

· Self-declaration Units Registration Certificate (the Certificate No. 1200604101) issued by Tianjin Entry-Exit Inspection and Quarantine bureau on September 21, 2006.

· High Technology Guidance Committee of Tianjin Economic & Technology Development Area and Tianjin Scientific Technology Committee issued theCertificates of High Technology Enterprise (No.2003-011 and No.0612007B5003) to Shengkai respectively on April 30, 2007 and June 16, 2006. The valid terms are respectively two years.

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in our common stock.

Risks Related to Our Business and Industry

Our new organizational structure makes it difficult for us to evaluate our future business prospects.

Prior to May 30, 2008, our business was operated through Shengkai. Under the present structure, although there is no change in personnel, we have agreements with Shengkai pursuant to which we manage and derive the profit from Shengkai’s business by providing the exclusive supporting services from SK Ceramic Valves to Shengkai. It is possible that the change in our business structure may impair our ability to operate our business.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.

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In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Round-Trip Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75. The policy announced in this notice required PRC residents to register with the relevant SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in May 2007 (known as Notice 106), expanded the reach of Circular 75. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We believe we comply with the applicable regulations. Currently, Wang Chen, Guo Wei, Zhao Yanqiu, Ji Haihong, Zhang Ying, Miao Yang, Wu Yanping and Liu Naifan are PRC residents who, in accordance with Circular 75 and Notice 106, have each completed registration with the Tianjin branch of SAFE for the foreign exchange of overseas investment. We cannot however assure you that, if challenged by government agencies, the structure of our organization has fully complied with all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. A failure by such PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75 and Notice 106, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

Our principal stockholder has the power to control our business.

Our principal stockholder, Long Sunny Limited, owns 78.68% of our Common Stock as of June 11, 2008. As a result, Long Sunny Limited has the ability to elect all of our directors and to approve any action requiring stockholder action, without the vote of any other stockholders.

Because we may require additional financing to expand our operations, our failure to obtain necessary financing may impair our operations.

At March 31, 2008, we had working capital of approximately $11,104,061. Our capital requirements in connection with the development of our business are significant. During the quarter ended March 31, 2008, we spent approximately $3,466,307 for the purchase of raw materials and equipment, of which $3,400,977 was used to raw materials and $65,330 was used to purchase equipment.

To the extent that we require financing, the absence of an active public market for our common stock, the terms of the Financing and the number of outstanding warrants and the exercise price and other terms on which we may issue common stock upon exercise of the warrants, it may be difficult for us to raise additional equity capital if required for our present business or for any planned expansion. We cannot assure you that we will be able to get additional financing on any terms, and, if we are able to raise funds, it may be necessary for us to sell our securities at a price which is at a significant discount from the market price and on other terms which may be disadvantageous to us. In connection with any such financing, we may be required to provide registration rights to the investors and pay damages to the investor in the event that the registration statement is not filed or declared effective by specified dates. The price and terms of any financing which would be available to us could result in both the issuance of a significant number of shares and significant downward pressure on our stock price and could result in a reduction of the conversion price of the Series A Preferred Stock. Further, since the investors in the Financing have a right to participate in future financings, this right may affect our ability to obtain financing from other sources.

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Because our products are marketed both in the domestic and international markets, we are subject to both domestic and international competition.

Shengkai faces two types of competitors: (i) manufacturers of metal valves, which currently still represent the majority market share in the entire valve market, competing with ceramic valves with its lower price; and (ii) Chinese and international companies that are better known and have greater financial resources than we have. Many of the international companies, in particular, have longer operating histories and have more established relationships with customers and end users. Three of our international competitors also may have a greater ability to attract and retain users than we do because they are engaged in major markets of general industrial products and cutting edge technology fields. If our competitors are successful in providing similar or better valve products or make their services easier to access, we could experience a decline in demand for our products.

An increase in the cost of raw materials will affect sales and revenues.

Raw materials required for valve production includes metal materials and ceramic materials like aluminum oxide and zinc oxide; a large number of spare parts in various specifications are also purchased during production. Any increase in the prices of these raw materials will affect the price at which we can sell our product. If we are not able to raise our prices to pass on increased costs, we would be unable to maintain our margins.

Our business and operations are experiencing rapid growth. If we fail to effectively manage our growth, our business and operating results could be harmed.

We have experienced, and continue to experience, rapid growth in our operations, which has placed, and will continue to place, significant demands on our management, operational and financial infrastructure. If we do not effectively manage our growth, the quality of our products and services could suffer, which could negatively affect our operating results. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. These systems enhancements and improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to manage our growth and our financial position.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

Our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets for us. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in China and other countries in which our products are sold. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.

Becausewe depend on third parties to market our products in the international market, any problems encountered by these third parties could affect our sales.

Although the market for valve products is international, most of our products are sold to companies in the PRC. We do not have any offices outside of the PRC, and we depend on other companies to market our products in the international market. As a result, we are dependent upon third parties, over which we have no control, to develop and implement an international marketing effort. Any problems encountered by these third parties, including potential violations of laws of the PRC or other countries, may affect their ability to sell our products which would, in turn, affect our net sales.

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We rely on highly skilled personnel and the continuing efforts of our executive officers and, if we are unable to retain or motivate key personnel or hire qualified personnel, our business may be severely disrupted if we lose their services.

Our performance largely depends on the talents and efforts of highly skilled individuals and in particular, the technology and expertise held by our Chief Executive Officer, Wang Chen. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to attract new technology developers and to retain and motivate our existing contractors.

We do not maintain key man life insurance on any of our executive officers. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some of our customers. Our chief executive officer is a party to contractual agreements as described elsewhere in this Form 8-K. However, if any disputes arise between our executive officer and us, we cannot assure you, in light of uncertainties associated with the Chinese legal system, the extent to which any of these agreements could be enforced in China, where some of our executive officers reside and hold some of their assets.

Because we have inadequate insurance coverage in the PRC,we may not be protected from risks that are customarily covered by insurance in the United States.

We do not presently maintain product liability insurance, and our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.

We currently do not carry any product liability or other similar insurance. We cannot assure you that we would not face liability in the event of the failure of any of our products. This is particularly true given our plan to significantly expand our sales into international markets, like the United States, where product liability claims are more prevalent.

Except for automobile insurance, we do not have other insurance such as business liability or disruption insurance coverage for our operations in the PRC.

We do not maintain a reserve fund for warranty or defective products claims. Our costs could substantially increase if we experience a significant number of warranty claims. We have not established any reserve funds for potential warranty claims since historically we have experienced few warranty claims for our products so that the costs associated with our warranty claims have been low. If we experience an increase in warranty claims or if our repair and replacement costs associated with warranty claims increase significantly, it would have a material adverse effect on our financial condition and results of operations.

Certain key technology for our business is uninsured.

The “recipe” to our unique method for creating structural ceramic valves is held by Wang Chen, our CEO, and his mother, Guo Chuanye. This technology is recorded but inaccessible by anyone but Mr. Wang and Ms. Guo. If either of these two key individuals were to lose the ability to recall this technology, either through death or incapacity, we would lose key technology that could have a material adverse effect on our financial condition and results of operations.

Our Chief Executive Officer controls us through his position and stock ownership and his interests may differ from other stockholders.

Upon exercise of the Call Option Agreement, our Chief Executive Officer, Mr. Wang, will beneficially own 78.68% of our common stock through his 100% holding in Long Sunny Limited. As a result, Mr. Wang will be able to influence the outcome of stockholder votes on various matters, including the election of directors and extraordinary corporate transactions such as business combinations. Mr. Wang’s interests may differ from that of other stockholders.

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Additionally, Mr. Wang and our pending director, Guo Wei, are husband and wife and as such their interests may not be independent from one another.

Our operations may be adversely affected by the unilateral decisionmaking structure of Shengkai, the entity through which we operate our business.

Shengkai’s Articles of Association provides for its governance by an executive director, instead of a board of directors, to be appointed by its shareholders. In accordance with the PRC Company Act permits PRC companies with a smaller number of shareholders or registered capital to be governed by a sole executive director. Mr. Wang Chen currently serves as executive director. Pursuant to Shengkai’s Articles of Association, the executive director’s actions are overseen by a supervisor, Guo Chuanji, who holds no interest in the company. Notwithstanding such supervision, the governance of Shengkai by a single executive director could result in inadequately vetted business decisions that could negatively affect the performance of our operations.

We rely on energy and transportation services or others in providing products and services to our users, and any failure or interruption in the services and products provided by these third parties could harm our ability to operate our business and damage our reputation.

Our systems are heavily reliant on the availability of electricity. If we were to experience a major power outage, we would have to rely on back-up generators. These back-up generators may not operate properly and their fuel supply could be inadequate during a major power outage. This could result in a disruption of our business.

If we fail to obtain all required licenses, permits, or approval, we may be unable to expand our operations.

Before we can develop certain products, we must obtain a variety of approvals from local and municipal governments. There no assurance that we will be able to obtain all required licenses, permits, or approvals from government authorities. If we fail to obtain all required licenses, permits or approvals, we may be unable to expand our operations.

If we make any acquisitions, they may disrupt or have a negative impact on our business.

Although we have no present plans for any acquisitions, in the event that we make acquisitions, we could have difficulty integrating the acquired companies’ personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the affect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:

o  the difficulty of integrating acquired products, services or operations; 

o the potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;

o the difficulty of incorporating acquired rights or products into our existing business;

o difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;

o difficulties in maintaining uniform standards, controls, procedures and policies;

o the potential impairment of relationships with employees and customers as a result of any integration of new management personnel;

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o the potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers;

o the effect of any government regulations which relate to the business acquired;

o potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or the defense of any litigation, whether of not successful, resulting from actions of the acquired company prior to our acquisition.

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with these acquisitions, many of which cannot be presently identified, these risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

We may be required to pay liquidated damages if we do not register shares of common stock issuable upon conversion of the Preferred Shares and Warrants issued in the Financing or if we are not listed on a national exchange within a specified time period.

The registration rights agreements, which we executed in connection with the Financing, requires us to file a registration statement with the SEC within 45 days after the earlier of the date of the Second Closing (as defined in Item 3.02 below) or June 30, 2008, and declared effective by the SEC not later than November 27, 2008. We are required to pay liquidated damages to each Purchaser in an amount equal to 1 percent of the Purchaser’s initial acquisition of Preferred Shares pursuant to the Purchase Agreement for each month passed the relevant deadline that the registration statement is not filed or not declared effective, for any period that we fail to keep the registration statement effective, or for any period that we cause our stock to be delisted from the OTC Bulletin Board, up to a maximum of 10 percent.

Pursuant to the First Amendment to the Purchase Agreement and the Securities Escrow Agreement, if we fail to use commercially reasonable efforts to list our common stock on the Nasdaq Capital Market, Nasdaq Global Select Market or Nasdaq Global Market or the American Stock Exchange within 18 months of the First Closing (as defined in Item 3.02 below), 1,000,000 shares of common stock owned by Principal Stockholders will be distributed to the Purchasers on a pro rata basis.

Because the holder of our Warrants have cashless exercise rights, we may not receive proceeds from the exercise of the outstanding warrants if the underlying shares are not registered.

The holders of our Warrants issued in the Financing have cashless exercise rights, which provide them with the ability to receive common stock with a value equal to the appreciation in the stock price over the exercise price of the warrants being exercised. This right is not exercisable prior to June 10, 2009 and thereafter it is only exercisable if the underlying shares are not subject to an effective registration statement. To the extent that the holders exercise the cashless exercise rights, we will not receive any proceeds on exercise of warrants.

Risks Related to Doing Business in China

Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position. 

Our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

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o the amount of government involvement;

o the level of development;

o the growth rate;

o the control of foreign exchange; and

o the allocation of resources. 

While the Chinese economy has grown significantly in the past 20 years, the 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 Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the Chinese government. The continued control of these assets and other aspects of the national economy by the Chinese government could materially and adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in decreased capital expenditure by solar energy users, which in turn could reduce demand for our products.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of renewable energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.

Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.

The change in value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. On July 21,2005, the Chinese government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an appreciation of Renminbi against U.S. dollar, which is continuing. While the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the Chinese government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar. As a portion of our costs and expenses is denominated in Renminbi, the revaluation in July 2005 and potential future revaluation has and could further increase our costs. In addition, as we rely entirely on dividends paid to us by our operating subsidiaries, any significant revaluation of the Renminbi may have a material adverse effect on our revenues and financial condition, and the value of, and any of our dividends payable on our ordinary shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

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

All of our revenues and most of our expenses are denominated in Renminbi. If our revenues denominated in Renminbi increase or expenses denominated in Renminbi decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our ordinary shares. Under China’s existing foreign exchange regulations, we are able to pay dividends in foreign currencies, without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure you that that the Chinese government will not take further measures in the future to restrict access to foreign currencies for current account transactions.

Capital outflow policies in the PRC may hamper our ability to remit income to the United States.

The People’s Republic of China has adopted currency and capital transfer regulations. These regulations may require that we comply with complex regulations for the movement of capital and as a result we may not be able to remit all income earned and proceeds received in connection with our operations or from the sale of our operating subsidiary to the U.S. or to our stockholders.

Our operations and assets in the PRC are subject to significant political and economic uncertainties.

Government policies are subject to rapid change and the government of the China may adopt policies which have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the government of the China will not significantly alter its policies from time to time without notice in a manner with reduces or eliminates any benefits from its present policies of economic reform. In addition, a substantial portion of productive assets in China remains government-owned. For instance, all lands are state owned and leased to business entities or individuals through governmental granting of state-owned land use rights. The granting process is typically based on government policies at the time of granting, which could be lengthy and complex. This process may adversely affect our business. The government of China also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures. In addition, changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, as well as adverse changes in the political, economic or social conditions in China, could have a material adverse effect on our business, results of operations and financial condition.

A downturn in the economy of China may slow our growth and profitability.

The growth of the Chinese economy has been uneven across geographic regions and economic sectors. There can be no assurance that growth of the Chinese economy will be steady or that any downturn will not have a negative effect on our business.  

Because Chinese law governs almost all of our material agreements, we may not be able to enforce our legal rights within China or elsewhere, which could result in a significant loss of business, business opportunities, or capital.  

Chinese law governs almost all of our material agreements. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of China. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.

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

Substantially all of our assets will be located in the PRC and our officers and our present directors reside outside of the United States.  As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. Moreover, we have been advised that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the Federal securities laws.  

We may have difficulty establishing adequate management, legal and financial controls in China, which could impair our planning processes and make it difficult to provide accurate reports of our operating results.   

China historically has not followed Western style management and financial reporting concepts and practices, and its access to modern banking, computer and other control systems has been limited.  Although we will be required to implement internal controls, we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in China in these areas. As a result of these factors, we may experience difficulty in establishing the required controls and instituting business practices that meet Western standards, making it difficult for management to forecast its needs and to present the results of our operations accurately at all times. If we are unable to establish the required controls, market makers may be reluctant to make a market in our stock and investors may be reluctant to purchase our stock, which would make it difficult for you to sell any shares of common stock that you may own or acquire.

Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

Imposition of trade barriers and taxes may reduce our ability to do business internationally, and the resulting loss of revenue could harm our profitability.    

We may experience barriers to conducting business and trade in our targeted emerging markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantial taxes of profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits.

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

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

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Risks Related to Ownership of our Common Stock

The trading price for our common stock has been and may continue to be volatile

The market price of our common stock has experienced fluctuations and may continue to fluctuate significantly. The market price of our common shares may be adversely affected by various factors, including enforcement of existing laws, innovation and technological changes, the emergence of new competitors, the perception of desirability of investing in Chinese companies, quarterly variations in revenue and results of operations, speculation in the press or analyst community and general market conditions or market conditions specific to particular industries.

There is a limited market for our common stock, which may make it difficult for you to sell your stock.

Our common stock trades on the OTCBB under the symbol “SOSA.OB.” There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

We are required to amend our articles of incorporation to provide for a class of preferred stock and to give our board of directors the right to amend the designation of its Preferred Shares. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock and the certificate of designation relating to the Preferred Shares restricts our ability to issue additional series of preferred stock, we may issue such shares in the future. Without the consent of the holders of 75% of the outstanding Preferred Shares, we may not alter or change adversely the rights of the holders of the Preferred Shares or increase the number of authorized shares of Preferred Shares, create a class of stock which is senior to or on a parity with the Preferred Shares, amend our articles of incorporation in breach of these provisions or agree to any of the foregoing.

Our shares are subject to the U.S. “Penny Stock” Rules and investors who purchase our shares may have difficulty re-selling their shares as the liquidity of the market for our shares may be adversely affected by the impact of the “Penny Stock” Rules.

Our stock is subject to U.S. "Penny Stock" rules, which may make the stock more difficult to trade on the open market. Our common shares currently trade on the OTCBB. A "penny stock" is generally defined by regulations of the U.S. Securities and Exchange Commission ("SEC") as an equity security with a market price of less than US$5.00 per share. However, an equity security with a market price under US$5.00 will not be considered a penny stock if it fits within any of the following exceptions:

(i)	the equity security is listed on AMEX or a national securities exchange;
(ii)	the issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible assets of at least US$5,000,000, or (b) average annual revenue of at least US$6,000,000; or
(iii)	the issuer of the equity security has been in continuous operation for more than three years, and has net tangible assets of at least US$2,000,000.

Our common stock does not currently fit into any of the above exceptions.

If an investor buys or sells a penny stock, SEC regulations require that the investor receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in our common stock is currently subject to Rule 15g-9 of the Exchange Act, which relates to non-NASDAQ and non-exchange listed securities. Under this rule, broker/dealers who recommend our securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if their market price is at least $5.00 per share.

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Since our common stock is currently deemed a penny stock, it will be subject to penny stock regulations, which may reduce market liquidity of our common stock, because they limit the broker/dealers' ability to trade, and a purchaser's ability to sell, the stock in the secondary market.

The low price of our common stock has a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our common stock also limits our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker's commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, our shareholders may pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher.

As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us and as a result we could be subject to legal action.

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, if we are a penny stock, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

For more information about penny stocks, contact the Office of Filings, Information and Consumer Services of the U.S. Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549, or by telephone at 1-800-732-0330.

The issuance of shares through our stock compensation plans may dilute the value of existing stockholders and may affect the market price of our stock.

Although we do not have an option or other equity-based incentive plan at present, in the future we may use stock options, stock grants and other equity-based incentives, to provide motivation and compensation to our officers, employees and key independent consultants. The award of any such incentives will result in an immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our stock.

Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of this assessment by our company's independent registered public accountants. The SEC extended the compliance dates for non-accelerated filers, as defined by the SEC. Accordingly, we believe that the annual assessment of our internal controls requirement will first apply to our annual report for the 2007 fiscal year and the attestation requirement of management's assessment by our independent registered public accountants will first apply to our annual report for the 2008 fiscal year. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

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The issuance and sale of the common stock issuable upon conversion of the Preferred Shares and exercise of the Warrants could result in a change of control.

If we issue all of the shares of common stock issuable upon conversion of the Preferred Shares and exercise of the Warrants, the 13,227,226 shares of Common Stock so issuable would constitute approximately 37.4% of our then outstanding common stock. The percentage would increase to the extent that we are required to issue any additional shares of common stock become upon conversion of the Preferred Shares pursuant to the anti-dilution and adjustment provisions and pursuant to the liquidated damages provision of the Registration Rights Agreement. Any sale of all or a significant percentage of those shares to a person or group could result in a change of control.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operation of the Company for the fiscal years ended June 30, 2007 and 2006, and for the nine months ended March 31, 2008 and 2007 should be read in conjunction with the selected financial data, the financial statements and the notes to those statements that are included elsewhere in this Current Report on Form 8-K (“Form 8-K”). Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 8-K. We use terms such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

General

Tianjin Shengkai Industrial Technology Development Co. Ltd., the entity through which we run our operations, is a prominent ceramic valve manufacturer. We have more than 14 years of experience and possess a unique method for creating ceramic valves.

We believe that Shengkai is the one of the few ceramic valve manufacturers in the world with research and development, engineering, and production capacity for structural ceramics. Shengkai’s product categories include a broad range of valves in all industries that are sold throughout China, to North America, and other countries in the Asia-Pacific region. Totaling over 300 customers, Shengkai became a supplier of the CPCC in 2005 and a member of the PetroChina supply network in 2006, after a six-year application process.

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Selected Financial Data for Shengkai

Statements of Operation Data:

	Nine months ended March 31, (unaudited)						Twelve months ended June 30,
	2008			2007			2007			2006
Net revenues	$	24,028,336		$	16,677,898		$	23,124,748		$	13,677,946
Cost of sales		(9,600,818	)		(6,750,453	)		(9,244,592	)		(5,353,487	)
Gross profit		14,427,518			9,927,445			13,880,156			8,324,459
Operating expenses:
Selling		(2,253,599	)		(1,672,872	)		(2,639,249	)		(1,467,675	)
General and administrative		(1,339,870	)		(797,990	)		(1,398,439	)		(639,190	)
Operating income		10,834,049			7,456,583			9,842,468			6,217,594
Other income		9,074			24,721			25,506			30,938
Interest income		11,882			6,813			8,831			5,921
Interest expenses		-			(20,055	)		(20,174	)		(24,712	)
Income before income taxes		10,855,005			7,468,062			9,856,631			6,229,741
Income tax		(3,195,892	)		(2,464,460	)		(3,284,829	)		(2,055,815	)
Net income		7,659,113			5,003,602			6,571,802			4,173,926

Balance Sheet Data:

	As at March 31			As at June 30,
	2008			2007			2006
Cash and cash equivalents	$	3,983,194		$	1,691,476		$	1,292,869
Working capital		6,831,896			11,515,991			12,185,920
Total assets		23,152,032			23,268,830			19,668,974
Total debts		(2,884,719	)		(2,852,863	)		(3,529,581	)
Total shareholders’ equity		20,267,313			20,415,967			16,139,393

Critical Accounting Policies and Estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates (See Note 2 in the Notes to Financial Statements).

Revenue recognition

Net revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers, net of value added tax (“VAT”), after allowances for returns and discounts and the value of services rendered. Revenue is recognized when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured.

Intangible assets

Intangible assets represent land use rights, patent rights and other assets (such as use of software) in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 years commencing from the date of acquisition of equitable interest. Patent rights are carried at cost and amortized on a straight-line basis over the period of rights of 10 years commencing from the date of acquisition of equitable interest.

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Foreign currency translation

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

Results of Operations

Comparison of the Years Ended June 30, 2007 and 2006

Revenue

Revenue for the fiscal year ended June 30, 2007 was $23,124,748, an increase of $9,446,802 or 69.1% from $13,677,946 for the comparable period in 2006. Approximately 93% of our source of revenue came from customers in the electric power, petrochemical and chemical and metallurgy industries for the past two years of 2007 and 2006, especially the electric power industry contributed approximately 77% of total revenue in 2007. Revenue from the electric power industry was approximately $17.9 million for the year ended June 30, 2007, an increase of approximately $6.6 million or 59% from approximately $11.3 million for the comparable period in 2006. The increase was primarily attributable to an increase in our customer base. Our sales to the growing petrochemical and chemical industry was $1.4 million for the year ended June 30, 2007, an increase of $1.0 million or 267% from US$0.4 million for the comparable period in 2006. Revenue in the metallurgy industry was approximately $2.1 million for the year ended June 30, 2007, an increase of $1.1 million or 114% from $1.0 million for the comparable period in 2006.

Gross profit

Gross profit for the fiscal year ended June 30, 2007, was $13,880,156, an increase of $5,555,697 or 66.7% compared to $8,324,459 for the comparable period in 2006. Although gross profit increased compared with the same period in 2006, the gross profit margin in 2007 slightly decreased from 60.9% in 2006 to 60.0% in 2007. This was primarily attributable to costs related to the provision of sample products and promotional discounts to new customers to increase their confidence in our products. .

Selling expenses

Shengkai’s selling expenses for the fiscal year ended June 30, 2007 was $2,639,249, an increase of $1,171,574 or 79.8% compared to $1,467,675 for the comparable period in 2006. The major selling expense incurred was commission paid to the agents for introducing new customers to us which was approximately $2.2 million in the fiscal year ended June 30, 2007, an increase of approximately $0.9 million or 69% from approximately $1.3 million for the comparable period in 2006. This expense increased in line with the incremental sales. Another major selling expense incurred was advertising, which was $222,430 in the fiscal year ended June 30, 2007, an increase of $199,150 or 855.5% from $23,280 for the comparable period of 2006. This increase was primarily attributable to Shengkai’s increased participation in local and overseas industry exhibitions as well as increased advertising in local and oversea magazines.

General and administrative expenses

General and administrative expenses for the fiscal year ended June 30, 2007 was $1,398,439, an increase of $759,249 or 118.8% comparing to $639,190 for the comparable period in 2006. The increase in general and administrative expenses was primarily attributable to an increase in amortization of intangible assets to $462,182 for the fiscal year ended June 30, 2007, an increase of $370,209 or 402.5% compared to $91,973 for the comparable period in 2006, due to increased expenditures for the purchase of new production technologies and patent applications. Another reason for the increase in general and administrative expenses was an increase in personnel-related costs and technical consultation fees.

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Interest expenses

Interest expenses for the fiscal year ended June 30, 2007 were $20,174, a decrease of $4,538 or 18.4% compared to $24,712 for the comparable period in 2006. The interest expense was incurred from a short term loan with an interest rate of 6.417% per annum. However, this loan was redeemed early in February 2007, resulting in an overall decrease in interest expenses.

Other Income (Expense)

Other income for the fiscal year ended June 30, 2007 was $25,506, a decrease of $5,432 or 17.6% compared to $30,938 for the comparable period in 2006. This other income was received in the form of innovation grants and subsidies from the government. The amount of grants and subsidies would depend on the annual budget of Tianjin Municipal Government. As such, the decrease in other income was primarily attributable to varying amount of grants from the Tianjin Municipal Government

Income Tax Expenses

Income tax expenses for the fiscal year ended June 30, 2007 and 2006 were $3,284,829 and $2,055,815 respectively, an increase of $1,229,014 or 59.8% over these two fiscal years. The increase was primarily attributable to the increase in sales. The effective income tax rates were 33% for both the fiscal years of 2007 and 2006.

Comparison of the Nine Months Ended March 31, 2008 and 2007

Revenue

Revenue for the nine months ended March 31, 2008 was $24,028,336, an increase of $7,350,438 or 44.1% from $16,677,898 for the comparable period in 2007. Similar to the last two fiscal years, approximately 93% of our source of revenue came from customers in the electric power, petrochemical and chemical and metallurgy industries for the past nine months period. The electric power industry was still the significant market to our revenue, contributing approximately 82% of total revenue for the nine months ended March 31, 2008. Revenue from the electric power industry was approximately $18.8 million for the nine months ended March 31, 2008, an increase of approximately $6.2 million or 50% from approximately $12.6 million for the comparable period in 2007. The increase was primarily attributable to broadening our customer base. The revenues from petrochemical and chemical industry and metallurgy industry were very steady, were recorded $2.7 million for both the nine months ended March 31, 2008 and 2007. Revenue from other industries contributed the rest of $1.0 million increment over the comparable periods of nine months ended March 31, 2008 and 2007.

At present we are experiencing a deficiency of production capacity to meet demand for our products. We plan to expand our production capacity by acquiring additional financing to expand our operations.

Gross Profit

Gross profit for the nine months ended March 31, 2008 was $14,427,518, an increase of $4,500,073 or 45.3% compared to $9,927,445 for the comparable period in 2007. The gross profit margin for the nine months ended March 31, 2008 also increased slightly to 60.0% from 59.5% for the comparable period in 2007. This increase was primarily attributable to a 61% gross profit margin from sales in the electric power industry in 2008, up from 59% in 2007.

Selling Expenses

Selling expenses for the nine months ended March 31, 2008 was $2,253,599, an increase of $580,727 or 34.7%, from $1,672,872 for the comparable period in 2007. The major selling expense was commission paid to the agents for introducing new customers to us which was approximately $2.0 million in the nine month period ended March 31, 2008, an increase of approximately $0.4 million or 29% from approximately $1.6 million in the nine month period ended March 31, 2007. Another major selling expense was travelling expense which was $68,336 in the nine month period ended March 31, 2008, an increase of $45,527 or 3 times from $22,809 in the nine month period ended March 31, 2007. This increase was mainly attributable to more frequent travel to meet new local and oversea customers.

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General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2008 were $1,339,870, an increase of $541,880 or 67.9% compared to $797,990 for the comparable period in 2007. The increase was primarily attributable to increases in amortization of intangible assets, from $293,009 to $531,631 over the comparable periods of 2007 and 2008, an increase of $238,622 or 81.4% due to increases in expenditures for the purchase of new production technologies development and patent applications. Another reason was the increase in the expenses related to preparation for the Reverse Merger Transaction and Financing.

Interest expense

There was no interest expense for the nine months ended March 31, 2008 compared to $20,055 for the comparable period in 2007 because the short term loan with interest rate of 6.417% per annum was redeemed early in February 2007 and no short term loan remained outstanding during the nine months ended March 31, 2008.

Income Tax Expenses

Income tax for the nine months ended March 31, 2008 was $3,195,892, an increase of 29.7% or $731,432 from $2,464,460 for the comparable period in 2007. The increase was primarily attributable to the increase in sales. However, the PRC government decreased the income tax rate on enterprises from 33% to 25% since January 1, 2008, which reduced income tax expenses by nearly $0.4 million from those expenses that would have been incurred if the previous tax rate was applied.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalents were $1,691,476 at the beginning of the nine months ended March 31, 2008 and increased to $3,983,194 by the end of such period, an increase of $2,291,718 or 135.5%.  The net change in cash and cash equivalents represented an increase of 355.1% or $1,788,208 from $503,510 for the comparable period in 2007. The increase was primarily attributable to a decrease in cash used in investing and financing activities.

Net cash provided by operating activities

Net cash provided by operating activities was $6,242,216 for the nine months ended March 31, 2008, a decrease of $991,726 or 13.7% from $7,233,942 for the comparable period in 2007. The decrease was primarily attributable to increase in accounts receivables caused by a substantial increase in sales over the comparable period in 2007.

Net cash used in investing activities

Net cash used in investing activities was $4,204,378 for the nine months ended March 31, 2008, a decrease of $800,400 or 16% from $5,004,778 for the comparable period in 2007. The decrease was primarily attributable to reduced payments of intangible assets.

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Net cash used in financing activities

Net cash used in financing activities was zero for the nine months ended March 31, 2008, compared to $1,777,811 for the same period in 2007. The difference was primarily attributable to dividend payments and redemptions of short term loans that were made during the nine months ended March 31, 2007. 

Contractual Obligations and Off-Balance Sheet Arrangements.

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our financial position, results of operations, and cash flows.

The following table (in thousands) summarize our contractual obligations as of March 31, 2008, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Totals		Less Than 1 Year		1 to 3 Years		Thereafter
Capital expenditures (1)	$	4,272	$	1,424	$	2,848		—

(1) Capital expenditure is commitment for the purchase of computer systems and patent applications. See Note 12 – Commitment and Contingency in the notes to the financial statements, included elsewhere in this report.

Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable and accounts payable. We consider investments in highly-liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents.

Interest Rates. Our exposure to market risk for changes in interest rates relates primarily to our short-term investments; thus, fluctuations in interest rates would not have a material impact on the fair value of these investments. At March 31, 2008, we had approximately $4.0 million in cash and cash equivalents. A hypothetical 5% increase or decrease in either short term or long term interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

Foreign Exchange Rates. We generally transact business in Chinese Renminbi (RMB). Recently the raw material prices increased continuously and the exchange rate of US dollars to Chinese RMB decreased continuously. These fluctuations have impacted our export business. We have taken the below actions to mitigate these risks: (1) raising prices to adjust for the difference (2) increasing inventories of material, and (3) shortening lead time of the product.

PROPERTIES

Our main office and our manufacturing facilities are located in Tianjin, China, on a plot of land approximately 10,023 square meters in size. We have been issued a Land Use Right Certificate for the land until September 21, 2048 by the municipal government of Tianjin, which may be renewed. We currently own and lease six buildings on the property as listed below. We believe that our existing facilities are well maintained and in good operating condition.

Our land use rights are set forth below:

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Land Use Rights through Grants from Land Management Authority

Land No.	No. 01-17-(3)-8
Land Use Right Certificate No.	Jin Nan Dan Guo Yong (2001) Geng 2 Zi No.045
User of the Land	Shengkai
Location	Wanggang Road, Shuangang, Jinnan Economic & Technology Development Area, Tianjin
Usage	Commercial Services
Area (㎡)	10023.0
Form of Acquisition	Grant from related Land Management Authority
Expiration Date	21/09/2048
Encumbrances	N/A

We occupy the following buildings, as set forth below:

Owned Premises

	Part 1	Part 2	Part 3	Part 4	Part 5
Certificate No.	No. 120018246
Owner	Shengkai
Location	Wanggang Road, Shuangang, Jinnan Economic& Technology Development Area, Tianjin
Category	Private
Area (㎡)	931.06	1192.90	493.64	824.74	2691.41
Usage of Design	Industry	Industry	Industry	Industry	Industry
Structure	Mixture	Mixture	Mixture	Mixture	Mixture
Encumbrances	N/A	N/A	N/A	N/A	N/A

Leased Premises

No.	Lessor	Location	Term	Rent per Year (RMB)
1	Tianjin Jinbin Nanhua Premises Purchasing Co., Ltd.	Room324, 3/F, 1st Street, Tianjin Economic-Technological Development Area	January 12, 2008 to January 11, 2010	$	14,000

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our voting securities following the completion of the Reverse Merger Transaction and Financing described in Items 1.01 and 3.02 of this report by (i) any person or group owning more than 5% of each class of voting securities, (ii) each director, (iii) our chief executive officer and our top two most highly compensated officers and (iv) all executive officers and directors as a group, as of June 11, 2008.

	Amount and Nature of Beneficial Ownership (1)
Name and Address of Beneficial Owner	Common Stock		Preferred Shares (2)(14)			Warrants (3)(14)			Total			Percentage of Common Stock (%)
Owner of More than 5% of Class
Vision Opportunity China LP 520 Madison Avenue, 12th Floor New York, NY 10022 (5)		677,500		5,915,526	(14)		7,098,632	(14)		13,691,658	(14)		9.9	(14)%
Long Sunny Limited (7)(8) P.O. Box 957 Offshore Incorporations Centre Road Town, Tortola British Virgin Islands		17,400,000		0			0			17,400,000			78.69	%
Li Shaoqing (8) c/o Long Sunny Limited P.O. Box 957 Offshore Incorporations Centre Road Town, Tortola British Virgin Islands		10,440,000		0			0			10,440,000			47.21	%
Directors and Executive Officers (9)
John Vogel (director and former CEO) (10) 31200 Via Colinas, Suite 200 Westlake Village, CA 91362		6,000		0			0			6,000			*	%
Robert Scherne (former principal accounting officer) (11) 31200 Via Colinas, Suite 200 Westlake Village, CA 91362		15,000		0			0			15,000			*	%
Mr. Wang Chen (director and current CEO) (12)		6,960,000		0			0			6,960,000			31.48	%
Ms. Guo Wei (director) (13)		6,960,000		0			0			6,960,000			31.48	%
All Directors and Executive Officers (4 persons)		6,981,000		0			0			6,981,000			31.57	%

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(1) In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on June 11, 2008, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on June 11, 2008 (22,112,500), and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the preferred and on exercise of the warrants and options, subject to limitations on conversion and exercise as more fully described in note 14 below. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.

(2) 5,915,526 shares of our Preferred Shares were issued on June 11, 2008, under a Securities Purchase Agreement we entered into and consummated with Vision Opportunity China LP for the sale of a total of 5,915,526 Units at $2.5357 per Unit, such Units including 5,915,526 Preferred Shares and Warrants to purchase up to 7,098,632 shares of our common stock. Each Preferred Share is initially convertible, at the option of the holder, into one share of our common stock. Accordingly, in total, as of June 11, 2008, all of the outstanding Preferred Shares are convertible into a total of 5,915,526 shares of our common stock, subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 14 below.

(3) Pursuant to the Securities Purchase Agreement, the purchasers have also been issued Warrants to purchase a total of 7,098,632 shares of our common stock.

(4) As of June 11, 2008, we had outstanding (i) 22,112,500 shares of common stock, (ii) 5,915,526 Preferred Shares, which were issued in a private placement to the purchasers under the Securities Purchase Agreement, and (iii) Warrants to purchase an aggregate of 7,311,700 shares of common stock at $3.52 per share, including 7,098,632 shares attributable to the purchasers and 213,068 shares attributable to warrants issued as consideration for consulting services pursuant to the Mass Harmony Agreement described in more detail below. The Warrants have a term of five years.

(5) Vision Opportunity China LP acquired Preferred Shares convertible into 5,915,526 shares of common stock and Warrants to purchase up to 7,098,632 shares of common stock in the Financing that closed on June 11, 2008. Vision also owns 677,500 shares of our common stock, which it acquired from their prior holders on February 14, 2008, subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 14 below.

(7) On June 9, 2008, we acquired Shen Kun in a Reverse Merger Transaction with Long Sunny Limited and other Shen Kun Shareholders. In the Reverse Merger Transaction, as merger consideration for the Shen Kun shares we received from the Shen Kun Shareholders we issued and delivered to the Shen Kun Shareholders 20,550,000 of our newly-issued shares of common stock, of which Long Sunny Limited received 17,400,000 shares.

(8) Long Sunny Limited is owned by Li Shaoqing and Mr. Wang Chen. Their respective beneficial ownership in the Company is based upon their respective interest in Long Sunny Limited. Accordingly, 10,440,000 shares of common stock issued to Long Sunny Limited as a result of the consummation of the Reverse Merger Transaction are beneficially attributed to Mr. Li. Under a call option agreement described in note 12 below, our CEO and director, Mr. Wang Chen, has the right to acquire all of the shares of Long Sunny Limited that are owned by Mr. Li. If Mr. Wang does acquire those shares, he will become the beneficial owner of a majority of our stock held by Long Sunny Limited.

(9) Aside from John Vogel and Robert Scherne, the address of each of the officers and directors named in the table is No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Economic and Technology Development Area, Tianjin, People’s Republic of China 300350.

(10) On June 9, 2008, Mr. Vogel, a director of our Company and former CEO, received 6,000 shares of our common stock as consideration for services rendered.

(11) On June 9, 2008, Mr. Scherne, our Controller and former principal accounting officer, received 15,000 shares of our common stock as consideration for services rendered.

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(12) Mr. Wang, our new director and CEO and the longstanding chairman and CEO of Shengkai, beneficially owns 6,960,000 shares of our common stock through his interest in our controlling shareholder, Long Sunny Limited. Additionally, on the Closing Date, Mr. Wang executed an agreement that gives him the right to become the beneficial owner of the majority of our common stock. That agreement is a call option agreement between Mr. Wang and Mr. Li Shaoqing, the holder of 60% of the stock of our controlling shareholder, Long Sunny Limited. Under the agreement, Mr. Wang was granted an option to purchase all of Mr. Li’s stock in Long Sunny Limited at an exercise price of $.01 or $.001 per share, in seven installments over the course of approximately seven months, provided that Shengkai, SK Ceramic Valves and Shen Kun generate a gross revenue of at least RMB 1,500,000 per month during the period commencing June 1, 2008 through December 31, 2008 (each monthly period constituting a “Performance Period and collectively, the “Performance Periods”).

If the companies meet these performance targets, Mr. Wang may exercise his call option to purchase one-seventh of the shares held by Mr. Li in Long Sunny Limited beginning 45 days after the last date of the Performance Period. If and when Mr. Wang does acquire all of Mr. Li’s stock in Long Sunny Limited, he will become the beneficial owner of 100% of our common stock, or 17,400,000 shares, owned by Long Sunny Limited.

(13) Wang Chen and Guo Wei are husband and wife. Ms. Guo’s beneficial ownership in the Company is based upon Mr. Wang’s respective interest in Long Sunny Limited. Ms. Guo's appointment as director shall be effective on or about June 20, 2008, or 10 days following the delivery and/or mailing of the Schedule 14F-1 Information Statement.

(14) Pursuant to the terms of the Warrants and the certificate of designation for the Preferred Shares, at no time may a purchaser of Preferred Shares or Warrants convert such Purchaser’s shares into shares of our common stock if the conversion would result in such Purchaser beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than 9.9% of our then issued and outstanding shares of common stock; provided, however, that upon a purchaser providing us with sixty-one (61) days’ notice that such purchaser wishes to waive the cap, then the cap will be of no force or effect with regard to all or a portion of the preferred shares referenced in the waiver notice. The 9.9% beneficial ownership limitation does not prevent a stockholder from selling some of its holdings and then receiving additional shares. Accordingly, each stockholder could exercise and sell more than 9.9% of our common stock without ever at any one time holding more than this limit.

* Under 1 percent of the issued and outstanding shares as of June 11, 2008.

DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS

AND CONTROL PERSONS

Our Directors and Executive Officers

In connection with the change in control of the Company described in Item 5.01 of this report, effective June 9, 2008, John Vogel resigned as our chief executive officer and we appointed Mr. Wang Chen as our Chief Executive Officer and director. Upon the expiration of the 10-day period following the delivery and/or mailing of the Schedule 14f-1 Information Statement to our stockholders in compliance with the provisions of Section 14(f) of the Act and Rule 14(f)-1 thereunder, the resignation of Mr. Vogel as a director of our Board, and the appointment of Ms. Guo as a new member of our Board, will also become effective. The Schedule 14f-1 Information Statement was filed on June 10, 2008 and mailed to our stockholders on June 12, 2008.

As such, as of June 10, 2008, all of or officers and directors are residents of the PRC.  As a result, it may be difficult for investors to effect service of process within the United States upon any of them or to enforce court judgments obtained against them in the United States courts.

The following table sets forth certain information as of the Closing Date concerning our directors and executive officers:

Directors and Executive Officers	Position/Title	Age
Wang Chen	Chief Executive Officer, Director	43
Guo Wei	Director (pending)	40

The following is a summary of the biographical information of our directors and officers:

Mr. Wang Chenfounded Shengkai in June 1994 and has been serving as Chief Executive Officer and Chief Technology Officer of Shengkai since then. Prior to founding Shengkai, he worked at Tianjin Dagang Power Plant from September 1987 to July 1992. Mr. Wang has an MBA from Renmin University of China. Mr. Wang is husband to Ms. Guo Wei, whose information is described in more detail below.

Ms. Guo Weihas worked for Shengkai since 2005. She was appointed Chief Financial Officer of Shengkai in January 2007. Prior to working at Shengkai, Ms. Guo served as a purchasing specialist at Honeywell International Inc. (China) from August 1998 through August 2005. Ms. Guo has advanced English communication and translation skills and rich work experience in the field of joint ventures and financial management. Ms. Guo is the wife of Mr. Wang Chen, whose information is described in more detail above.

All of our directors hold their positions on the board until our next annual meeting of the shareholders, and until their successors have been qualified after being elected or appointed.  Officers serve at the discretion of the board of directors.

Our director, Guo Wei, is the wife of our director and Chief Executive Officer, Wang Chen. There are no other family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors.

Directors and Officers of Shengkai

Under Shengkai’s Articles of Association and PRC law, Shengkai is managed by one executive director instead of a board of directors. The executive director is elected and appointed by the shareholders for a term of three years and can be re-elected for consecutive terms.  The appointment and termination of the CEO (sometimes called the General Manager) is determined by the executive director.

In accordance with Shengkai’s Articles of Association and PRC law, Shengkai’s executive director is monitored by a supervisor, appointed by the shareholders for a term of three years.

The following table sets forth certain information as of the Closing Date concerning the directors and executive officers of Shengkai:

Directors and Executive Officers	Position/Title	Age
Wang Chen	Chief Executive Officer, Chief Technology Officer, Executive Director	43
Guo Wei	Chief Financial Officer	40
Guo Chuanji	Supervisor	77
He Li	Chief Operating Officer	31
Liu Xiaoqian	Chief Marketing Officer	28

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The following is a summary of the biographical information of those directors and officers of Shengkai whose biographical information does not appear above:

Mr. Liu Xiaoqian joined Shengkai in July 2002 as a member of the sales staff and was appointed Chief Marketing Officer in January 2007. Mr. Liu graduated in 2002 with a bachelor’s degree in chemical machinery.

Ms. He Li joined Shengkai in March 2006. She was appointed as Chief Operating Officer in January 2007. She has experience in human resources management and business administration. Prior to joining Shengkai, Ms. He served as human resources manager of Wah Sang Gas (China) Investment Co., Ltd. from December 2001 through March 2006. Ms. He has a bachelor’s degree in economic management.

Audit Committee Financial Expert

Our board of directors currently acts as our audit committee.  Because we only recently executed the Reverse Merger Transaction and the Financing, our Board of Directors is still in the process of finding an “audit committee financial expert” as defined in Regulation S-K and directors that are “independent” as that term is used in Section 10A of the Securities Exchange Act.

Audit Committee

We have not yet appointed an audit committee.  At the present time, we believe that the members of Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.  We do, however, recognize the importance of good corporate governance and intend to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, in the near future.

Compensation Committee

We do not presently have a compensation committee. Our board of directors currently acts as our compensation committee.

Nominating Committee

We do not presently have a nominating committee. Our board of directors currently acts as our nominating committee.

EXECUTIVE COMPENSATION

The following is a summary of the compensation we paid to our former Chief Executive Officers, John Vogel and Robert Jordan, for the two years ended December 31, 2007 and 2006. No executive officer received compensation in excess of $100,000 for any of those years. 

Name and Principal Position	Fiscal Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
John Vogel (former CEO(1)		2007		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-
		2006		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-
Robert Jordan (former CEO)(2)		2007		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-
		2006		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-

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(1)	John Vogel was appointed CEO of Southern Sauce in March 19, 2008 and director on February 14, 2008 and resigned from the position of CEO effective June 9, 2008.On June 9, 2008, Mr. Vogel received 6,000 shares of our common stock as consideration for services.
(2)	Robert Jordan was appointed director and CEO of Southern Sauce in December 2004. He resigned from his position as director effective February 14, 2008 and from his position as CEO effective March 19, 2008.

The following is a summary of the compensation paid by Shengkai to Wang Chen, its Chief Executive Officer, for the two years ended December 31, 2007 and 2006, respectively. No other executive officer of Shengkai received compensation in excess of $100,000 for any of those years. 

Name and Principal Position	Fiscal Year		Salary ($)		Bonus ($)		Stock  Awards ($)		Option Awards ($)		Non-equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Wang Chen (Chief Executive Officer ) (1)		2007	$	-0-		2,755,532		-0-		-0-		-0-		-0-		-0-	$	2,755,532
		2006		-0-		1,102,213		-0-		-0-		-0-		-0-		-0-		1,102,213
Guo Wei (Chief Financial Officer) (2)		2007		-0-		850,330		-0-		-0-		-0-		-0-		-0-		850,330
		2006		-0-		340,132		-0-		-0-		-0-		-0-		-0-		340,132

(1) Wang Chen has been CEO of Shengkai since June 1994. In 2006 and 2007, he received cash dividends of RMB7,625,000 (approximately $1,102,213) and RMB19,062,580 (approximately $2,755,532), respectively.

(2) Guo Wei was appointed CFO of Shengkai in January 2007. In 2006 and 2007 she received cash dividends of RMB2,353,000 (approximately $340,132) and RMB5,882,000 (approximately $850,330), respectively.

Compensation Discussion and Analysis

We strive to provide our named executive officers (as defined in Item 402 of Regulation S-K) with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of comparable size in similar locations.

It is not uncommon for PRC private companies in China to have base salaries as the sole form of compensation. The base salary level is established and reviewed based on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual. The base salary is compared to the list of similar positions within comparable peer companies and consideration is given to the executive’s relative experience in his or her position.  Base salaries are reviewed periodically and at the time of promotion or other changes in responsibilities.

We plan to implement a more comprehensive compensation program, which takes into account other elements of compensation, including, without limitation, short and long term compensation, cash and non-cash, and other equity-based compensation such as stock options. We expect that this compensation program will be comparable to the programs of our peer companies and aimed to retain and attract talented individuals.

We will also consider forming a compensation committee to oversee the compensation of our named executive officers. The majority of the members of the compensation committee would be independent directors.

Compensation of Directors

As of the date of this report, our directors have received no compensation for their service on the board of directors. We plan to implement a compensation program for our independent directors, as and when they are appointed, which we anticipate will include such elements as an annual retainer, meeting attendance fees and stock options. The details of that compensation program will be negotiated with each independent director.

The executive director for Shengkai is not compensated for his service as executive director.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except for the ownership of the Company’s securities, and except as set forth below, none of the directors, executive officers, holders of more than five percent of the Company’s outstanding common stock, or any member of the immediate family of any such person have, to the knowledge of the Company, had a material interest, direct or indirect, in any transaction or proposed transaction which may materially affect the Company.

· Prior to December 31, 2004, we entered into an exclusive worldwide license agreement with David E. Jordan, a former shareholder and father of our former president, Robert Jordan, allowing us to use a recipe developed by Mr. Jordan for our initial yellow, mustard-based barbecue sauce. Under the license agreement, we had the exclusive right to use the recipe related know-how of Mr. Jordan. We issued Mr. Jordan 500,000 shares of our common stock as consideration for the license. We agreed to exercise our best efforts, consistent with good business practice, to undertake and maintain the commercial scale production, marketing and distribution of products embodying the subject matter of the recipe. Pursuant to the agreement, Mr. Jordan could cancel and terminate the license in the event that we have not introduced a product into the commercial marketplace based on his recipe and recognized revenues of $500,000 from sale of such product by September 30, 2006. We did not achieve this level of sales as of September 30, 2006.

· Vision Opportunity China LP, which held approximately 43.4% of our outstanding common stock before the Closing Date, had an interest in the Financing for the following reasons:

o At the Closing of the Financing, Vision received Preferred Shares convertible into approximately 5.9 million shares of our common stock, subject to a 9.9% limitation on beneficial ownership of common stock at a purchase price of $2.5357 per share and could stand to realize a profit if our common stock were later to have a market value of higher than $2.5357 per share.

o At the Closing of the Financing, Vision also received warrants to purchase approximately 7.1 million shares of our common stock in the future, subject to a 9.9% limitation on beneficial ownership of common stock, at an exercise price of $3.52 per share. Solely for purposes of illustration, Vision could stand to realize a profit if our common stock were later to have a market value of higher than $3.52 per share.

o As part of the Financing, Vision received rights to have the common stock that is issuable to it upon conversion of its Preferred Shares registered under an effective registration statement filed by the Company with the SEC.

· On September 16, 2007, Shengkai entered into a Financial Consulting Agreement (the “Mass Harmony Agreement”) with Mass Harmony Asset Management Limited (“Mass Harmony”). Pursuant to the Mass Harmony Agreement, Shengkai is to pay Mass Harmony an aggregate of RMB 500,000 (approximately $70,000), of which RMB 200,000 has been paid for ongoing professional services, and the balance of which is due within five business days after the closing the reverse merger described in Item 1.01 of this report. Mass Harmony also received 1.5% of the issued and outstanding common stock of the Company after the private placement (including the common stock issuable upon conversion of the Preferred Shares) and 5% of the gross proceeds of the Financing in Warrants. The services provided by Mass Harmony under the Mass Harmony Agreement include performing initial due diligence on Shengkai, preparing Shengkai’s business plan, and assisting in the corporate restructuring and financial documentation.

· On June 9, 2008, we issued the following shares as compensation for services:

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o 5,000 shares of our common stock to Sichenzia Ross Friedman Ference LLP, for legal services rendered.

o 71,250 shares of our common stock to the Law Office of Raul Silvestre & Associates, APLC, for legal services rendered. Raul Silvestre owns Castle Bison, Inc., a shareholder of the Company.

o 6,000 shares of our common stock to John Vogel, our director and former CEO.

o 15,000 shares of our common stock to Robert Scherne, our former principal accounting officer.

o As of June 9, 2008, shareholders Castle Bison, Inc., the Law Offices of Raul Silvestre & Associates and Lomond International, Inc. agreed for due consideration, to forgive certain loans made to the Company in the aggregate amount of $47,000. Lomond International, Inc. is owned by Martin Sumichrast and Ralph Olson.

Except as disclosed above, no executive officer, director or any member of these individuals’ immediate families, any corporation or organization with whom any of these individuals is an affiliate or any trust or estate in which any of these individuals serve as a trustee or in a similar capacity or has a substantial beneficial interest in is or has been indebted to the Company at any time since the beginning of the Company’s last fiscal year.

Procedures for Approval of Related Party Transactions

Our board of directors is charged with reviewing and approving all potential related party transactions.  All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

LEGAL PROCEEDINGS

We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS

COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has been traded over-the-counter on the OTC Bulletin Board since August 2006 under the designation SOSA.OB (previously SSAU.OB) and the market for the stock has been relatively inactive. The range of high and low bid quotations for the quarters of the last two years (adjusted for the 1-for-2 reverse split which occurred on April 14, 2008) is listed below. The quotations are taken from the OTC Bulletin Board. They reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Calendar Quarter	Low Bid		High Bid
2006 First Quarter		-		-
2006 Second Quarter		-		-
2006 Third Quarter		0.80		0.70
2006 Fourth Quarter		0.80		0.70
2007 First Quarter		0.80		0.70
2007 Second Quarter		0.80		0.54
2007 Third Quarter		1.00		0.60
2007 Fourth Quarter		1.00		0.60
2008 First Quarter		2.00		0.60

As of June 11, 2008, we had approximately 59 shareholders of record of our common stock, including the shares held in street name by brokerage firms. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock

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Dividends

We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. We will rely on dividends from SK Ceramic Valves for our funds and PRC regulations may limit the amount of funds distributed to us from SK Ceramic Valves, which will affect our ability to declare any dividends.

Securities authorized for issuance under equity compensation plans

As of the date of this Current Report, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

Penny Stock Regulations

Our shares of common stock are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years, or the issuer's average revenues for each of the past three years must exceed $6,000,000.

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

RECENT SALES OF UNREGISTERED SECURITIES

During the year ended December 31, 2005, we issued 900,000 shares of common stock at $.04 per share, for a total of $36,000.

During the year ended December 31, 2005, we issued 3,255 shares of Series A convertible preferred stock at $10.00 per share, for a total of $32,550.

During the three months ended March 31, 2006, we issued 300 shares of Series A convertible preferred stock at $10.00 per share, for a total of $3,000.

During the three months ended March 31, 2006, we issued 75,000 shares of common stock for services rendered at a value of $7,500.

During the three months ended March 31, 2006, the holders of 3,555 shares of Series A convertible preferred stock exercised the right to convert such shares into 355,500 shares of common stock.

On June 9, 2008, we issued the following shares as compensation for services:

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o 5,000 shares of our common stock to Sichenzia Ross Friedman Ference LLP, for legal services rendered.

o 71,250 shares of our common stock to the Law Office of Raul Silvestre & Associates, APLC, for legal services rendered. Raul Silvestre owns Castle Bison, Inc., a shareholder of the Company.

o 6,000 shares of our common stock to John Vogel, our director and former CEO.

o 15,000 shares of our common stock to Robert Scherne, our former principal accounting officer.

On June 9, 2008, we entered into the Merger Agreement and on June 11, 2008 entered into the Purchase Agreement, each as described in Item 1.01, “Entry into a Material Definitive Agreement” and Item 3.02, “Unregistered Sales of Equity Securities.”

The issuance of shares of common stock, Units, Preferred Shares and Warrants under the Merger Agreement and the Purchase Agreement was exempt from registration pursuant to Section 4(2) of the Securities Act based upon our compliance with Regulation D as promulgated by the SEC under the Securities Act of 1933, as amended (the “Securities Act”). 

In connection with the foregoing, we relied upon the exemption from securities registration afforded by Rule 506 of Regulation D and/or Section 4(2) of the Securities Act, and transfers of such shares were restricted by Southern Sauce in accordance with the requirements of the Securities Act. All of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

DESCRIPTION OF SECURITIES

The following is a summary description of our capital stock and certain provisions of our certificate of incorporation and by-laws, copies of which have been filed as exhibits to this report. The following discussion is qualified in its entirety by reference to such exhibits.

General

We are authorized to issue 50,000,000 shares of common stock, par value $.001 per share, and 15,000,000 shares of blank-check preferred stock, par value $.001 per share.

Common Stock

The holders of our Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of our Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. Holders of shares of our Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are fully paid and nonassessable.

Preferred Stock and Warrants

For a more detailed description of our preferred stock and warrants, please see the discussion in Item 1.01 and 3.02 of this report. In addition to the 50,000,000 shares of common stock, we are authorized to issue up to 15,000,000 shares of preferred stock. Shares of our preferred stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the board of directors prior to the issuance any shares thereof. Of the 15,000,000 shares of preferred stock that we are authorized to issue, 10,000,000 shares have been designated Series A Preferred Shares, and 5,000,000 remain blank check preferred stock whose designations or titles are to be fixed by the board of directors.

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INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Florida Business Corporation Act provides that a person who is successful on the merits or otherwise in defense of an action because of service as an officer or director of a corporation, such person is entitled to

indemnification of expenses actually and reasonably incurred in such defense. F.S. 607.0850(3).

Such act also provides that the corporation may indemnify an officer or director, advance expenses, if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to a criminal action, had no reasonable cause to believe his conduct was unlawful. F.S. 607.0850(1)(2).

A court may order indemnification of an officer or director if it determines that such person is fairly and reasonably entitled to such indemnification in view of all the relevant circumstances. F.S. 607.0850(9).

Our Articles of Incorporation and By-laws provide that we must indemnify our officers, directors, employees and agents to the fullest extent allowed by the Florida Business Corporation Act. Our by-laws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses reasonably incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. This indemnification policy could result in substantial expenditures by us, which it may be unable to recoup.

Indemnification Against Public Policy

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or person controlling us, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the act and is therefore unenforceable.

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Item 3.02Unregistered Sales of Equity Securities.

In connection with the consummation of the Reverse Merger Transaction, on June 11, 2008 we consummated a Financing for the sale of Units for the aggregate gross proceeds of  $15,000,000, at a price of $2.5357 per Unit. Each Unit consists of one share of Southern Sauce Preferred Shares, convertible into one share of Common Stock, and Warrant equal to 120% of the number of shares of Common Stock issuable upon conversion of the Preferred Shares. The description of other material terms and conditions of the Financing are set forth below.

Securities Purchase Agreement

In connection with the Reverse Merger Transaction, on June 10, 2008 we entered into and on June 11, 2008 consummated a Securities Purchase Agreement (the “Purchase Agreement”) with Vision Opportunity China LP (“Vision”) (the “Purchaser”) for the sale of Units at an aggregate purchase price of $15,000,000, each unit consisting of one Preferred Share and one Warrant with an exercise price of $3.52 per share, exercisable for a period of five years from the closing date.

On June 11, 2008, the aggregate purchase price paid for the Units was $15,000,000 (the “First Closing”). Pursuant to the Purchase Agreement, on or before June 30, 2008, we may sell in a second closing an additional number of Units for an aggregate price that is the difference between the gross proceeds from the First Closing and $20,000,000 (the “Second Closing”).

Each Preferred Share is convertible, at the option of the holder, into one share of our Common Stock, subject to certain limitations, conditions and anti-dilutive adjustments as described below. As such, the Preferred Shares are convertible into an aggregate of 5,915,526 shares of our Common Stock.

The Warrants are exercisable in the aggregate for up to 7,098,632 shares of our Common Stock, or 120% of the total number of shares of Common Stock issuable upon conversion of the Preferred Shares purchased by each Purchaser, subject to a 9.9% limitation on beneficial ownership of common stock.

Pursuant to the Mass Harmony Agreement dated as of September 16, 2007, Mass Harmony also received 1.5% of the issued and outstanding common stock of the Company after the Financing (including the common stock issuable upon conversion of the Preferred Shares) and 5% of the gross proceeds of the Financing in Warrants, equivalent to warrants exercisable in the aggregate of up to 213,068 shares of our Common Stock. The services provided by Mass Harmony under the Mass Harmony Agreement include performing initial due diligence on Shengkai, preparing Shengkai’s business plan, and assisting in the corporate restructuring and financial documentation.

Pursuant to First Amendment to the Purchase Agreement, dated as of June 23, 2008 (the “First Amendment to the Purchase Agreement”) we are required to list and trade our shares of Common Stock on Nasdaq or the American Stock Exchange within eighteen (18) months of the First Closing, or our principal stockholder, Li Shaoqing (the “Principal Stockholder”), will be required to deliver to the Purchasers on a pro rata basis an aggregate of 1,000,000 shares of Common Stock.

The Purchase Agreement also grants the following significant rights to the Purchasers and places the following significant restrictions and obligations on us:

· Subsequent financing participation. For two years after the date on which the initial registration statement to be filed by the Company under the Registration Rights Agreement described below is declared effective by the Securities and Exchange Commission (“SEC”), Purchasers who continue to hold Preferred Shares have the right to participate in any subsequent sale of securities by Southern Sauce in order to purchase up to its pro rata portion of the total amount of securities sold in the subsequent sale equal to the percentage of the total Preferred Shares issued in the Financing.

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· Consent for asset sale. We may not sell all or a substantial portion of our assets, except to a subsidiary, without the consent of the holders of a majority of the then-outstanding Preferred Shares.

· Chief Financial Officer/Vice President of Investor Relations. As soon as possible after the First Closing, we are required to use our best efforts to appoint an individual who is fluent in English and acceptable to Vision to serve as Chief Financial Officer and/or Vice President of Investor Relations.

· Investor relations fund. We must maintain an escrow account with $500,000 in connection with monies to be used for investor and public relations services. The escrow account was established through the Investor and Public Relations Escrow Agreement described below and was funded at the Closing. Out of this amount, $150,000 shall be released from escrow once we appoint a Chief Financial Officer or Vice President of Investor Relations. An additional $150,000 will be released to us after we engage a new independent registered accounting firm that is listed as one of the top 20 firms by stock market client number as calculated by Hemscott Group Limited, a division of Morningstar, Inc.

· U.S. visitation. For as long as Vision holds at least 5% of the aggregate total number of shares of Common Stock and Shares (as defined in the Purchase Agreement) of the Company on a fully-diluted basis, the Company must provide for its management to visit the United States at least twice each year to meet with potential investors.

Preferred Shares

The Articles of Amendment to our Articles of Incorporation as filed with the Florida Secretary of State on June 10, 2008, setting forth the designation of 10,000,000 Preferred Shares, provides for the following:

Conversion and anti-dilution: Each Preferred Share is convertible into one share of our Common Stock at a conversion price of $2.5357 per share. For a period of two (2) years from the issuance of the Preferred Shares, the Purchasers have full ratchet anti-dilution protection, and until all Preferred Shares have been converted thereafter, the Purchasers have weighted-average anti-dilution protection. Based on these anti-dilution provisions, each outstanding Preferred Share held by a Purchaser will be convertible into more than one share of Common Stock if, during the covered periods, we issue or sell shares, other than as part of certain exempt issuances, by issuing stock to new investors for less than the purchase price per share paid by the Purchasers in the Financing. At no time may a holder of Preferred Shares convert those shares if as a result of the conversion, that holder would beneficially own more than 9.9% of our Common Stock outstanding at that time. A holder may, however, waive this provision by providing us with 61 days’ notice that such holder wishes to waive this restriction with regard to any or all shares of Common Stock issuable upon conversion of such holder’s Preferred Shares.

Voting: Holders of Preferred Shares have the following voting rights:

· Holders of the Preferred Shares vote on an “as converted” basis, together with the Common Stock, as a single class, in connection with any proposal submitted to stockholders to: (i) increase the number of authorized shares of capital stock, (ii) approve the sale of any of our capital stock, (iii) adopt an employee stock option plan, or (iv) effect any merger, consolidation, sale of all or substantially all of our assets, or related consolidation or combination transaction.

· Holders of the Preferred Shares vote together as a separate class on all matters that impact the rights, value, or ranking of the Preferred Shares.

Liquidation Preference: Upon any voluntary or involuntary liquidation, dissolution or winding-up, the holders of Preferred Shares are entitled to a preference of $2.5357 per share. The holders of Preferred Shares rank (a) senior to the Common Stock and to any other class or series of stock issued by us not designated as ranking senior to or pari passu withthe Preferred Shares in respect of the right to participate in distributions or payments upon a liquidation event and (b) pari passu with any other class or series of our stock , the terms of which specifically provide that such class or series will rank pari passu with the Preferred Shares in respect of the right to participate in distributions or payments upon a liquidation event.

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Dividends: The Preferred Shares are not entitled to dividends unless we pay dividends, in cash or other property, to holders of outstanding shares of Common Stock. If we pay dividends, each outstanding Preferred Share will entitle its holder to receive dividends, out of available funds, equal to the amount of dividends payable on the number of shares of Common Stock into which each Preferred Share would be convertible as of the record date, if such Preferred Share had been converted to Common Stock.

Warrants

The Warrants (including those issued to Vision and to Mass Harmony) are exercisable, in the aggregate for up to 7,311,700 shares of our Common Stock, or 120% of the total number of shares of Common Stock issuable upon conversion of the Preferred Shares purchased by each Purchaser, for a term of 5 years after Closing.

At any time after 18 months following Closing, the Holders of warrants are entitled to exercising the Warrants on a cashless basis if we do not have an effective registration statement to cover the Common Stock underlying the Warrants. The number of Common Stock that each Holder shall be entitled to upon exercise of the Warrant on a cashless basis shall be computed using the following formula:

X = Y -	(A)(Y)
	B

Where	X =	the number of shares of Common Stock to be issued to the Holder.
	Y =	the number of shares of Non-Registered Warrant Stock purchasable upon exercise of all or part of the Warrant.
	A =	the Warrant Price.
	B =	the Per Share Market Value of one share of Common Stock.

In the event that:

· we issue or sell or are deemed to have issued or sold any shares of our common stock other than certain excluded securities for a consideration that is less than the then current exercise price, then the current exercise price shall be adjusted to the lower exercise price;

· we issue or sell any convertible securities (including options) that entitles any one to acquire shares of our common stock or common stock equivalents an effective price per share that is less than the then current exercise price (base share price), then the exercise price shall be reduced to equal such base shares price and the number of shares issuable upon exercise of such warrants shall be increased such that the aggregate exercise price, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

· we: (A) pay a stock dividend or otherwise make a distribution or distributions on shares of our common stock or any other equity or equity equivalent securities payable in shares of common stock, (B) subdivides outstanding shares of common stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of common stock into a smaller number of shares, or (D) issues by reclassification of shares of the common stock any shares of our capital stock, then in each case the exercise price shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of common sock outstanding immediately after such event and the number of shares issuable upon exercise of this warrant shall be proportionately adjusted.

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Pursuant to the Warrants, no holder may exercise such holder’s Warrant if such exercise would result in the holder beneficially owning in excess of 9.9% of our then issued and outstanding common stock. A holder may, however, waive this provision by providing us with 61 days’ notice that such holder wishes to waive this restriction with regard to any or all shares of Common Stock issuable upon exercise of such holder’s Warrants.

Securities Escrow Agreement

On June 10, 2008 we entered into and on June 11, 2008 consummated a securities escrow agreement with Vision, as representative of the Purchasers under the Securities Purchase Agreement, Li Shaoqing, and Loeb & Loeb LLP, as escrow agent (the “Securities Escrow Agreement”). In the Securities Escrow Agreement, as an inducement to the Purchasers to enter into the Securities Purchase Agreement, the Principal Stockholders agreed to deliver an aggregate of 5,915,526 shares of our Common Stock (the amount of Common Stock underlying the Preferred Shares and Warrant Shares) (the “Escrow Shares”) to the escrow agent for the benefit of the Purchasers, and to forfeit some or all of those shares to the Purchasers in the event we fail to achieve certain financial performance thresholds for the 12-month periods ending June 30, 2008 (“2008”) and June 30, 2009 (“2009”).

The earnings threshold for 2008 will be satisfied if we achieve (i) net income greater than $8.8 million and cash from operations greater than $6.5 million, and (ii) net income earnings per share equal to or greater than $0.22 (on a fully diluted basis) and cash from operations earnings per share equal to or greater than $0.16 (on a fully diluted basis).

Earnings per share is calculated by (x) dividing the lesser of net income and cash from operations, as reported in the 2008 financial statements plus any amounts that may have been recorded as charges or liabilities on the 2008 financial statements due to the application of EITF No. 00-19 that are associated with (1) any outstanding warrants issued in connection with the Securities Purchase Agreement or (2) any liabilities created as a result of the Escrow Shares being released to any officers or directors of Southern Sauce by (y) the aggregate number of shares of our then outstanding Common Stock on a fully-diluted basis which number includes, without limitation, the number of shares of Common Stock issuable upon conversion of our then outstanding Preferred Shares and the number of shares of Common Stock issuable upon the exercise of any then outstanding preferred stock, warrants or options of Southern Sauce.

The earnings threshold for 2009 will be satisfied if we achieve (i) net income greater than $13 million and cash from operations greater than $11 million, and (ii) net income earnings per share equal to or greater than $0.33 (on a fully diluted basis) and cash from operations earnings per share equal to or greater than $0.28 (on a fully diluted basis). In the event that the gross proceeds resulting from the sale of Units pursuant to the terms of the Purchase Agreement is less than $20 million, on or about July 1, 2008, Southern Sauce, Vision and the Purchasers will amend such net income, cash from operations, net income earnings per share, and cash from operations earnings per share to reflect the agreement of the parties at such time.

If we achieve less than 50% of the 2008 performance threshold, then all of the Escrow Shares will be delivered to the Purchasers and distributed to them ratably according to the number of Preferred Shares that each of them holds at that time, and within five days of that delivery, the Principal Stockholders will be required to deliver another 5,915,526 shares of our Common Stock to the Escrow Agent (the number of shares of Common Stock underlying the Preferred Shares) for the benefit of the Purchasers.

If we achieve at least 50%, but less than 95%, of the 2008 performance threshold, then the Escrow Agent will deliver to the Purchasers a percentage of the Escrow Shares determined by doubling the percentage by which the 2008 performance threshold was not achieved. In that case, within five days after the delivery, the Principal Stockholders will be required to deliver to the escrow agent the same number of shares of our Common Stock so that the total number of Escrow Shares is 5,915,526.

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If we achieve 95% or more of the 2008 performance threshold, the Escrow Shares will continue to be held in escrow.

If we achieve less than 50% of the 2009 performance threshold, then all of the Escrow Shares will be delivered to the Purchasers and distributed to them ratably according to the number of Preferred Shares that each of them holds at that time.

If we achieve at least 50%, but less than 95%, of the 2009 performance threshold, then the Escrow Agent will deliver to the Purchasers a percentage of the Escrow Shares determined by doubling the percentage by which the 2009 Performance Threshold was not achieved. The remaining Escrow Shares will then be returned to the Principal Stockholders.

If we achieve at least 95% of the 2009 performance thresholds, all of the 2009 Escrow Shares will be returned to the Principal Stockholders.

Pursuant to the First Amendment to the Purchase Agreement and the Securities Escrow Agreement, if we fail to list our Common Stock on the Nasdaq Capital Market, Nasdaq Global Market, American Stock Exchange or any successor market thereto within 18 months of the Closing, 1,000,000 shares of Common Stock owned by Principal Stockholders will be distributed to the Purchasers on a pro rata basis.

Investor and Public Relations Escrow Agreement

On June 10, 2008 we entered into and on June 11, 2008 consummated an Investor and Public Relations Agreement with Vision, as representative of the Purchasers under the Securities Purchase Agreement, and Sichenzia Ross Friedman Ference LLP, as escrow agent. Pursuant to the agreement, $500,000 of the proceeds of the Financing was deposited into an escrow account with Sichenzia Ross Friedman LLP for use in investor and public relations services. The escrow account was established through the Investor and Public Relations Escrow Agreement described below and was funded at the Closing. Out of this amount, $150,000 shall be released from escrow once we appoint a Chief Financial Officer or Vice President of Investor Relations. An additional $150,000 will be released to us after we engage a new independent registered accounting firm that is listed as one of the top 20 firms by stock market client number as calculated by Hemscott Group Limited, a division of Morningstar, Inc.

Registration Rights Agreement

On June 10, 2008 we entered into and on June 11, 2008 consummated a Registration Rights Agreement with the Purchasers, under which we agreed to prepare and file with the SEC and maintain the effectiveness of a “resale” registration statement pursuant to Rule 415 under the Securities Act (“Rule 415”) providing for the resale of (i) all of the shares of Common Stock issuable on conversion of the Preferred Shares, (ii) all of the shares of Common Stock issuable upon exercise of the Warrants, (iii) 1,304,750 shares of Common Stock held by certain stockholders before the Reverse Merger Transaction, (iv) all of the Escrow Shares delivered to the Purchasers under the Securities Escrow Agreement described above, and (v) all of the 1,000,000 shares of Common Stock that the Principal Stockholders will be required to deliver to the Purchasers in case the Company does not meet the deadline for listing on a national securities exchange.

Under the terms of the Registration Rights Agreement, we are required to have a registration statement filed with the SEC within 45 days after the earlier of the date of the Second Closing or June 30, 2008, and declared effective by the SEC not later than November 27, 2008.

We are required to pay liquidated damages to each Purchaser in an amount equal to one percent of the Purchaser’s initial acquisition of Preferred Shares pursuant to the Purchase Agreement for each month past the relevant deadline that the registration statement is not filed or not declared effective, for any period that we fail to keep the registration statement effective, or for any period that we cause our Common Stock to be delisted from the OTC Bulletin Board, up to a maximum of ten percent of the purchase amount of the Units. The number of shares of Preferred Shares issuable pursuant to the liquidated damages provision is subject to reduction based on the maximum number of shares that can be registered under Rule 415.

50

In the event we are unable to register for resale under Rule 415 all of the registrable securities in the registration statement due to limits imposed by the SEC’s application of Rule 415, we will file a registration statement covering the resale of such lesser amount of registrable securities as we are able to register and use our reasonable best efforts to have that registration statement become effective as promptly as possible and, when permitted to do so by the SEC, we will file subsequent registration statement(s) covering the resale of any registrable securities that were omitted from previous registration statement and use our reasonable best efforts to have such registration declared effective as promptly as possible.

In addition to the foregoing registration rights, the Registration Rights Agreement grants holders of registrable securities customary piggy back rights during any time when there is not an effective registration statement providing for the resale of the registrable securities.

The terms of the Registration Rights Agreement are subject to the Shareholder RRA, which was consummated on June 11, 2008 in connection with the Reverse Merger Transaction. Under the terms of the Shareholder RRA, the Company granted registration rights to certain shareholders existing prior to the Reverse Merger Transaction, by which the shareholders were granted registration rights for the registration of an aggregate of 1,304,750 shares of Common Stock. The shareholders will be entitled to cash liquidated damages in the amount equal to .75% of the value of each shareholder’s registrable securities (using a value of $2.54 per share to calculate the amount of such shareholder’s registrable securities) on the date that it fails to register the securities under the terms of the agreement and for each calendar month or portion thereof until the failure is cured, up to a maximum amount of 10% of the value of the shareholder’s securities (using a value of $2.54 per share to calculate the amount of such shareholder’s registrable securities).

Lock-Up Agreement

On the Closing Date, we entered into an agreement with various shareholders of Long Sunny Limited and members of Shengkai’s management under which, in order to induce Southern Sauce and the Purchasers to enter into the Financing, each of the seven shareholders and managers listed below agreed that (i) they will not sell or transfer any shares of our Common Stock held as of the Closing Date until at least 12 months after the effective date of the initial registration statement to be filed under the Registration Rights Agreement described above, and (ii) for an additional 24 months after the end of that 12 month period, it will not sell or transfer more than one-twelfth of its total shares of that Common Stock during any one month.

The shareholders subject to the Lock-Up Agreement are:

· Wang Chen, our CEO.

· Li Shaoqing

· Guo Wei

· Liu Xiaoqian

· He Li

· Ruan Xianqyi

· Li Juan

Aegis Engagement Agreement

On May 26, 2008, Shengkai finalized an engagement agreement with Aegis Capital Corp. (the “Aegis Agreement”) for the provision of placement agent and financial advisory services in contemplation of a reverse merger of the company or a company affiliated with the company with a publicly traded shell company (a “Shell”) and simultaneous $20 Million financing (the “Financing”). Pursuant to the Aegis Agreement, Shengkai shall pay Aegis Capital Corp. receive a cash placement fee equal to 1% of the gross proceeds invested in the Financing and Aegis Asia Capital Corp. a non-accountable allowance of 6% of the gross proceeds invested in the Financing.

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Item 4.01Changes in Registrant’s Certifying Accountant.

On June 12, 2008, we dismissed Sherb & Co., LLP (“Sherb”), as our independent registered public accounting firm. The reports of Sherb on our financial statements for each of the past two fiscal years contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except as that the reports of Sherb for the fiscal years ended December 31, 2007 and 2006 indicated conditions which raised substantial doubt about the Company's ability to continue as a going concern. The decision to change independent accountants was approved by our Board of Directors on June 9, 2008.

During our two most recent fiscal years and through the date of this report, we have had no disagreements with Sherb on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Sherb, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.

During our two most recent fiscal years and through the date of this report on Form 8-K, there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.

We provided Sherb with a copy of this disclosure before its filing with the SEC. We requested that Sherb provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from Sherb stating that it agrees with the above statements.

New Independent Accountants

Our Board of Directors appointed Albert Wong & Co., CPA as our new independent registered public accounting firm effective as of June 12, 2008. During the two most recent fiscal years and through the date of our engagement, we did not consult with Albert Wong & Co., CPA regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)), during the two most recent fiscal years.

Prior to engaging Albert Wong & Co., CPA Albert Wong & Co. CPA did not provide our company with either written or oral advice that was an important factor considered by our company in reaching a decision to change our independent registered public accounting firm from Sherb to Albert Wong & Co. CPA

Item 5.01Changes in Control of Registrant.

As more fully described in Items 1.01 and 2.01 above, on June 9, 2008, we consummated the Reverse Merger Transaction with the Shen Kun Shareholders (Long Sunny Limited, Groom Profit Holdings Limited, Right Idea Holdings Limited, Chen Fang, Miao Yang and Zhang Ying), through which the shareholders of Shen Kun delivered to us all the issued and outstanding shares of stock of Shen Kun. As merger consideration for the Shen Kun shares, we delivered to them 20,550,000 shares of our newly-issued common stock. Long Sunny Limited became a holder of 17,400,000 shares of our common stock, Groom Profit and Right Idea each became a holder of 1,350,000 shares of our comment stock, and Chen Fang, Miao Yang and Zhang Ying became a holder of 30,000, 135,000 and 135,000 shares of our common stock, respectively.

Prior to Closing of the Reverse Merger Transaction, we were authorized to issue 50,000,000 shares of Common Stock, of which 1,562,500 shares of Common Stock were issued and outstanding, and 15,000,000 shares of preferred stock, of which none was issued and outstanding.

As a result of these transactions, Long Sunny Limited became our majority shareholder. Mr. Li Shaoqing, is the controlling stockholder of Long Sunny (BVI).

52

Under a call option agreement executed on June 9, 2008, Mr. Wang has an option to purchase all of the stock of Long Sunny Limited from Li Shaoqing over a period of approximately six months. Under the agreement, Mr. Li Shaoqing irrevocably granted to Mr. Wang an option to purchase all of Mr. Li’s shares of Long Sunny Limited, at an exercise price of $.01 or $.001 per share, in seven installments over the course of approximately seven months, provided that Shengkai, SK Ceramic Valves and Shen Kun generate a gross revenue of at least RMB 1,500,000 per month during the period commencing June 1, 2008 through December 31, 2008 (each monthly period constituting a “Performance Period and collectively, the “Performance Periods”).

If the companies meet these performance targets, Mr. Wang may exercise his call option to purchase one-seventh of the shares held by Mr. Li in Long Sunny Limited beginning 45 days after the last date of the target period. If and when Mr. Wang does acquire all of the stock of Long Sunny Limited, he will become the beneficial owner of 100% of the common stock of the Company owned by Long Sunny Limited.

In connection with this change in control, and as explained more fully in Item 2.01 above under the section titled “Management” and in Item 5.02 below, effective on June 9, 2008, John Vogel resigned as our Chief Executive Officer. Concurrently, Wang Chen was appointed as our Chief Executive Officer and director. Additionally, upon the effectiveness of the Schedule 14f-1 Information Statement, which shall occur 10 days following the delivery and/or mailing of the Schedule 14f-1 to our stockholders in compliance with the provisions of Section 14(f) of the Act, and Rule 14(f)-1 thereunder, the resignation of Mr. Vogel as a director of our Board, and the appointment of Ms. Guo as a new member of our Board, will also become effective. The Schedule 14f-1 Information Statement was filed and mailed to our stockholders on or about June 10, 2008.

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

Please refer toItem 2.01 - “Completion of Acquisition or Disposition of Assets “- “Our Directors and Executive Officers” and Item 5.01 - “Changes in Control of Registrant” above, which description is in its entirety incorporated by reference to this Item 5.02 of this report.

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

On June 9, 2008, concurrent with the reverse merger of Shen Kun into Southern Sauce, we adopted the fiscal year end of Shengkai, thereby changing our fiscal year end from December 31 to June 30. The audited financial statements for the new fiscal year will be reflected in the Company’s Form 10-K for the year ending June 30, 2008.

On June 10, 2008, we filed Articles of Amendment to our Articles of Incorporation setting forth certain designation (as more fully described in Item 3.02 above) for our Series A Convertible Preferred Stock.

Item 5.06Change in Shell Company Status

As explained more fully in Item 2.01 above, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately before the Closing of the Exchange. As a result of the Exchange, Shengkai became our wholly owned subsidiary and main operating business. Consequently, upon the Closing of the Exchange we ceased to be a shell company. For information about the Exchange, please see the information set forth above under Item 2.01 of this Current Report on Form 8-K above, which information is incorporated herein by reference.

Item 8.01.Other Events

On June 12, 2008, we issued the press release annexed hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited financial statements of Shengkai as of June 30, 2007 and 2006 and unaudited financial statements as for the nine months ended March 31, 2008 and 2007 are appended to this report beginning on page F-1.

(b) Pro forma financial information.

53

The Pro Forma Financial Information concerning the acquisition of the business operations of Shengkai appears below.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The unaudited pro forma consolidated financial statements of Southern Sauce Company, Inc. (“Southern Sauce”) in the opinion of management include all material adjustments directly attributable to the reverse merger transaction contemplated by a merger agreement among Shen Kun International Limited (“Shen Kun”) and the stockholders of 100% of Shen Kun’s common stock (the “Shen Kun Shareholders”), on the one hand, and Southern Sauce, its wholly-owned subsidiary Acquisition Sub, and the holders of a majority of Southern Sauce’s issued and outstanding common stock (“Majority Shareholders”), on the other hand, dated June 9, 2008, in which through the wholly-owned subsidiary Acquisition Sub, Southern Sauce issued 20,550,000 shares of common stock to the Shen Kun Shareholders as merger consideration for 100% of the ordinary shares of Shen Kun. As a result of the reverse merger transaction, Shen Kun became the wholly-owned subsidiary of Southern Sauce, and Shengkai (Tianjin) Ceramic Valves Co., Ltd., (“SK Ceramic Valves”), became an indirect, wholly-owned subsidiary of Southern Sauce.

Following the reverse merger transaction, on June 11, 2008, Southern Sauce consummated a private financing transaction, in which Southern Sauce issued an aggregate of 5,915,526 shares of its Series A Convertible Preferred Stock and Series A Warrants to purchase an aggregate of up to 7,098,632 shares of its common stock in exchange for $15,000,000 in gross cash proceeds. In connection with the financing, Southern Sauce issued Warrants to purchase an aggregate of up to 213,068 shares of its common stock as consideration for consulting services pursuant to the Mass Harmony Agreement described in further detail above.

In connection with the reverse merger transaction, on May 30, 2008, SK Ceramic Valves entered into a series of contractual arrangements with Tianjin Shengkai Industrial Technology Development Co., Ltd., (“Shengkai”), which give SK Ceramic Valves control over Shengkai’s business, personnel and finances as if it was a wholly owned subsidiary of SK Ceramic Valves.

The statements of operations were prepared as if the above mentioned reverse merger transaction and financing of Shengkai by Southern Sauce was consummated on July 1, 2006 and the balance sheet was prepared as if it was consummated on March 31, 2008. These pro forma consolidated financial statements have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the transaction occurred on the dates indicated and are not necessarily indicative of the results that may be expected in the future.

54

SOUTHERN SAUCE COMPANY, INC

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2008

	Southern Sauce Company Inc		Shen Kun International Limited		Shengkai (Tianjin) Ceramic Valves Co. Ltd.		Tianjin Shengkai Industrial Technology Development Co. Ltd.		Pro forma Adjustment		Pro forma Total
Current assets
Cash and cash equivalents	$	15,003	$	-	$	-	$	3,983,194	$	13,181,791	$	17,179,988
Restricted cash		-		-		-		-		500,000		500,000
Accounts receivable		-		-		-		4,641,318				4,641,318
Other receivable		-		50,000		-		12,816				62,816
Deposit and prepaid expenses		-		-		-		14,383				14,383
Inventories		-		-		-		1,007,156				1,007,156
Advances to suppliers		-		-		-		57,748				57,748
Total current assets	$	15,003	$	50,000	$	-	$	9,716,615	$		$	23,463,409
Property, plant and equipment, net	$	-	$	-	$	-	$	2,420,152	$		$	2,420,152
Intangible assets, net		-		-		-		6,743,100				6,743,100
Deposits on purchase of computer system								4,272,165				4,272,165
Total assets	$	15,003	$	50,000	$	-	$	23,152,032	$		$	36,898,826
Current liabilities
Accounts payable	$	-	$	-	$	-	$	837,776	$		$	837,776
Advance from customers		-		-		-		260,240				260,240
Other payable		35,000		-		-		501,437				536,437
Accrued expenses		9,412		-		-		115,037				124,449
Income tax payable		-		-		-		1,170,229				1,170,229
Total current liabilities	$	44,412	$	-	$	-	$	2,884,719	$		$	2,929,131
Total liabilities	$	44,412	$	-	$	-	$	2,884,719	$		$	2,929,131

55

SOUTHERN SAUCE COMPANY, INC

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2008

	Southern Sauce Company Inc			Shen Kun International Limited		Shengkai (Tianjin) Ceramic Valves Co. Ltd.		Tianjin Shengkai Industrial Technology Development Co. Ltd.		Pro forma Adjustment			Pro forma Total
Shareholders' Equity
Series A Preferred Stock, $0.001 par value,
15,000,000 shares authorized,
5,915,526 shares issued
and outstanding	$	-		$	-		-	$	-	$	5,916		$	5,916
Common Stock, $0.001 par value, 50,000,000 shares authorized, 22,015,250 shares issued and Outstanding		1,465			50,000		-		1,848,127		(1,877,577	)		22,015
Additional paid-in capital		88,169			-		-		-		15,553,452			15,641,621
Statutory reserves		-			-		-		2,857,704					2,857,704
Accumulated (deficits) / profits		(119,043	)		-		-		13,588,973					13,469,930
Accumulated other comprehensive income		-			-		-		1,972,509					1,972,509
Total shareholders’ equity	$	(29,409	)	$	50,000		-	$	20,267,313	$			$	33,969,695
Total liabilities and shareholders’ equity	$	15,003		$	50,000		-	$	23,152,032	$			$	36,898,826

56

SOUTHERN SAUCE COMPANY INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 2008

	Southern Sauce Company Inc			Shen Kun International Limited		Shengkai (Tianjin) Ceramic Valves Co. Ltd.		Tianjin Shengkai Industrial Technology Development Co. Ltd.			Pro forma Adjustment	Pro forma Total
Net sales	$	210		$	-	$	-	$	24,028,336		$	$	24,028,546
Cost of sales		(135	)		-		-		(9,600,818	)			(9,600,953	)
Gross profit	$	75		$	-	$	-	$	14,427,518		$	$	14,427,593
Operating expenses
Selling		-			-		-		(2,253,599	)			(2,253,599	)
General and administrative		(66,499	)		-		-		(1,339,870	)			(1,406,369	)
Income from operations	$	(66,424	)	$	-	$	-	$	10,834,049		$	$	10,767,625
Non-operating income
Other income		28,284			-		-		9,074				37,358
Interest income		-			-		-		11,882				11,882
Interest expense		-			-		-		-				-
Income before income taxes	$	(38,140	)	$	-	$	-	$	10,855,005		$	$	10,816,865
Income taxes		-			-		-		(3,195,892	)			(3,195,892	)
Net income	$	(38,140	)	$	-	$	-	$	7,659,113		$	$	7,620,973
Other comprehensive income
Foreign currency translation gain		-			-		-		816,824				816,824
Comprehensive income	$	(38,140	)	$	-	$	-	$	8,475,937		$	$	8,437,797

57

SOUTHERN SAUCE COMPANY INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 2008

Earnings per common share
- Basic	$	0.35
- Fully diluted	$	0.27
Basic and fully diluted
net income	$	7,620,973
Common shares outstanding
- Basic		22,015,250
- Fully diluted		27,930,776

The following adjustments to the unaudited pro forma financial statements are based on the assumption that the merger and financing was consummated as of March 31, 2008.

DESCRIPTION	DR		Cr
	$		$
Common stock – Tianjin Shengkai Industrial Technology Development Co. Ltd.		1,848,127
Common stock – Shen Kun International Ltd.		50,000
Additional paid in capital				1,898,127
		1,898,127		1,898,127

To record the elimination of cost of investment against share capital of Tainjin Shengkai Industrial Technology Development Co. Ltd and Shen Kun International Ltd.

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Additional paid in capital	20,550
Common Stock (20,550,000 x $0.001)		20,550

To record 20,550,000 shares of Common Stock issued as merger consideration pursuant to merger agreement between Southern Sauce Company Inc. and Shen Kun International Ltd.

Cash and cash equivalents	13,181,791
Restricted cash	500,000
Additional paid in capital		13,675,875
Series A Preferred Stock
(5,915,526 x $0.001)		5,916
	13,681,791	13,681,791

To record 5,915,526 shares of Series A Preferred Stock issued pursuant to a Securities Purchase Agreement between Southern Sauce Company Inc. and certain investors for $15,000,000 (including $500,000 restricted cash for investors' relation) after deducting placement agent costs, legal fees and administrative fees.

59

SOUTHERN SAUCE COMPANY INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2007

	Southern Sauce Company Inc			Shen Kun International Limited		Shengkai (Tianjin) Ceramic Valves Co. Ltd.		Tianjin Shengkai Industrial Technology Development Co. Ltd.			Pro forma Adjustment	Pro forma Total
Net sales	$	966		$	-	$	-	$	23,124,748		$	$	23,125,714
Cost of sales		(1,506	)		-		-		(9,244,592	)			(9,246,098	)
Gross profit	$	(540	)	$	-	$	-	$	13,880,156		$	$	13,879,616
Operating expenses
Selling		-			-		-		(2,639,249	)			(2,639,249	)
General and administrative		(68,125	)		-		-		(1,398,439	)			(1,466,564	)
Income from operations	$	(68,665	)	$	-	$	-	$	9,842,468		$	$	9,773,803
Non-operating income (expense)
Other income		75,000			-		-		25,506				100,506
Interest income		-			-		-		8,831				8,831
Interest expense		-			-		-		(20,174	)			(20,174	)
Income before income taxes	$	6,335		$	-	$	-	$	9,856,631		$	$	9,862,966
Income taxes		-			-		-		(3,284,829	)			(3,284,829	)
Net income	$	6,335		$	-	$	-	$	6,571,802		$	$	6,578,137
Other comprehensive income
Foreign currency translation gain		-			-		-		898,215				898,215
Comprehensive income	$	6,335		$	-	$	-	$	7,470,017		$	$	7,476,352

60

SOUTHERN SAUCE COMPANY INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 2007

Earnings per common share
- Basic	$	0.30
- Fully diluted	$	0.24
Basic and fully diluted
net income	$	6,578,137
Common shares outstanding
- Basic		22,015,250
- Fully diluted		27,930,776

(c) Shell company transactions.

Reference is made to Items 9.01(a) and 9.01(b) above and the exhibits referred to therein, which are incorporated herein by reference.

(d)The following exhibits are filed with this report:

3.1	Articles of Incorporation.*
3.2	Articles of Amendment to the Articles of Incorporation.**
3.3	Bylaws.*
3.4	Articles of Amendment to the Articles of Incorporation , setting forth the Certificate of Designations authorizing the Series A Preferred Stock.
3.5	Specimen of Common Stock certificate.
4.1	Form of Series A Warrant.
4.2	Securities Purchase Agreement, dated as of June 10, 2008, by and among the Company and the Purchasers.
4.3	First Amendment to Securities Purchase Agreement, dated as of June 23, 2008, by and among the Company and the Purchasers.
4.4	Registration Rights Agreement, dated as of June 10, 2008, by and among the Company and the Purchasers.
4.5	Registration Rights Agreement dated, as of June 10, 2008, by and among the Company and the Shell Shareholders.

61

4.6	Form of Lock-Up Agreement, dated as of June 10, 2008, by and among the Company and certain Shareholders.
10.1	Merger Agreement and Plan of Reorganization, dated as of June 9, 2008 between the Company, the controlling stockholders of the Company, Shen Kun Acquisition Sub Limited, Shen Kun International Limited, and the stockholders of Shen Kun International Limted.
10.2	Securities Escrow Agreement, dated as of June 9, 2008, by and between the Company, Vision Opportunity China LP as representative of the Purchasers, Shen Kun International Limited and Loeb & Loeb LLP, as escrow agent.
10.3	Investor and Public Relations Escrow Agreement, dated as of June 10, 2008, between the Company and Vision Opportunity China LP as representative of the Purchasers and Sichenzia Ross Friedman Ference LLP, as escrow agent.
10.4	Escrow Agreement, dated as of June 2, 2008, between the Company, Shen Kun International Limited, Vision Opportunity China LP, and Loeb & Loeb LLP, as escrow agent.
10.5	First Amendment to Escrow Agreement, dated as of June 4, 2008, between the Company, Shen Kun International Limited, Vision Opportunity China LP, and Loeb & Loeb LLP, as escrow agent.
10.6	Engagement Letter Agreement between Shengkai and Aegis Capital Corp., dated May 26, 2008.
10.7	Equity Pledge Agreement, dated as of May 30, 2008.
10.8	Exclusive Purchase Option Agreement, dated as of May 30, 2008.
10.9	Consigned Management Agreement, dated as of May 30, 2008.
10.10	Loan Agreement, dated as of May 30, 2008.
10.11	Technology Service Agreement, dated as of May 30, 2008.
10.12	Financial Consulting Agreement, dated as of September 16, 2007 between Shengkai and Mass Harmony Asset Management Limited.
10.13	Assignment of Intellectual Property, dated as of June 9, 2008 between the company and Michael Jordan.
16.1	Letter from the Company to Sherb & Co., LLP, dated as of June 12, 2008.
16.2	Letter from Sherb & Co., LLP to the SEC.
21.1	List of Subsidiaries.
99.1	Press Release of the Company issued on June 11, 2008.

* Incorporated by reference to the exhibit of the same number to our registration statement on Form SB-2 filed with the SEC on May 26, 2005.

** Incorporated by reference to our Form 8-K filed with the SEC on April 14, 2008.

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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.

Date: June 23, 2008
SOUTHERN SAUCE COMPANY, INC.
By:	/s/ Wang Chen
	Wang Chen
	Chief Executive Officer

63

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

REVIEWED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US dollars)(Unaudited)

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
BALANCE SHEETS	2 – 3
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME	4
STATEMENTS OF STOCKHOLDERS’ EQUITY	5
STATEMENTS OF CASH FLOWS	6 – 7
NOTES TO FINANCIAL STATEMENTS	8 – 17

ALBERT WONG & CO.

CERTIFIED PUBLIC ACCOUNTANTS

7th Floor, Nan Dao Commercial Building

359-361 Queen’s Road Central

Hong Kong

Tel : 2851 7954

Fax: 2545 4086

ALBERT WONG

B.Soc., Sc., LL.B., P.C.LL., Barrister-at-law, C.P.A.(Practising).

To: The Board of Directors and Stockholders of

Tianjin Shengkai Industrial Technology Development Co., Ltd

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying interim balance sheets of Tianjin Shengkai Industrial Technology Development Co., Ltd. as of March 31, 2008 and 2007, and the related statements of income, stockholders’ equity and cash flows for the nine-months periods then ended, in accordance with the standards of the Public Company Accounting Oversight Board (United States). All information included in these financial statements is the representation of the management of Tianjin Shengkai Industrial Technology Development Co., Ltd.

A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with U.S. generally accepted accounting principles.

	/s/ Albert Wong & Co
Hong Kong	Albert Wong & Co
May 13, 2008	Certified Public Accountants

1

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

BALANCE SHEETS

AS AT MARCH 31, 2008 AND JUNE 30, 2007

(Stated in US Dollars)

	Note		March 31, 2008		June 30, 2007
			(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents			$	3,983,194	$	1,691,476
Restrictive cash				-		23,489
Accounts receivable				4,641,318		1,706,861
Other receivables		3		12,816		51,538
Deposits and prepaid expenses				14,383		37,771
Amounts due from directors and shareholders		4		-		9,215,594
Inventories		5		1,007,156		1,459,163
Advances to suppliers				57,748		182,962
Total current assets			$	9,716,615	$	14,368,854
Plant and equipment, net		6		2,420,152		2,174,055
Intangible assets, net		7		6,743,100		6,725,921
Deposits on purchase of computer system				4,272,165		-
TOTAL ASSETS			$	23,152,032	$	23,268,830
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable				-		33,086
Accounts payable				837,776		763,534
Advances from customers				260,240		52,090
Other payables		8		501,437		1,037,146
Accruals				115,037		139,685
Income tax payable				1,170,229		827,322
Total current liabilities			$	2,884,719	$	2,852,863
TOTAL LIABILITIES			$	2,884,719	$	2,852,863
Commitments and contingencies		12	$	-	$	-

See accompanying notes to financial statements

2

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

BALANCE SHEETS (Continued)

AS AT MARCH 31, 2008 AND JUNE 30, 2007

(Stated in US Dollars)

	Note		March 31, 2008		June 30, 2007
			(Unaudited)		(Audited)
STOCKHOLDERS’ EQUITY
Registered capital		9	$	1,848,127	$	10,472,718
Statutory reserves				2,857,704		1,665,187
Retained earnings				13,588,973		7,122,377
Accumulated other comprehensive income				1,972,509		1,155,685
			$	20,267,313	$	20,415,967
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	23,152,032	$	23,268,830

See accompanying notes to financial statements

3

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE- MONTHS AND NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

			Three months ended March 31,						Nine months ended March 31,
	Notes		2008			2007			2008			2007
Net revenues			$	9,817,525		$	6,471,567		$	24,028,336		$	16,677,898
Cost of sales				(3,821,221	)		(2,699,676	)		(9,600,818	)		(6,750,453	)
Gross profit			$	5,996,304		$	3,771,891		$	14,427,518		$	9,927,445
Operating expenses:
Selling				(906,222	)		(633,217	)		(2,253,599	)		(1,672,872	)
General and administrative				(557,554	)		(328,113	)		(1,339,870	)		(797,990	)
Operating income			$	4,532,528		$	2,810,561		$	10,834,049		$	7,456,583
Other income				132			3,943			9,074			24,721
Interest income				4,859			2,233			11,882			6,813
Interest expenses				-			(3,142	)		-			(20,055	)
Income before income taxes			$	4,537,519		$	2,813,595		$	10,855,005		$	7,468,062
Income tax		10		(1,141,338	)		(928,486	)		(3,195,892	)		(2,464,460	)
Net income			$	3,396,181		$	1,885,109		$	7,659,113		$	5,003,602
Other comprehensive income:
Foreign currency translation adjustment				783,530			195,590			816,824			585,294
Comprehensive income			$	4,179,711		$	2,080,699		$	8,475,937		$	5,588,896

See accompanying notes to financial statements

4

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF STOCKHOLDERS’EQUITY

FOR THE YEARS ENDED JUNE 30, 2007 AND NINE-MONTHS ENDED MARCH 31, 2008

(Stated in US Dollars) (Unaudited)

									Accumulated
									other
	Registered			Statutory		Retained			comprehensive
	capital			reserves		earnings			income		Total
Balance, July 1, 2006	$	10,472,718		$	739,029	$	4,670,176		$	257,470	$	16,139,393
Net income		-			-		6,571,802			-		6,571,802
Appropriations to statutory reserves		-			926,158		(926,158	)		-		-
Dividends		-			-		(3,193,443	)		-		(3,193,443	)
Foreign currency translation adjustment		-			-		-			898,215		898,215
Balance, June 30, 2007	$	10,472,718		$	1,665,187	$	7,122,377		$	1,155,685	$	20,415,967
Balance, July 1, 2007	$	10,472,718		$	1,665,187	$	7,122,377		$	1,155,685	$	20,415,967
Deduction of share capital		(8,624,591	)		-		-			-		(8,624,591	)
Net income		-			-		7,659,113			-		7,659,113
Appropriations to statutory reserves		-			1,192,517		(1,192,517	)		-		-
Foreign currency translation adjustment		-			-		-			816,824		816,824
Balance, March 31, 2008	$	1,848,127		$	2,857,704	$	13,588,973		$	1,972,509	$	20,267,313

See accompanying notes to financial statements

5

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

	Nine months ended March 31
	2008			2007
Cash flows from operating activities
Net income	$	7,659,113		$	5,003,602
Depreciation		116,304			90,378
Amortization		531,631			293,009
(Increase) in accounts receivable		(2,646,767	)		(202,752	)
Decrease in other receivable		40,958			7,888
Decrease in deposits and prepaid expenses		25,281			815
Decrease in amounts due from
directors and shareholders		36,104			282,503
Decrease in advances to suppliers		133,778			1,843,565
Decrease in inventories		547,985			38,612
(Decrease) in notes payable		(34,105	)		(76,984	)
Increase in accounts payable		8,278			54,668
Increase/(decrease) in advances from customers		193,363			(15,399	)
(Decrease) in other payables		(593,067	)		(147,085	)
(Decrease) in accruals		(34,779	)		(3,275	)
Increase in income tax payable		258,139			64,397
Net cash provided by operating activities	$	6,242,216		$	7,233,942
Cash flows from investing activities
Purchase of property, plant and equipment	$	(172,822	)	$	(29,560	)
Payment of intangible assets		-			(4,952,475	)
Payment of deposit on computer system		(4,055,769	)		-
Increase/(decrease) in restrictive cash		24,213			(22,743	)
Net cash used in investing activities	$	(4,204,378	)	$	(5,004,778	)
Cash flows from financing activities
Dividend paid		-			(1,269,865	)
Bank repayments		-			(507,946	)
Net cash used in financing activities	$	-		$	(1,777,811	)
Net cash and cash equivalents sourced	$	2,037,838		$	451,353
Effect of foreign currency translation on cash and cash equivalents		253,880			52,157
Cash and cash equivalents–beginning of year		1,691,476			1,292,869
Cash and cash equivalents–end of year	$	3,983,194		$	1,796,379

6

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

	Nine months ended March 31
	2008		2007
Supplementary cash flow information:
Interest received	$	11,882	$	6,813
Interest paid		-		20,055
Tax paid		2,937,754		2,400,063

See accompanying notes to financial statements

7

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

Tianjin Shengkai Industrial Technology Development Co., Ltd (the Company) was established in Tianjin of the People’s Republic of China (the PRC) as a limited company on June 7, 1994.

The Company is engaged in the manufacturing and selling of ceramic valve.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Method of Accounting

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

(b)Use of estimates

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

(c)Economic and political risks

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

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

8

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d)Restricted cash

Restricted cash represents deposits on account to secure sales contracts.

(e)Plant and equipment

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

Buildings	20 – 40 years
Machinery and equipment	5 – 20 years
Office equipment	3 – 10 years
Motor vehicles	10 years

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

(f)Intangible assets

Intangible assets represent land use rights, patent rights and others in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 years commencing from the date of acquisition of equitable interest. Patent rights are carried at cost and amortized on a straight-line basis over the period of rights of 10 years commencing from the date of acquisition of equitable interest. Others are software costs.

(g)Accounting for the impairment of long-lived assets

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

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the reporting years, there was no impairment loss.

(h)Inventories

Inventories comprise merchandise purchased for resale and are stated at lower of cost and net realizable value. Cost of merchandise, representing the purchase cost, is calculated on the weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.

9

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i)Cash and cash equivalents

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

(j)Revenue recognition

Net revenues represents the invoiced value of goods sold recognized upon the delivery of goods to customers, net of value added tax (“VAT”), after allowances for returns and discounts; and the value of services rendered. They are recognized when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

(k)Advertising

The Company expensed all advertising costs as incurred. Advertising expenses included in the selling expenses were $38,046 and $20,866 for the nine months ended March 31, 2008 and 2007 respectively.

(l)Research and development costs

The Company expensed all research and development costs as incurred. Research and development expenses included in the general and administrative expenses were $66,052 and $13,404 for the nine months ended March 31, 2008 and 2007 respectively.

(m)Retirement benefit plans

The employees of the Company are members of a state-managed retirement benefit plan operated by the government of the PRC. The Company is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit plan is to make the specified contributions.

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred. The retirement benefit expenses included in and the general and administrative expenses were $11,601 and $7,578 for the nine months ended March 31, 2008 and 2007 respectively.

10

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(n)Income tax

The Company accounts for income taxes using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

The Company is operating in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the enterprise income tax rate was 33% and is changed to 25% since January 1, 2008.

(o)Foreign currency translation

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

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

	March 31, 2008		June 30, 2007		March 31, 2007
Twelve months ended		-		7.6248		-
RMB : USD exchange rate
Nine months ended		7.0222		-		7.74095
RMB : USD exchange rate
Average nine months ended		7.39687		-		7.87485
RMB : USD exchange rate

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

(p)Cash and concentration of risk

Cash includes cash on hand and demand deposits in bank accounts maintained within PRC. Total cash in the banks at March 31, 2008 and June 30, 2007 amounted to $3,983,194 and $1,691,476 respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

11

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(q)Statutory reserves

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

(r)Comprehensive income

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

(s)Recent accounting pronouncements

In February 2007, FASB issued Statement of Financial Accounting Standards No. (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 are effective for our fiscal year beginning on January 1, 2008.

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

In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB 110 permits companies to continue to use the simplified method, under certain circumstances, in estimating the expected term of “plain vanilla” options beyond December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously stated that the Staff would not expect a company to use the simplified method for share option grants after December 31, 2007. Adoption of SAB 110 is not expected to have a material impact on the Company’s consolidated financial statements

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of SFAS 160 on its consolidated financial statements but does not expect it to have a material effect.

12

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(s)  Recent accounting pronouncements

In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 141(R), "Business Combinations”. SFAS 141(R) establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, an any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of SFAS 141(R) on its consolidated financial statements but does not expect it to have a material effect.

3.OTHER RECEIVABLES

	March 31, 2008		June 30, 2007
Disbursement and advances to employee	$	-	$	8,114
Tender deposits		3,987		9,443
Sundry		8,829		33,981
	$	12,816	$	51,538

13

4.AMOUNTS DUE FROM DIRECTORS AND SHAREHOLDERS

	March 31, 2008		June 30, 2007
Wang Chen, Executive director and shareholder	$	-	$	6,854,876
Guo Wei, Shareholder		-		2,360,718
	$	-	$	9,215,594

Balances with directors and shareholders represent advances to the respective director and shareholders. These balances are interest free and unsecured and have no fixed repayment date.

14

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

5.INVENTORIES

	March 31, 2008		June 30, 2007
Finished goods	$	455,860	$	834,496
Work in process		22,948		15,302
Raw materials		528,348		609,365
	$	1,007,156	$	1,459,163

6.PLANT AND EQUIPMENT, NET

	March 31, 2008			June 30, 2007
At cost
Buildings	$	1,999,167		$	1,769,823
Machinery and equipment		550,921			403,842
Office equipment		129,896			109,622
Motor vehicles		391,199			412,956
	$	3,071,183		$	2,696,243
Less: accumulated depreciation		(651,031	)		(522,188	)
	$	2,420,152		$	2,174,055

Depreciation expenses included in the cost of sales for the nine months ended March 31, 2008 and 2007 were $70,831 and $61,945 respectively, depreciation expenses in the general and administrative expenses for the nine months ended March 31, 2008 and 2007 were $45,472 and $28,432 respectively.

15

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

7.INTANGIBLE ASSETS, NET

	March 31, 2008			June 30, 2007
Land use rights, at cost	$	869,788		$	801,048
Less: accumulated amortization		(273,321	)		(239,705	)
		596,467			561,343
Patent rights, at costs		7,262,681			6,688,700
Less: accumulated amortization		(1,125,004	)		(534,440	)
		6,137,677			6,154,260
Others, at costs		19,410			17,876
Less: accumulated amortization		(10,454	)		(7,558	)
		8,956			10,318
	$	6,743,100		$	6,725,921

Amortization expenses included in the general and administrative expenses for the nine months ended March 31, 2008 and 2007 were $531,631 and $293,009 respectively.

8.OTHER PAYABLES

	March 31, 2008		June 30, 2007
Commission payables	$	238,566	$	703,085
Sales commission to employee		-		42,919
Other commission to employee		-		20,528
Retention money for construction		-		29,564
Sundry PRC taxes payables		259,656		238,420
Sundry		3,215		2,630
	$	501,437	$	1,037,146

16

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTHS ENDED MARCH 31, 2008 AND 2007

(Stated in US Dollars) (Unaudited)

9.REGISTERED CAPITAL

As of March 31, 2008 and June 30, 2007, capital contributions paid-up amounted to $1,848,127 (RMB15,000,000) and $10,472,718 (RMB85,000,000).

The directors of the Company decided to reduce the issued capital and paid up capital by $8,624,591(RMB70,000,000) for off-setting the amounts due from directors and shareholders.

The Company had nine shareholders as at March 31, 2008:

Wang Chen	71.39	%	Miao Yang	0.48	%
Guo Wei	13.33	%	Chen Fang	0.48	%
Zhao Yanqiu	6.55	%	Liu Naifan	0.37	%
Ji Haihong	6.55	%	Wu Yanping	0.37	%
Zhang Ying	0.48	%

10.INCOME TAX

	Nine months ended March 31,
	2008		2007
PRC enterprise income tax at 33%	$	3,195,892		2,464,460

No deferred tax has been provided as there are no material temporary differences arising during the nine months ended March 31, 2008 and 2007.

11.RELATED PARTIES TRANSACTIONS

The following material transactions with related parties during the years were in the opinion of the directors, carried out in the ordinary course of business.

Due from related parties:

	March 31, 2008		June 30, 2007
Amounts due from directors and shareholders (note 4)	$	-	$	9,215,594

12.COMMITMENTS AND CONTINGENCY

The Company entered into an agreement with a technology development company to purchase a computer system in improving the quality of ceramic valve production (the Computer System) during the third quarter of 2007. The Company expected the Computer System would be delivered within 2 years and the total costs were $8,544,330 (RMB60,000,000). The Company had already paid $4,272,165 (RMB30,000,000) for the Computer System and committed to pay the balance during next eighteen months.

17

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US dollars)

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

CONTENTS	PAGES
INDEPENDENT AUDITOR’S REPORT	1
BALANCE SHEETS	2 – 3
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME	4
STATEMENTS OF STOCKHOLDERS’ EQUITY	5
STATEMENTS OF CASH FLOWS	6 – 7
NOTES TO FINANCIAL STATEMENTS	8 – 17

ALBERT WONG & CO.

CERTIFIED PUBLIC ACCOUNTANTS

7th Floor, Nan Dao Commercial Building

359-361 Queen’s Road Central

Hong Kong

Tel : 2851 7954

Fax: 2545 4086

ALBERT WONG

B.Soc., Sc., LL.B., P.C.LL., Barrister-at-law, C.P.A.(Practising).

The Board of Directors and Stockholders of

Tianjin Shengkai Industrial Technology Development Co., Ltd

Independent Auditor’s Report

We have audited the accompanying balance sheets of Tianjin Shengkai Industrial Technology Development Co., Ltd as of June 30, 2007 and 2006 and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tianjin Shengkai Industrial Technology Development Co., Ltd as of June 30, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

	/s/ Albert Wong & Co
Hong Kong, China	Albert Wong & Co
December 13, 2007	Certified Public Accountants

1

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

BALANCE SHEETS

AS AT JUNE 30, 2007 AND 2006

(Stated in US Dollars)

	Note		2007		2006
ASSETS
Current assets
Cash and cash equivalents			$	1,691,476	$	1,292,869
Restrictive cash				23,489		-
Accounts receivable				1,706,861		1,676,889
Other receivables		3		51,538		78,651
Deposits and prepaid expenses				37,771		802
Amounts due from directors and shareholders		4		9,215,594		9,371,354
Inventories		5		1,459,163		1,317,241
Advances to suppliers				182,962		1,977,695
Total current assets			$	14,368,854	$	15,715,501
Plant and equipment, net		6		2,174,055		1,967,336
Intangible assets, net		7		6,725,921		1,986,137
TOTAL ASSETS			$	23,268,830	$	19,668,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short term bank loans		8	$	-	$	499,594
Notes payable				33,086		107,226
Accounts payable				763,534		788,300
Advances from customers				52,090		140,835
Other payables		9		1,037,146		1,113,535
Accruals				139,685		39,922
Income tax payable				827,322		840,169
Total current liabilities			$	2,852,863	$	3,529,581
TOTAL LIABILITIES			$	2,852,863	$	3,529,581
Commitments and contingencies			$	-	$	-

See accompanying notes to financial statements

2

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

BALANCE SHEETS (Continued)

AS AT JUNE 30, 2007 AND 2006

(Stated in US Dollars)

	Note		2007		2006
STOCKHOLDERS’ EQUITY
Registered capital		10	$	10,472,718	$	10,472,718
Statutory reserves				1,665,187		739,029
Retained earnings				7,122,377		4,670,176
Accumulated other comprehensive income				1,155,685		257,470
			$	20,415,967	$	16,139,393
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY			$	23,268,830	$	19,668,974

See accompanying notes to financial statements

3

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

	Note		2007			2006
Net revenues			$	23,124,748		$	13,677,946
Cost of sales				(9,244,592	)		(5,353,487	)
Gross profit			$	13,880,156		$	8,324,459
Operating expenses:
Selling				(2,639,249	)		(1,467,675	)
General and administrative				(1,398,439	)		(639,190	)
Operating income			$	9,842,468		$	6,217,594
Other income				25,506			30,938
Interest income				8,831			5,921
Interest expenses				(20,174	)		(24,712	)
Income before income taxes			$	9,856,631		$	6,229,741
Income tax		11		(3,284,829	)		(2,055,815	)
Net income			$	6,571,802		$	4,173,926
Other comprehensive income:
Foreign currency translation
adjustment				898,215			257,253
Comprehensive income			$	7,470,017		$	4,431,179

See accompanying notes to financial statements

4

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF STOCKHOLDERS’EQUITY

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

								Accumulated
								other
	Registered		Statutory		Retained			comprehensive
	capital		reserves		earnings			income		Total
Balance, July 1, 2005	$	1,810,081	$	326,069	$	2,146,730		$	217	$	4,283,097
Issue of capital		8,662,637		-		-			-		8,662,637
Net income		-		-		4,173,926			-		4,173,926
Appropriations to statutory
reserves		-		412,960		(412,960	)		-		-
Dividends		-		-		(1,237,520	)		-		(1,237,520	)
Foreign currency translation
adjustment		-		-		-			257,253		257,253
Balance, June 30, 2006	$	10,472,718	$	739,029	$	4,670,176		$	257,470	$	16,139,393
Balance, July 1, 2006	$	10,472,718	$	739,029	$	4,670,176		$	257,470	$	16,139,393
Net income		-		-		6,571,802			-		6,571,802
Appropriations to statutory
reserves		-		926,158		(926,158	)		-		-
Dividends		-		-		(3,193,443	)		-		(3,193,443	)
Foreign currency translation
adjustment		-		-		-			898,215		898,215
Balance, June 30, 2007	$	10,472,718	$	1,665,187	$	7,122,377		$	1,155,685	$	20,415,967

See accompanying notes to financial statements

5

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

	2007			2006
Cash flows from operating activities
Net income	$	6,571,802		$	4,173,926
Depreciation		121,234			103,614
Amortization		462,182			91,973
Decrease/(increase) in accounts receivable		52,569			(834,318	)
Decrease in other receivable		30,243			548,920
Increase in deposits and prepaid expenses		(35,968	)		(795	)
Decrease/(increase) in amounts due from
directors and shareholders		608,630			(622,689	)
Decrease/(increase) in advances to suppliers		1,844,452			(1,665,747	)
Increase in inventories		(74,003	)		(304,722	)
(Decrease)/increase in notes payable		(77,439	)		106,242
(Decrease)/increase in accounts payable		(62,556	)		337,455
(Decrease)/increase in advances from
customers		(93,303	)		139,543
(Decrease)/increase in other payables		(128,694	)		594,922
Increase/(decrease) in accruals		95,219			(31,025	)
(Decrease)/increase in income tax payable		(53,478	)		373,106
Net cash provided by operating activities	$	9,260,890		$	3,010,405
Cash flows from investing activities
Purchase of property, plant and equipment	$	(226,649	)	$	(432,993	)
Payment of intangible assets		(4,981,772	)		(1,485,642	)
Increase in amounts due from directors and
shareholders		-			(8,662,637	)
Increase in restrictive cash		(22,878	)		-
Net cash used in investing activities	$	(5,231,299	)	$	(10,581,272	)
Cash flows from financing activities
Issue of capital	$	-		$	8,662,637
Bank borrowings		-			495,008
Bank repayments		(510,951	)		(247,504	)
Dividend paid		(3,193,443	)		(1,237,520	)
Net cash (used in)/provided by financing activities	$	(3,704,394	)	$	7,672,621

6

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

Net cash and cash equivalents sourced	$	325,197	$	101,754
Effect of foreign currency translation on cash
and cash equivalents		73,410		41,160
Cash and cash equivalents–beginning of year		1,292,869		1,149,955
Cash and cash equivalents–end of year	$	1,691,476	$	1,292,869
Supplementary cash flow information:
Interest received	$	8,831	$	5,921
Interest paid		20,174		24,712
Tax paid		3,338,307		1,682,709

See accompanying notes to financial statements

7

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Tianjin Shengkai Industrial Technology Development Co., Ltd (the Company) was established in Tianjin of the People’s Republic of China (the PRC) as a limited company on June 7, 1994.

The Company is engaged in the manufacturing and selling of ceramic valve.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Method of Accounting

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

(b) Use of estimates

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

(c) Economic and political risks

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

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

8

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Restricted cash

Restricted cash represents deposits on account to secure sales contracts.

(e) Plant and equipment

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

Buildings	20 – 40 years
Machinery and equipment	5 – 20 years
Office equipment	3 – 10 years
Motor vehicles	10 years

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

(f) Intangible assets

Intangible assets represent land use rights, patent rights and others in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 years commencing from the date of acquisition of equitable interest. Patent rights are carried at cost and amortized on a straight-line basis over the period of rights of 10 years commencing from the date of acquisition of equitable interest. Others are software costs.

(g) Accounting for the impairment of long-lived assets

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

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the reporting years, there was no impairment loss.

(h) Inventories

Inventories comprise merchandise purchased for resale and are stated at lower of cost and net realizable value. Cost of merchandise, representing the purchase cost, is calculated on the weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.

9

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i) Cash and cash equivalents

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

(j) Revenue recognition

Net revenues represents the invoiced value of goods sold recognized upon the delivery of goods to customers, net of value added tax (“VAT”), after allowances for returns and discounts; and the value of services rendered. They are recognized when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

(k) Advertising

The Company expensed all advertising costs as incurred. Advertising expenses included in the selling expenses for the years ended June 30, 2007 and 2006 were $222,430 and $23,280 respectively.

(l) Research and development costs

The Company expensed all research and development costs as incurred. Research and development expenses included in the general and administrative expenses for the years ended June 30, 2007 and 2006 were $198,740 and $49,641 respectively.

(m) Retirement benefit plans

The employees of the Company are members of a state-managed retirement benefit plan operated by the government of the PRC. The Company is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit plan is to make the specified contributions.

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the statements of income as incurred. The retirement benefit expenses included in and the general and administrative expenses for the years ended June 30, 2007 and 2006 were $8,834 and $8,256 respectively.

10

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(n) Income tax

The Company accounts for income taxes using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

The Company is operating in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the enterprise income tax rate is 33%.

(o) Foreign currency translation

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

June 30, 2007
Balance sheet	RMB 7.62480 to US$1.00
Statement of income and comprehensive income	RMB 7.82854 to US$1.00
June 30, 2006
Balance sheet	RMB 8.00650 to US$1.00
Statement of income and comprehensive income	RMB 8.08068 to US$1.00

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

(p) Cash and concentration of risk

Cash includes cash on hand and demand deposits in bank accounts maintained within PRC. Total cash in the banks at June 30, 2007 and 2006 amounted to $1,691,476 and $1,292,869 respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

(q) Statutory reserves

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

11

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(r) Comprehensive income

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

(s) Recent accounting pronouncements

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

In September 2007, the SEC issued SAB No. 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB No. 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of the Company’s financial statements and the related financial statement disclosures. SAB No.108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2007. The transition provisions of SAB No. 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2007 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings.

In February 2007, FASB issued Statement of Financial Accounting Standards No. (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 are effective for our fiscal year beginning on October 1, 2008.

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

12

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

3. OTHER RECEIVABLES

	2007		2006
Disbursement and advances to employee	$	8,114	$	31,161
Tender deposits		9,443		6,058
Sundry		33,981		41,432
	$	51,538	$	78,651

4. AMOUNTS DUE FROM DIRECTORS AND SHAREHOLDERS

	2007		2006
Wang Chen, Executive director and shareholder	$	6,854,876	$	7,123,180
Guo Wei, Shareholder		2,360,718		2,248,174
	$	9,215,594	$	9,371,354

Balances with directors and shareholders represent advances to the respective director and shareholders. These balances are interest free and unsecured and have no fixed repayment date. The balances are subsequently settled in the third quarter of 2007 (reference to Note 13 of Subsequent event).

5. INVENTORIES

	2007		2006
Finished goods	$	834,496	$	796,754
Work in process		15,302		38,482
Raw materials		609,365		482,005
	$	1,459,163	$	1,317,241

13

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

6. PLANT AND EQUIPMENT, NET

	2007			2006
At cost
Buildings	$	1,769,823		$	1,685,449
Machinery and equipment		403,842			376,539
Office equipment		109,622			102,812
Motor vehicles		412,956			181,291
	$	2,696,243		$	2,346,091
Less: accumulated depreciation		(522,188	)		(378,755	)
	$	2,174,055		$	1,967,336

Depreciation expenses included in the cost of sales for the years ended June 30, 2007 and 2006 were $83,208 and $64,604 respectively, depreciation expenses in the general and administrative expenses for the years ended June 30, 2007 and 2006 were $38,026 and $39,010 respectively.

As of June 30, 2006, buildings with net book value of $730,798 of the Company were pledged as collateral under certain loan arrangements. These loans were primarily obtained for general working capital.

14

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

7. INTANGIBLE ASSETS, NET

	2007			2006
Land use rights, at cost	$	801,048		$	762,859
Less: accumulated amortization		(239,705	)		(213,020	)
		561,343			549,839
Patent rights, at costs		6,688,700			1,498,782
Less: accumulated amortization		(534,440	)		(74,939	)
		6,154,260			1,423,843
Others, at costs		17,876			17,024
Less: accumulated amortization		(7,558	)		(4,569	)
		10,318			12,455
	$	6,725,921		$	1,986,137

Amortization expenses included in the general and administrative expenses for the years ended June 30, 2007 and 2006 were $462,182 and $91,973 respectively.

As of June 30, 2006, land use rights with net book value of $549,839 of the Company were pledged as collateral under certain loan arrangements. These loans were primarily obtained for general working capital.

15

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

8. SHORT TERM BANK LOANS

	2007		2006
Loans from Industrial Bank Co., Ltd interest rate at 6.417% per annum due from January 5, 07 to March 7, 07	$	-	$	499,594

Interest expenses for the years ended June 30, 2007 and 2006 were $20,174 and $24,712 respectively.

As of June 30, 2006, land use rights with net book value of $549,839 and buildings with net book value of $730,798 of the Company were pledged as collateral under certain loan arrangements. These loans were primarily obtained for general working capital.

9. OTHER PAYABLES

	2007		2006
Commission payables	$	703,085	$	861,745
Sales commission to employee		42,919		22,624
Other commission to employee		20,528		16,014
Retention money for construction		29,564		28,155
Sundry PRC taxes payables		238,420		184,277
Sundry		2,630		720
	$	1,037,146	$	1,113,535

10. REGISTERED CAPITAL

As of June 30, 2007 and 2006, capital contributions paid-up amounted to $10,472,718 (RMB85,000,000).

The Company had three shareholders as at June 30, 2007 amongst whom Mr. Wang Chen, Ms. Guo Wei and Mr. Guo Chuan Ji were holding 76.25%, 23.53% and 0.22% respectively.

16

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

(Stated in US Dollars)

11. INCOME TAX

	2007		2006
PRC enterprise income tax at 33%	$	3,284,829	$	2,055,815

No deferred tax has been provided as there are no material temporary differences arising during the years ended June 30, 2007 and 2006.

12. RELATED PARTIES TRANSACTIONS

The following material transactions with related parties during the years were in the opinion of the directors, carried out in the ordinary course of business.

	2007		2006
Amounts due from directors and shareholders (note 4)	$	9,215,594	$	9,371,354

13. SUBSEQUENT EVENT

As of September 28, 2007, the directors of the Company decided to reduce the issued capital and paid up capital by $8,624,591 (RMB70,000,000) for off-setting the amounts due from directors and shareholders. After reduction in the issued capital and paid-up capital, capital contributions paid-up amounted to $1,848,127 (RMB15,000,000) and the three shareholders of the company, Mr.Wang Chen, Ms. Guo Wei and Mr. Guo Chuan Ji are holding 85.4%, 13.33% and 1.27% respectively.

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EX-3.4

EX-4.2

SECURITIES PURCHASE AGREEMENT

Dated as of June 10, 2008

among

SOUTHERN SAUCE COMPANY, INC.

and

THE PURCHASERS LISTED ON EXHIBIT A AND EXHIBIT B

Table of Contents

		Page
ARTICLE I	Purchase and Sale of Preferred Stock	1
Section 1.1	Purchase and Sale of Stock	1
Section 1.2	Warrants	1
Section 1.3	Conversion Shares	1
Section 1.4	Purchase Price and First Closing	2
Section 1.5	Second Closing	2
Section 1.6	Reverse Merger Transaction	3
ARTICLE II	Representations and Warranties	3
Section 2.1	Representations and Warranties of the Company	3
Section 2.2	Representations and Warranties of the Purchasers	15
ARTICLE III	Covenants	17
Section 3.1	Securities Compliance	17
Section 3.2	Registration and Listing	18
Section 3.3	Inspection Rights	18
Section 3.4	Compliance with Laws	19
Section 3.5	Keeping of Records and Books of Account	19
Section 3.6	Reporting Requirements	19
Section 3.7	Amendments	19
Section 3.8	Other Agreements	19
Section 3.9	Distributions	19
Section 3.10	Use of Proceeds	20
Section 3.11	Reservation of Shares	20
Section 3.12	Transfer Agent Instructions	20
Section 3.13	Disposition of Assets	20

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Table of Contents

Page

Section 3.14	Reporting Status	21
Section 3.15	Disclosure of Transaction	21
Section 3.16	Disclosure of Material Information	21
Section 3.17	Pledge of Securities	21
Section 3.18	Reserved.	22
Section 3.19	Lock-Up Agreement	22
Section 3.20	Investor and Public Relations Escrow	22
Section 3.21	Reserved.	22
Section 3.22	DTC	22
Section 3.23	Subsequent Financings	22
Section 3.24	Sarbanes-Oxley Act	24
Section 3.25	Exchange Listing	24
Section 3.26	No Commissions in Connection with Conversion of Preferred Shares	25
Section 3.27	Financial Public Relations Firm and Appearances	25
ARTICLE IV	CONDITIONS	25
Section 4.1	Conditions Precedent to the Obligation of the Company to Sell the Shares	25
Section 4.2	Conditions Precedent to the Obligation of the Purchasers to Purchase the Units	26
ARTICLE V	Stock Certificate Legend	29
Section 5.1	Legend	29
ARTICLE VI	Indemnification	30
Section 6.1	General Indemnity	30
Section 6.2	Indemnification Procedure	31
ARTICLE VII	Miscellaneous	32

ii

Table of Contents

Page

Section 7.1	Fees and Expenses	32
Section 7.2	Capital Contribution	32
Section 7.3	Transfer of Vehicles	32
Section 7.4	Reserved.	32
Section 7.5	Specific Enforcement, Consent to Jurisdiction	32
Section 7.6	Entire Agreement; Amendment	33
Section 7.7	Notices	33
Section 7.8	Waivers	34
Section 7.9	Headings	34
Section 7.10	Successors and Assigns	34
Section 7.11	No Third Party Beneficiaries	34
Section 7.12	Governing Law	35
Section 7.13	Survival	35
Section 7.14	Counterparts	35
Section 7.15	Publicity	35
Section 7.16	Severability	35
Section 7.17	Further Assurances	35

iii

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”) is dated as of June 10, 2008 by and among Southern Sauce Company, Inc., a Florida corporation (the “Company”), and each of the Purchasers of Units whose names are set forth on Exhibit A and Exhibit B hereto (individually, a “Purchaser” and collectively, the “Purchasers”).

The parties hereto agree as follows:

ARTICLE I

Purchase and Sale of Preferred Stock

Section 1.1Purchase and Sale of Stock. Upon the following terms and conditions, the Company shall issue and sell to the Purchasers and each of the Purchasers shall purchase from the Company, Units (the “Units”), each consisting of one share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Shares”), convertible into one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and one Series A Warrant (as defined below) to purchase Common Stock in the amounts set forth opposite such Purchaser’s name on Exhibit A or Exhibit B hereto, as applicable. The designation, rights, preferences and other terms and provisions of the Series A Convertible Preferred Stock are set forth in the Series A Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock attached hereto as Exhibit C (the “Series A Certificate of Designation”). The Company and the Purchasers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”) or Section 4(2) of the Securities Act.

Section 1.2Warrants. Upon the following terms and conditions and for no additional consideration, each of the Purchasers shall be issued Series A Warrants, in substantially the form attached hereto as Exhibit D (the “Warrants”), to purchase the number of shares of Common Stock equal to One Hundred Twenty (120%) of the number of shares of Common Stock issuable upon conversion of the Preferred Shares purchased by each Purchaser pursuant to the terms of this Agreement, as set forth opposite such Purchaser’s name on Exhibit A or Exhibit B hereto. The Warrants shall expire five (5) years following the respective Closing Date. The Warrants shall have an exercise price per share equal to the Warrant Price (as defined in the Warrant).

Section 1.3Conversion Shares. The Company has authorized and has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a number of shares of Common Stock equal to one hundred fifty percent (150%) of the number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares and exercise of the Warrants then outstanding. Any shares of Common Stock issuable upon conversion of the Preferred Shares and exercise of the Warrants (and such shares when issued) are herein referred to as the “Conversion Shares” and the “Warrant Shares”, respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares are sometimes collectively referred to as the “Shares”.

Section 1.4Purchase Price and First Closing . Subject to the terms and conditions hereof, the Company agrees to issue and sell to the Purchasers and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchasers, severally but not jointly, agree to purchase the Units for an aggregate purchase price of up to $20,000,000 (the “Maximum Offering Amount”), or $2.5357 per Unit (the “Purchase Price”). The closing of the purchase and sale of the Units to be acquired by the Purchasers from the Company under this Agreement shall take place at the offices of Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154 (the “First Closing”). Subject to the terms and conditions set forth in this Agreement, the date and time of the First Closing shall be the First Closing Date (or such later date as is mutually agreed to by the Company and each Investor), provided, that all of the conditions set forth in Article IV hereof and applicable to the First Closing shall have been fulfilled or waived in accordance herewith (the “First Closing Date”). Subject to the terms and conditions of this Agreement, at the First Closing the Company shall deliver or cause to be delivered to each Purchaser (x) a certificate for the number of Preferred Shares set forth opposite the name of such Purchaser on Exhibit A hereto, (y) its Warrants to purchase such number of shares of Common Stock as is set forth opposite the name of such Purchaser on Exhibit A attached hereto and (z) any other documents required to be delivered pursuant to Article IV hereof. At the First Closing, each Purchaser shall deliver its Purchase Price by wire transfer to the escrow account pursuant to the Escrow General Agreement (as hereafter defined). In addition, the parties acknowledge that Five Hundred Thousand Dollars ($500,000) of the Purchase Price funded on the First Closing Date shall be deposited in an escrow account pursuant to the Escrow General Agreement to be used by the Company in connection with investor and public relations.

Section 1.5Second Closing. Subject to the terms and conditions hereof, in the event that the Purchase Price paid for the Units does not exceed the Maximum Offering Amount, the Company agrees to issue and sell to the Purchasers who execute this agreement and are listed on Exhibit B hereto and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchasers, severally but not jointly, agree to purchase from the Company on such Second Closing Date (as defined below), up to such number of Units for an aggregate purchase price that is the difference between the gross proceeds from the First Closing and the Maximum Offering Amount (the “Second Closing”). The First Closing and the Second Closing are each referred to in this Agreement as a “Closing.” Notwithstanding the foregoing, the aggregate number of Units sold in both the First Closing and the Second Closing shall not exceed 7,887,500. Subject to the terms and conditions set forth in this Agreement, the date and time of the Second Closing (the “Second Closing Date,” and together with the First Closing Date, each a “Closing Date” and collectively, the “Closing Dates”) shall be 1:00 p.m., New York City Time, on the date mutually agreed to by the Company and the Purchasers executing a signature page hereto; provided, however, that such date is not expected to be later than June 30, 2008 and that all of the conditions set forth in Article IV hereof and applicable to the Second Closing shall have been fulfilled or waived in accordance herewith. Subject to the terms and conditions of this Agreement, at the Second Closing the Company shall deliver or cause to be delivered to each Purchaser (x) a certificate for the number of Preferred Shares set forth opposite the name of such Purchaser to be listed on Exhibit B hereto, (y) its Warrants to purchase such number of shares of Common Stock as is set forth opposite the name of such Purchaser on Exhibit B to be attached hereto and (z) any other documents required to be delivered pursuant to Article IV hereof. At the Second Closing, each Purchaser shall deliver its Purchase Price by wire transfer to the escrow account pursuant to the Escrow General Agreement (as hereafter defined).

2

Section 1.6Reverse Merger Transaction. The parties acknowledge that immediately prior to the consummation of the transactions contemplated by this Agreement, the Company will issue shares of its Common Stock to Shen Kun International Limited, a company organized in the British Virgin Islands (the “BVI”) (“Shen Kun”), pursuant to that certain Merger Agreement dated as of June 9, 2008 by and among the Company, Shen Kun Acquisition Sub Limited, a BVI company which is a wholly owned subsidiary of the Company (“Acquisition Subsidiary”), Shen Kun, Parent Controlling Shareholders (as that term is defined in the Merger Agreement), Shen Kun Shareholders (as that term is defined in the Merger Agreement), and Shengkai (Tianjin) Ceramic Valves Co., Ltd., a PRC wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s Republic of China (the “PRC”), and Tianjin Shengkai Industrial Technology Development Co., Ltd., a PRC company , (the “Merger Agreement”), and upon the consummation of the transactions contemplated by the Merger Agreement, WFOE, a direct wholly-owned subsidiary of Shen Kun immediately prior to the consummation of the transactions contemplated by the Merger Agreement, will become an indirect wholly-owned subsidiary of the Company (the “Reverse Merger Transaction”).

ARTICLE II

Representations and Warranties

Section 2.1Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchasers, as of the date hereof and each Closing Date (except as set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding to the section number herein), as follows:

(a)Organization, Good Standing and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. The Company does not have any subsidiaries except as set forth in the Company’s Form 10-KSB for the year ended December 31, 2007, including the accompanying financial statements (the “Form 10-KSB”), in the Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31, 2007, June 30, 2007, September 30, 2007 and March 31, 2008 (collectively, the “Form 10-QSBs”) or as set forth in Schedule 2.1(g). Except as set forth on Schedule 2.1(a), the Company and each such subsidiary is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary except for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will not have a Material Adverse Effect (as defined in Section 2.1(c) hereof) on the Company’s financial condition.

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(b)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement in the form attached hereto as Exhibit E (the “Registration Rights Agreement”), the Lock-Up Agreement (as defined in Section 3.19 hereof) in the form attached hereto as Exhibit F, the Escrow Agreement by and among the Company, the Purchasers and the escrow agent named therein, dated as of the date hereof, substantially in the form of Exhibit G-1 attached hereto (the “Escrow General Agreement”), the Securities Escrow Agreement by and among the Company, the Purchasers and the escrow agent named therein, dated as of the date hereof, substantially in the form of Exhibit G-2 attached hereto (the “Securities Escrow Agreement”), the Investor and Public Relations Escrow Agreement by and among the Company, the Purchasers and the escrow agent named therein, dated as of the date hereof, substantially in the form of Exhibit G-3 attached hereto (the “Investor and Public Relations Escrow Agreement” and together with the Escrow General Agreement and the Securities Escrow Agreement the “Escrow Agreements”), the Irrevocable Transfer Agent Instructions (as defined in Section 3.13), the Series A Certificate of Designation, and the Warrants (collectively, the “Transaction Documents”) and to issue and sell the Units, the Shares and the Warrants in accordance with the terms hereof. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors or stockholders is required. This Agreement has been duly executed and delivered by the Company. The other Transaction Documents will have been duly executed and delivered by the Company at the Closing. Each of the Transaction Documents constitutes, or shall constitute when executed and delivered, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

(c)Capitalization. The authorized capital stock of the Company and the shares thereof currently issued and outstanding as of the date hereof are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common Stock and the Preferred Shares have been duly and validly authorized. Except as contemplated by the Transaction Documents or as set forth on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Except as contemplated by the Transaction Documents, there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except as contemplated by the Transaction Documents or as set forth on Schedule 2.1(c) hereto, the Company is not a party to any agreement granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. The offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable Federal and state securities laws, and no stockholder has a right of rescission or claim for damages with respect thereto which would have a Material Adverse Effect (as defined below). The Company has furnished or made available to the Purchasers true and correct copies of the Company’s Articles of Incorporation as in effect on the date hereof (the “Articles”), and the Company’s Bylaws as in effect on the date hereof (the “Bylaws”). For the purposes of this Agreement, “Material Adverse Effect” means any material adverse effect on the business, operations, properties, or financial condition of the Company and its subsidiaries and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its obligations under this Agreement in any material respect.

4

(d)Issuance of Shares. The Units, the Preferred Shares and the Warrants to be issued at the Closing have been duly authorized by all necessary corporate action and the Preferred Shares, when paid for or issued in accordance with the terms hereof, shall be validly issued and outstanding, fully paid and nonassessable and entitled to the rights and preferences set forth in the Series A Certificate of Designation. When the Conversion Shares and the Warrant Shares are issued in accordance with the terms of the Series A Certificate of Designation and the Warrants, respectively, such shares will be duly authorized by all necessary corporate action and validly issued and outstanding, fully paid and nonassessable, and the holders shall be entitled to all rights accorded to a holder of Common Stock.

(e)No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated herein and therein do not and will not (i) violate any provision of the Company’s Articles or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party or by which it or its properties or assets are bound, (iii) create or impose a lien, mortgage, security interest, charge or encumbrance of any nature on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including Federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected, except, in all cases other than violations pursuant to clauses (i) and (iv) above, for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company and its subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any governmental entity, except for possible violations which singularly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under Federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under the Transaction Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares in accordance with the terms hereof or thereof (other than (x) any consent, authorization or order that has been obtained as of the date hereof, (y) any filing or registration that has been made as of the date hereof or (z) any filings which may be required to be made by the Company with the Commission or state securities administrators subsequent to the Closing; provided, that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Purchasers herein.

5

(f)Commission Documents, Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”, including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the “Commission Documents”). At the request of such Purchaser, the Company has delivered or made available to each of the Purchasers true and complete copies of the Commission Documents. The Company has not provided to the Purchasers any material non-public information or other information which, according to applicable law, rule or regulation, was required to have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. At the times of their respective filings, the Form 10-KSB and the Form 10-QSBs and the current report on Form 8-K that is required to be and shall be filed by the Company within four business days after the Closing Date to disclose the transactions contemplated hereby and under the other Transaction Documents and the transactions contemplated by the Merger Agreement and the Restructuring Agreements (as defined in Section 2.1(gg) hereof) (the “Form 8-K”), complied and, in the case of the Form 8-K, will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents, and, as of respective dates, neither the Form 10-KSB nor the Form 10-QSBs contained or, in the case of the Form 8-K, contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Commission Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The Shen Kun Financial Statements (as defined in Section 4.2(t) hereof) comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. The Shen Kun Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved and fairly present in all material respects, the financial conditions and results of Shen Kun has defined in Section 4.2(t) hereof and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended.

6

(g)Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of each person’s ownership. For the purposes of this Agreement, “subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries. All of the outstanding shares of capital stock of each subsidiary have been duly authorized and validly issued, and are fully paid and nonassessable. Other than as contemplated by the Transaction Documents, there are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares of capital stock of any subsidiary or any other securities convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such capital stock. Other than as contemplated by the Transaction Documents, neither the Company nor any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Neither the Company nor any subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any subsidiary, with the exception of the Restructuring Agreements (as defined in Section 2.1(gg)(i) below).

(h)No Material Adverse Effect. Other than as disclosed in the Company’s Commission Documents, since March 31, 2008, neither the Company nor any of its subsidiaries has experienced or suffered any Material Adverse Effect.

(i)No Undisclosed Liabilities. Except as disclosed in the Form 10-KSB, the Form 10-QSBs and the Form 8-K, neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) other than those incurred in the ordinary course of the Company’s or its subsidiaries respective businesses since March 31, 2008 and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company or its subsidiaries.

(j)No Undisclosed Events or Circumstances. To the Company’s knowledge, no event or circumstance has occurred or exists with respect to the Company or its subsidiaries or their respective businesses, properties, prospects, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

(k)Indebtedness. The Form 10-KSB, Form 10-QSBs and the Form 8-K set forth all outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the Company or any subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $25,000 due under leases required to be capitalized in accordance with GAAP. Except as set forth in Schedule 2.1(k), neither the Company nor any subsidiary is in default with respect to any Indebtedness.

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(l)Title to Assets. Each of the Company and the subsidiaries has good and marketable title to all of its real and personal property reflected in the Form 10-KSB, the Form 10-QSBs and the Form 8-K free and clear of any mortgages, pledges, charges, liens, security interests or other encumbrances, all properties and assets (i) purportedly owned or used by them as reflected in the Form 10-KSB, Form 10-QSBs, and the Form 8-K or (ii) necessary for the conduct of their business as currently conducted except for those disclosed in the Form 10-KSB, Form 10-QSBs and the Form 8-K. All leases of the Company and each of its subsidiaries are valid and subsisting and in full force and effect.

(m)Actions Pending. There is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or any other proceeding pending or, to the knowledge of the Company, threatened against the Company or any subsidiary which questions the validity of this Agreement or any of the other Transaction Documents or the transactions contemplated hereby or thereby or any action taken or to be taken pursuant hereto or thereto. There is no action, suit, claim, investigation, arbitration, alternate dispute resolution proceeding or any other proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective properties or assets. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any subsidiary or any executive officers or directors of the Company or subsidiary in their capacities as such.

(n)Compliance with Law. The business of the Company and the subsidiaries has been and is presently being conducted in material compliance with all applicable federal, state and local governmental laws, rules, regulations and ordinances. The Company and each of its subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business in all material respects as now being conducted by it unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(o)Taxes. The Company and each of the subsidiaries has accurately prepared and filed all federal, state and other tax returns required by law to be filed by it, has paid or made provisions for the payment of all taxes shown to be due and all additional assessments, and adequate provisions have been and are reflected in the financial statements of the Company and the subsidiaries for all current taxes and other charges to which the Company or any subsidiary is subject and which are not currently due and payable. None of the federal income tax returns of the Company or any subsidiary have been audited by the Internal Revenue Service. The Company has no knowledge of any additional assessments, adjustments or contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or threatened against the Company or any subsidiary for any period, nor of any basis for any such assessment, adjustment or contingency.

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(p)Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or commissions will be payable by the Company or any subsidiary or any Purchaser with respect to the transactions contemplated by this Agreement and the other Transaction Documents.

(q)Disclosure. Except as set forth in Schedule 2.1(q), neither this Agreement nor the Schedules hereto nor any other documents, certificates or instruments furnished to the Purchasers by or on behalf of the Company or any subsidiary in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein or therein, taken as a whole and in the light of the circumstances under which they were made herein or therein, not false or misleading.

(r)Operation of Business. The Company and each of the subsidiaries owns or possesses all patents, trademarks, domain names (whether or not registered) and any patentable improvements or copyrightable derivative works thereof, websites and intellectual property rights relating thereto, service marks, trade names, copyrights, licenses and authorizations, and all rights with respect to the foregoing, which are necessary for the conduct of its business as now conducted without any conflict with the rights of others, except where the failure to so own or possess would not have a Material Adverse Effect.

(s)Environmental Compliance. Since their inception, neither the Company, nor any of its subsidiaries have been, in violation of any applicable law relating to the environment or occupational health and safety, where such violation would have a material adverse effect on the business or financial condition of any of the Company and its Subsidiaries. Each of Company and its Subsidiaries has operated all facilities and properties owned, leased or operated by it in material compliance with the Environmental Laws. “Environmental Laws” shall mean all applicable laws relating to the protection of the environment including, without limitation, all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous in nature. The Company has all necessary governmental approvals required under all Environmental Laws and used in its business or in the business of any of its subsidiaries. The Company and each of its subsidiaries are also in compliance with all other limitations, restrictions, conditions, standards, requirements, schedules and timetables required or imposed under all Environmental Laws. There are no past or present events, conditions, circumstances, incidents, actions or omissions relating to or in any way affecting the Company or its subsidiaries that violate or may violate any Environmental Law after the Closing Date or that may give rise to any environmental liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or related to the manufacture, processing, distribution, use, treatment, storage (including without limitation underground storage tanks), disposal, transport or handling, or the emission, discharge, release or threatened release of any hazardous substance.

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(t)Books and Record Internal Accounting Controls. Except as otherwise disclosed in the Form 10-KSB, the Form 10-QSBs, or the Form 8-K, the books and records of the Company and its subsidiaries accurately reflect in all material respects the information relating to the business of the Company and the subsidiaries, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company or any subsidiary. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences.

(u)Material Agreements. Neither the Company nor any subsidiary is a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement on Form S-1 (collectively, the “Material Agreements”) if the Company or any subsidiary were registering securities under the Securities Act. The Company and each of its subsidiaries has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and are not in default under any Material Agreement now in effect the result of which would cause a Material Adverse Effect. Except as restricted under applicable laws and regulations, the incorporation documents, certificates of designations or the Transaction Documents, no written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement of the Company or of any subsidiary limits or shall limit the payment of dividends on the Company’s Preferred Shares, other preferred stock, if any, or its Common Stock.

(v)Transactions with Affiliates. Except as set forth in the Commission Documents, the Transaction Documents or the Restructuring Agreements (as defined in Section 2.1(gg)(i) below) there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (a) the Company or any subsidiary on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any of its subsidiaries, or any person owning any capital stock of the Company or any subsidiary or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder.

(w)Securities Act of 1933. Assuming the accuracy of the representations of the Purchasers set forth in Section 2.2 (d)-(h) hereof, the Company has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares and the Warrants hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy any of the Units, the Shares, the Warrants or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person, or has taken or will take any action so as to bring the issuance and sale of any of the Units, the Shares and the Warrants in violation of the registration provisions of the Securities Act and applicable state securities laws, and neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of any of the Units, the Shares and the Warrants.

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(x)Governmental Approvals. Except for the filing of any notice prior or subsequent to the Closing Date that may be required under applicable state and/or Federal securities laws (which if required, shall be filed on a timely basis), including the filing of a Form D and a registration statement or statements pursuant to the Registration Rights Agreement, and the filing of the Series A Certificate of Designation with the Secretary of State for the State of Delaware, no authorization, consent, approval, license, exemption of, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the execution or delivery of the Units, the Preferred Shares and the Warrants, or for the performance by the Company of its obligations under the Transaction Documents.

(y)Employees. Except as disclosed in the Commission Documents or the Form 8-K, neither the Company nor any subsidiary has any collective bargaining arrangements or agreements covering any of its employees. Except as disclosed in the Commission Documents or the Form 8-K, neither the Company nor any subsidiary has any employment contract, agreement regarding proprietary information, non-competition agreement, non-solicitation agreement, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company or such subsidiary required to be disclosed in the Commission Documents on the Form 8-K that is not so disclosed. Since March 31, 2008, no officer, consultant or key employee of the Company or any subsidiary whose termination, either individually or in the aggregate, would have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any subsidiary.

(z)Absence of Certain Developments. Since March 31, 2008, neither the Company nor any subsidiary has:

(i)issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto;

(ii)borrowed any amount or incurred or become subject to any liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the Company’s or such subsidiary’s business;

(iii)discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business;

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(iv)declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock;

(v)sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business;

(vi)sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to the Purchasers or their representatives;

(vii)suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business;

(viii)made any changes in employee compensation except in the ordinary course of business and consistent with past practices;

(ix)made capital expenditures or commitments therefor that aggregate in excess of $50,000;

(x)entered into any other transaction other than in the ordinary course of business, or entered into any other material transaction, whether or not in the ordinary course of business;

(xi)made charitable contributions or pledges in excess of $10,000;

(xii)suffered any material damage, destruction or casualty loss, whether or not covered by insurance;

(xiii)experienced any material problems with labor or management in connection with the terms and conditions of their employment;

(xiv)effected any two or more events of the foregoing kind which in the aggregate would be material to the Company or its subsidiaries; or

(xv)entered into an agreement, written or otherwise, to take any of the foregoing actions.

(aa)Public Utility Holding Company Act and Investment Company Act Status. The Company is not a “holding company” or a “public utility company” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of and immediately upon the Closing will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

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(bb)ERISA. No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any Plan (as defined below) by the Company or any of its subsidiaries which is or would be materially adverse to the Company and its subsidiaries. The execution and delivery of this Agreement and the other Transaction Documents and the issuance and sale of the Units, the Preferred Shares and the Warrants will not involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended, provided, that, if any of the Purchasers, or any person or entity that owns a beneficial interest in any of the Purchasers, is an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to which the Company is a “party in interest” (within the meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section 2.1(bb), the term “Plan” shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any subsidiary or by any trade or business, whether or not incorporated, which, together with the Company or any subsidiary, is under common control, as described in Section 414(b) or (c) of the Code.

(cc)Dilutive Effect. The Company understands and acknowledges that it has an obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement and the Series A Certificate of Designation and to issue the Warrant Shares upon the exercise of the Warrants in accordance with this Agreement and the Warrants regardless of the dilutive effect that such issuance may have on the ownership interest of other stockholders of the Company.

(dd)No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Shares pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Shares pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Shares to be integrated with other offerings. The Company does not have any registration statement pending before the Commission or currently under the Commission’s review and since January 1, 2007, except as contemplated under the Transaction Documents, the Company has not offered or sold any of its equity securities or debt securities convertible into shares of Common Stock.

(ee)Independent Nature of Purchasers. The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that the decision of each Purchaser to purchase securities pursuant to this Agreement has been made by such Purchaser independently of any other purchase and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions. The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers but only such Purchaser and the other Purchasers have retained their own individual counsel with respect to the transactions contemplated hereby. The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

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(ff)Transfer Agent. The name, address, telephone number, fax number, contact person and email address of the Company’s current transfer agent is set forth on Schedule 2.1(ff) hereto.

(gg)Subject to the consummation of the Reverse Merger Transaction, the Company represents on behalf of WFOE, and, upon consummation of the Reverse Merger Transaction, an indirect wholly-owned subsidiary of the Company:

(i)that WFOE has the legal right, power and authority (corporate and other) to enter into and perform its obligations under each of agreements as set forth on Schedule 2.1(gg) (collectively, the “Restructuring Agreements”) to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of, and has authorized, executed and delivered, each of the Restructuring Agreements to which it is a party; and each of the Restructuring Agreements to which WFOE is a party constitutes a valid and legally binding obligation of WFOE, enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(ii)that WFOE does not own or lease properties or conduct any business outside of the PRC and that WFOE does not need to be duly qualified as a foreign corporation for the transaction of business under the laws of any jurisdiction in which it is not now so qualified.

(iii)that the execution and delivery by WFOE of, and the performance by WFOE of its obligations under, each of the Restructuring Agreements to which it is a party and the consummation by WFOE of the transactions contemplated therein will not: (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which WFOE is a party or by which WFOE is bound or to which any of the properties or assets of WFOE is subject; (B) result in any violation of the provisions of the articles of association or business license of WFOE; and (C) will not result in any violation of any laws, regulations, rules, orders, decrees, guidelines or notices of the PRC, except that, with respect to (A) and (C), such conflict, breach or violation would not reasonably be expected to have a Material Adverse Effect on WFOE.

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(iv)that each of the Restructuring Agreements is in proper and enforceable legal form under the laws of the PRC and to ensure the legality, validity, enforceability or admissibility in evidence of each of the Restructuring Agreements in the PRC, it is not necessary that any such document be filed or recorded with any court or other authority in the PRC or that any stamp or similar tax be paid on or in respect of any of the Restructuring Agreements, except as set forth on Schedule 2.1(gg)(iv).

Section 2.2Representations and Warranties of the Purchasers. Each Purchaser hereby makes the following representations and warranties to the Company as of the date hereof and Closing Date, with respect solely to itself and not with respect to any other Purchaser:

(a)Organization and Good Standing of the Purchasers. If the Purchaser is an entity, such Purchaser is a corporation, partnership or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.

(b)Authorization and Power. Each Purchaser has the requisite power and authority to enter into and perform this Agreement and each of the other Transaction Documents to which such Purchaser is a party and to purchase the Preferred Shares and Warrants being sold to it hereunder. The execution, delivery and performance of this Agreement and each of the other Transaction Documents to which such Purchaser is a party by such Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, or partners, as the case may be, is required. This Agreement and each of the other Transaction Documents to which such Purchaser is a party has been duly authorized, executed and delivered by such Purchaser and constitutes, or shall constitute when executed and delivered, a valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with the terms thereof.

(c)No Conflicts. The execution, delivery and performance of this Agreement and each of the other Transaction Documents to which such Purchaser is a party and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a violation of such Purchaser’s charter documents, bylaws, operating agreement, partnership agreement or other organizational documents or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which such Purchaser is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser). Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or any other Transaction Document to which such Purchaser is a party or to purchase the Preferred Shares or acquire the Warrants in accordance with the terms hereof, provided, that for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

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(d)Acquisition for Investment. Each Purchaser is acquiring the Units, and the underlying Preferred Shares and the Warrants solely for its own account for the purpose of investment and not with a view to or for sale in connection with distribution. Each Purchaser does not have a present intention to sell the Preferred Shares or the Warrants, nor a present arrangement (whether or not legally binding) or intention to effect any distribution of the Shares or the Warrants to or through any person or entity; provided, however, that by making the representations herein and subject to Section 2.2(h) below, such Purchaser does not agree to hold the Shares or the Warrants for any minimum or other specific term and reserves the right to dispose of the Shares or the Warrants at any time in accordance with Federal and state securities laws applicable to such disposition. Each Purchaser acknowledges that it is able to bear the financial risks associated with an investment in the Shares and the Warrants and that it has been given full access to such records of the Company and the subsidiaries and to the officers of the Company and the subsidiaries and received such information as it has deemed necessary or appropriate to conduct its due diligence investigation and has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its investment in the Company. Each Purchaser further acknowledges that such Purchaser understands the risks of investing in companies domiciled and/or which operate primarily in the People’s Republic of China and that the purchase of the Shares and Warrants involves substantial risks.

(e)Status of Purchasers. Each Purchaser is an “accredited investor” as defined in Regulation D promulgated under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate of a broker-dealer.

(f)Opportunities for Additional Information. Each Purchaser acknowledges that such Purchaser has had the opportunity to ask questions of and receive answers from, or obtain additional information from, the executive officers of the Company concerning the financial and other affairs of the Company. In making the decision to invest in the Company and its business, each Purchaser hereby acknowledges that such Purchaser has relied solely upon the Shen Kun Financial Statements, the Draft Form 8-K (defined in Section 4.2(v) hereto) and other written information provided to such Purchaser by the Company and Shen Kun.

(g)No General Solicitation. Each Purchaser acknowledges that the Units were not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such Purchaser was invited by any of the foregoing means of communications.

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(h)Rule 144. Such Purchaser understands that the Shares must be held indefinitely unless such Shares are registered under the Securities Act or an exemption from registration is available. Such Purchaser acknowledges that such Purchaser is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such person has been advised that Rule 144 permits resales only under certain circumstances. Such Purchaser understands that to the extent that Rule 144 is not available, such Purchaser will be unable to sell any Shares without either registration under the Securities Act or the existence of another exemption from such registration requirement.

(i)General. Such Purchaser understands that the Shares are being offered and sold in reliance on a transactional exemption from the registration requirement of Federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of such Purchaser to acquire the Shares.

(j)Independent Investment. Except as may be disclosed in any filings with the Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to act with any other Purchaser for the purpose of acquiring, holding, voting or disposing of the Shares purchased hereunder for purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting independently with respect to its investment in the Shares.

(k)Trading Activities. Each Purchaser agrees that it shall not, directly or indirectly, engage in any short sales with respect to the Common Stock for a period of one (1) year following the Closing.

(l)Brokers. Other than to Mass Harmony Asset Management Limited, each Purchaser has no knowledge of any brokerage or finder’s fees or commissions that are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person or entity with respect to the transactions contemplated by this Agreement

ARTICLE III

Covenants

The Company covenants with each of the Purchasers as follows, which covenants are for the benefit of the Purchasers and their permitted assignees (as defined herein).

Section 3.1Securities Compliance. The Company shall notify the Commission in accordance with their rules and regulations, of the transactions contemplated by any of the Transaction Documents, including filing a Form D with respect to the Units, the Preferred Shares, Warrants, Conversion Shares and Warrant Shares as required under Regulation D and applicable “blue sky” laws, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Units, the Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares to the Purchasers or subsequent holders.

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Section 3.2Registration and Listing. The Company shall (a) comply in all respects with its reporting and filing obligations under the Exchange Act, (b) comply with all requirements related to any registration statement filed pursuant to this Agreement or the Registration Rights Agreement, and (c) not take any action or file any document (whether or not permitted by the Securities Act or the rules promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act except as permitted under the Transaction Documents. The Company will take all action necessary to continue the quotation or listing of its Common Stock on the OTC Bulletin Board or other exchange or market on which the Common Stock is trading or may be traded in the future. Subject to the terms of the Transaction Documents, the Company further covenants that it will take such further action as the Purchasers may reasonably request, all to the extent required from time to time to enable the Purchasers to sell the Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, as amended. Upon the request of the Purchasers, the Company shall deliver to the Purchasers a written certification of a duly authorized officer as to whether it has complied with such requirements.

Section 3.3Inspection Rights. The Company shall permit, during normal business hours and upon reasonable request and reasonable notice, each Purchaser or any employees, agents or representatives thereof, so long as such Purchaser shall (i) be obligated hereunder to purchase the Units, or (ii) shall beneficially own Preferred Shares or Warrants which, in the aggregate, are convertible into or exercisable for securities representing more than 5% of the total combined voting power of all voting securities then outstanding on a fully diluted basis, or (iii) shall own Shares which, in the aggregate, represent more than 5% of the total combined voting power of all voting securities then outstanding on a fully diluted basis (“Information Rights Purchasers”), for purposes reasonably related to such Purchaser’s interests as a stockholder to examine and make reasonable copies of and extracts from the records and books of account of, and visit and inspect the properties, assets, operations and business of the Company and any subsidiary, and to discuss the affairs, finances and accounts of the Company and any subsidiary with any of its officers, consultants, directors, and key employees. Such Purchaser agrees that such Purchaser and its employees, agents and representatives will keep confidential and will not disclose, divulge or use (other than for purposes of monitoring its investment in the Company) any confidential information which such Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement or pursuant to inspection rights granted hereunder, unless such information is known to the public through no fault of such Purchaser or his or its employees or representatives; provided, however, that a Purchaser may disclose such information (i) to its attorneys, accountants and other professionals in connection with their representation of such Purchaser in connection with such Purchaser’s investment in the Company, (ii) to any prospective permitted transferee of the Preferred Shares, so long as the prospective transferee agrees to be bound by the provisions of this Section 3.3, (iii) to any general partner or affiliate of such Purchaser. The Company may require each Purchaser to execute a separate confidentiality agreement in form and substance reasonably acceptable to the Company as a prerequisite to the exercise of such Purchaser’s inspection rights pursuant to this Section 3.3.

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Section 3.4Compliance with Laws. The Company shall comply, and cause each subsidiary to comply in all material respects, with all applicable laws, rules, regulations and orders.

Section 3.5Keeping of Records and Books of Account. The Company shall keep and cause each subsidiary to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

Section 3.6Reporting Requirements. If the Commission ceases making periodic reports filed under the Exchange Act available via the Internet, then at a Purchaser’s request the Company shall furnish the following to such Purchaser so long as such Purchaser shall beneficially own any Shares:

(a)Quarterly Reports filed with the Commission on Form 10-QSB as soon as practicable after the document is filed with the Commission, and in any event within five (5) days after the document is filed with the Commission;

(b)Annual Reports filed with the Commission on Form 10-KSB as soon as practicable after the document is filed with the Commission, and in any event within five (5) days after the document is filed with the Commission; and

(c)Copies of all notices and information, including without limitation notices and proxy statements in connection with any meetings, that are provided to holders of shares of Common Stock, contemporaneously with the delivery of such notices or information to such holders of Common Stock.

Section 3.7Amendments. The Company shall not amend or waive any provision of the Articles or Bylaws of the Company in any way that would adversely affect the liquidation preferences, dividends rights, conversion rights, voting rights or redemption rights of the Preferred Shares; provided, however, that while the Preferred Shares are outstanding, any creation and issuance of another series of Junior Stock (as defined in the Series A Certificate of Designation) shall not be deemed to materially and adversely affect such rights, preferences or privileges.

Section 3.8Other Agreements. The Company shall not enter into any agreement in which the terms of such agreement would restrict or impair the right or ability to perform of the Company or any subsidiary under any Transaction Document.

Section 3.9Distributions. So long as any Preferred Shares remain outstanding, the Company agrees that it shall not (i) declare or pay any dividends or make any distributions to any holder(s) of Common Stock unless such dividends or distributions are also simultaneously paid or made to the holders of the Preferred Shares on an as-converted basis or (ii) purchase or otherwise acquire for value, directly or indirectly, any Common Stock or other equity security of the Company.

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Section 3.10Use of Proceeds. The net proceeds from the sale of the Units hereunder shall be used by the Company for working capital and general corporate purposes and not to redeem any Common Stock or securities convertible, exercisable or exchangeable into Common Stock or to settle any outstanding litigation.

Section 3.11Reservation of Shares. So long as any of the Preferred Shares or Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred fifty percent (150%) of the aggregate number of shares of Common Stock needed to provide for the issuance of the Conversion Shares and the Warrant Shares.

Section 3.12Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of each Purchaser or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares or exercise of the Warrants in the form of Exhibit H attached hereto (the “Irrevocable Transfer Agent Instructions”). Prior to registration of the Conversion Shares and the Warrant Shares under the Securities Act, all such certificates shall bear the restrictive legend specified in Section 5.1 of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 3.12 will be given by the Company to its transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. If a Purchaser provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Shares may be made without registration under the Securities Act or the Purchaser provides the Company with reasonable assurances that such Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations under this Section 3.12 will cause irreparable harm to the Purchasers by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 3.12 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 3.12, that the Purchasers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

Section 3.13Disposition of Assets. So long as any Preferred Shares remain outstanding, neither the Company nor any Subsidiary shall sell, transfer or otherwise dispose of any of its properties, assets and rights including, without limitation, its software and intellectual property, to any person except for (i) sales to customers in the ordinary course of business (ii) sales or transfers between the Company and its Subsidiaries or between Subsidiaries of the Company, (iii) sales or transfers between the Company, any of its Subsidiaries or (iv) otherwise with the prior written consent of the holders of a majority of the Preferred Shares then outstanding.

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Section 3.14Reporting Status. So long as a Purchaser beneficially owns any of the Shares, the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination.

Section 3.15Disclosure of Transaction. The Company shall issue a press release describing the material terms of the transactions contemplated hereby (the “Press Release”) as soon as practicable after the Closing but in no event later than 9:00 A.M. Eastern Time on the first Trading Day following the Closing. The Company shall also file with the Commission, the Form 8-K describing the material terms of the transactions contemplated hereby (and attaching as exhibits thereto this Agreement, the Registration Rights Agreement, the Series A Certificate of Designation, the Lock-Up Agreement, the Escrow General Agreement, form of Warrant, the Press Release, and each of the Restructuring Agreements) as soon as practicable following the Closing Date but in no event more than four (4) Trading Days following the Closing Date, which Press Release and Form 8-K shall be subject to prior review and comment by counsel for the Purchasers. “Trading Day” means any day during which the OTC Bulletin Board (or other quotation venue or principal exchange on which the Common Stock is traded) shall be open for trading.

Section 3.16Disclosure of Material Information. The Company covenants and agrees that neither it nor any other person acting on its behalf has provided or will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information (other than with respect to the transactions contemplated by this Agreement), unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.

Section 3.17Pledge of Securities. The Company acknowledges and agrees that the Shares may be pledged by a Purchaser in connection with a bonafide margin agreement or other loan or financing arrangement that is secured by the Common Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale or assignment of the Common Stock hereunder, and no Purchaser effecting a pledge of Common Stock shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document; provided, that a Purchaser and its pledgee shall be required to comply with the provisions of Article V hereof in order to effect a sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and deliver such documentation as a pledgee of the Common Stock may reasonably request in connection with a pledge of the Common Stock to such pledgee by a Purchaser.

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Section 3.18Reserved.

Section 3.19Lock-Up Agreement. The persons listed on Schedule 3.19 attached hereto shall be subject to the terms and provisions of a lock-up agreement in substantially the form as Exhibit F hereto (the “Lock-Up Agreement”), which shall provide the manner in which such persons will sell, transfer or dispose of their shares of Common Stock.

Section 3.20Investor and Public Relations Escrow. The Company shall cause to be deposited pursuant to the terms of the Escrow General Agreement Five Hundred Thousand Dollars ($500,000) of the Purchase Price funded on the First Closing Date in an escrow account to be used by the Company in connection with investor and public relations. One Hundred Fifty Thousand Dollars ($150,000) of the Five Hundred Thousand Dollars ($500,000) shall be released from escrow once the Company appoints a Chief Financial Officer or Vice President of Investor Relations pursuant to Section 4.2(x) hereto.  In addition, an additional One Hundred Fifty Thousand Dollars ($150,000) will be released to the Company after the Company engages a new independent accounting firm that is listed as one of the top 20 firms by stock market client number as calculated by Hemscott Group Limited, a division of Morningstar, Inc.

Section 3.21Reserved.

Section 3.22DTC. Not later than the effective date of the Registration Statement (as defined in the Registration Rights Agreement), the Company shall cause its Common Stock to be eligible for transfer with its transfer agent pursuant to the Depository Trust Company Automated Securities Transfer Program.

Section 3.23Subsequent Financings.

(a)For a period of two (2) years following the effective date of the initial Registration Statement (as defined in the Registration Rights Agreement), the Company covenants and agrees to promptly notify (in no event later than ten (10) days after making or receiving an applicable offer) in writing (a “Rights Notice”) each holder of Preferred Shares (each, a “Preferred Stockholder” and collectively the “Preferred Stockholders”) of the terms and conditions of any proposed offer or sale to, or exchange with (or other type of distribution to) any third party, of Common Stock, any debt or equity securities convertible, exercisable or exchangeable into Common Stock or any debt securities (a “Subsequent Financing”); provided, however, prior to delivering to each Preferred Stockholder a Rights Notice, the Company shall first deliver to each Preferred Stockholder a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”) within three (3) Trading Days of receiving an applicable offer, which Pre-Notice shall ask such Preferred Stockholder if it wants to review the details of such financing. Upon the request of a Preferred Stockholder, and only upon a request by such Preferred Stockholder within three (3) Trading Days of receipt of a Pre-Notice, the Company shall promptly, but no later than two (2) Trading Days after such request, deliver a Rights Notice to such Preferred Stockholder. The Rights Notice shall describe, in reasonable detail, the proposed Subsequent Financing, the names and investment amounts of all investors participating in the Subsequent Financing (if known), the proposed closing date of the Subsequent Financing, which shall be no earlier than ten (10) Trading Days from the date of the Rights Notice, and all of the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith. The Rights Notice shall provide each Preferred Stockholder an option (the “Rights Option”) during the ten (10) Trading Days following delivery of the Rights Notice (the “Option Period”) to inform the Company whether such Preferred Stockholder will purchase up to its pro rata portion of all or a portion of the securities being offered in such Subsequent Financing on the same, absolute terms and conditions as contemplated by such Subsequent Financing. If any Preferred Stockholder elects not to participate in such Subsequent Financing, the other Preferred Stockholders may participate on a pro-rata basis. For purposes of this Section, all references to “pro rata” means, for any Preferred Stockholder electing to participate in such Subsequent Financing, the percentage obtained by dividing (x) the number of Preferred Shares held by such Preferred Stockholder by (y) the total number of all of the Preferred Shares issued hereunder. Delivery of any Rights Notice constitutes a representation and warranty by the Company that there are no other material terms and conditions, arrangements, agreements or otherwise except for those disclosed in the Rights Notice, to provide additional compensation to any party participating in any proposed Subsequent Financing, including, but not limited to, additional compensation based on changes in the Purchase Price or any type of reset or adjustment of a purchase or conversion price or to issue additional securities at any time after the closing date of a Subsequent Financing. If the Company does not receive notice of exercise of the Rights Option from the Preferred Stockholder within the Option Period, the Company shall have the right to close the Subsequent Financing on the scheduled closing date with a third party; provided, that all of the material terms and conditions of the closing are the same as those provided to the Preferred Stockholder in the Rights Notice. If the closing of the proposed Subsequent Financing does not occur that date, any closing of the contemplated Subsequent Financing or any other Subsequent Financing shall be subject to all of the provisions of this Section 3.23(a), including, without limitation, the delivery of a new Rights Notice. The provisions of this Section 3.23(a) shall not apply to issuances of securities in a Permitted Financing.

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(b)For purposes of this Agreement, a Permitted Financing (as defined hereinafter) shall not be considered a Subsequent Financing. A “Permitted Financing” shall mean (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of this Agreement or issued pursuant to this Agreement or any of the other Transaction Documents (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Purchasers), (iii) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iv) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Company’s stock option plans and employee stock purchase plans outstanding as they exist on the date of this Agreement, and (v) any warrants issued to the placement agent, financial advisors and their respective designees for the transactions contemplated by the Transaction Documents.

(c)Nothing herein shall prohibit the Company from establishing an employee stock option, restricted stock or other form of equity incentive plan. The Company agrees that as long as Vision Opportunity China LP (“Vision”) or any of its affiliates hold five percent (5%) of the aggregate total number of shares of Common Stock and Shares of the Company on a fully diluted basis, such plan may not exceed in the aggregate ten percent (10%) of the total number of then issued and outstanding shares of Common Stock and Conversion Shares issuable upon conversion of all outstanding Preferred Stock, for employees, officers or directors of the Company, and any awards made under such plan or exercises of such awards by the recipients thereof shall be deemed to be a Permitted Financing. Notwithstanding the foregoing, in the event that the Company’s Common Stock is listed on Nasdaq, as defined below, and Vision or any of its affiliates hold five percent (5%) of the aggregate total number of shares of Common Stock and Shares of the Company on a fully diluted basis, such plan may not exceed in the aggregate fifteen percent (15%) of the total number of then issued and outstanding shares of Common Stock and Conversion Shares issuable upon conversion of all outstanding Preferred Stock.

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Section 3.24Sarbanes-Oxley Act. The Company shall be in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated thereunder, as required under such Act.

Section 3.25Exchange Listing. The Company shall list and trade its shares of Common Stock on the Nasdaq Capital Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or American Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”) at the earliest possible time and shall take all commercially reasonable actions to fulfill the said requirement by no later than the date which is eighteen months after the First Closing Date. In the event the shares of Common Stock are not listed and trading on a National Stock Exchange by the date which is twenty-four months from the First Closing Date and Vision believes, using reasonable judgment, that commercially reasonable actions have not been taken to meet such requirement, each of the stockholders of the Company as listed on Schedule 3.25 (each a “Principal Stockholder”; collectively, the “Principal Stockholders”) shall transfer such number of shares of Common Stock held by such Principal Stockholder as set forth opposite such Principal Stockholder’s name on Schedule 3.25 (the “Listing Penalty Shares”) to the Purchasers to be distributed to the Purchasers on a pro rata basis. The number of Listing Penalty Shares to be transferred by each Principal Stockholder to the Purchasers shall be equal to 1,000,000 shares of Common Stock times a fraction, the numerator of which is the number of shares of Common Stock held by such Principal Stockholder and the denominator of which is the total number of shares of Common Stock held by the Principal Stockholders. In the event the Principal Stockholders fail to transfer the Listing Penalty Shares by the date which is twenty-five months after the First Closing Date, each Purchaser may elect, at each Purchaser’s sole discretion and upon notice to the Company, Escrow Agent and Principal Stockholders (each as defined in the Securities Escrow Agreement), to receive a portion of the Escrow Shares (as defined in the Securities Escrow Agreement) in such amount as set forth in the preceding sentence. In the event a Purchaser elects to receive shares of Common Stock from the Escrow Shares pursuant to the foregoing and if the Escrow Shares then remaining are insufficient to satisfy the Principal Stockholders’ obligations under Sections 1.3 and 1.4 of the Securities Escrow Agreement, the Principal Stockholders shall, on a pro rata basis, deliver to the Escrow Agent additional shares of Common Stock owned by them in the amounts released to such Purchaser within five (5) days of the release of such shares from escrow. Notwithstanding the foregoing to the contrary, the Principal Stockholders shall not be required to transfer such Listing Penalty Shares pursuant to this Section 3.25 if the Company has taken commercially reasonable actions to list and trade its Common Stock on a National Stock Exchange.

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Section 3.26No Commissions in Connection with Conversion of Preferred Shares. In connection with the conversion of the Preferred Shares into Conversion Shares, neither the Company nor any Person acting on its behalf will take any action that would result in the Conversion Shares being exchanged by the Company other than with the then existing holders of the Preferred Shares exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange in compliance with Section 3(a)(9) of the Securities Act.

Section 3.27Financial Public Relations Firm and Appearances. Within three (3) months from the First Closing Date, the Company shall retain a financial public relations firm (the “Firm”) reasonably acceptable to Vision Capital Advisors, LLC, the advisor to Vision for a term to be agreed upon by the Company and Vision Capital Advisors, LLC. The Company agrees that, for so long as Vision or any of its affiliates hold five percent (5%) of the aggregate total number of shares of Common Stock and Shares of the Company on a fully diluted basis, it shall provide for its management to visit the United States no fewer than four times during every twelve month period following the First Closing Date for the purpose of introductions by the Firm with the investment community. Such visits shall also include attendance at no fewer than two industry conferences reasonably acceptable to Vision Capital Advisors, LLC. Further, as set forth in Section 1.4, Five Hundred Thousand Dollars ($500,000) of the Purchase Price funded on the First Closing Date shall be deposited in an escrow account pursuant to the Escrow General Agreement to be used by the Company in connection with investor and public relations in its discretion

ARTICLE IV

CONDITIONS

Section 4.1Conditions Precedent to the Obligation of the Company to Sell the Shares. The obligation hereunder of the Company to issue and sell the Units, and the underlying Preferred Shares and the Warrants to the Purchasers is subject to the satisfaction or waiver, at or before each Closing, of each of the conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

(a)Accuracy of Each Purchaser’s Representations and Warranties. The representations and warranties of each Purchaser in this Agreement and each of the other Transaction Documents to which such Purchaser is a party shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all material respects as of such date.

(b)Performance by the Purchasers. Each Purchaser shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the respective Closing.

(c)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

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(d)Delivery of Purchase Price. The Purchase Price for the Units, the Preferred Shares and Warrants has been delivered to the escrow agent pursuant to the Escrow General Agreement.

(e)Delivery of Transaction Documents. The Transaction Documents to which the Purchasers are parties have been duly executed and delivered by the Purchasers to the Company.

(f)Reverse Merger Transaction. Prior to the First Closing, the Reverse Merger Transaction shall have been consummated and a Certificate of Merger shall have been received from the BVI Registrar of Companies by Shen Kun.

Section 4.2Conditions Precedent to the Obligation of the Purchasers to Purchase the Units. The obligation hereunder of each Purchaser to acquire and pay for the Units is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for each Purchaser’s sole benefit and may be waived by such Purchaser at any time in its sole discretion.

(a)Accuracy of the Company’s Representations and Warranties. Each of the representations and warranties of the Company in this Agreement and the other Transaction Documents shall be true and correct in all respects as of the date when made and as of the Closing Date as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all respects as of such date.

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

(c)No Suspension, Etc. Quotation of the Common Stock shall not have been suspended by the Commission or the OTC Bulletin Board (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets (“Bloomberg”) shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in any financial market which, in each case, in the judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Preferred Shares.

(d)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

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(e)No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.

(f)Series A Certificate of Designation of Rights and Preferences. Prior to the First Closing, the Articles of Amendment to the Articles of Incorporation including the Series A Certificate of Designation substantially in the form of Exhibit C attached hereto shall have been filed with the Secretary of State of Florida.

(g)Opinions of Counsel, Etc. At each Closing, the Purchasers shall have received an opinion of U.S. counsel to the Company, and an opinion of British Virgin Islands counsel to the Company, dated the date of the Closing, in substantially the form of Exhibit I hereto, and such other certificates and documents as the Purchasers or its counsel shall reasonably require incident to the Closing. Four (4) days prior to each Closing, the Purchasers shall have received an opinion of PRC counsel to Shen Kun, dated the date of the Closing with respect to the Restructuring Agreements and such other matters as the Purchasers may reasonably request.

(h)Registration Rights Agreement. At the Closing, the Company shall have executed and delivered the Registration Rights Agreement to each Purchaser.

(i)Certificates. The Company shall have executed and delivered to the Purchasers the certificates (in such denominations as such Purchaser shall request) for the Preferred Shares and the Warrants being acquired by such Purchaser at each Closing (in such denominations as such Purchaser shall request) to such address set forth next to each Purchasers name on Exhibit A with respect to the First Closing and Exhibit B with respect to the Second Closing hereto.

(j)Resolutions. The Board of Directors of the Company shall have adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the “Resolutions”).

(k)Reservation of Shares. As of each Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares and the exercise of the Warrants, a number of shares of Common Stock equal to one hundred fifty percent (150%) of the aggregate number of Conversion Shares issuable upon conversion of the Preferred Shares issued or to be issued pursuant to this Agreement and the number of Warrant Shares issuable upon exercise of the number of Warrants issued or to be issued pursuant to this Agreement.

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(l)Transfer Agent Instructions. As of each Closing Date, the Irrevocable Transfer Agent Instructions, in the form of Exhibit H attached hereto, shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

(m)Lock-Up Agreement. As of each Closing Date, the persons listed on Schedule 3.19 hereto shall have delivered to the Purchasers a fully executed Lock-Up Agreement in the form of Exhibit F attached hereto.

(n)Secretary’s Certificate. The Company shall have delivered to such Purchaser a secretary’s certificate, dated as of each Closing Date, as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Series A Certificate of Designation, each as in effect at such Closing, and (v) the authority and incumbency of the officers of the Company executing the Transaction Documents and any other documents required to be executed or delivered in connection therewith.

(o)Officer’s Certificate. The Company shall have delivered to the Purchasers a certificate of an executive officer of the Company, dated as of each Closing Date, confirming the accuracy of the Company’s representations, warranties and covenants as of such Closing Date and confirming the compliance by the Company with the conditions precedent set forth in this Section 4.2 as of the Closing Date.

(p)Escrow General Agreement. At each Closing, the Company and the escrow agent shall have executed and delivered the Escrow General Agreement in the form of Exhibit G-1 attached hereto to each Purchaser.

(q)Securities Escrow Agreement. At each Closing, the Securities Escrow Agreement shall have been executed by the parties thereto and the Escrow Shares (as defined in the Securities Escrow Agreement) shall have been deposited into the escrow account pursuant to the terms of the Securities Escrow Agreement in the form of Exhibit G-2 attached hereto.

(r)Material Adverse Effect. No Material Adverse Effect shall have occurred at or before the Closing Date.

(s)Reverse Merger Transaction. Prior to the First Closing, the Reverse Merger Transaction shall have been consummated and a Certificate of Merger shall have been received from the BVI Registrar of Companies by Shen Kun.

(t)Financial Statements. No later than the fifth Business Day prior to the First Closing Date, the Company shall have delivered to the Purchasers the audited financial statements of Shen Kun for the fiscal years ended June 30, 2006 and 2007 audited by Albert Wong & Co., Certified Public Accountants (the “Shen Kun Financial Statements”), which Shen Kun Financial Statements shall be acceptable to the Purchasers.

(u)Capitalization Table. No later than the third Business Day prior to each Closing Date, the Company shall have delivered to each of the Purchasers a capitalization table setting forth (i) its capitalization, on a fully diluted basis immediately prior to the Closing and (ii) its pro forma capitalization, on a fully diluted basis, giving effect to the consummation of the transactions contemplated by this Agreement. In each case, the table shall list all outstanding options, warrants and other securities convertible into equity of the Company.

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(v)Draft Form 8-K. No later than four (4) Business Days prior to each Closing Date, the Company shall have delivered to each of the Purchasers, a draft of the Form 8-K (the “Draft Form 8-K”), in substantially final form, that it proposes to file with the Securities and Exchange Commission, which Draft Form 8-K shall be reasonably acceptable to the Purchasers.

(w)Draft Press Release. No later than two (2) Business Days prior to the First Closing Date, the Company shall have delivered to each of the Purchasers, a draft of the press release announcing the transaction contemplated hereby (the “Draft Press Release”), in substantially final form, that it proposes to file with the Securities and Exchange Commission as part of Draft Form 8-K and distribute to the public, which Draft Press Release shall be reasonably acceptable to the Purchasers.

(x)Chief Financial Officer/Vice President of Investor Relations. As soon as possible following the First Closing, the Company shall use its best efforts to appoint an individual to serve as Chief Financial Officer and/or Vice President of Investor Relations of the Company who is fluent in English (individually, an “English Speaking Officer”), which English Speaking Officer shall be acceptable to Vision.

ARTICLE V

Stock Certificate Legend

Section 5.1Legend. Each certificate representing the Preferred Shares and the Warrants, and, if appropriate, securities issued upon conversion thereof, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

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The Company agrees to reissue certificates representing any of the Conversion Shares and the Warrant Shares, without the legend set forth above if at such time, prior to making any transfer of any such securities, such holder thereof shall give written notice to the Company describing the manner and terms of such transfer and removal as the Company may reasonably request. Such proposed transfer and removal will not be effected until: (a) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that the registration of the Conversion Shares or the Warrant Shares under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Company with the Commission and has become effective under the Securities Act, (iii) the Company has received other evidence reasonably satisfactory to the Company that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the holder provides the Company with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that registration or qualification under the securities or “blue sky” laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or “blue sky” laws has been effected or a valid exemption exists with respect thereto. The Company will respond to any such notice from a holder within five (5) business days. In the case of any proposed transfer under this Section 5.1, the Company will use reasonable efforts to comply with any such applicable state securities or “blue sky” laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or “blue sky” laws of any state for which registration by coordination is unavailable to the Company. The restrictions on transfer contained in this Section 5.1 shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Agreement. Whenever a certificate representing the Conversion Shares or Warrant Shares is required to be issued to a Purchaser without a legend, in lieu of delivering physical certificates representing the Conversion Shares or Warrant Shares (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares and Conversion Shares is then in effect), the Company may cause its transfer agent to electronically transmit the Conversion Shares or Warrant Shares to a Purchaser by crediting the account of such Purchaser or such Purchaser’s Prime Broker with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system (to the extent not inconsistent with any provisions of this Agreement).

ARTICLE VI

Indemnification

Section 6.1General Indemnity. The Company agrees to indemnify and hold harmless the Purchasers (and their respective directors, officers, managers, partners, members, shareholders, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by the Purchasers as a result of any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein. Each Purchaser severally but not jointly agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by the Company as a result of any inaccuracy in or breach of the representations, warranties or covenants made by such Purchaser herein. The maximum aggregate liability of each Purchaser pursuant to its indemnification obligations under this Article VII shall not exceed the portion of the Purchase Price paid by such Purchaser hereunder.

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Section 6.2Indemnification Procedure. Any party entitled to indemnification under this Article VI (an “indemnified party”) will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VI except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of the indemnified party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event that the indemnifying party advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party’s costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article VI to the contrary, the indemnifying party shall not, without the indemnified party’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. The indemnification required by this Article VI shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, so long as the indemnified party irrevocably agrees to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to pursuant to the law.

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ARTICLE VII

Miscellaneous

Section 7.1Fees and Expenses. Except as otherwise set forth in this Agreement and the other Transaction Documents, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement, provided that the Company shall pay all actual and reasonable attorneys’ fees and expenses (including disbursements and out-of-pocket expenses) up to a maximum of $50,000 incurred by the Purchasers in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions and the review of the Restructuring Agreements (of which Vision hereby acknowledges receipt of $15,000. The Company shall also pay to Vision at the First Closing in connection with due diligence expenses incurred by Vision an amount of $100,000 (of which Vision hereby acknowledges receipt of $10,000). The Company shall also pay all reasonable fees and expenses incurred by the Purchasers in connection with the enforcement of this Agreement or any of the other Transaction Documents, including, without limitation, all reasonable attorneys’ fees and expenses but only if the Purchasers are successful in any litigation or arbitration relating to such enforcement.

Section 7.2Capital Contribution. No later than July 8, 2008, the Company shall cause Shen Kun to contribute one hundred percent (100%) of the net proceeds from the sale of the Units to WFOE (the “Initial WFOE Capitalization”). The Company will cause Shen Kun to contribute one hundred percent (100%) of the registered capital of WFOE within two years from the date of issuance of the business license of WFOE. Notwithstanding the prior sentence, in the event of a Second Closing, within fifteen (15) days of the Second Closing, the Company will cause Shen Kun to contribute one hundred percent (100%) of the net proceeds from the sale of the Units in the Second Closing to WFOE, such transfer, along with the Initial WFOE Capitalization, shall represent a capital contribution of one hundred percent (100%) of the registered capital of WFOE.

Section 7.3Transfer of Vehicles. The Company covenants and agrees to, as soon as legally possible after the First Closing, effect the change of title owner for the vehicles listed on Schedule 7.3 from the individuals listed as title owners on Schedule 7.3 to Tianjin Shengkai Industrial Technology Development Co., Ltd.

Section 7.4Reserved.

Section 7.5Specific Enforcement, Consent to Jurisdiction.

(a)The Company and the Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

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(b)Each of the Company and the Purchasers (i) hereby irrevocably submits to the jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents or the transactions contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Purchasers consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7.5 shall affect or limit any right to serve process in any other manner permitted by law.

Section 7.6Entire Agreement; Amendment. This Agreement and the other Transaction Documents contains the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein or in the Transaction Documents, neither the Company nor any of the Purchasers makes any representations, warranty, covenant or undertaking with respect to such matters and they supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein. No provision of this Agreement nor any of the Transaction Documents may be waived or amended other than by a written instrument signed by the Company and the holders of at least fifty percent (50%) of the Preferred Shares then outstanding, and no provision hereof may be waived other than by an a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents or holders of Preferred Shares, as the case may be.

Section 7.7Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery by telex (with correct answer back received), telecopy or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Company:

Southern Sauce Company, Inc.

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No. 27,

Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: 86-22-2858-8899

Fax No.: 86-22-2859-0003

with copies to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attention: Marc J. Ross, Esq.

Tel. No.: (212) 930-9700

Fax No.: (212) 930-9725

If to any Purchaser:           At the address of such Purchaser set forth on Exhibit A or Exhibit B to this Agreement, as the case may be, with copies to Purchaser’s counsel as set forth on Exhibit A, Exhibit B or as specified in writing by such Purchaser with copies to:

Loeb & Loeb LLP

345 Park Avenue

New York, New York 10154

Attention: Mitchell S. Nussbaum, Esq.

Tel No.: (212) 407-4000

Fax No.: (212) 407-4990

Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.

Section 7.8Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

Section 7.9Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof.

Section 7.10Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.

Section 7.11No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

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Section 7.12Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted.

Section 7.13Survival. The representations and warranties of the Company and the Purchasers shall survive the execution and delivery hereof and the Closings hereunder for a period of two years following the respective Closing Date.

Section 7.14Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

Section 7.15Publicity. The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchasers without the consent of the Purchasers unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

Section 7.16Severability. The provisions of this Agreement and the Transaction Documents are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement or the Transaction Documents shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement or the Transaction Documents and such provision shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.

Section 7.17Further Assurances. From and after the date of this Agreement, upon the request of any Purchaser or the Company, each of the Company and the Purchasers shall execute and deliver such instrument, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement, the Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Series A Certificate of Designation, the Registration Rights Agreement and the other Transaction Documents.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.

SOUTHERN SAUCE COMPANY, INC.
By:	/s/ Wang Chen
	Name: Wang Chen Title: Chief Executive Officer

PURCHASER VISION OPPORTUNITY CHINA LP
By:	/s/ Adam Benowitz
	Name: Adam Benowitz Title: Authorized Signatory

ACKNOWLEDGED AND AGREED FOR PURPOSES OF SECTION 3.25 LONG SUNNY LIMITED
By:	/s/ Wang Chen
	Name: Wang Chen Title: Chief Executive Officer

36

 By its execution and delivery of this signature page, the undersigned Purchaser hereby joins in and agrees to be bound by the terms and conditions of the Securities Purchase Agreement dated as of June 10, 2008 (the “Purchase Agreement”) by and among Southern Sauce Company, Inc. and the Purchasers (as defined therein), as to the number of Units set forth below, and authorizes this signature page to be attached to the Purchase Agreement or counterparts thereof and for its name, address and number of Units purchased to be added to Exhibit B of the Purchase Agreement.

PURCHASER [                       ]
By:
	Name: Title:

Number of Units:

Aggregate Purchase Price: $

Agreed and Acknowledged:

SOUTHERN SAUCE COMPANY, INC.

By:
	Name:
	Title:

37

EXHIBIT A TO THE

SECURITIES PURCHASE AGREEMENT

LIST OF PURCHASERS

Investor and Address	Investment		Units Purchased		Shares of Preferred Stock		Series A Warrants
Vision Opportunity China, L. P. EIN: None (Non-US entity) Jefferies Prime Brokerage Attn: Stephen D Augustin Account of: Vision Capital Advisors, LLC , LTD Account 430-00211 520 Madison Avenue, 12th Floor New York, NY 10022	$	15,000,000		5,915,526		5,915,526		7,098,632

38

EXHIBIT B TO THE

SECURITIES PURCHASE AGREEMENT

LIST OF PURCHASERS

Investor and Address Investment Units Purchased Shares of Preferred Stock Series A Warrants

EXHIBIT C TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF SERIES A CERTIFICATE OF DESIGNATION

Please refer to Exhibit 3.4 of the Form 8-K

2

EXHIBIT D TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF SERIES A WARRANT

Please refer to Exhibit 4.1 of the Form 8-K

3

EXHIBIT E TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF REGISTRATION RIGHTS AGREEMENT

Please refer to Exhibit 4.3 of the Form 8-K

4

EXHIBIT F TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF LOCK-UP AGREEMENT

Please refer to Exhibit 4.5 of the Form 8-K

5

EXHIBIT G-1 TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF ESCROW GENERAL AGREEMENT

Please refer to Exhibit 10.4 of the Form 8-K

6

EXHIBIT G-2 TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF SECURITIES ESCROW AGREEMENT

Please refer to Exhibit 10.2 of the Form 8-K

7

EXHIBIT G-3 TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF INVESTOR AND PUBLIC RELATIONS ESCROW AGREEMENT

Please refer to Exhibit 10.3 of the Form 8-K

8

EXHIBIT H TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

as of ____________, 2008

[Name and address of Transfer Agent]

Attn: _____________

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of June 10, 2008, by and among by and among Southern Sauce Company, Inc., a Florida corporation (the “Company”), and each of the Purchasers of Units whose names are set forth on Exhibit A hereto (individually, a “Purchaser” and collectively, the “Purchasers”). pursuant to which the Company is issuing to the Purchasers shares of its Series A Convertible Preferred Stock, par value $0.001 per share, (the “Preferred Shares”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $________ per share (the “Common Stock”). This letter shall serve as our irrevocable authorization and direction to you provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon conversion of the Preferred Shares (the “Conversion Shares”) and exercise of the Warrants (the “Warrant Shares”) to or upon the order of a Purchaser from time to time upon (i) surrender to you of a properly completed and duly executed Conversion Notice or Exercise Notice, as the case may be, in the form attached hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion of Preferred Shares, a copy of the certificates (with the original certificates delivered to the Company) representing Preferred Shares being converted or, in the case of Warrants being exercised, a copy of the Warrants (with the original Warrants delivered to the Company) being exercised (or, in each case, an indemnification undertaking with respect to such share certificates or the warrants in the case of their loss, theft or destruction), and (iii) delivery of a treasury order or other appropriate order duly executed by a duly authorized officer of the Company. So long as you have previously received (x) written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares or Warrant Shares, as applicable, has been declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and no subsequent notice by the Company or its counsel of the suspension or termination of its effectiveness and (y) a copy of such registration statement, and if the Purchaser represents in writing that the Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant to the Registration Statement, then certificates representing the Conversion Shares and the Warrant Shares, as the case may be, shall not bear any legend restricting transfer of the Conversion Shares and the Warrant Shares, as the case may be, thereby and should not be subject to any stop-transfer restriction. Provided, however, that if you have not previously received those items and representations listed above, then the certificates for the Conversion Shares and the Warrant Shares shall bear the following legend:

9

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”

and, provided, further, that the Company may from time to time notify you to place stop-transfer restrictions on the certificates for the Conversion Shares and the Warrant Shares in the event a registration statement covering the Conversion Shares and the Warrant Shares is subject to amendment for events then current.

A form of written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares and the Warrant Shares has been declared effective by the SEC under the 1933 Act is attached hereto as Exhibit III.

Please be advised that the Purchasers are relying upon this letter as an inducement to enter into the Purchase Agreement and, accordingly, each Purchaser is a third party beneficiary to these instructions.

Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions. Should you have any questions concerning this matter, please contact me at ___________.

Very truly yours,

[________________________________________]

By:

Name:

Title:

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:

Name:

Title:

Date:

10

EXHIBIT I

CONVERSION NOTICE

Reference is made to the Series A Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock of Southern Sauce Company, Inc. (the “Series A Certificate of Designation”). In accordance with and pursuant to the Series A Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A Convertible Preferred Stock, par value $________ per share (the “Preferred Shares”) of Southern Sauce Company, Inc., a Florida corporation (the “Company”), indicated below into shares of Common Stock, par value $_________ per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:    ______________________________________

Number of Preferred Shares to be converted:  _________

Stock certificate no(s). of Preferred Shares to be converted:  _______

The Common Stock have been sold pursuant to the Registration Statement (as defined in the Registration Rights Agreement): YES _______ NO______

Please confirm the following information:

Conversion Price:        _______________________________________

Number of shares of Common Stock

to be issued:                 _______________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _____________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:

Dated:

11

EXHIBIT II

FORM OF EXERCISE NOTICE

EXERCISE FORM

The undersigned____________, pursuant to the provisions of the within Warrant, hereby elects to purchase ______ shares of Common Stock of ______________________________________ covered by the within Warrant.

Dated:	Signature
	Address

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _______________________

ASSIGNMENT

FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto _______________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint ______________, attorney, to transfer the said Warrant on the books of the within named corporation.

Dated:	Signature
	Address

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto _______________ the right to purchase ___________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint __________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.

Dated:	Signature
	Address

12

FOR USE BY THE ISSUER ONLY:

This Warrant No. W-_________ canceled (or transferred or exchanged) this _______ day of __________, _______, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-______ issued for _______ shares of Common Stock in the name of ________________.

13

EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and address of Transfer Agent]

Attn: _________

Re: [__________________________________]

Ladies and Gentlemen:

We are counsel to Southern Sauce Company, Inc., a Florida corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of June 10, 2008, by and among the Company and the purchasers named therein (collectively, the “Purchasers”) pursuant to which the Company issued to the Purchasers shares of its Series A Convertible Preferred Stock, par value $0.001 per share, (the “Preferred Shares”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $_________ per share (the “Common Stock”). Pursuant to the Purchase Agreement, the Company has also entered into a Registration Rights Agreement with the Purchasers (the “Registration Rights Agreement”), dated as of June 10, 2008, pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Preferred Shares and exercise of the Warrants, under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on [ ], 2008, the Company filed a Registration Statement on Form S-1 (File No. 333-________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the resale of the Registrable Securities which names each of the present Purchasers as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and accordingly, the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

Sichenzia Ross Friedman Ference LLP

By:  

cc: [LIST NAMES OF PURCHASERS]

14

EXHIBIT I TO THE

SECURITIES PURCHASE AGREEMENT

FORM OF OPINION OF COUNSEL

1.The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida and has the requisite corporate power to own, lease and operate its properties and assets, and to carry on its business as presently conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary.

2.The Company has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents and to issue the Preferred Stock, the Warrants and the Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants. The execution, delivery and performance of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly and validly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required. Each of the Transaction Documents have been duly executed and delivered, and the Preferred Stock and the Warrants have been duly executed, issued and delivered by the Company and each of the Transaction Documents constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms. The Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants are not subject to any preemptive rights under the Articles or the Bylaws.

3.The Preferred Stock and the Warrants have been duly authorized and, when delivered against payment in full as provided in the Purchase Agreement, will be validly issued, fully paid and nonassessable. The shares of Common Stock issuable upon conversion of the Preferred Stock, have been duly authorized and reserved for issuance, and, when delivered upon conversion or against payment in full as provided in the Series A Certificate of Designation will be validly issued, fully paid and nonassessable.

4.The execution, delivery and performance of and compliance with the terms of the Transaction Documents and the issuance of the Preferred Stock, the Warrants and the Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants do not (i) violate any provision of the Articles or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment, injunction or decree (including Federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company is bound or affected, except, in all cases other than violations pursuant to clauses (i) and (iv) above, for such conflicts, default, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect.

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5.No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required under Federal, state or local law, rule or regulation in connection with the valid execution and delivery of the Transaction Documents, or the offer, sale or issuance of the Preferred Stock, the Warrants or the Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants other than the Series A Certificate of Designation and the Registration Statement.

6.To our knowledge, there is no action, suit, claim, investigation or proceeding pending or threatened against the Company which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. To our knowledge, there is no action, suit, claim, investigation or proceeding pending, or to our knowledge, threatened, against or involving the Company or any of its properties or assets and which, if adversely determined, is reasonably likely to result in a Material Adverse Effect. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any officers or directors of the Company in their capacities as such.

7.Based upon the representations of the Purchaser, the offer, issuance and sale of the Preferred Stock and the Warrants and the offer, issuance and sale of the shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants pursuant to the Purchase Agreement, the Series A Certificate of Designation and the Warrants, as applicable, are exempt from the registration requirements of the Securities Act.

8.The Company is not, and as a result of and immediately upon Closing will not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

Very truly yours,

16

EX-4.3

FIRST AMENDMENT TO

SECURITIES PURCHASE AGREEMENT

This First Amendment to Securities Purchase Agreement, dated as of June 23, 2008 (this “Agreement”), is entered into by and among Southern Sauce Company, Inc., a Florida corporation (the “Company”), Long Sunny Limited, a British Virgin Islands company (“Long Sunny”) and Vision Opportunity China LP, a closed-ended investment company incorporated in Guernsey (“Vision”).

WITNESSETH:

WHEREAS, the Company, Long Sunny and Vision entered into a Securities Purchase Agreement dated as of June 10, 2008 (the “Purchase Agreement”), and

WHEREAS, Section 3.25 of the Purchase Agreement did not reflect the understanding of the parties and the parties have agreed to amend said provisions, in the manner, and on the terms and conditions, set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

1.Definitions. Capitalized terms not otherwise defined herein (including the Recitals) shall have the meanings ascribed to them in the Purchase Agreement.

2.Amendment to Section 3.25 of the Purchase Agreement. Section 3.25 of the Purchase Agreement is hereby amended and restated in its entirety as of the date hereof to read as follows:

Section 3.25Exchange Listing. The Company shall list and trade its shares of Common Stock on the Nasdaq Capital Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or the American Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”) at the earliest possible time and shall take all commercially reasonable actions to fulfill the said requirement by no later than the date which is eighteen months after the First Closing Date. In the event the shares of Common Stock are not listed and trading on a National Stock Exchange by the date which is eighteen months from the First Closing Date and Vision believes, using reasonable judgment, that commercially reasonable actions have not been taken to meet such requirement, each of the stockholders of the Company as listed on Schedule 3.25 (each a “Principal Stockholder”; collectively, the “Principal Stockholders”) shall transfer such number of shares of Common Stock held by such Principal Stockholder as set forth opposite such Principal Stockholder’s name on Schedule 3.25 (the “Listing Penalty Shares”) to the Purchasers to be distributed to the Purchasers on a pro rata basis. The number of Listing Penalty Shares to be transferred by each Principal Stockholder to the Purchasers shall be equal to 1,000,000 shares of Common Stock times a fraction, the numerator of which is the number of shares of Common Stock held by such Principal Stockholder and the denominator of which is the total number of shares of Common Stock held by the Principal Stockholders. In the event the Principal Stockholders fail to transfer the Listing Penalty Shares by the date which is nineteen months after the First Closing Date, each Purchaser may elect, at each Purchaser’s sole discretion and upon notice to the Company, Escrow Agent and Principal Stockholders (each as defined in the Securities Escrow Agreement), to receive a portion of the Escrow Shares (as defined in the Securities Escrow Agreement) in such amount as set forth in the preceding sentence. In the event a Purchaser elects to receive shares of Common Stock from the Escrow Shares pursuant to the foregoing and if the Escrow Shares then remaining are insufficient to satisfy the Principal Stockholders’ obligations under Sections 1.3 and 1.4 of the Securities Escrow Agreement, the Principal Stockholders shall, on a pro rata basis, deliver to the Escrow Agent additional shares of Common Stock owned by them in the amounts released to such Purchaser within five (5) days of the release of such shares from escrow. Notwithstanding the foregoing to the contrary, the Principal Stockholders shall not be required to transfer such Listing Penalty Shares pursuant to this Section 3.25 if the Company has taken commercially reasonable actions to list and trade its Common Stock on a National Stock Exchange.

3.Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.

4.Execution of Counterparts.This Agreement may be executed in a number of counterparts, by facsimile, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all the parties.

[Signature Page to Follow]

IN WITNESS WHEREOF, the parties have executed and delivered this First Amendment to Securities Purchase Agreement on the day and year first above written.

SOUTHERN SAUCE COMPANY, INC.

By:  /s/ Wang Chen_________________

Name: Wang Chen

Title: Chief Executive Officer

LONG SUNNY LIMITED

By:  /s/ Wang Chen_________________

Name: Wang Chen

Title: Chief Executive Officer

VISION OPPORTUNITY CHINA LP

By:  /s/ Adam Benowitz______________

Name: Adam Benowitz

Title: Authorized Signatory

EX-4.4

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this "Agreement") is made and entered into as of June 10, 2008, by and among Southern Sauce Company, Inc. (the “Company”), and the Shareholders listed on Schedule 1 hereto (the "Shareholders").

The Company and the Shareholders hereby agree as follows:

1. DEFINITIONS.

"Advice" shall have meaning set forth in Section 3(n).

"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to 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 of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.

"Board" shall have meaning set forth in Section 3(o).

"Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close.

"Closing Date" means the earlier of (i) the date on which the Company consummates a financing transaction resulting in gross proceeds of at least $20,000,000 or (ii) June 30, 2008.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the Company's common stock, par value $0.001 per share.

"Effectiveness Date" means, subject to Section 2(b) hereof, with respect to the Registration Statement the earlier of (A) the one hundred fiftieth (150^th) day following the Closing Date (or in the event the Registration Statement receives a “full review” by the Commission, the one hundred eightieth (180^th) day following the Closing Date, or (B) the date which is within three (3) Business Days after the date on which the Commission informs the Company (i) that the Commission will not review the Registration Statement or (ii)that the Company may request the acceleration of the effectiveness of the Registration Statement; providedthat, if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.

"Effectiveness Period" shall have the meaning set forth in Section 2(a).

"Event" shall have the meaning set forth in Section 7(e).

"Event Date" shall have the meaning set forth in Section 7(e).

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

"Filing Date" means, subject to Section 2(b) hereof, the date that is the 45^th day following the Closing Date; providedthat, if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.

"Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities.

"Indemnified Party" shall have the meaning set forth in Section 5(c).

"Indemnifying Party" shall have the meaning set forth in Section 5(c).

"Losses" shall have the meaning set forth in Section5(a).

"Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

"Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.

"Registrable Securitiesmeans (i) the shares of Common Stock beneficially owned by the Shareholders listed on Schedule 1 hereto, immediately prior to the Closing Date; and (ii) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

"Registration Statement" means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.

"Rule 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 416” means Rule 416 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

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"Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"Securities Act" means the Securities Act of 1933, as amended."Special Counsel" means Berman Rennert Vogel & Mandler, P.A., for whose services the Holders will be reimbursed by the Company pursuant to Section 4.

2. RESALE REGISTRATION.

(a)On or prior to the Filing Date, the Company shall prepare and file with the Commission a "resale" Registration Statement providing for the resale of all Registrable Securities by means of an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1. Such Registration Statement shall cover to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Registration Statement continuously effective under the Securities Act until such date when all Registrable Securities covered by such Registration Statement have been sold (the "Effectiveness Period"). The Company shall request that the effective time of the Registration Statement be 4:00 p.m. Eastern Time on the effective date. If at any time and for any reason, an additional Registration Statement is required to be filed because at such time the actual number of Registrable Securities exceeds the number of shares of Registrable Securities remaining under the Registration Statement, the Company shall have twenty (20) Business Days to file such additional Registration Statement, and the Company shall use its best efforts to cause such additional Registration Statement to be declared effective by the Commission as soon as possible, but in no event later than sixty (60) days after filing.

(b)Notwithstanding anything to the contrary set forth in this Section 2, in the event the Commission does not permit the Company to register all of the Registrable Securities in the Registration Statement because of the Commission’s application of Rule 415, the Company shall register in the Registration Statement such number of Registrable Securities as is permitted by the Commission. In the event the Commission does not permit the Company to register all of the Registrable Securities in the initial Registration Statement, the Company shall use its best efforts to file subsequent Registration Statements to register the Registrable Securities that were not registered in the initial Registration Statement as promptly as possible and in a manner permitted by the Commission. For purposes of this Section 2(b), “Filing Date” means with respect to each subsequent Registration Statement filed pursuant hereto, the later of (i) sixty (60) days following the sale of substantially all of the Registrable Securities included in the initial Registration Statement or any subsequent Registration Statement and (ii) six (6) months following the effective date of the initial Registration Statement or any subsequent Registration Statement, as applicable, or such earlier date as permitted by the Commission. For purposes of this Section 2(b), “Effectiveness Date” means with respect to each subsequent Registration Statement filed pursuant hereto, the earlier of (A) the ninetieth (90^th) day following the filing date of such Registration Statement (or in the event such Registration Statement receives a “full review” by the Commission, the one hundred twentieth (120^th) day following such filing date) or (B) the date which is within three (3) Business Days after the date on which the Commission informs the Company (i) that the Commission will not review such Registration Statement or (ii)that the Company may request the acceleration of the effectiveness of such Registration Statement; providedthat, if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.

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3.      REGISTRATION PROCEDURES. In connection with the Company's registration obligations hereunder, the Company shall:

(a) Prepare and file with the Commission, on or prior to the Filing Date, a Registration Statement on Form S-1 in accordance with the plan of distribution as set forth on Exhibit A hereto and in accordance with applicable law, and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and any Special Counsel, copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and any Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of such Special Counsel, to conduct a reasonable review of such documents. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof.

(b)(i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements as necessary in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later than ten (10) Business Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act no later than two (2) Business Days following the date the Registration Statement is declared effective by the Commission; and (v) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.

(c)Notify the Holders of Registrable Securities and any Special Counsel as promptly as possible (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing, and in the case of (iii) below, on the same day of receipt by the Company of such notice from the Commission) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day: (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation or threatening of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

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(d)Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, as promptly as possible, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the RegistrableSecurities for sale in any jurisdiction.

(e)If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or amend in the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.

(f)If requested by any Holder, furnish to such Holder and any Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(g)Promptly deliver to each Holder and any Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and subject to the provisions of Sections 3(n) and 3(o), the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(h)Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and any Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.

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(i)Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates, to the extent permitted by applicable federal and state securities laws, shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request in connection with any sale of Registrable Securities.

(j)Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(k)Use its best efforts to cause all Registrable Securities relating to the Registration Statement to continue to be listed or quoted on the OTC Bulletin Board or to be listed or quoted on any other national securities exchange, quotation system or market, if any, on which similar securities issued by the Company are then listed or traded.

(l)Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders all documents filed or required to be filed with the Commission, including, but not limited, to, earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.

(m)Within two (2) Business Days after a Registration Statement which covers the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the Commission in the form attached hereto as Exhibit B.

(n)The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, Prospectus, or any amendment or supplement thereto, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder covenants and agrees that it will not sell any Registrable Securities under the Registration Statement until the Company has electronically filed the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that the Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c).

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Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(o), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.

(o)If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "Board") determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board determines not to be in the Company's best interest to disclose, or (iii) the Company is required to file a post-effective amendment to the Registration Statement to incorporate the Company’s quarterly and annual reports and audited financial statements on Forms 10-Q and 10-K, then the Company may (x) postpone or suspend filing of a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or suspend effectiveness of a registration statement for a period not to exceed twenty (20) consecutive days; provided that the Company may not postpone or suspend effectiveness of a registration statement under this Section 3(o) for more than forty-five (45) days in the aggregate during any three hundred sixty (360) day period; provided, however, that no such postponement or suspension shall be permitted for consecutive twenty (20) day periods arising out of the same set of facts, circumstances or transactions.

4. REGISTRATION EXPENSES.

All fees and expenses incident to the performance of or compliance with this Agreement by the Company, except as and to the extent specified in this Section 4, shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with each securities exchange or market on which Registrable Securities are required hereunder to be listed, if any (B) with respect to filing fees required to be paid to the Financial Industry Regulatory Authority (including, without limitation, pursuant to NASD Rule 2710) and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) reasonable and itemized fees and disbursements of counsel for the Company and Sizenchia Ross Friedman Ference LLP (such counsel fees not to exceed $5,000), (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange if required hereunder. The Company shall not be responsible for any discounts, commissions, transfer taxes or other similar fees incurred by the Holders in connection with the sale of the Registrable Securities.

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5. INDEMNIFICATION.

(a)Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, managers, partners, members, shareholders, agents, brokers, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any violation of securities laws or untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or such other Indemnified Party furnished in writing to the Company by such Holder for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

(b)Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder or other Indemnifying Party to the Company specifically for inclusion in the Registration Statement or such Prospectus. Notwithstanding anything to the contrary contained herein, each Holder shall be liable under this Section 5(b) only for the lesser of (a) the actual damages incurred or (b) that amount as does not exceed the gross proceeds to such Holder as a result of the sale of his, her or its Registrable Securities pursuant to such Registration Statement.

(c)Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party”) in writing, and the Indemnifying Party shall be entitled to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such parties shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All indemnifiable fees and expenses of the Indemnified Party (including reasonable fees and expenses incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder;provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d)Contribution. If a claim for indemnification under Section 5(a) or 5(b) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault, as applicable, of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and theparties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the gross proceeds received by such Holder upon sale of such Holder’s Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation.

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.

6. MISCELLANEOUS.

(a)Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under thisAgreement. The Company and each Holder agree that monetary damages would not provideadequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)Failure to File Registration Statement and Other Events. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the Registration Statement is not filed on or prior to the Filing Date, or (B) the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Date, or (C) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within three (3) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (D) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with and declared effective by the Commission in accordance with Section 2(a) hereof, or (E) the Company has breached Section 3(o) of this Agreement, or (F) trading in the Common Stock shall be suspended or if the Common Stock is no longer quoted on or is delisted from the OTC Bulletin Board (or other principal exchange on which the Common Stock is traded) for any reason for more than three (3) Business Days in the aggregate (any such failure or breach being referred to as an "Event," and for purposes of clauses (A) and (B) the date on which such Event occurs, or for purposes of clauses (C) and (F) the date on which such three (3) Business Day period is exceeded, or for purposes of clause (D) after more than fifteen (15) Business Days, being referred to as "Event Date"), the Company shall pay an amount in cash as liquidated damages to each Holder equal to 0.75% of the value of such Holder’s Registrable Securities (using a value of $2.54 per share to calculate the value of such Holder’s Registrable Securities): (1) on the Event Date; and (2) for each calendar month or portion thereof thereafter from the Event Date until the applicable Event is cured; provided, however, that in no event shall the amount of liquidated damages payable at any time and from time to time to any Holder pursuant to this Section 7(b) exceed an aggregate of 10% of the value of the Holder’s Registrable Securities (using a value of $2.54 per share to calculate the amount of such Holder’s Registrable Securities); and provided, further, that notwithstanding the foregoing, in the event the Commission does not permit all of the Registrable Securities to be included in a Registration Statement because of its application of Rule 415, no liquidated damages shall be payable pursuant to this Section by the Company with respect to any Registrable Securities that the Company was not permitted to include on such Registration Statement due to the Commission’s application of Rule 415. Notwithstanding anything to the contrary in this paragraph (b), if (a) any of the Events described in clauses (A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to the applicable Event Date, the Company shall have exercised its rights under Section 3(o) hereof and (c) the postponement or suspension permitted pursuant to such Section 3(o) shall remain effective as of such applicable Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business Day following the termination of such postponement or suspension. Liquidated damages payable by the Company pursuant to this Section 7(b) shall be payable on the Event Date and the first (1^st) Business Day of each thirty (30) day period following the Event Date.

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(c)No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed on Schedule 2 hereto, neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of 75% of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

(d)No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto or as disclosed in Schedule 2 hereto) may include securities of the Company in the Registration Statement, and the Company shall not after the date hereof enter into any agreement providing such right to any of its security holders, unless the right so granted is subject in all respects to the prior rights in full of the Holders set forth herein, and is not otherwise in conflict with the provisions of this Agreement

(e)Shares Held by the Company and its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage

(f)Assignment of Registration Rights. The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any Person who acquires all or a portionof the Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement, along with an investor questionnaire completed by the transferee or assignee to Company’s satisfaction, is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws unless such securities are registered in a Registration Statement under this Agreement (in which case the Company shall be obligated to amend such Registration Statement to reflect such transfer or assignment) or are otherwise exempt from registration, and (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.

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(g)Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) of the Registrable Securities outstanding.

(h)Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Company:	Southern Sauce Company, Inc. No. 27, Wang Gang Road Jin Nan (Shuang Gang) Economic and Technology Development Area Tianjin, People’s Republic of China 300350Attn: Wang Chen Tel:  (86) 22-2858-8899 Fax: (86) 22-2859-0003
with copies to (which shall not constitute notice):	Berman Rennert Vogel & Mandler, P.A. 100 SE 2nd Street, Suite 2900 Miami, Florida 33131 Attn: Charles J. Rennert Tel: 305-577-4171 Fax: 305-347-6463
If to any Shareholder:	At the address of such Shareholder set forth on Schedule 1 to this Agreement

Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.

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(e)Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns. Neither the Shareholders, nor the Company may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party.

(f)Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(g)Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. The Company and the Holders agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Company and the Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and the Holders consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(k) shall affect or limit any right to serve process in any other manner permitted by law. The Company and the Holders hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.

(h)Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(i)Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declaredto be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(j)Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

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(k)Independent Nature of Shareholders. The Company acknowledges that the obligations of each Shareholder under this Agreement are several and not joint with the obligations of any other Shareholder, and no Shareholder shall be responsible in any way for the performance of the obligations of any other Shareholder under this Agreement. The Company acknowledges that nothing contained herein, and no action taken by any Shareholder pursuant hereto (including, but not limited to, the (i) inclusion of a Shareholder in the Registration Statement and (ii) review by, and consent to, such Registration Statement by a Shareholder) shall be deemed to constitute the Shareholders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Shareholders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. The Company acknowledges that each Shareholder shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Shareholder to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that it has elected to provide all Shareholders with the same terms for the convenience of the Company and not because it was required or requested to do so by the Shareholders. The Company acknowledges that such procedure with respect to this Agreement in no way creates a presumption that the Shareholders are in any way acting in concert or as a group with respect to this Agreement or the transactions contemplated hereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.

SOUTHERN SAUCE COMPANY, INC.
By:	/s/ Wang Chen
Name: Wang Chen Title: Chief Executive Officer

SHAREHOLDERS: VISION OPPORTUNITY CHINA LP
By:	/s/ Adam Benowitz
Name: Adam Benowitz Title: Authorized Signatory

CASTLE BISON, INC.
By:	/s/ Raul Silvestre
Name: Raul Silvestre Title: President

RALPH OLSON
	/s/ Ralph Olson

MARTIN SUMICHRAST
	/s/ Martin Sumichrast

[Signature Page to Registration Rights Agreement]

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EXHIBIT A

PLAN OF DISTRIBUTION

The selling security holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when disposing of shares:

· ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

· block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

· purchases by a broker-dealer as principal and resales by the broker-dealer for its account;

· an exchange distribution in accordance with the rules of the applicable exchange;

· privately negotiated transactions;

· to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the Commission;

· broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;

· a combination of any of these methods of sale; and

· any other method permitted pursuant to applicable law.

The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended (“Securities Act”), if available, rather than under this prospectus. The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.

The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.

If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

The selling security holders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.

If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the selling security holders will sell all or any portion of the shares offered under this prospectus.

We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.

We and the selling security holders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.

EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[TRANSFER AGENT]

_____________________________

_____________________________

Attn: _________________

Re:SOUTHERN SAUCE COMPANY, INC.

Ladies and Gentlemen:

We are counsel to SOUTHERN SAUCE COMPANY, INC., a Florida corporation (the “Company”). The Company entered into a Registration Rights Agreement, dated ______, 2008 (the “Registration Rights Agreement”), with Vision Opportunity China Fund LP, Castle Bison, Inc., Ralph Olson and Martin Sumichrast (collectively, the “Stockholders”), pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), under the Securities Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on ________________, 2008, the Company filed a Registration Statement on Form S-1 (File No. 333-________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the resale of the Registrable Securities which names each of the Stockholders as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and accordingly, the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

	Very truly yours, [COUNSEL]
	By:
cc: [STOCKHOLDERS]

EX-4.5

LOCK-UP AGREEMENT

THIS AGREEMENT (this “Agreement”) is dated as of June 10, 2008 by and between Southern Sauce Company, Inc., a Florida corporation (the “Company”), and ____________ (“Shareholder”).

WHEREAS, the Company intends to enter into (i) a merger transaction in which the holders of all of the equity interests in Shen Kun International Limited, a British Virgin Islands company (“Shen Kun”), will deliver all of such equity interests to the Company and receive from the Company, as merger consideration, certain shares of the common stock of the Company, par value $0.001 per share (such stock, the “Common Stock”; such transaction, the “Merger Transaction”) and (ii) a private placement financing transaction with certain accredited investors (the “Investors”) whereby the Company will issue Units composed of shares of a newly-designated Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Stock”) and related warrants (the “Warrants”) to purchase shares of Common Stock of the Company (the “Financing Transaction” and, together with the Merger Transaction, the “Two Transactions”).

WHEREAS, Shareholder wishes to induce the Company and the Investors to enter into the Financing Transaction.

WHEREAS, in order to induce the Company and the Investors to enter into the Financing Transaction pursuant to the Securities Purchase Agreement dated June 10, 2008 by and among the Company and the Investors (the “Purchase Agreement”), Shareholder has agreed not to sell any shares of the Company’s Common Stock or any ordinary shares of Long Sunny Limited, a British Virgin Islands company (the “Long Sunny Shares”) that Shareholder presently owns or may acquire after the date hereof, except in accordance with the terms and conditions set forth herein (collectively, the “Lock-Up Shares”). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Purchase Agreement.

NOW, THEREFORE, in consideration of the covenants and conditions hereinafter contained, the parties hereto agree as follows:

1.Restriction on Transfer; Term. The Shareholder hereby agrees with the Company that such Shareholder will not offer, sell, contract to sell, assign, transfer, hypothecate, pledge or grant a security interest in, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise, directly or indirectly) (each, a “transfer”), any of the Lock-Up Shares and shall not transfer such shares until a date that is twelve (12) months following the effective date of the Initial Registration Statement (as that term is defined in the Registration Rights Agreement, dated June 10, 2008 by and among the Company and the Investors) or, in the case of the Long Sunny Shares, until June 10, 2009 (the “Effective Date”) filed by the Company with the Securities and Exchange Commission providing for the resale of the shares of Common Stock issuable upon conversion of the Preferred Shares issued pursuant to the Purchase Agreement (the “Period”). The Shareholder agrees that, during the twenty-four (24) months immediately following the Period, such Shareholder shall not transfer more than one-twelfth (1/12) of such Shareholder’s total holdings of Common Stock during any one (1) month.

2.Ownership. During the Period, Shareholder shall retain all rights of ownership in the Lock-Up Shares, including, without limitation, voting rights and the right to receive any dividends that may be declared in respect thereof.

3.Company and Transfer Agent. The Company is hereby authorized to disclose the existence of this Agreement to its transfer agent. The Company and its transfer agent are hereby authorized to decline to make any transfer of the Common Stock if such transfer would constitute a violation or breach of this Agreement and/or the Purchase Agreement.

4.Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 4), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable.

If to the Company:

Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Chen Wang

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

with copies (which copies shall not constitute notice to the Issuer) to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attention: Marc J. Ross, Esq.

Tel. No.: (212) 930-9700

Fax No.: (212) 930-9725

and to:

Loeb & Loeb LLP

345 Park Avenue

New York, NY 10154

Attn: Mitchell S. Nussbaum, Esq.

Tel. No.: 212-407-4159

Fax No.: 212-407-4990

If to Shareholder,

c/o Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Chen Wang

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

or to such other address as any party may specify by notice given to the other party in accordance with this Section 4.

5.Amendment. This Agreement may not be modified, amended, altered or supplemented, except by a written agreement executed by each of the parties hereto.

6.Entire Agreement. This Agreement contains the entire understanding and agreement of the parties relating to the subject matter hereof and supersedes all prior and/or contemporaneous understandings and agreements of any kind and nature (whether written or oral) among the parties with respect to such subject matter, all of which are merged herein.

7.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in that state, without regard to any of its principles of conflicts of laws or other laws which would result in the application of the laws of another jurisdiction. This Agreement shall be construed and interpreted without regard to any presumption against the party causing this Agreement to be drafted.

8.Waiver of Jury Trial. EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN NEW YORK COUNTY OR SUCH DISTRICT, AND AGREES THAT SERVICE OF ANY SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 4.

9.Severability. The parties agree that if any provision of this Agreement be held to be invalid, illegal or unenforceable in any jurisdiction, that holding shall be effective only to the extent of such invalidity, illegally or unenforceability without invalidating or rendering illegal or unenforceable the remaining provisions hereof, and any such invalidity, illegally or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. It is the intent of the parties that this Agreement be fully enforced to the fullest extent permitted by applicable law.

10.Binding Effect; Assignment. This Agreement and the rights and obligations hereunder may not be assigned by any party hereto without the prior written consent of the other parties hereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

11.Headings. The section headings contained in this Agreement (including, without limitation, section headings and headings in the exhibits and schedules) are inserted for reference purposes only and shall not affect in any way the meaning, construction or interpretation of this Agreement. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. References to the singular shall include the plural and vice versa.

12.Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same document. This Agreement shall become effective when one or more counterparts, taken together, shall have been executed and delivered by all of the parties.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above herein.

SOUTHERN SAUCE COMPANY, INC.
By:
	Name:
	Title:
Name:

EX-4.6

LOCK-UP AGREEMENT

THIS AGREEMENT (this “Agreement”) is dated as of June 10, 2008 by and between Southern Sauce Company, Inc., a Florida corporation (the “Company”), and ____________ (“Shareholder”).

WHEREAS, the Company intends to enter into (i) a merger transaction in which the holders of all of the equity interests in Shen Kun International Limited, a British Virgin Islands company (“Shen Kun”), will deliver all of such equity interests to the Company and receive from the Company, as merger consideration, certain shares of the common stock of the Company, par value $0.001 per share (such stock, the “Common Stock”; such transaction, the “Merger Transaction”) and (ii) a private placement financing transaction with certain accredited investors (the “Investors”) whereby the Company will issue Units composed of shares of a newly-designated Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Stock”) and related warrants (the “Warrants”) to purchase shares of Common Stock of the Company (the “Financing Transaction” and, together with the Merger Transaction, the “Two Transactions”).

WHEREAS, Shareholder wishes to induce the Company and the Investors to enter into the Financing Transaction.

WHEREAS, in order to induce the Company and the Investors to enter into the Financing Transaction pursuant to the Securities Purchase Agreement dated June 10, 2008 by and among the Company and the Investors (the “Purchase Agreement”), Shareholder has agreed not to sell any shares of the Company’s Common Stock or any ordinary shares of Long Sunny Limited, a British Virgin Islands company (the “Long Sunny Shares”) that Shareholder presently owns or may acquire after the date hereof, except in accordance with the terms and conditions set forth herein (collectively, the “Lock-Up Shares”). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Purchase Agreement.

NOW, THEREFORE, in consideration of the covenants and conditions hereinafter contained, the parties hereto agree as follows:

1.Restriction on Transfer; Term. The Shareholder hereby agrees with the Company that such Shareholder will not offer, sell, contract to sell, assign, transfer, hypothecate, pledge or grant a security interest in, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise, directly or indirectly) (each, a “transfer”), any of the Lock-Up Shares and shall not transfer such shares until a date that is twelve (12) months following the effective date of the Initial Registration Statement (as that term is defined in the Registration Rights Agreement, dated June 10, 2008 by and among the Company and the Investors) or, in the case of the Long Sunny Shares, until June 10, 2009 (the “Effective Date”) filed by the Company with the Securities and Exchange Commission providing for the resale of the shares of Common Stock issuable upon conversion of the Preferred Shares issued pursuant to the Purchase Agreement (the “Period”). The Shareholder agrees that, during the twenty-four (24) months immediately following the Period, such Shareholder shall not transfer more than one-twelfth (1/12) of such Shareholder’s total holdings of Common Stock during any one (1) month.

2.Ownership. During the Period, Shareholder shall retain all rights of ownership in the Lock-Up Shares, including, without limitation, voting rights and the right to receive any dividends that may be declared in respect thereof.

3.Company and Transfer Agent. The Company is hereby authorized to disclose the existence of this Agreement to its transfer agent. The Company and its transfer agent are hereby authorized to decline to make any transfer of the Common Stock if such transfer would constitute a violation or breach of this Agreement and/or the Purchase Agreement.

4.Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 4), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable.

If to the Company:

Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Chen Wang

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

with copies (which copies shall not constitute notice to the Issuer) to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attention: Marc J. Ross, Esq.

Tel. No.: (212) 930-9700

Fax No.: (212) 930-9725

2

and to:

Loeb & Loeb LLP

345 Park Avenue

New York, NY 10154

Attn: Mitchell S. Nussbaum, Esq.

Tel. No.: 212-407-4159

Fax No.: 212-407-4990

If to Shareholder,

c/o Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Chen Wang

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

or to such other address as any party may specify by notice given to the other party in accordance with this Section 4.

5.Amendment. This Agreement may not be modified, amended, altered or supplemented, except by a written agreement executed by each of the parties hereto.

6.Entire Agreement. This Agreement contains the entire understanding and agreement of the parties relating to the subject matter hereof and supersedes all prior and/or contemporaneous understandings and agreements of any kind and nature (whether written or oral) among the parties with respect to such subject matter, all of which are merged herein.

7.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in that state, without regard to any of its principles of conflicts of laws or other laws which would result in the application of the laws of another jurisdiction. This Agreement shall be construed and interpreted without regard to any presumption against the party causing this Agreement to be drafted.

8.Waiver of Jury Trial. EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN NEW YORK COUNTY OR SUCH DISTRICT, AND AGREES THAT SERVICE OF ANY SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 4.

3

9.Severability. The parties agree that if any provision of this Agreement be held to be invalid, illegal or unenforceable in any jurisdiction, that holding shall be effective only to the extent of such invalidity, illegally or unenforceability without invalidating or rendering illegal or unenforceable the remaining provisions hereof, and any such invalidity, illegally or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. It is the intent of the parties that this Agreement be fully enforced to the fullest extent permitted by applicable law.

10.Binding Effect; Assignment. This Agreement and the rights and obligations hereunder may not be assigned by any party hereto without the prior written consent of the other parties hereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

11.Headings. The section headings contained in this Agreement (including, without limitation, section headings and headings in the exhibits and schedules) are inserted for reference purposes only and shall not affect in any way the meaning, construction or interpretation of this Agreement. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. References to the singular shall include the plural and vice versa.

12.Counterparts. This Agreement may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same document. This Agreement shall become effective when one or more counterparts, taken together, shall have been executed and delivered by all of the parties.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

4

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above herein.

SOUTHERN SAUCE COMPANY, INC.

By: __________________________________

Name:

Title:

_____________________________________

Name:

5

EX-10.2

SECURITIES ESCROW AGREEMENT

THIS SECURITIES ESCROW AGREEMENT (the “Agreement”), dated as of June 10, 2008, is entered into by and among Southern Sauce Company, Inc., a Florida corporation (the “Company”), Vision Opportunity China LP, a closed-ended investment company incorporated in Guernsey, as representative of the Purchasers (the “Purchaser Representative”), each entity listed on Schedule A hereto (collectively, the “Principal Stockholders”), and Loeb & Loeb LLP, with an address at 345 Park Avenue New York, NY 10154 (the “Escrow Agent”). Capitalized terms used but not defined herein shall have the meanings set forth in the Purchase Agreement (as defined below).

WITNESSETH:

WHEREAS, the Purchasers will be purchasing from the Company Units consisting of shares of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred”), convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and certain common stock purchase warrants (the “Warrants”) pursuant to a Securities Purchase Agreement dated as of the date hereof (the “Closing Date”) by and among the Company and the Purchasers (the “Purchase Agreement”);

WHEREAS, the Company will issue shares of its Common Stock to Shen Kun International Limited, a company organized in the British Virgin Islands (the “BVI”) (“Shen Kun”), pursuant to that certain Merger Agreement, dated as of June 9, 2008 by and among the Company, Shen Kun Acquisition Sub Limited, a BVI company which is a wholly owned subsidiary of Parent (“Acquisition Subsidiary”), Shen Kun, Parent Controlling Shareholders (as that term is defined in the Merger Agreement), Shen Kun Shareholders (as that term is defined in the Merger Agreement), and Shengkai (Tianjin) Ceramic Valves Co., Ltd., a PRC wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s Republic of China (the “PRC”), and Tianjin Shengkai Industrial Technology Development Co., Ltd., a PRC company, (the “Merger Agreement”), and upon the consummation of the transactions contemplated by the Merger Agreement, WFOE, a direct wholly-owned subsidiary of Shen Kun immediately prior to the consummation of the transactions contemplated by the Merger Agreement, will become an indirect wholly-owned subsidiary of the Company (the “Reverse Merger Transaction”);

WHEREAS, the Company and the Purchasers agree that the capitalization table upon which the transactions contemplated by this Agreement and the Purchase Agreement are based is set forth as Schedule B hereto; and

WHEREAS, as an inducement to the Purchasers to enter into the Purchase Agreement, the Principal Stockholders have agreed to place the Escrow Shares (as hereinafter defined) into escrow for the benefit of the Purchasers in the event the Company fails to achieve the following financial performance thresholds for the 12-month periods ending June 30, 2008 (“2008”) and June 30, 2009 (“2009”):

(a)In 2008, (i) Both Net Income, as defined in accordance with US GAAP and reported by the Company in its audited financial statements for 2008 (the “2008 financial statements”) exceeds $8.88 million and Cash from Operations, as reported by the Company in the 2008 financial statements exceed $6.5 million and (ii) Net Income Earnings Per Share equals or exceeds $0.22 per share on a fully diluted basis and Cash from Operations Earnings Per Share equals or exceeds $0.16 per share on a fully diluted basis. “Earnings Per Share” is to be calculated by dividing (A) the respective result of Net Income and Cash from Operations, as reported in the 2008 financial statements plus any amounts that may have been recorded as charges or liabilities on the 2008 financial statements due to the application of EITF No. 00-19 that are associated with (1) any outstanding Warrants of the Company issued in connection with the Purchase Agreement or (2) any liabilities created as a result of the Escrow Shares being released to any officers or directors of the Company (“2008 Net Income”) by (B) the aggregate number of shares of then outstanding Common Stock on a fully-diluted basis, which number shall include, without limitation, the number of shares of Common Stock issuable upon conversion of the Company’s then outstanding shares of Series A Preferred and the number of shares of Common Stock issuable upon the exercise of any then outstanding preferred stock, warrants or options of the Company (“Outstanding Shares”) (the performance thresholds set forth in (i) and (ii) above shall be collectively referred to herein as the “2008 Performance Thresholds”);

(b)In 2009, (i) Both Net Income, as defined in accordance with US GAAP and reported by the Company in its audited financial statements for 2009 (the “2009 financial statements”) exceeds $13 million and Cash from Operations, as reported by the Company in the 2009 financial statements exceed $11 million and (ii) Net Income Earnings Per Share equals or exceeds $0.33 per share on a fully diluted basis and Cash from Operations Earnings Per Share equals or exceeds $0.28 per share on a fully diluted basis. “Earnings Per Share” is to be calculated by dividing (A) the respective result of Net Income and Cash from Operations, as reported by the Company in the 2009 financial statements plus any amounts that may have been recorded as charges or liabilities on the 2009 financial statements due to the application of EITF No. 00-19 that are associated with (1) any outstanding Warrants of the Company issued in connection with the Purchase Agreement or (2) any liabilities created as a result of the Escrow Shares being released to any officers or directors of the Company (“2009 Net Income”) by (B) the then Outstanding Shares (the performance thresholds set forth in (i) and (ii) above shall be collectively referred to herein as the “2009 Performance Thresholds”). In event that the gross proceeds resulting from the sale of Units pursuant to the terms of the Purchase Agreement is less than $20 million, the Company, the Purchaser Representative and the Purchasers have agreed that on or about July 1, 2008, the Net Income, Cash from Operations, Net Income Earnings Per Share and Cash from Operations Earnings Per Share targets set forth in the first sentence of this paragraph shall be amended to reflect the agreement of the parties at such time; and

WHEREAS, the Company, the Purchaser Representative and the Purchasers have requested that the Escrow Agent hold the Escrow Shares on the terms and conditions set forth in this Agreement and the Escrow Agent has agreed to act as escrow agent pursuant to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

TERMS OF THE ESCROW

1.1.The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the Escrow Shares as contemplated by this Agreement.

1.2.Upon the execution of this Agreement, each Principal Stockholder shall deliver to the Escrow Agent stock certificates evidencing one hundred percent (100%) of the shares of Common Stock underlying the Preferred Shares issuable under the Purchase Agreement and indicated on Schedule A hereto (such shares of Common Stock plus such additional number of shares of Common Stock as may be required to be deposited hereunder pursuant to Section 1.3(i) or 1.3(ii) hereof shall be collectively referred to in this Agreement as the “Escrow Shares”), along with updated stock powers executed in blank with signature medallion guaranteed.

1.3.The parties hereby agree that the 2008 Escrow Shares (as hereinafter defined) shall be delivered based on the achievement of the 2008 Performance Thresholds as set forth below:

(i)If the Company does not achieve at least 50% of each of the 2008 Performance Thresholds, then all of the Escrow Shares (the “2008 Escrow Shares”) shall be distributed on a pro rata basis to the Purchasers based on the number of shares of Series A Preferred and Conversion Shares owned by such Purchasers as of the date thereof. Within five (5) business days of the Purchaser Representative’s receipt of the 2008 financial statements, the Company and the Purchaser Representative shall provide written instruction to the Escrow Agent instructing the Escrow Agent to issue and deliver the 2008 Escrow Shares to the Purchasers on a pro rata basis based on the number of shares of Series A Preferred owned by such Purchasers as of the date thereof. Within five (5) business days after the release of the 2008 Escrow Shares to the Purchasers, each Principal Stockholder shall deposit into the escrow account maintained by the Escrow Agent, stock certificates evidencing one hundred percent (100%) of the shares of Common Stock underlying the Preferred Shares issuable under the Purchase Agreement.

(ii)If the Company achieves between 50% and 95% of the 2008 Performance Thresholds, the Escrow Agent shall deliver to the Purchasers, on a pro rata basis based on the number of shares of Series A Preferred and Conversion Shares owned by such Purchasers as of the date thereof, the number of 2008 Escrow Shares multiplied by the percentage by which the lowest of the 2008 Performance Thresholds was not achieved and multiplied by 200%. By way of example, if the Company’s Earnings Per Share for 2008 is an amount equal to 60% of the 2008 Performance Thresholds, the Company’s Net Income reported on the 2008 financial statements is an amount equal to 70% of the 2008 Performance Thresholds and the Company’s Cash from Operations reported on the 2008 financial statements is an amount equal to 80% of the 2008 Performance Thresholds, the Purchasers shall receive 200% of the product of 40% of the 2008 Escrow Shares (100%-60%) and, the remaining Escrow Shares shall continue to be held in escrow hereunder. Within five (5) business days of the Purchaser Representative’s receipt of the 2008 financial statements, the Company and the Purchaser Representative shall provide written instructions to the Escrow Agent instructing the Escrow Agent to deliver the applicable number of 2008 Escrow Shares to the Purchasers and to hold the remaining Escrow Shares in escrow. Within five (5) business days after the release of the 2008 Escrow Shares to the Purchasers, each Principal Stockholder shall deposit into the escrow account maintained by the Escrow Agent, stock certificates evidencing such number of shares of Common Stock so that the number of Escrow Shares shall equal the number of shares of Common Stock initially deposited pursuant to Section 1.2.

(iii)If the Company achieves at least 95% of each of the 2008 Performance Thresholds, then the Escrow Shares shall continue to be held in escrow hereunder.

1.4.The parties hereby agree that the 2009 Escrow Shares (as hereinafter defined) shall be delivered based on achievement of the 2009 Performance Thresholds as set forth below:

(i)If the Company does not achieve at least 50% of each of the 2009 Performance Thresholds, then all of the Escrow Shares (the “2009 Escrow Shares”), shall be distributed on a pro rata basis to the Purchasers based on the number of shares of Series A Preferred and Conversion Shares owned by such Purchasers as of the date thereof. Within five (5) business days of the Purchaser Representative’s receipt of the 2009 financial statements, the Company and the Purchaser Representative shall provide written instruction to the Escrow Agent instructing the Escrow Agent to issue and deliver the 2009 Escrow Shares to the Purchasers on a pro rata basis based on the number of shares of Series A Preferred owned by such Purchasers as of the date thereof.

(ii)If the Company achieves between 50% and 95% of the 2009 Performance Thresholds, (a) the Escrow Agent shall deliver to the Purchasers, on a pro rata basis based on the number of shares of Series A Preferred and Conversion Shares owned by such Purchasers as of the date thereof, the number of 2009 Escrow Shares equal to the number of 2009 Escrow Shares multiplied by the percentage by which the lowest of 2009 Performance Thresholds was not achieved and multiplied by 200% and (b) the remaining 2009 Escrow Shares shall be returned to each Principal Stockholder. By way of example, if the Company’s Earnings Per Share for 2009 is an amount equal to 60% of the 2009 Performance Thresholds, the Company’s Net Income reported on the 2009 financial statements is an amount equal to 70% of the 2009 Performance Thresholds and the Company’s Cash from Operations reported on the 2009 financial statements is an amount equal to 80% of the 2009 Performance Thresholds, the Purchasers shall receive 200% of 40% of the 2009 Escrow Shares (100% - 60%) and the remaining 2009 Escrow Shares shall be returned to each Principal Stockholder. Within five (5) business days of the Purchaser Representative’s receipt of the 2009 financial statements, the Company and the Purchaser Representative shall provide written instructions to the Escrow Agent instructing the Escrow Agent to deliver the applicable number of 2009 Escrow Shares to the Purchasers and to each Principal Stockholder.

(iii)In the event the Company achieves at least 95% of each of the 2009 Performance Thresholds, all of the 2009 Escrow Shares shall be returned to each Principal Stockholder at the address set forth in Section 5.3 hereof.

Notwithstanding anything to the contrary set forth herein, only those Purchasers who own shares of Series A Preferred acquired under the Purchase Agreement and remain shareholders of the Company at the time that the 2009 Escrow Shares become deliverable hereunder shall be entitled to their pro rata portion of such 2009 Escrow Shares calculated based on their ownership interest at the time when such 2009 Escrow Shares become deliverable hereunder. Any 2009 Escrow Shares not delivered to Purchasers because the Purchasers no longer hold shares of Series A Preferred acquired under the Purchase Agreement will be delivered to the Company.

1.5.If the Company fails to timely comply with its obligations set forth in Section 3.25 of the Purchase Agreement (the “Listing Obligation”), then 1,000,000 shares of Common Stock collectively owned by the Principal Stockholders (the “Penalty Shares”) shall be distributed to the Purchasers on a pro rata basis as set forth in Section 3.25 of the Purchase Agreement. Within five (5) business days after the release of the Penalty Shares to the Purchasers, the Principal Stockholders shall deposit into the escrow account maintained by the Escrow Agent, stock certificates evidencing an aggregate of 1,000,000 shares of Common Stock.

1.6.If the Company does not achieve each of the 2008 Performance Thresholds or each of the 2009 Performance Thresholds and/or if the Company does not comply with the Listing Obligation, the Company shall use best efforts to promptly cause the 2008 Escrow Shares, the 2009 Escrow Shares or the Penalty Shares, as applicable, to be delivered to the Purchasers, including causing its transfer agent promptly to issue the certificates in the names of the Purchasers and causing its securities counsel to provide any written instruction required by the Escrow Agent in a timely manner so that the issuances and delivery contemplated above can be achieved within five business days following delivery of the 2008 financial statements or 2009 financial statements in the case of the 2008 Escrow Shares or the 2009 Escrow Shares, as applicable, to the Purchaser Representative, or, within five business days of September 28, 2009, in the case of the Penalty Shares.

1.7.The Company will provide the Purchaser Representative with (i) the Company’s audited financial statements for 2008, prepared in accordance with US GAAP, on or before March 31, 2009 and (ii) the Company’s audited financial statements for 2009, prepared in accordance with US GAAP, on or before March 31, 2010, so as to allow the Purchaser Representative the opportunity to evaluate whether each of the 2008 Performance Thresholds and each of the 2009 Performance Thresholds were attained. In the event that any Purchaser receives the financial information prior to its dissemination by the Company in either a press release or in the Company’s Commission Documents, the Company shall issue a press release announcing the information or file a Form 8-K within one trading day of a request by the Purchaser to make such information public.

1.8.Upon the written request of the Company and Purchaser Representative, the Escrow Agent shall deliver the 2008 Escrow Shares, the 2009 Escrow Shares and the Penalty Shares, as applicable, to each Purchaser and/or each Principal Stockholder pursuant to the written instructions of the Company and Purchaser Representative.

ARTICLE II

REPRESENTATIONS OF THE PRINCIPAL STOCKHOLDERS

2.1.Each Principal Stockholder hereby represents and warrants to the Purchasers and the Purchaser Representative as follows:

(i)The Escrow Shares placed into escrow hereunder by the Principal Stockholder are validly issued, fully paid and nonassessable shares of the Company. The Principal Stockholder is the record and beneficial owner of the Escrow Shares placed into escrow pursuant to this Agreement by the Principal Stockholder and has good title to such Escrow Shares, free and clear of all pledges, liens, claims and encumbrances, except encumbrances created by this Agreement. There are no restrictions on the ability of the Principal Stockholder to transfer the Escrow Shares placed into escrow pursuant to this Agreement by the Principal Stockholder or to enter into this Agreement other than transfer restrictions under the Lock-Up Agreement and/or applicable federal and state securities laws. Upon any delivery of Escrow Shares placed into escrow pursuant to this Agreement by the Principal Stockholder to the Purchasers hereunder, the Purchasers will acquire good and valid title to such Escrow Shares, free and clear of any pledges, liens, claims and encumbrances.

(ii)The performance of this Agreement and compliance with the provisions hereof will not violate any provision of any law applicable to the Principal Stockholder and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any of the properties or assets of the Principal Stockholder pursuant to the terms of the certificate of incorporation or by-laws of the Company or any indenture, mortgage, deed of trust or other agreement or instrument binding upon the Principal Stockholder or affecting the Escrow Shares. No notice to, filing with, or authorization, registration, consent or approval of any governmental authority or other person is necessary for the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby by the Principal Stockholder.

ARTICLE III

COVENANTS

3.1.[Intentionally Omitted.]

3.2.[Intentionally Omitted.]

ARTICLE IV

MISCELLANEOUS

4.1.The Company will pay Escrow Agent a total of $1,000 for all services rendered by Escrow Agent hereunder.

4.2.No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.

All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 4), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to the following addresses or facsimile numbers as applicable.

If to Escrow Agent: Loeb & Loeb LLP

345 Park Avenue

New York, New York 10154

Attention: Mitchell Nussbaum, Esq.

Tel No.:212-407-4000

Fax No.: 212-407-4990

If to the Company or the Principal Stockholders:

Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: 86-22-2858-8899

Fax No.: 86-22-2859-0003

With a copy to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attention: Marc J. Ross, Esq.

Tel. No.: (212) 930-9700

Fax No.: (212) 930-9725

If to the Purchaser              Vision Opportunity China LP

Representative:                   20 W. 55th Street, 5th Floor

New York, New York 10019

Attention: Yiting Liu

Tel. No.: (212) 849-8238

Fax No.: (212) 867-1416

or to such other address and to the attention of such other person as any of the above may have furnished to the other parties in writing and delivered in accordance with the provisions set forth above.

4.3.This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto.

4.4.This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein.

4.5.Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow Agreement.

4.6.The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York, without regard to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. Any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall only be brought in a state or Federal court sitting in New York City, Borough of Manhattan.

4.7.The Escrow Agent’s duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, the Principal Stockholders, the Purchaser Representative and the Escrow Agent.

4.8.The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith and in the absence of gross negligence, fraud and willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent’s attorneys-at-law shall be conclusive evidence of such good faith, in the absence of gross negligence, fraud and willful misconduct.

4.9.The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

4.10.The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver any documents or papers deposited or called for thereunder in the absence of gross negligence, fraud and willful misconduct.

4.11.The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent’s duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor which shall be paid by the Escrow Agent. The Escrow Agent has acted as legal counsel for one of the Purchasers and may continue to act as legal counsel for such Purchaser from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company and the Purchasers consent to the Escrow Agent in such capacity as legal counsel for one of the Purchasers and waive any claim that such representation represents a conflict of interest on the part of the Escrow Agent. The Company and the Purchasers understand that the Escrow Agent is relying explicitly on the foregoing provision in entering into this Escrow Agreement.

4.12.The Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by giving written notice to the Company and the Purchasers. In the event of any such resignation, the Purchasers and the Company shall appoint a successor Escrow Agent and the Escrow Agent shall deliver to such successor Escrow Agent any escrow funds and other documents held by the Escrow Agent.

4.13.If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

4.14.It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the Escrow Shares held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow Agent’s possession without liability to anyone all or any part of said documents or the Escrow Shares until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment or a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the Escrow Shares and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject matter jurisdiction and located in the City of New York, Borough of Manhattan, in accordance with the applicable procedure therefor.

4.15.The Company agrees to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, fraud or willful misconduct of the Escrow Agent.

[Signature Page Follows]

[SIGNATURE PAGE TO SECURITIES ESCROW AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of this 10^th day of June, 2008.

SOUTHERN SAUCE COMPANY, INC.

By: /s/ Wang Chen

Name: Wang Chen

Title: Chief Executive Officer

PURCHASER REPRESENTATIVE:

VISION OPPORTUNITY CHINA LP

By: /s/ Adam Benowitz

Name: Adam Benowitz

Title: Authorized Signatory

ESCROW AGENT:

Loeb & Loeb LLP

By: /s/ Mitchell S. Nussbaum

Name: Mitchell S. Nussbaum

Title: Partner

PRINCIPAL STOCKHOLDER:

By: /s/ Li Shaoqing

Name: Li Shaoqing

Title:

EX-10.3

INVESTOR AND PUBLIC RELATIONS ESCROW AGREEMENT

This Agreement, dated as of June 10, 2008 (this “Agreement”), is entered into by and among Southern Sauce Company, Inc., a Florida corporation (the “Company”), Sichenzia Ross Friedman Ference LLP (the “Escrow Agent”), Vision Opportunity China LP, a closed-ended investment company incorporated in Guernsey (“Vision”), and each of the investors as set forth on Exhibit A attached hereto (together with Vision, each, a “Subscriber”, and collectively, the “Subscribers”) (the Company and the Subscribers are collectively referred to as “Escrowing Parties”). The principal address of each party hereto is set forth on Exhibit A.

WITNESSETH:

WHEREAS, the Company proposes to make a private offering to accredited institutional investors (the “Offering”) of Units, each composed of one share of the Company’s Series A Convertible Preferred Stock and one warrant to purchase the Company’s Common Stock (the “Offering Securities”) in reliance upon available exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended and pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”), in an aggregate amount of up to Twenty Million Dollars ($20,000,000) (the “Maximum Offering Amount”); and

WHEREAS, the Company has agreed to deposit at the closing (the “Closing”) of the Offering an aggregate of Five Hundred Thousand Dollars ($500,000) from the Maximum Offering Amount (the “Public Relations Held-Back Escrowed Portion”) with the Escrow Agent, to be held and disbursed by the Escrow Agent pursuant to this Agreement; and

WHEREAS, Escrow Agent is willing to hold the Public Relations Held-Back Escrowed Portion in escrow subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

1.Appointment of Escrow Agent. The Company and each Subscriber hereby appoint Escrow Agent as escrow agent in accordance with the terms and conditions set forth herein and the Escrow Agent hereby accepts such appointment.

2.Delivery of the Escrowed Funds.

a.The Company hereby directs that the Escrow Agent allocate the Public Relations Held-Back Escrowed Portion separately from the Maximum Offering Amount at the Closing and hold the Public Relations Held-Back Escrowed Portion in the escrow account as follows (the “Escrow Account”):

Bank: Citibank

Address: 666 Fifth Avenue, New York, NY

ABA No.: 021000089

SWIFT: CITIUS33

Account: Sichenzia Ross Friedman Ference LLP Attorney Escrow Account for Southern Sauce Company, Inc.

Account No.: 92883436

Reference: Southern Sauce Company, Inc.

3.Escrow Agent to Hold and Disburse the Public Relations Held-Back Escrowed Portion. The Escrow Agent will hold and disburse the Public Relations Held-Back Escrowed Portion received by it pursuant to the terms of this Agreement, as follows:

a.The Public Relations Held-Back Escrowed Portion shall remain in the Escrow Account and shall only be released by the Escrow Agent to the Company upon the Escrow Agent’s receipt of written notice in the form of Exhibit B hereto from the Company that the Company has hired an investor relations firm with invoices evidencing the investor relations related expenses for payment.

b.Notwithstanding the provisions set forth in Section 3(a) above, One Hundred Fifty Thousand Dollars ($150,000) out of the Five Hundred Thousand Dollars ($500,000) shall be released once the Company appoints a Chief Financial Officer or Vice President of Investor Relations pursuant to Section 4.2(x) of the Securities Purchase Agreement.  In addition, an additional One Hundred Fifty Thousand Dollars ($150,000) will be released to the Company once the Company engages a new independent accounting firm that is listed as one of the top 20 firms by stock market client number as calculated by Hemscott Group Limited, a division of Morningstar, Inc.

c.In the event this Agreement, the Escrowed Funds, or the Escrow Agent becomes the subject of litigation, or if the Escrow Agent shall desire to do so for any other reason, each of the Company and the Subscribers authorizes the Escrow Agent, at its option, to deposit the Public Relations Held-Back Escrowed Portion with the clerk of the court in which the litigation is pending, or a court of competent jurisdiction if no litigation is pending, and thereupon the Escrow Agent shall be fully relieved and discharged of any further responsibility with regard thereto. Each of the Company, and the Subscribers further authorizes the Escrow Agent, if it receives conflicting claims to any of the Escrowed Funds, is threatened with litigation or if the Escrow Agent shall desire to do so for any other reason, to interplead all interested parties in any court of competent jurisdiction and to deposit the Public Relations Held-Back Escrowed Portion with the clerk of that court and thereupon the Escrow Agent shall be fully relieved and discharged of any further responsibility hereunder to the parties from which they were received.

4.Exculpation and Indemnification of Escrow Agent.

a.The Escrow Agent shall have no duties or responsibilities other than those expressly set forth herein. The Escrow Agent shall have no duty to enforce any obligation of any person to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any person to perform any other act. The Escrow Agent shall be under no liability to the other parties hereto or anyone else, by reason of any failure, on the part of any party hereto or any maker, guarantor, endorser or other signatory of a document or any other person, to perform such person’s obligations under any such document. Except for amendments to this Agreement referenced below, and except for written instructions given to the Escrow Agent by the Escrowing Parties relating to the Escrowed Funds, the Escrow Agent shall not be obligated to recognize any agreement between or among any of the Escrowing Parties, notwithstanding that references hereto may be made herein and whether or not it has knowledge thereof.

b.The Escrow Agent shall not be liable to the Company, any Subscriber or to anyone else for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report, or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained), which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by written notice delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto.

c.The Escrow Agent shall not be responsible for the sufficiency or accuracy of the form, or of the execution, validity, value or genuineness of, any document or property received, held or delivered to it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Escrow Agent be responsible or liable to the Company, any Subscriber or to anyone else in any respect on account of the identity, authority or rights, of the person executing or delivering or purporting to execute or deliver any document or property or this Agreement. The Escrow Agent shall have no responsibility with respect to the use or application of the Escrowed Funds pursuant to the provisions hereof.

d.The Escrow Agent shall have the right to assume, in the absence of written notice to the contrary from the proper person or persons, that a fact or an event, by reason of which an action would or might be taken by the Escrow Agent, does not exist or has not occurred, without incurring liability to the Company, any Subscriber or to anyone else for any action taken or omitted to be taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption.

e.To the extent that the Escrow Agent becomes liable for the payment of taxes, including withholding taxes, in respect of income derived from the investment of the Public Relations Held-Back Escrowed Portion, or any payment made hereunder, the Escrow Agent may pay such taxes; and the Escrow Agent may withhold from any payment of the Public Relations Held-Back Escrowed Portion such amount as the Escrow Agent estimates to be sufficient to provide for the payment of such taxes not yet paid, and may use the sum withheld for that purpose. The Escrow Agent shall be indemnified and held harmless against any liability for taxes and for any penalties in respect of taxes, on such investment income or payments in the manner provided in Section 4(f).

f.The Escrow Agent will be indemnified and held harmless by the Company from and against all expenses, including all counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or proceedings involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, except for claims relating to gross negligence by Escrow Agent or breach of this Agreement by the Escrow Agent, or the monies or other property held by it hereunder. Promptly after the receipt of the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof is to be made against an Escrowing Party, notify each of them thereof in writing, but the failure by the Escrow Agent to give such notice shall not relieve any such party from any liability which an Escrowing Party may have to the Escrow Agent hereunder. Notwithstanding any obligation to make payments and deliveries hereunder, the Escrow Agent may retain and hold for such time as it deems necessary such amount of monies or property as it shall, from time to time, in its sole discretion, seem sufficient to indemnify itself for any such loss or expense and for any amounts due it under Section 7.

g.For purposes hereof, the term “expense or loss” shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, including, but not limited to, counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding.

5.Termination of Agreement and Resignation of Escrow Agent.

a.This Agreement shall terminate upon disbursement of all of the Public Relations Held-Back Escrowed Portion provided that the rights of the Escrow Agent and the obligations of the Company and the Subscribers under Section 4 shall survive the termination hereof.

b.The Escrow Agent may resign at any time and be discharged from its duties as Escrow Agent hereunder by giving the Company and Vision at least five (5) business days written notice thereof (the “Notice Period”). As soon as practicable after its resignation, the Escrow Agent shall, if it receives notice from the Company and Vision within the Notice Period, turn over to a successor escrow agent appointed by the Company and Vision all Public Relations Held-Back Escrowed Portion (less such amount as the Escrow Agent is entitled to retain pursuant to Section 7) upon presentation of the document appointing the new escrow agent and its acceptance thereof. If no new agent is so appointed within the Notice Period, the Escrow Agent shall return the Escrowed Funds to the parties from which they were received without interest or deduction.

6.Form of Payments by Escrow Agent.

a.Any payments of the Public Relations Held-Back Escrowed Portion by the Escrow Agent pursuant to the terms of this Agreement shall be made by wire transfer unless directed to be made by check by the Escrowing Parties.

b.All amounts referred to herein are expressed in United States Dollars and all payments by the Escrow Agent shall be made in such dollars.

7.Compensation. Escrow Agent shall be entitled to the following compensation from the Company:

a.Fees: The Company shall pay an annual processing fee of $500 to the Escrow Agent for the Public Relations Held-Back Escrowed Portion.

b.Interest: The Public Relations Held-Back Escrowed Portion shall accrue interest (the “Accrued Interest”) at the available rate obtained by the Escrow Agent with respect to the period during which such funds are held in the Escrow Account.

8.Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 8), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to addresses or facsimile numbers as applicable set forth on Exhibit A hereto.

9.Further Assurances. From time to time on and after the date hereof, the Company, Vision and each of the other Subscribers, if applicable, shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do and cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

10.Consent to Service of Process. The Company, the Escrow Agent and each Subscriber hereby irrevocably consent to the jurisdiction of the courts of the State of New York and of any Federal court located in such state in connection with any action, suit or proceedings arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to it at the address listed on Exhibit A hereto.

11.Miscellaneous

a.This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing such instrument to be drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in this Agreement, refer to the Escrow Agreement in its entirety and not only to the particular portion of this Agreement where the term is used. The word “person” shall mean any natural person, partnership, corporation, government and any other form of business of legal entity. All words or terms used in this Agreement, regardless of the number or gender in which they were used, shall be deemed to include any other number and any other gender as the context may require. This Agreement shall not be admissible in evidence to construe the provisions of any prior agreement.

b.This Agreement and the rights and obligations hereunder of the Company and each Subscriber may not be assigned. This Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent, with the prior consent of the Company. This Agreement shall be binding upon and inure to the benefit of each party’s respective successors, heirs and permitted assigns. No other person shall acquire or have any rights under or by virtue of this Agreement. This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Escrow Agent, the Company and Vision. This Agreement is intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person.

c.This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.

12.Execution of Counterparts. This Agreement may be executed in a number of counterparts, by facsimile, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all the parties.

[THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK.]

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

SICHENZIA ROSS FRIEDMAN FERENCE LLP

By:	/s/ Marc Ross
	Name: Marc Ross
	Title: Partner

SOUTHERN SAUCE COMPANY, INC.

By:	/s/ Wang Chen
	Name: Wang Chen
	Title: Chief Executive Officer

VISION OPPORTUNITY CHINA LP

By:	/s/ Adam Benowitz
	Name:
	Title:

[Name of Subscriber]

By:
	Name:
	Title:

EXHIBIT A

PARTIES TO AGREEMENT

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

Attention: Marc Ross, Esq.

Tel No.: (212) 930-9700

Fax No.: (212) 930-9725

Southern Sauce Company, Inc.

No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tianjin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: 86-22-2858-8899

Fax No.: 86-22-2859-0003

Vision Opportunity China LP

c/o Vision Capital Advisors, LLC

20 West 55th Street, 5th Floor

New York, NY 10019-5373

Attention: Yiting Liu

Tel. No.: (212) 849-8238

Fax No.: (212) 867-1416

Other Subscribers

Name of Subscriber: ____________________

Address: ______________________________

Attention: _____________________________

Tel: __________________________________

Fax: __________________________________

By:
	Name:
	Title:

EXHIBIT B

DISBURSEMENT REQUEST

Pursuant to that Investor and Public Relations Escrow Agreement dated effective as of June 10, 2008, among Southern Sauce Company, Inc., Vision Opportunity China LP and Sichenzia Ross Friedman Ference LLP, as Escrow Agent, the Company hereby requests disbursement of funds in the amount and manner described below from account number _____________, styled ____________________________ Escrow Account.

Please disburse to:
Amount to disburse:
Form of distribution:
Payee:
	Name:
	Address:
	City/State:
	Zip:
Statement of event or condition which calls for this request for disbursement:

	SOUTHERN SAUCE COMPANY, INC.
Date: _________________________	By:
	Name:
	Title:

EX-10.4

ESCROW AGREEMENT

This Agreement, dated as of June 2, 2008 (this “Agreement”), is entered into by and among Shen Kun International Limited, a limited liability company organized under the laws of the British Virgin Islands (“Shen Kun”), Southern Sauce Company, Inc., a Florida corporation (the “Company”), Loeb & Loeb LLP (the “Escrow Agent”), Vision Opportunity China LP, a closed-ended investment company incorporated in Guernsey (“Vision”), together with the Company, the “Escrowing Parties”), and each of the investors as set forth on Exhibit A attached hereto (together with Vision, each, a “Subscriber”, and collectively, the “Subscribers”). The principal address of each party hereto is set forth on Exhibit A.

WITNESSETH:

WHEREAS, Long Sunny Limited, a British Virgin Islands company (“Long Sunny”), Groom Profit Limited, a British Virgin Islands company (“Groom Profit”), Right Idea Limited, a British Virgin Islands company (“Right Idea”), the individuals Mr. Miao Yang, Ms. Zhang Ying, Ms. Chen Fang, Mr. Wu Yanping, Mr. Liu NaiFan (Long Sunny, Groom Profit, Right Idea, Mr. Yang, Ms. Ying, Ms. Fang, Mr. Yanping and Mr. NaiFan, the “Shareholders”) intend to enter into a merger agreement with the Company’s subsidiary (the “Acquisition Subsidiary”) pursuant to which Shareholders will transfer all of their ownership interest in Shen Kun to the Acquisition Subsidiary in exchange for issuance of shares of Common Stock of the Company (the “Reverse Merger Transaction”), and as a result of the Reverse Merger Transaction, Shen Kun will become a wholly-owned subsidiary of the Company;

WHEREAS, concurrent with the consummation of the Reverse Merger Transaction, the Company proposes to make a private offering to accredited institutional investors (the “Offering”) of Units, each composed of one share of the Company’s Series A Convertible Preferred Stock and one warrant to purchase the Company’s Common Stock (the “Offering Securities”) in reliance upon available exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended and pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”), in an aggregate amount of up to Twenty Million Dollars ($20,000,000) (the “Maximum Offering Amount”); and

WHEREAS, the Company, and the Subscribers desire to deposit all proceeds received from the Subscriptions (as defined herein) made by the Subscribers for the Offering Securities (the “Escrowed Funds”) with the Escrow Agent, to be held and disbursed by the Escrow Agent pursuant to this Agreement; and

WHEREAS, Escrow Agent is willing to hold the Escrowed Funds in escrow subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

1.Appointment of Escrow Agent. The Company and each Subscriber hereby appoint Escrow Agent as escrow agent in accordance with the terms and conditions set forth herein and the Escrow Agent hereby accepts such appointment.

1

2.Delivery of the Escrowed Funds.

a.The Company will direct each Subscriber to deliver the Escrowed Funds to the Escrow Agent as follows:

Bank: CITI Private Bank

Address: 666 Fifth Avenue, New York, NY 10103

ABA No.: 021000089

SWIFT: CITI US 33

Account: Loeb & Loeb LLP Escrow Account

Account No.: 02958589

Attn: Mitchell Nussbaum, Esq.

Reference: 210920-10001 (Vision Capital Advisors, LLC/Shengkai Financing)

b.The Escrowed Funds shall be forwarded to the Escrow Agent by wire transfer, together with the written account of subscription (the “Subscription”) in the form attached hereto as Exhibit B (the “Subscription Information”). The Escrowed Funds to be wired shall be wired to the account set forth in Section 2(a) above and the Subscription shall be faxed or emailed to the Escrow Agent in accordance with the information provided on Exhibit A.

c.Simultaneously with each deposit, each Subscriber shall provide the Escrow Agent with the Subscription Information, including the name, address and taxpayer identification number of each Subscriber and of the aggregate principal amount of Offering Securities subscribed for by such Subscriber.

d.In the event a wire transfer is received by the Escrow Agent and the Escrow Agent has not received Subscription Information, the Escrow Agent shall notify the Subscriber. If the Escrow Agent does not receive the Subscription Information by such Subscriber prior to close of business on the fifth (5^th) business day (days other than a Saturday or Sunday or other day on which the Escrow Agent is not open for business in the State of New York) after notifying the Subscriber of receipt of said wire, the Escrow Agent shall return the funds to the Subscriber.

3.Escrow Agent to Hold and Disburse Escrowed Funds. The Escrow Agent will hold and disburse the Escrowed Funds received by it pursuant to the terms of this Agreement, as follows:

a.Prior to any disbursement of the Escrowed Funds, the Escrow Agent shall allocate a portion of the Escrowed Funds and hold such portion in a separate escrow account to pay the fees and expenses in connection with investor or public relations in the aggregate amount of $300,000 (the “Public Relations Held-Back Escrowed Portion”) subject to the terms and conditions of the Investor and Public Relations Escrow Agreement. Unless otherwise specified herein, the term “Escrowed Funds” shall include the aggregate amount of the Public Relations Held-Back Escrowed Portion.

2

b.At such time that Fifteen Million Dollars ($15,000,000) of the Maximum Offering Amount is deposited and upon receipt of joint instructions from the Company and Vision, in substantially the forms of Exhibit C hereto and of Exhibit D hereto, following the consummation of the Offering, the Escrow Agent shall release the Escrowed Funds, less the Public Relations Held-Back Escrowed Portion, to the Company.

c.In the event this Agreement, the Escrowed Funds, or the Escrow Agent becomes the subject of litigation, or if the Escrow Agent shall desire to do so for any other reason, each of the Company and the Subscribers authorizes the Escrow Agent, at its option, to deposit the Escrowed Funds (including the Public Relations Held-Back Escrowed Portion) with the clerk of the court in which the litigation is pending, or a court of competent jurisdiction if no litigation is pending, and thereupon the Escrow Agent shall be fully relieved and discharged of any further responsibility with regard thereto. Each of the Company, and the Subscribers further authorizes the Escrow Agent, if it receives conflicting claims to any of the Escrowed Funds, is threatened with litigation or if the Escrow Agent shall desire to do so for any other reason, to interplead all interested parties in any court of competent jurisdiction and to deposit the Escrowed Funds (including the Public Relations Held-Back Escrowed Portion) with the clerk of that court and thereupon the Escrow Agent shall be fully relieved and discharged of any further responsibility hereunder to the parties from which they were received.

4.Exculpation and Indemnification of Escrow Agent.

a.The Escrow Agent shall have no duties or responsibilities other than those expressly set forth herein. The Escrow Agent shall have no duty to enforce any obligation of any person to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any person to perform any other act. The Escrow Agent shall be under no liability to the other parties hereto or anyone else, by reason of any failure, on the part of any party hereto or any maker, guarantor, endorser or other signatory of a document or any other person, to perform such person’s obligations under any such document. Except for amendments to this Agreement referenced below, and except for written instructions given to the Escrow Agent by the Escrowing Parties relating to the Escrowed Funds, the Escrow Agent shall not be obligated to recognize any agreement between or among any of the Escrowing Parties, notwithstanding that references hereto may be made herein and whether or not it has knowledge thereof.

b.The Escrow Agent shall not be liable to the Company, any Subscriber or to anyone else for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report, or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained), which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by written notice delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto.

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c.The Escrow Agent shall not be responsible for the sufficiency or accuracy of the form, or of the execution, validity, value or genuineness of, any document or property received, held or delivered to it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Escrow Agent be responsible or liable to the Company, any Subscriber or to anyone else in any respect on account of the identity, authority or rights, of the person executing or delivering or purporting to execute or deliver any document or property or this Agreement. The Escrow Agent shall have no responsibility with respect to the use or application of the Escrowed Funds pursuant to the provisions hereof.

d.The Escrow Agent shall have the right to assume, in the absence of written notice to the contrary from the proper person or persons, that a fact or an event, by reason of which an action would or might be taken by the Escrow Agent, does not exist or has not occurred, without incurring liability to the Company, any Subscriber or to anyone else for any action taken or omitted to be taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption.

e.To the extent that the Escrow Agent becomes liable for the payment of taxes, including withholding taxes, in respect of income derived from the investment of the Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such taxes; and the Escrow Agent may withhold from any payment of the Escrowed Funds (including the Public Relations Held-Back Escrowed Portion) such amount as the Escrow Agent estimates to be sufficient to provide for the payment of such taxes not yet paid, and may use the sum withheld for that purpose. The Escrow Agent shall be indemnified and held harmless against any liability for taxes and for any penalties in respect of taxes, on such investment income or payments in the manner provided in Section 4(f).

f.The Escrow Agent will be indemnified and held harmless by the Company from and against all expenses, including all counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or proceedings involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, except for claims relating to gross negligence by Escrow Agent or breach of this Agreement by the Escrow Agent, or the monies or other property held by it hereunder. Promptly after the receipt of the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof is to be made against the Company, notify each of them thereof in writing, but the failure by the Escrow Agent to give such notice shall not relieve any such party from any liability which the Company may have to the Escrow Agent hereunder. Notwithstanding any obligation to make payments and deliveries hereunder, the Escrow Agent may retain and hold for such time as it deems necessary such amount of monies or property as it shall, from time to time, in its sole discretion, seem sufficient to indemnify itself for any such loss or expense and for any amounts due it under Section 7.

g.For purposes hereof, the term “expense or loss” shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, including, but not limited to, counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding.

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5.Termination of Agreement and Resignation of Escrow Agent

a.This Agreement shall terminate upon disbursement of all of the Escrowed Funds, which includes the transfer into a separate escrow account of the Public Relations Held-Back Escrowed Portion, provided that the rights of the Escrow Agent and the obligations of the Company and the Subscribers under Section 4 shall survive the termination hereof. Notwithstanding the foregoing, in the event that the Escrow Agent does not receive any instructions with respect to the disbursement of any Escrowed Funds by June 29, 2008, this Agreement shall terminate as of such date and all Escrowed Funds shall be returned to the parties from which they were received without interest thereon or deduction therefrom.

b.The Escrow Agent may resign at any time and be discharged from its duties as Escrow Agent hereunder by giving the Company and Vision at least five (5) business days written notice thereof (the “Notice Period”). As soon as practicable after its resignation, the Escrow Agent shall, if it receives notice from the Company and Vision within the Notice Period, turn over to a successor escrow agent appointed by the Company and Vision all Escrowed Funds (less such amount as the Escrow Agent is entitled to retain pursuant to Section 7) upon presentation of the document appointing the new escrow agent and its acceptance thereof. If no new agent is so appointed within the Notice Period, the Escrow Agent shall return the Escrowed Funds to the parties from which they were received without interest or deduction.

6.Form of Payments by Escrow Agent

a.Any payments of the Escrowed Funds or Held-Back Escrowed Portion by the Escrow Agent pursuant to the terms of this Agreement shall be made by wire transfer unless directed to be made by check by the Escrowing Parties.

b.All amounts referred to herein are expressed in United States Dollars and all payments by the Escrow Agent shall be made in such dollars.

7.Compensation. Escrow Agent shall be entitled to the following compensation from the Company:

a.Documentation Fee: The Company shall pay a documentation fee to the Escrow Agent of $2,000 which shall be payable upon release of the Escrowed Funds.

b.Fees: The Company shall pay a fee of $500 to the Escrow Agent at the Closing. In addition, the Company shall pay a processing fee of $500 to the Escrow Agent for each disbursement made subsequent to the Closing from the Public Relations Held-Back Escrowed Portion.

c.Interest: The Escrowed Funds and Public Relations Held-Back Escrowed Portion shall be held in separate non-interest bearing escrow accounts.

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8.Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, two (2) business days after being mailed, (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), or (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 8), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to addresses or facsimile numbers as applicable set forth on Exhibit A hereto.

9.Further Assurances.From time to time on and after the date hereof, the Company, Vision and each of the other Subscribers, if applicable, shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do and cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

10.Consent to Service of Process. The Company and each Subscriber hereby irrevocably consent to the jurisdiction of the courts of the State of New York and of any Federal court located in such state in connection with any action, suit or proceedings arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to it at the address listed on Exhibit A hereto.

11.Miscellaneous.

a.This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing such instrument to be drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in this Agreement, refer to the Escrow Agreement in its entirety and not only to the particular portion of this Agreement where the term is used. The word “person” shall mean any natural person, partnership, corporation, government and any other form of business of legal entity. All words or terms used in this Agreement, regardless of the number or gender in which they were used, shall be deemed to include any other number and any other gender as the context may require. This Agreement shall not be admissible in evidence to construe the provisions of any prior agreement.

6

b.This Agreement and the rights and obligations hereunder of the Company and each Subscriber may not be assigned. This Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent, with the prior consent of the Company. This Agreement shall be binding upon and inure to the benefit of each party’s respective successors, heirs and permitted assigns. No other person shall acquire or have any rights under or by virtue of this Agreement. This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Escrow Agent, the Company and Vision. This Agreement is intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person.

c.The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent’s duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor which shall be paid by the Escrow Agent. The Escrow Agent has acted as legal counsel for one of the Purchasers and may continue to act as legal counsel for such Purchaser from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company and the Purchasers consent to the Escrow Agent in such capacity as legal counsel for one of the Purchasers and waive any claim that such representation represents a conflict of interest on the part of the Escrow Agent. The Company and the Purchasers understand that the Escrow Agent is relying explicitly on the foregoing provision in entering into this Escrow Agreement.

d.This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.

12.Execution of Counterparts.This Agreement may be executed in a number of counterparts, by facsimile, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all the parties.

7

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

LOEB & LOEB LLP
By:	/s/ Mitchell S. Nussbaum
	Name: Mitchell S. Nussbaum
	Title: Partner
SOUTHERN SAUCE COMPANY, INC.
By:	/s/ John Vogel
	Name: John Vogel
	Title: Chief Executive Officer
SHEN KUN INTERNATIONAL LIMITED
By:	/s/ Wang Chen
	Name:Wang Chen
	Title: Chief Executive Officer
VISION OPPORTUNITY CHINA LP
By:	/s/ Adam Benowitz
	Name:Adam Benowitz
	Title: Authorized Signatory

8

EXHIBIT A

PARTIES TO AGREEMENT

Loeb & Loeb LLP

345 Park Avenue

New York, New York 10154

Attention: Mitchell S. Nussbaum, Esq.

Tel No.: (212) 407-4000

Fax No.: (212) 407-4990

Shen Kun International Limited

Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tian Jin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

Southern Sauce Company, Inc.

Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tian Jin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

Vision Opportunity China LP

c/o Vision Capital Advisors, LLC

20 West 55th Street, 5th Floor

New York, NY 10019-5373

Attention: Yiting Liu

Tel. No.: (212) 849-8238

Fax No.: (212) 867-1416

Other Subscribers

Name of Subscriber:

Address:

Attention:

Tel:

Fax:

By: ________________________________________________

Name:

Title:

9

EXHIBIT B

SUBSCRIPTION INFORMATION

Name of Subscriber

Address of Subscriber

Amount of Offering Securities Subscribed (US$)

Subscription Amount Submitted Herewith

Taxpayer ID Number/

Social Security Number

10

EXHIBIT C

DISBURSEMENT REQUEST

Pursuant to that certain Escrow Agreement dated effective as of June 2, 2008, among Southern Sauce Company, Inc., Shen Kun International Limited, Vision Opportunity China LP and Loeb & Loeb LLP, as Escrow Agent, the Escrowing Parties hereby request disbursement of funds in the amount and manner described below from account number _____________, styled ____________________________ Escrow Account.

Please disburse to:		________________________________
Amount to disburse:		________________________________
Form of distribution:		________________________________
Payee:
	Name:	________________________________
	Address:	________________________________
	City/State:	________________________________
	Zip:	________________________________
Please disburse to:		________________________________
Amount to disburse:		________________________________
Form of distribution:		________________________________
Payee:
	Name:	________________________________
	Address:	________________________________
	City/State:	________________________________
	Zip:	________________________________

Subscriptions Accepted From

Subscriber	Amount
___________________________	__________________________
___________________________	__________________________
___________________________	__________________________
___________________________	__________________________
Total:	__________________________

Statement of event or condition which calls for this request for disbursement:

_______________________________________________________________

_______________________________________________________________

11

	SOUTHERN SAUCE COMPANY, INC.
Date: _________________________	By: _________________________
	Name:
	Title:
	VISION OPPORTUNITY CHINA LP
Date: _________________________	By: _________________________
	Name:
	Title:

12

EXHIBIT D

DISBURSEMENT REQUEST

Pursuant to that certain Escrow Agreement dated effective as of June 2, 2008, among Southern Sauce Company, Inc., Shen Kun International Limited, Vision Opportunity China LP and Loeb & Loeb LLP, as Escrow Agent, the Escrowing Parties hereby request disbursement of funds in the amount and manner described below from account number ____________, styled __________________________ Escrow Account.

Please disburse to:		________________________________
Amount to disburse:		________________________________
Form of distribution:		________________________________
Payee:
	Name:	________________________________
	Address:	________________________________
	City/State:	________________________________
	Zip:	________________________________
Please disburse to:		________________________________
Amount to disburse:		________________________________
Form of distribution:		________________________________
Payee:
	Name:	________________________________
	Address:	________________________________
	City/State:	________________________________
	Zip:	________________________________

Statement of event or condition which calls for this request for disbursement:

_______________________________________________________________

_______________________________________________________________

	SOUTHERN SAUCE COMPANY, INC.
Date: _________________________	By: _________________________
	Name:
	Title:
	VISION OPPORTUNITY CHINA LP
Date: _________________________	By: _________________________
	Name:
	Title:

13

EX-10.5

FIRST AMENDMENT TO

ESCROW AGREEMENT

This First Amendment to Escrow Agreement, dated as of June 4, 2008 (this “Agreement”), is entered into by and among Shen Kun International Limited, a limited liability company organized under the laws of the British Virgin Islands (“Shen Kun”), Southern Sauce Company, Inc., a Florida corporation (the “Company”), Loeb & Loeb LLP (the “Escrow Agent”) and Vision Opportunity China LP, a closed-ended investment company incorporated in Guernsey (“Vision”, together with the Company, the “Escrowing Parties”). The principal address of each party hereto is set forth on Exhibit A.

WITNESSETH:

WHEREAS, Shen Kun, the Escrowing Parties and the Escrow Agent entered into an Escrow Agreement dated as of June 2, 2008 (the “Escrow Agreement”), and

WHEREAS, the parties have agreed to amend certain provisions of the Escrow Agreement, in the manner, and on the terms and conditions, set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

1.Definitions. Capitalized terms not otherwise defined herein (including the Recitals) shall have the meanings ascribed to them in the Escrow Agreement.

2.Amendment to Section 3(a) of the Escrow Agreement. Section 3(a) of the Escrow Agreement is hereby amended and restated in its entirety as of the date hereof to read as follows:

a.Prior to any disbursement of the Escrowed Funds, the Escrow Agent shall allocate a portion of the Escrowed Funds and hold such portion in a separate escrow account to pay the fees and expenses in connection with investor or public relations in the aggregate amount of $500,000 (the “Public Relations Held-Back Escrowed Portion”) subject to the terms and conditions of the Investor and Public Relations Escrow Agreement. Unless otherwise specified herein, the term “Escrowed Funds” shall include the aggregate amount of the Public Relations Held-Back Escrowed Portion.

3.Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.

1

4.Execution of Counterparts.This Agreement may be executed in a number of counterparts, by facsimile, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all the parties.

[Signature Page to Follow]

2

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

LOEB & LOEB LLP
By:	/s/ Mitchell S. Nussbaum
	Name: Mitchell S. Nussbaum
	Title: Partner

SOUTHERN SAUCE COMPANY, INC.
By:	/s/ John Vogel
	Name: John Vogel
	Title: Chief Executive Officer

SHEN KUN INTERNATIONAL LIMITED
By:	/s/ Wang Chen
	Name: Wang Chen
	Title: Chief Executive Officer

VISION OPPORTUNITY CHINA LP
By:	/s/ Adam Benowitz
	Name: Adam Benowitz
	Title: Authorized Signatory

3

EXHIBIT A

PARTIES TO AGREEMENT

Loeb & Loeb LLP

345 Park Avenue

New York, New York 10154

Attention: Mitchell S. Nussbaum, Esq.

Tel No.: (212) 407-4000

Fax No.: (212) 407-4990

Shen Kun International Limited

Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tian Jin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

Southern Sauce Company, Inc.

Wang Gang Road, Jin Nan (Shuang Gang) Development Area

Tian Jin, People’s Republic of China 300350

Attention: Wang Chen

Tel. No.: (86-22) 2858-8899

Fax No.: (86-22) 2859-0003

Vision Opportunity China LP

c/o Vision Capital Advisors, LLC

20 West 55th Street, 5th Floor

New York, NY 10019-5373

Attention: Yiting Liu

Tel. No.: (212) 849-8238

Fax No.: (212) 867-1416

4

EX-10.6

AEGIS CAPITAL CORP.

May 26, 2008

This letter agreement (this “Agreement”) confirms the engagement of AEGIS CAPITAL CORP Inc. (“ACC”) and TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD. (“SHENGKAI” or the “Company”) as non-exclusive placement agent and financial advisor to arrange the sale of equity or equity-linked securities including convertible preferred, convertible debt and debt with warrants (“Equity” or the “Securities”) on behalf of the Company as noted below.

a. Pipe Financing. ACC will use its best efforts to provide up to $20,000,000 USD in financing to SHENGKAI. This financing will be accomplished under the terms and conditions that are mutually agreeable to SHENGKAI, ACC and its investors.

Retention. Subject to the terms and conditions of this Agreement, SHENGKAI hereby engages ACC to act on behalf of the Company as its non-exclusive placement agent and financial advisor during the Authorization Period (as defined below), to arrange for the sale of Securities in an amount and on terms and conditions satisfactory to the Company, and ACC hereby accepts such engagement.

Authorization Period. ACC’s engagement shall become effective upon the signing of this agreement and shall remain effective for a period of ninety (90) calendar days. The Company may, upon thirty (30) days notice, terminate this agreement.

Compensation. SHENGKAI shall pay ACC the compensation set forth below:

a.Cash Fee for Equity. SHENGKAI shall pay ACC a cash placement fee equal to one 1% per cent on any gross proceeds received by the Company in connection with the sale of Securities or a Financing. In addition SHENGKAI will pay Aegis Asia Capital Corp. a non-accountable allowance of 6% of the gross proceeds raised in the financing.. The cash placement fee shall be paid by wire transfer on the closing date on which the Company receives such aggregate consideration.

4.Representations, Warranties and Covenants of SHENGKAI. SHENGKAI represents and warrants to, and covenants with, ACC as follows:

a. Neither the Company nor any person acting on its behalf has taken, and SHENGKAI shall not and shall not permit its affiliates to take, directly or indirectly, any action so as to cause any of the transactions contemplated by this Agreement to fail to be entitled to exemption from registration or qualification under all applicable securities laws or which constitutes general advertising or general solicitation (as those terms are used in Regulation D under the Securities Act) with respect to the Securities.

b. SHENGKAI shall take and shall cause its affiliates to take such actions as may be required to cause compliance with this Agreement. ACC acknowledges that it may cause its affiliates to perform any of its obligations hereunder; provided, however, that SHENGKAI’s intention to do so (or any action by SHENGKAI or ACC in respect thereof) shall not relieve SHENGKAI from its obligation to perform such obligations when due.

c.The Company will furnish, or cause to be furnished, to ACC such information as ACC believes appropriate to its engagement hereunder (all such information, the "Information"), and the Company represents that all such Information will be accurate and complete in all material respects. The Company will promptly notify ACC of any change that may be material in such Information. It is understood that ACC will be entitled to rely on and use the Information and other information that is publicly available without independent verification, and will not be responsible in any respect for the accuracy, completeness or reasonableness of all such Information or to conduct any independent verification or any appraisal or physical inspection of properties or assets.

810 Seventh Ave., 11^th Floor, New York, NY 10019 (212) 813-100/Fax (212) 813-1047

Member NASD/PCX/SIPC

AEGIS CAPITAL CORP.

5. Representations, Warranties and Covenants of ACC. ACC represents and warrants to, and covenants with, SHENGKAI as follows:

a.None of ACC, its affiliates or any person acting on behalf of ACC or any of such affiliates has engaged or will engage in any general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) with respect to the Securities.

b. ACC will use its best efforts to conduct the offering and sale of Securities so that Securities are sold in a transaction or series of transactions exempt from registration under the Securities Act.

c. ACC will send Materials related to the Financings only to persons that the ACC reasonably believes are “accredited investors” (as defined under Rule 501(a) of the Securities Act).

6.Indemnification. The Company agrees to the indemnification and other agreements set forth in the attached Indemnification Agreement, the provisions of which are incorporated herein by reference.

7.Survival of Certain Provisions. The expense, indemnification, reimbursement and contribution obligations of SHENGKAI provided herein and in the attached Indemnification Agreement and ACC’s rights to compensation (which term includes all fees, amounts and Warrants due or which may become due) shall remain operative and in full force and effect regardless of (i) any withdrawal, termination or consummation of or failure to initiate or consummate any transaction described herein or (ii) any termination or the completion or expiration of this Agreement.

8.Notices. Notice given pursuant to any of the provisions of this Agreement shall be given in writing and shall be sent by recognized overnight courier (a) if to the Company, to Mr. Chen Wang Tianjin ShengKai Industrial Technology Development Co., Ltd No. 27, Wanggang Rd.,

Jinnan (Shuanggang) Dev. Area, Tianjin, P. R. China with a copy to Marc J. Ross, Esq. of Sichenzia Ross Friedman Ference LLP at 61 Broadway 32^nd Floor, New York, NY 10006 and (b) if to ACC, to its office at 810 Seventh Avenue, 11^th floor, New York, NY 10019 Attention Robert Eide.

10.Confidentiality. No financial advice rendered by ACC pursuant to this Agreement may be disclosed publicly in any manner without ACC’s prior written consent, except as may be required by law, regulation or court order but subject to the limitation below. If the Company is required or reasonably expects to be so required to disclose any advice, SHENGKAI shall provide ACC with prompt notice thereof so that ACC may seek a protective order or other appropriate remedy and take reasonable efforts to assure that all of such advice disclosed will be covered by such order or other remedy. Whether or not such a protective order or other remedy is obtained, SHENGKAI will and will cause its affiliates to disclose only that portion of such advice, which the Company is so required to disclose.

11. Miscellaneous. This Agreement (including the attached Indemnification Agreement) sets forth the entire agreement between the parties, supersedes and merges all prior written or oral agreements with respect to the subject matter hereof, may only be amended in writing and shall be governed by the laws of the State of New York applicable to agreements made and to be performed entirely within such State. The parties shall make reasonable efforts to resolve any dispute concerning this Agreement, its construction or its alleged breach by face-to-face negotiations. If such negotiations fail to resolve the dispute, the dispute shall be finally decided by arbitration in accordance with the rules then in effect of the American Arbitration Association. Any arbitration will be conducted in the New York City metropolitan area. SHENGKAI (for the Company, for anyone claiming through or in the name of the Company and on behalf of the equity holders of the Company) and ACC each hereby irrevocably waives any right it may have to trial by jury in respect of any claim arising out of this Agreement or the transactions contemplated hereby.

810 Seventh Ave., 11^th Floor, New York, NY 10019 (212) 813-100/Fax (212) 813-1047

Member NASD/PCX/SIPC

AEGIS CAPITAL CORP.

Either party may assign this Agreement with the prior written consent of the other party.

If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not effect such provision in any other respect or any other provision of this Agreement.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to ACC the enclosed duplicate copy of this Agreement.

Very truly yours,
AEGIS CAPITAL CORP, AEGIS ASIA CAPITAL CORP.
By:	/s/ Robert J. Eide
Name: Robert J. Eide
Title:   CEO – Aegis Capital Corp.

ACCEPTED AND AGREED TO

This 26^th day of May 2008

TIANJIN SHENGKAI INDUSTRIAL TECHNOLOGY DEVELOPMENT CO., LTD.

By:	/s/ Chen Wang
Name: Chen Wang
Title:   Chairman & CEO

810 Seventh Ave., 11^th Floor, New York, NY 10019 (212) 813-100/Fax (212) 813-1047

Member NASD/PCX/SIPC

EX-10.7

Equity Pledge Agreement

By and among

The Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

Shengkai (Tianjin) Ceramic Valve Co., Ltd.

Tianjin Shengkai Industrial Technology Development Co., Ltd.

May 30^th, 2008

Equity Pledge Agreement

EQUITY PLEDGE AGREEMENT

THIS EQUITY PLEDGE AGREEMENT (hereinafter referred to as “this Agreement”) is executed by the following parties on May 30^th, 2008 in Tianjin, People’s Republic of China (“PRC”):

(1) All shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

(hereinafter collectively called “Party A” or “Pledgors”)

Name of Each Shareholder	Shareholding Ratio (%)	ID Card No.	Contact Address
Wang Chen	71.39%	120103196412022118	204-209,Gate 8,Zhonghuan Deppartment,No.2 Road, Wujiayao, Heping District, Tianjin
Guo Wei	13.33%	120103196607222128	204-209,Gate 8,Zhonghuan Department,No.2 Road, Wujiayao, Heping District, Tianjin
Zhao Yanqiu	6.55%	2310851197903050762	Tuanjie Wei, Muleng Town, Muleng City, Helongjiang Province
Ji Haihong	6.55%	140102197002012349	No.7,Unit1,4th/F,No.11,Xinmin Zhongjie,Xinghualing District, Taiyuan City,Shanxi Province
Zhang Ying	0.48%	51010319740824628X	No.3,4th/F, Dong 315, Huangtian Bawei 4th Road, Qingyang District, Chengdu City
Miao Yang	0.48%	110108197106111811	No.1905,No.1Building, Yangguang 100 International Department, No.2, Guanghua Road,Chaoyang District, Beijing
Chen Fang	0.48%	440402197211205769	Room 401, Unit 1, Dong 3,No.2013,Xiangzhou Fenghuang North Road, Xiangzhou District,Zhuhai City,Guangzhou Province
Wu Yanping	0.37%	120106196505060526	No.101,Gate 3,No.25 Building,Xinghuali,Shengli Street,Da Gang District,Tianjin
Liu Naifan	0.37%	372832196010257414	Dormitory District,Yinan Gold Mine,Yinan County,Shandong Province

2

Equity Pledge Agreement

(2) Shengkai(Tianjin) Ceramic Valve Co., Ltd. (hereinafter collectively called “Party B” or “Pledgee”)

Registered Address: Room A2-191,No.166 Xisandao,Konggang Logistic Processing Zones,Tianjin.

Legal Representative:Wang Chen

(3) Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter collectively called “Party C” or the “Company”)

Registered Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Legal Representative: Wang Chen

(Pledgors, Pledgee and the Company may be collectively called the “Parties” and individually as “Each Party”.)

WHEREAS,

1. The Company is a domestic company incorporated and validly existing under PRC Laws, and its business license No. is 120191000015144;

2. The Pledgors, the PRC citizen, legally holds 100% Equity Interests in the Company;

3. The Pledgee, as a wholly foreign-owned enterprise, was duly incorporated and validly existing under the PRC Laws;

4. Party A signed a loan agreement (the “Loan Agreement”) on May 30^th, 2008with Party B. According to this agreement, Party B will provide the loan to Party A and Party A agrees to pledge all their equities in Party C as a guaranty of the performance of the obligations thereunder.

5. Party B signed a consigned management agreement (the “Consigned Management Agreement”) on May 30^th, 2008 with Party C and Party A, and Party A agrees to pledge all their equities in Party C to Party B as a guaranty for the performance of the obligations thereunder.

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Equity Pledge Agreement

6. Party B signed a technology service agreement (the “Technology Service Agreement”) on May 30^th, 2008 with Party C and Party A, and Party A agrees to pledge all their equities in Party C to Party B as a guaranty for the performance of the obligations thereunder.

7. The Parties signed an exclusive purchase option agreement (the “Exclusive Purchase Option Agreement”) on May 30^th, 2008, and the parties thereto agree that Party A shall pledge all their equities in Party C to Party B as a guaranty of the performance of the obligations assumed by Party A and Party C thereunder.

NOW THEREFORE, the Parties, through friendly negotiations, hereby enter into this Agreement with respect to the equity pledge.

1. Definitions and Interpretation

Unless otherwise provided in this Agreement, the following terms shall have the following meanings:

1.1 “PRC” refers to the People’s Republic of China, excluding the HongKong Special Administrative Region, Macao Special Administrative Region and Taiwan Province;

1.2 “PRC Laws” refers to all PRC laws, administrative regulations and government rules in effect;

1.3 “Pledged Equity” refers to all the equity in the Company as provided in Article2.1;

1.4 “Main Agreements” refers to the Loan Agreement, Consigned Management Agreement, Technology Service Agreement and Exclusive Purchase Option Agreement and the Appendixes thereof (if applicable);

1.5 “Right of Pledge” refers to the right owned by the Pledgee to be first compensated from the money converted from or the proceeds from the auction or sale of the Pledged Equity by the Pledgors to the Pledgee in the event of default of Pledgors and/or Party C, and such right shall cause the Pledgee to be entitled to the bonus arising from Pledged Equity;

1.6 “ABIC” refers to the competent Administration Bureau of Industry and Commerce which is authorized in accordance with PRC Laws to register the Pledged Equity hereunder;

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Equity Pledge Agreement

1.7	“Event of Default” refers to the event as defined in Article 8 hereunder.
1.8	“Business Day” refers to any day except Saturday, Sunday and other public holidays as permitted by PRC Laws;

2. Equity Pledge

2.1 The Parties agree that Pledgors shall pledge all their Equities in the Company to the Pledgee as a guaranty for the performance of the obligations assumed by the Pledogors and/or the Company under each of the Main Agreements.

2.2 In case the Pledgors increase the registered capital in the Company during the term of this Agreement, such increased capital shall be equally deemed as the Pledged Equity.

2.3 In case any act conducted by the Pledgors or the Company may cause the Right of Pledge damaged so as to harm the interests of the Pledgee, the Pledgee is entitled to require the Pledged Equity to be auctioned or sold in advance and the proceeds from such auction or sale shall be used to discharge the debt secured by the Pledged Equity in advance.

3. Registration of Pledge

3.1 Upon the execution of this Agreement, the Pledgors shall cause the Company to record the Right of Pledge in the register of shareholders and deliver it with the common seal of the Company as well as the original of equity contribution certificate of the Pledgors to the Pledgee for keeping. Within the term of this Agreement, Party B shall return the register of shareholders and equity contribution certificate to the Company for modification registration with ABIC, and the Company shall complete the modification registration within 10 days upon receipt of the register of shareholders and equity contribution certificate, and Party A together with the Company shall continue to deliver such modified register of shareholders and equity contribution certificate to Party B within 2 days following the completion of the aforesaid registration.

3.2 The Parties agree that if ABIC accept the registration with respect to the equity pledge, they will promptly cause the Pledged Equity under this Agreement to be recorded at ABIC, and the Parties confirm that whether the Pledged Equity is recorded as above or not shall not affect the validity of this Agreement unless compulsorily required by PRC Laws.

3.3 After the signing of this Agreement, the Pledgors shall in accordance with the Pledgee’s written request which may be made by the Pledgee from time to time, together with the Pledgee, notarized this agreement as well as the register of shareholders with the recorded Pledged Equity in a notary public office as designated by the Pledgee, and Party A and the Company shall give assistant with respect to the notarization following the delivery of the notice with the request of notarization by Party B.

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Equity Pledge Agreement

4. Representations and Warranties

4.1 Each Party under this Agreement represents and warrants to other Parties that: (1) it has relevant power, rights and authorizations for the execution hereof, and performance of the obligations hereunder; (2) the execution and performance of this Agreement shall not violate or conflict with any of the terms and conditions of other agreements signed between the Parties.

4.2   The Pledgors represent and warrant to the Pledgee that: (1) they are the legal owner of the Pledged Equity, and have fulfilled the obligations of capital contribution in the registered capital of the Company; (2) except for the Right of Pledge as setup hereunder, the Pledged Equity is not subject to any pledge, guaranty or other form of encumbrances; (3) they do not or will not transfer the Pledged Equity to any third party or make any agreements, whether oral or written, with respect to the transfer of Pledged Equity.

4.3 The Company agrees to undertake the joint liability with respect to the representations and warrants made by the Pledgors.

5. Obligations of Pledgors

5.1 The dividend and bonus arising from the Pledged Equity shall be deposited in an escrow account for the supervision of the Pledgee.

5.2 Apart from the encumbrance set forth hereunder and under the Exclusive Purchase Option Agreement, without the Pledgee’s prior written consent, the Pledgors shall not sell, transfer, mortgage or otherwise dispose of the Pledged Equity, nor shall place encumbrances on such Pledged Equity;

5.3 Without the Pledgee’s prior written consent, the Pledgors shall not supplement or amend the articles of association of the Company in any manner, nor shall it increase or decrease the registered capital or change the shareholding structure of the Company in any manner;

5.4 The Pledgors shall cause the Shareholders’ General Meeting not to approve for the resolutions on the dissolution, liquidation and change of legal form of the Company, its subsidiaries wholly owned or controlled by the Company;

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Equity Pledge Agreement

5.5 The Pledgors shall cause the Shareholders’ General Meeting not to approve for any Profit Distribution Proposal, nor shall accept such distributed dividend without the Pledgee’s prior written consent; At the Pledgee’s request, it shall promptly approve for the Profit Distribution Proposal, and accept such distributed dividend;

5.6 At the Pledgee’s request, the Pledgors shall provide the Pledgee with all information regarding the business operation and financial condition of the Company;

5.7 The Pledgors shall not incur or succeed to any debts or liabilities which may adversely affect their equity interests in the Company without the Pledgee’s prior written consent;

5.8 The Pledgors shall appoint, and appoint only, the candidates nominated by the Pledgee to the board of directors of the Company, and shall not replace such candidates without the Pledgee’s prior written consent;

5.9 The Pledgors shall cause the Board of Directors of the Company not to approve any acquisition of, any consolidation with, or any investment in any third party without the Pledgee’s prior written consent;

5.10 The Pledgors shall promptly notify the Pledgee of any pending or threatened lawsuit, arbitration or administrative dispute which involve the assets, business or incomes of the Company, and take positive measures against aforesaid lawsuits, arbitrations or administrative dispute;

5.11 The Pledgors shall not commit any conducts or omissions that may adversely affect the assets, business operation, the debts and liabilities of the Company without the Pledgee’s prior written consent;

5.12 To the extent permitted by the PRC laws and regulations, and at any time upon Pledgee’s request, the Pledgors shall promptly and unconditionally transfer their equity interests of the Company to Pledgee or its designated third party in accordance with the Exclusive Purchase Option Agreement, and cause other shareholders waive their rights of first refusal with respect to such transfer;

5.13 The Pledgors shall cause the directors of the Company approve for the resolution in respect of the Equity Transfer or Assets Transfer hereunder;

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Equity Pledge Agreement

5.14	The Pledgors shall make every efforts to cause the Company perform the obligations of Article 6 hereunder;
5.15	The Shareholders shall, to the extent permitted by applicable laws, cause the business term of Party C (including the circumstance of change of business terms) not shorter than that of Party B(including the circumstance of change of business terms);

5.16 The Pledgors shall strictly comply with the provisions of this Agreement, and effectively perform its obligations hereunder, and shall be prohibited from committing any act or omission which may affect the validity or enforceability of this Agreement.

6. Obligations of the Company

6.1	Without the Pledgee’s prior written consent, it shall not supplement or amend the articles of association or rules of the Company, its subsidiaries wholly-owned or controlled by the Company in any manner, nor shall it increase or decrease the registered capital or change the shareholding structure of aforesaid entities in any manner;
6.2	It shall prudently and effectively maintain its business operations according to good financial and business standards so as to maintain or increase the value of its assets;

6.3 Unless as required necessary for the business operation of the Company or upon the prior written consent by Party B , it shall not transfer, mortgage or otherwise dispose of the lawful rights and interests to and in its assets or incomes, nor shall it encumber its assets and income in any way that would affect the Pledgee’s security interests;

6.4 It shall not incur or succeed to any debts or liabilities unless as required necessary for the business operation of the Company or upon the prior written consent by Party B;

6.5 Without the Pledgee’s prior written consent, it shall not enter into any material contract (exceeding RMB3,000,000 in value);

6.6 Without the Pledgee’s prior written consent, it shall not provide any loans or guaranty to any third party;

6.7 At the Pledgee’s request, it shall provide the Pledgee with all information regarding its business operation and financial condition;

6.8 The Company shall purchase insurance from insurance companies acceptable to the Pledgee in such amounts and of such kinds as are customary in the region among companies doing similar business and having similar assets;

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Equity Pledge Agreement

6.9 Without the Pledgee’s prior written consent, it shall not acquire or consolidate with any third party, nor shall they invest in any third party;

6.10 It shall promptly notify the Pledgee of any pending or threatened lawsuit, arbitration or administrative dispute which involve its assets, business or incomes, and take positive measures against aforesaid lawsuits, arbitrations or administrative dispute;

6.11	Without the Pledgee’s prior written consent, it shall not distribute any dividends to the Pledgors in any manner, and at the Pledgee’s request, it shall promptly distribute all distributable dividends to the Pledgors.
6.12	Without the Pledgee’s prior written consent, it shall not commit any act or omission that would materially affect its assets, business or liabilities;

7. Exercise of Right of Pledge

7.1 The Pledgee may exercise the Right of Pledge at any time following the delivery of Notice of Default as provided in Article 8.2 to the Pledgors.

7.2 The Pledgee is entitled to be first compensated with the money converted from or the proceeds from auction or sale of all or part of Pledged Equity in accordance with legal proceedings unless the Pledgors has duly and completely performed the obligations under Main Agreements.

7.3 Within the term of this Agreement, If the Pledged Equity hereunder is subjected to any compulsory measures implemented by a court or other departments due to the Pledgors’ failing to repay the debts which fall due or violation of PRC Laws or state policies etc., the Pledgors shall, (1) notify the Pledgee in written form of such compulsory measures within three (3) days following its occurrence; (2) use all efforts (including but not limited to provide other security to the court or other government authorities), in order to dismiss the compulsory measures taken by the court or other government authorities over the Pledged Equity.

7.4 The Pledgors shall not hinder the Pledgee from exercising the Right of Pledge and shall give necessary assistance so that the Pledgee could realize its Right of Pledge.

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Equity Pledge Agreement

8. Event of Default

8.1 The following events shall be regarded as the Events of Default:

8.1.1 Any Party breaches any of the representations or warranties hereunder;

8.1.2 The Pledgors and/or the Company breaches any of the representations or warranties under the Main Agreements;

8.1.3 The Pledgors and/or the Company fail(s) to duly and completely perform the obligations hereunder;

8.1.4 The Pledgors and/or the Company fail(s) to duly and completely perform the obligations under the Main Agreements;

8.1.5 Any other external borrowing, guaranty, compensation or other liabilities of the Pledgors: (1) is required for an early repayment or performance prior to the scheduled date due to any breach by the Pledgors; or (2) is due but can not be repaid or perform as scheduled, which , at the discretion of the Pledgee, has an adverse effect on the Pledgors’ ability of performing the obligations under this Agreement;

8.1.6 The Company fails to repay the debts which fall due;

8.1.7 The properties owned by Pledgor have significant adverse changes, which, at the discretion of Pledgee, has an adverse effect on Pledgor’s ability of performing the obligations under this Agreement;

8.2   Unless the Pledgors take the action to Pledgee’s satisfaction to remedy the defaults as listed in Article 8.1 hereof, the Pledgee may give a written notice about default (“Notice of Default”) to the Pledgors when such default occurs or at any time thereafter.  

9. Taxes and Expenses

9.1 The Parties shall pay, in accordance with relevant PRC laws and regulations, their respective taxes and expenses arising from the execution and performance of this Agreement.

10. Assignment

10.1 The Pledgors shall not transfer part or all of the rights and obligations under this Agreement without prior written consent from the Pledgee.

10.2 To the extent being permitted by law, the Pledgee shall have the right to transfer any or all of its rights and obligations under this Agreement to any third party upon a six (6) -day written notice to the Pledgors or the Company without its approval.

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Equity Pledge Agreement

11. Effectiveness Modification and Cancellation

11.1 This Agreement shall be executed on the date set forth in the first page and shall become effective on the day on which the Pledged Equity is recorded on the register of the shareholders.

11.2 The modification of this Agreement shall not be effective without written agreement through negotiation. If the Parties could not reach an agreement, this Agreement remains effective.

11.3 This Agreement shall not be discharged or canceled without written agreement through negotiation.

11.4 If the Pledgee fails to provide the loan to the Pledgors in accordance with the Loan Agreement, this Agreement shall be automatically terminated.

12. Confidentiality

12.1 Any information, documents, data and all other materials (herein “Confidential Information”) arising out of the negotiation, signing, and implement of this Agreement, shall be kept in strict confidence by the Parties. Without the written approval by the other Parties, any Party shall not disclose to any third party any Confidential Information, but the following circumstances shall be excluded:

a. The materials that is known or may be known by the Public (but not include the materials disclosed by each Party receiving the Confidential Information);

b. The materials required to be disclosed subject to the applicable laws or the rules or provisions of stock exchange; or

c. The materials disclosed by each Party to its legal or financial consultant relating the transaction of this Agreement, and this legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of the Confidential Information by staff or employed institution of any Party shall be deemed as the disclosure of such Confidential Information by such Party, and such Party shall bear the liabilities for breaching the contract.

12.2 This Clause shall survive whatever this Agreement is invalid, amended, revoked, terminated or unable to implement by any reason.

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Equity Pledge Agreement

13. Force Majeure

13.1 An event of force majeure means an event that could not be foreseen, and could not be avoided and overcome, which includes among other things, but without limitation, acts of nature (such as earthquake, flood or fire), government acts, strikes or riots;

13.2 If an event of force majeure occurs, any of the Parties who is prevented from performing its obligations under this Agreement by an event of force majeure shall notify the other Parties without delay and within fifteen (15) days of the event provide detailed information about and notarized documents evidencing the event and take appropriate means to minimize or remove the negative effects of force majeure on the other Parties, and shall not assume the liabilities for breaching this Agreement. The Parties shall keep on performing this Agreement after the event of force majeure disappears.

14. Applicable Law and Dispute Resolution

14.1 The execution, validity, construing and performance of this Agreement and the disputes resolution under this Agreement shall be governed by the laws and regulations of the PRC.

14.2 The Parties shall strive to settle any dispute arising from or in connection with this Agreement through friendly consultation. In case no settlement can be reached through consultation within thirty (30) days after such dispute is raised, each party can submit such matter to Beijing Arbitration Commission for arbitration in accordance with its rules. The arbitration award shall be final conclusive and binding upon the Parties.

14.3 During the process of dispute-resolution, the Parties shall continue to perform other terms under this Agreement, except for provision of dispute resolution.

15. Miscellaneous

15.1 Entire Agreement

The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters therein and supersedes and replaces all prior or contemporaneous oral or written agreements and understandings.

15.2 Successor

This Agreement shall bind and benefit the successor of each Party and the transferee permitted hereunder with the same rights and obligations as if the original parties hereof.

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Equity Pledge Agreement

15.3 Notice

Any notice required to be given or delivered to the Parties hereunder shall be in writing and delivered to the address as indicated below or such other address or as such party may designate, in writing, from time to time. All notices shall be deemed to have been given or delivered upon by personal delivery, fax and registered mail. It shall be deemed to be delivered upon: (1) registered air mail: 5 business days after deposit in the mail; (2) personal delivery or delivery by fax: 2 business days after transmission. If the notice is delivered by fax, it should be confirmed by original through registered air mail or personal delivery.

The Representative designated by Party A

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

Party B

Contact person: Wang Chen

Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Tel: 86-22-28590002 Fax: 86-22-28590003

Party C

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

15.4 This Agreement is executed in eleven originals with each Party holding one original, and each of the originals shall be equally valid and authentic.

[Signature page follows]

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Equity Pledge Agreement

IN WITNESS WHEREOF, each party has caused this Agreement to be executed and delivered as of the date first above written.

Party A All shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

Name of the Shareholders	Signature	Name of the Shareholders	Signature
Wang Chen	/s/ Wang Chen	Guo Wei	/s/ Guo Wei
Zhao Yanqiu	/s/ Zhao Yanqiu	Ji Haihong	/s/ Ji Haihong
Zhang Ying	/s/ Zhang Ying	Miao Yang	/s/ Miao Yang
Chen Fang	/s/ Chen Fang	Wu Yanping	/s/ Wu Yanping
Liu Naifan	/s/ Liu Naifan

Party B  Shengkai (Tianjin) Ceramic Valve Co., Ltd (“Pledgee”)

Legal Representative: Wang Chen

Signature and Company Seal: /s/ Wang Chen

Party C  Tianjin Shengkai Industrial Technology Development Co. Ltd. (“Company”)

Legal Representative: Wang Chen

Signature and Company seal: /s/ Wang Chen

14

EX-10.8

EXCLUSIVE PURCHAE OPTION AGREEMENT

by and among

SHENGKAI (TIANJIN) CERAMIC VALVE CO., LTD.

TIANJIN SHENGKAI INDUSRIAL TECHNOLOGY

DEVELOPMENT CO., LTD.

and

THE SHAREHOLDERS SIGNATORIES THERETO

May 30^th, 2008

Exclusive Purchase Option Agreement

EXCLUSIVE PURCHASE OPTION AGREEMENT

This Exclusive Option Purchase Agreement (the “Agreement”) is executed by the following parties on May 30^th, 2008 in Tianjin, the People’s Republic of China.

(1)Shengkai (Tianjin) Ceramic Valve Co., Ltd. (“Party A”)

Registered Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Legal representative: Wang Chen

(2)Tianjin Shengkai Industrial Technology Development Co., Ltd. (“Party B”)

Registered Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Legal representative: Wang Chen

(3) The Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd. (“Shareholders”)

Name of Each Shareholder	Shareholding Ratio (%)	ID Card No.	Contact Address
Wang Chen	71.39%	120103196412022118	204-209,Gate 8,Zhonghuan Deppartment,No.2 Road, Wujiayao, Heping District, Tianjin
Guo Wei	13.33%	120103196607222128	204-209,Gate 8,Zhonghuan Department,No.2 Road, Wujiayao, Heping District, Tianjin
Zhao Yanqiu	6.55%	2310851197903050762	Tuanjie Wei, Muleng Town, Muleng City, Helongjiang Province
Ji Haihong	6.55%	140102197002012349	No.7,Unit1,4th/F,No.11,Xinmin Zhongjie,Xinghualing District, Taiyuan City,Shanxi Province
Zhang Ying	0.48%	51010319740824628X	No.3,4th/F, Dong 315, Huangtian Bawei 4th Road, Qingyang District, Chengdu City
Miao Yang	0.48%	110108197106111811	No.1905,No.1Building, Yangguang 100 International Department, No.2, Guanghua Road,Chaoyang District, Beijing
Chen Fang	0.48%	440402197211205769	Room 401, Unit 1, Dong 3,No.2013,Xiangzhou Fenghuang North Road, Xiangzhou District,Zhuhai City,Guangzhou Province
Wu Yanping	0.37%	120106196505060526	No.101,Gate 3,No.25 Building,Xinghuali,Shengli Street,Da Gang District,Tianjin
Liu Naifan	0.37%	372832196010257414	Dormitory District,Yinan Gold Mine,Yinan County,Shandong Province

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Exclusive Purchase Option Agreement

Party A, Party B, and shareholders of Party B are hereinafter from time to time, collectively, referred to as the “Parties”, and each of them is hereinafter from time to time referred to as a “Party”; the individual shareholders are hereinafter from time to time, collectively, referred to as the “Shareholders” and each of them is hereinafter from time to time referred to as a “Shareholder”. The equity interests in Party B held by each Shareholder or any shareholder now existing or hereafter acquired is hereinafter from time to time referred to as the “Equity Interests” or “Equity”.

WHEREAS:

1. Party A, a wholly foreign-owned enterprise incorporated under the laws of the People’s Republic of China (the “PRC”), which engages in the general business items, including researching, developing, technology consulting service of ceramic valves and ceramic materials.

2. Party B, as a domestic limited liability company, incorporated under PRC laws in Tianjin, and licensed by Tianjin Administration for Industry and Commerce, it engages in The design, manufacturing and marketing of Environmental pollution control equipments (including flue gas desulphurization governance, de-dusting equipment); the production and manufacturing of industrial control systems of its transportation systems and equipments; the design, manufacturing and marketing of ceramic valves; the manufacturing environmental dedicated instrumentation electronic equipments; the manufacturing of ceramic coatings; the manufacturing and sale of high-tech ceramics; electromechanical products (except cars), chemical products (flammable, explosive, dangerous goods except prone to cause toxicity); technical consultation; technical services; operating the enterprise home-grown products as well as related technology import and export business.

3. As of the date of this Agreement, the percentage ownership of the Equity Interests in Party B held by each of the Shareholders shall be set forth as described above.

4. To secure the performance of the obligations assumed by Party B and the Shareholders under this Agreement, the Shareholders agree to pledge all their equity in Party B to Party A, and have executed Equity Pledge Agreement on May 30^th, 2008 with respect thereto (collectively called as the “Equity Pledge Agreements” or respectively as “Individual Equity Pledge Agreement” or “Equity Pledge Agreement”).

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Exclusive Purchase Option Agreement

NOW, THEREFORE, the Parties through mutual negotiations hereby enter into this Agreement with respect of the exclusive purchase option right:

1. THE GRANT AND EXERCISE OF PURCHASE OPTION

1.1	Each Shareholder hereby irrevocably grants to Party A an exclusive purchase right at any time, or designate any third party to purchase all or part of such Shareholders’ Equity Interests in Party B, provided permitted under the PRC laws and regulations and Party B agrees to such grant by such Shareholders to Party A. Apart from Party A or any third party designated by Party A, no other person shall have the right to purchase such Equity Interests. Each of the Shareholders shall transfer its Equity Interests in Party B to Party A in accordance with its percentage ownership of such Equity Interests provided Party A selects to purchase such Shareholders’ Equity Interests.
1.2	Party B hereby irrevocably grants to Party A an exclusive purchase option, at any time to acquire all or a portion of such Shareholders’ Equity Interests, or all or substantial part of Party B’s assets, provided permitted under the PRC laws and regulations and the shareholders agree to such grant by Party B to Party A.
1.3	For the purpose of this Agreement, a “third party” or a “person” may be a natural person, company, partnership, enterprise, trust agency or other non-corporate entity.

1.4 To the extent permitted under the PRC laws and regulations, Party A shall determine at any time and at its own option to exercise such exclusive right to (i) purchase the Equity Interests as provided in Section 1.1 by written notice to the applicable Shareholder(s) specifying the amount of equity to be purchased (hereinafter referred to as “Equity Transfer”) or (ii) purchase all or substantially all of Party B’s assets as provided in Section 1.2 (hereinafter referred to as “Assets Transfer”) by written notice to Party B (each an "Exercise Notice").

1.5 Within thirty (30) days of the receipt of the Exercise Notice, the applicable Shareholder(s) and Party B shall execute a share/asset transfer agreement and other documents (collectively, the "Transfer Documents") necessary to effect the respective transfer of equity or assets to Party A (or any eligible party designated by Party A), and shall unconditionally assist Party A to obtain all approvals, permits, registrations, filings and other procedures necessary to effect the Equity or Assets Transfer.

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Exclusive Purchase Option Agreement

1.6

Unless otherwise required under the PRC laws and regulations, the transaction price for the Equity Transfer or the Assets Transfer hereunder, as applicable, shall be the lowest price permitted under the PRC laws and regulations.

1.7

The consideration after tax payment (the “Consideration of Equity Transfer”) obtained by the Shareholders from Equity Transfer in Party B hereunder shall be used to satisfy their repayment obligations under the Loan Agreement dated as of May 30th, 2008, signed by and among, Party A and the Shareholders (the “Loan Agreement”); The consideration after tax payment (the “Consideration of Assets Transfer”) by the Party B, if as applicable, from Assets Transfer hereunder shall be allocated to the Shareholders, to the largest extent as permitted by PRC laws and regulations, through profit allocation proposal and fulfill their payment obligations under the Loan Agreement, and Party B shall give full cooperation; And if the Consideration of Equity Transfer or Assets Transfer is higher than the total principal under the Loan Agreement due to the requirement by the applicable law or any other reasons, the excess shall be deemed as loan interests and/or utilizing fees of the Loan to the largest extent being permitted by PRC Laws, and be paid to Party A by the Shareholders together with loan principal.

2. REPRESENTATIONS AND WARRANTIES

2.1 Each Party hereto represents to the other Parties that: (1) it has all the necessary rights, powers and authorizations to enter into this Agreement and perform its duties and obligations hereunder; and (2) the execution or performance of this Agreement shall not violate or conflict with the terms of any other contracts or agreements to which it is a party.

2.2 Each Shareholder hereby represents to Party A that: (1) such Shareholder is the legally registered shareholder of party B and has paid full amount of registered capital in Party B as required to be contributed by such Shareholder under the PRC laws and regulations; (2)Except for the Equity Pledge Agreement executed among the Parties, such Shareholder has not created any other mortgage, pledge, secured interests or other form of debt liabilities over the Equity Interests held by such Shareholder; and (3) such Shareholder has not transfer to any third party (and entered into any agreement in respect of) such Equity Interests.

2.3 Party B hereto represents to Party A that: (1) it is a limited liability company duly registered and validly existing under the PRC laws and regulations; and (2) its business operations are in compliance with applicable laws and regulations of the PRC in all material respects.

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Exclusive Purchase Option Agreement

3. OBLIGATIONS OF PARTY B AND ALL SHAREHOLDERS

The Parties further agree as follows:

3.1 Before Party A has acquired all the equity/assets of Party B by exercising the purchase option provided hereunder, Party B:

a.	without Party A’s prior written consent, shall not supplement or amend the articles of association or rules of Party B, its wholly-owned and holding subsidiaries in any manner, nor shall it increase or decrease the registered capital or change the shareholding structure of aforesaid entities in any manner;
b.	shall prudently and effectively maintain its business operations according to good financial and business standards so as to maintain or increase the value of its assets;

c. shall not transfer, mortgage or otherwise dispose of the lawful rights and interests to and in its assets or incomes, nor shall it encumber its assets and income in any way that would affect Party A’s security interests unless as required necessary for the business operation of Party B or upon prior written consent by Party A ;

d. shall not incur or succeed to any debts or liabilities without Party A’s prior written consent;

e. without Party A’s prior written consent, shall not enter into any material contract (exceeding RMB 3,000,000 in value);

f. without Party A’s prior written consent, shall not provide any loans or guaranty to any third party;

g. at Party A’s request, it shall provide Party A with all information regarding Party B’s business operation and financial condition;

h. shall purchase insurance from insurance companies acceptable to Party B in such amounts and of such kinds as are customary in the region among companies doing similar business and having similar assets;

i. without Party A’s prior written consent, shall not acquire or consolidate with any third party, nor shall they invest in any third party;

j. shall promptly notify Party A of any pending or threatened lawsuit, arbitration or administrative dispute which involve Party B’s assets, business or incomes, and take positive measures against aforesaid lawsuits, arbitrations or administrative dispute;

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Exclusive Purchase Option Agreement

k.	without Party A’s prior written consent, shall not distribute any dividends to the shareholders in any manner, and, at Party A’s request, shall promptly distribute all distributable dividends to the shareholders of Party B;
l.	without Party A’s prior written consent, shall not commit any act or omission that would materially affect Party B’s assets, business or liabilities;
m	at Party A’s request, shall it promptly and unconditionally transfer its assets to Party A or its designated third party as permitted by PRC laws and regulations;
n	shall strictly comply with the provisions of this Agreement, and effectively perform its obligations hereunder, and shall be prohibited from committing any act or omission which may affect the validity or enforceability of this Agreement.

3.2 Before Party A has acquired all the equity/assets of Party B by exercising the purchase option provided hereunder, each Shareholder:

a. apart from relevant provisions in each of the Equity Pledge Agreements, without Party A’s prior written consent, it shall not individually or collectively transfer, sell, mortgage or otherwise dispose of such Shareholder’s Equity Interests in Party B; nor shall such Shareholder places encumbrances on such Shareholder’s Equity Interests that would affect Party A’s interest hereunder and thereunder;

b. without Party A’s prior written consent, shall not supplement or amend the articles of association or rules of Party B in any manner, nor shall it increase or decrease its registered capital or change the shareholding structure in any manner;

c. without Party A’s prior written consent, shall cause the Shareholders’ General Meeting not to approve for the resolutions on the dissolution, liquidation and change of legal form of Party B, its wholly owned and holding subsidiaries;

d. shall cause the Shareholders’ General Meeting not to approve for any Profit Distribution Proposal, nor shall accept such distributed dividend without Party A’s written consent; At Party A’s request, it shall promptly approve for the Profit Distribution Proposal, and accept such distributed dividend.

e. at Party A’s request, it shall provide Party A with all information regarding Party B’s business operation and financial condition;

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Exclusive Purchase Option Agreement

f. shall not incur or succeed to any debts or liabilities which may adversely affect its Equity Interests in Party B without Party A’s prior written consent;

g. shall appoint, and appoint only, the candidates nominated by Party A to the board of directors of Party B, and shall not replace such candidates without Party A’s prior written consent;

h. shall cause Party B’s board of directors not to approve any acquisition of, any consolidation with, or any investment in any third party without Party A’s prior written consent;

i. shall promptly notify Party A of any pending or threatened lawsuit, arbitration or administrative dispute which involve Party B’s assets, business or incomes, and take positive measures against aforesaid lawsuits, arbitrations or administrative dispute;

j. without Party A’s prior written consent, shall not commit any act or omission that would materially affect Party B’s assets, business or liabilities;

k. to the extent permitted by the PRC laws and regulations, and at any time upon Party A’s request, shall promptly and unconditionally transfer their Equity Interests in Party B to Party A or a third party designated by Party A, and waive their rights of first refusal with respect to such transfer;

l. shall cause the directors of Party B approve for the resolution in respect of the Equity Transfer or Assets Transfer hereunder;

m. shall make every efforts to cause Party B perform the obligations of Section 3.1 hereunder; and

n. shall strictly comply with the provisions of this Agreement, and effectively perform its obligations hereunder, and shall be prohibited from committing any act or omission which may affect the validity or enforceability of this Agreement.

3.3 The Shareholders shall, to the extent permitted by applicable laws, cause Party B's operational term (including the circumstance of change of business terms) to be extended to equal the operational term of Party A (including the circumstance of change of business terms).

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Exclusive Purchase Option Agreement

4. GUARANTY OF THIS AGREEMENT

4.1 To secure the performance of the obligations assumed by the Shareholders and Party B hereunder, the Parties agree to execute the Equity Pledge Agreement with respect thereto.

5. TAXES AND FEES

5.1 The Parties shall pay, in accordance with relevant PRC laws and regulations, their respective taxes arising from Equity or Assets transfer and related registration formalities and other charges during the transactions contemplated herein and therein. Party A shall pay the taxes and charges which shall be paid by Party B arising from Equity Transfer and related registration formalities, if the consideration of equity transfer is lower than, or equal to the total principal under the Loan Agreement.

6. ASSIGNMENT OF AGREEMENT

6.1 Party B and the Shareholders shall not transfer such Shareholder’s rights and obligations under this Agreement to any third party without the prior written consent of Party A.

6.2 Each Shareholder and Party B agree that Party A shall have the right to transfer any or all of its rights and obligations under this Agreement to any third party upon a six(6)-day written notice to such Shareholder and Party B without approval by such Shareholder and Party B.

7. EVENTS OF DEFAULT

7.1 Any violation of any provision hereof, incomplete performance of any obligation provided hereunder, any misrepresentation made hereunder, material concealment or omission of any material fact or failure to perform any covenants provided hereunder by any Party shall constitute an event of default. The defaulting Party shall assume all the legal liabilities pursuant to the applicable PRC laws and regulations.

7.2 In the event of default by Party B or Shareholders, Party A shall be entitled to exercise the Pledgee’s right under the Equity Pledge Agreement in the event that Party B and Shareholders commit an event of default and fail to redress such default within 60 working days upon receipt of written notification from Party A.

8. EFFECTIVEMESS, MODIFICATION AND CANCELLATION

8.1 This Agreement shall be effective upon the execution hereof by all Parties hereto.

8.2 The modification of this Agreement shall not be effective without written agreement through negotiation. If the Parties could not reach an agreement, this Agreement remains effective.

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Exclusive Purchase Option Agreement

8.3 This Agreement shall not be discharged or canceled without written agreement through negotiation, provided Party A may, by giving a thirty (30) days prior notice to the other Parties hereto, terminate this Agreement.

8.4 If Party A fails to provide the loan to the Shareholders in accordance with the Loan Agreement, this Agreement shall be automatically terminated.

9. CONFIDENTIALITY

9.1 Any information, documents, data and all other materials (herein “confidential information”) arising out of the negotiation, signing, and implement of this Agreement, shall be kept in strict confidence by the Parties. Without the written approval by the other Parties, any Party shall not disclose to any third party any relevant materials, but the following circumstances shall be excluded:

a. The materials that is known or may be known by the Public (but not include the materials disclosed by each party receiving the materials);

b. The materials required to be disclosed subject to the applicable laws or the rules or provisions of stock exchange; or

c. The materials disclosed by each Party to its legal or financial consultant relating the transaction of this Agreement, and this legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of the confidential materials by staff or employed institution of any Party shall be deemed as the disclosure of such materials by such Party, and such Party shall bear the liabilities for breaching the contract.

9.2 If this Agreement is terminated or becomes invalid or unenforceable, the validity and enforceability of Article 9 shall not be affected or impaired.

10. FORCE MAJEURE

10.1 An event of force majeure means an event that could not be foreseen, and could not be avoided and overcome, which includes among other things, but without limitation, acts of nature (such as earthquake, flood or fire), government acts, strikes or riots;

10.2 If an event of force majeure occurs, any of the Parties who is prevented from performing its obligations under this Agreement by an event of force majeure shall notify the other Parties without delay and within fifteen (15) days of the event provide detailed information about and notarized documents evidencing the event and take appropriate means to minimize or remove the negative effects of force majeure on the other Parties, and shall not assume the liabilities for breaching this Agreement. The Parties shall keep on performing this Agreement after the event of force majeure disappears.

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Exclusive Purchase Option Agreement

11. APPLICABLE LAW AND DISPUTE RESOLUTION

11.1 Applicable Law

The execution, validity, construing and performance of this Agreement and the disputes resolution under this Agreement shall be governed by the laws and regulations of the PRC.

11.2 Dispute Resolution

The Parties shall strive to settle any dispute arising from or in connection with this Agreement through friendly consultation. In case no settlement can be reached through consultation within thirty (30) days after such dispute is raised, each party can submit such matter to Beijing Arbitration Commission for arbitration in accordance with its rules. The arbitration shall take place in Beijing and the proceedings shall be conducted in Chinese. The arbitration award shall be final conclusive and binding upon the Parties.

12. MISCELLANEOUS

12.1 Entire Agreement

The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters therein and supersedes and replaces all prior or contemporaneous oral or written agreements and understandings.

12.2 Successor

This Agreement shall bind and benefit the successor of each Party and the transferee permitted hereunder with the same rights and obligations as if the original parties hereof.

12.3 Notice

Any notice required to be given or delivered to the Parties hereunder shall be in writing and delivered to the address as indicated below or such other address or as such party may designate, in writing, from time to time. All notices shall be deemed to have been given or delivered upon by personal delivery, fax and registered mail. It shall be deemed to be delivered upon: (1) registered air mail: 5 business days after deposit in the mail; (2) personal delivery: 2 business days after transmission. If the notice is delivered by fax, it should be confirmed by original through registered air mail or personal delivery.

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Exclusive Purchase Option Agreement

Party A

Contact person: Wang Chen

Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Tel: 86-22-28590002  Fax: 86-22-28590003

Party B

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

The Representative designated by the Shareholders

Contact person: Wang Chen

Address: Shengkai Ind. Park Wanggang R.d Jinnan (Shuanggang) Dev. Area Tianjin

Tel: 86-22-28590002Fax: 86-22-28590003

12.4 Copies

This Agreement is executed in eleven originals with each of the person for signing this Agreement holding one original, and each of the originals shall be equally valid and authentic.

[Signature page follows]

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Exclusive Purchase Option Agreement

IN WITNESS THEREFORE, the parties hereof have caused this Agreement to be executed and delivered as of the date first written above.

Party AShengkai (Tianjin) Ceramic Valve Co., Ltd (Seal)

Legal Representative (or Authorized Representative): Wang Chen

Party B Tianjin Shengkai Industrial Technology Development Co., Ltd. (Seal)

Legal Representative (or Authorized Representative): Wang Chen

Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

Name of the Shareholders	Signature	Name of the Shareholders	Signature
Wang Chen	/s/ Wang Chen	Guo Wei	/s/ Guo Wei
Zhao Yanqiu	/s/ Zhao Yanqiu	Ji Haihong	/s/ Ji Haihong
Zhang Ying	/s/ Zhang Ying	Miao Yang	/s/ Miao Yang
Chen Fang	/s/ Chen Fang	Wu Yanping	/s/ Wu Yanping
Liu Naifan	/s/ Liu Naifan

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EX-10.9

Consigned Management Service Agreement

by and among

Tianjin Shengkai Industrial Technology Development Co., Ltd.

Shengkai (Tianjin) Ceramic Valve Co., Ltd.

and

The Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

May 30^th, 2008

Consigned Management Agreement

Consigned Management Service Agreement

This Consigned Management Service Agreement (“this Agreement”) is executed on May 30^th, 2008 in Tianjin, PRC, among the following Parties:

(1) Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter called “Party A”) is a limited liability company, duly incorporated in Tianjin, People’s Republic of China (“PRC”), whose legal address is: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area.

(2) Shengkai (Tianjin) Ceramic Valve Co., Ltd. (hereinafter referred to as “Party B”) is a wholly foreign-owned enterprise (“WFOE”) duly incorporated in Tianjin, PRC, whose legal address is: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin.

(3) All of the shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter collectively called the “Shareholders”).

Name of Each Shareholder	Shareholding Ratio (%)	ID Card No.	Contact Address
Wang Chen	71.39%	120103196412022118	204-209,Gate 8,Zhonghuan Deppartment,No.2 Road, Wujiayao, Heping District, Tianjin
Guo Wei	13.33%	120103196607222128	204-209,Gate 8,Zhonghuan Department,No.2 Road, Wujiayao, Heping District, Tianjin
Zhao Yanqiu	6.55%	2310851197903050762	Tuanjie Wei, Muleng Town, Muleng City, Helongjiang Province
Ji Haihong	6.55%	140102197002012349	No.7,Unit1,4th/F,No.11,Xinmin Zhongjie,Xinghualing District, Taiyuan City,Shanxi Province
Zhang Ying	0.48%	51010319740824628X	No.3,4th/F, Dong 315, Huangtian Bawei 4th Road, Qingyang District, Chengdu City
Miao Yang	0.48%	110108197106111811	No.1905,No.1Building, Yangguang 100 International Department, No.2, Guanghua Road,Chaoyang District, Beijing
Chen Fang	0.48%	440402197211205769	Room 401, Unit 1, Dong 3,No.2013,Xiangzhou Fenghuang North Road Xiangzhou District,Zhuhai City,Guangzhou Province
Wu Yanping	0.37%	120106196505060526	No.101,Gate 3,No.25 Building,Xinghuali,Shengli Street,Da Gang District,Tianjin
Liu Naifan	0.37%	372832196010257414	Dormitory District,Yinan Gold Mine,Yinan County,Shandong Province

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Consigned Management Agreement

(Party A, Party B and the Shareholders are referred to collectively in this agreement as the “Parties” and individually as “a Party” or “each Party”.)

WHEREAS:

(1) Party A’s business scope is as follows: The design, manufacturing and marketing of Environmental pollution control equipments (including flue gas desulphurization governance, de-dusting equipment); the production and manufacturing of industrial control systems of its transportation systems and equipments; the design, manufacturing and marketing of ceramic valves; the manufacturing environmental dedicated instrumentation electronic equipments; the manufacturing of ceramic coatings; the manufacturing and sale of high-tech ceramics; electromechanical products (except cars), chemical products (flammable, explosive, dangerous goods except prone to cause toxicity); technical consultation; technical services; operating the enterprise home-grown products as well as related technology import and export business;

(2) Party B is engaged in researching, developing, technology consulting service of ceramic valves and ceramic materials;

(3) The Parties agree that Party A shall consign to Party B the management of all of its business, finances and human resources;

(4) The Shareholders hold 100% of the equity interests in Party A.

NOW THEREFORE, the Parties hereby agree through friendly negotiation as follows:

Article 1 Definition

1.1 “PRC” refers to the People’s Republic of China, excluding the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Province

1.2 “PRC Laws” refers to all PRC laws, administrative regulations and government rules in effect;

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Consigned Management Agreement

1.3 “RMB” refers to the legal currency within the PRC;

1.4 “Party A Staff” refers to the senior management staff of Party A and the manager of each supermarket or store;

1.5 “Consigned Management Service Fee” or “Consideration” refers to the consideration as defined in Article 3.1 and paid to Party B by Party A.

Article 2 Contents of Consigned Management Services

2.1 Accounting Management Service

2.1.1 Goal

Achieve scientific management of the accounting system of Party A.

2.1.2 Contents of the Services

2.1.2.1 Provide information on financial and economic achievement analysis;

2.1.2.2Conduct business instruction to improve budget management and counsel on business operation;

2.1.2.3 Coordinate the use of operating cash, adjust the capital structure, accelerate the turnover of cash flow, and effectively control financial risks;

2.1.2.4 Arrange internal and outside audit services;

2.1.2.5 Pursuant to the requirements of the class-evaluation system, provide optimal management proposals and consulting services as to financial management;

2.1.2.6 Provide working cost management consulting services.

2.2 Business Management Services

2.2.1 Goal

Provide services relating to the management of ceramic products and staff training so as to enhance the professional management and eventually promote the economic achievements of Party A.

2.2.2 Contents

2.2.2.1 Training to Party A Staff

(1) Training Duration

Training shall be conducted every month within the consigned term, and Party B shall notify Party A of the timetable, contents of services, and lecturers of training fifteen days (15) prior to the training. In the event of the staff members of Party A failing to take part in the training and to designate another employee to attend the class, Party A shall present the written proof five days before the training to Party B for such absence; otherwise it shall be treated as attendance of training class and Party A shall bear the relevant training cost. Both Party A and Party B shall be entitled to adjust the frequency of the training according to the business operations of Party A.

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Consigned Management Agreement

(2) Contents of Training

A. Corporate culture training

Help trainees to establish a correct outlook on life and values, combine their own interests and business interests together and require trainees to write his career planning after the training.

B. The basic knowledge of products training Ensure all students can master all the knowledge of products, in order to allow the business staff in the market to meet market demand and fundamental changes, increase sales and continue to create higher profits for the company.

C. The basic marketing knowledge training Improve the basic business skills and common sense of sales through systematic training from the basic strange visit, negotiation, networks and terminals sales to the systematic integrated marketing communication knowledge in actual sales.

D. The sales policy training Focus on the training strengthen of corporate sales policies from the systematic lessons to the actual case of learning to enable students to clear market rules, ensure the adaptability to the market.

E. The team construction and management training Fundamentally solve the phenomenon of negative and inaction in the work of frontline operational staff through the good work of the individual to promote others to work well, a resolution of work in the negative, the of inaction,.

F. The time management planning training Develop good time management habits for every operational staff in the class.

G. The potential development and adjustment training Increase the firm confidence of all participants to the future and the work.

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Consigned Management Agreement

2.2.2.2 Management of the Company

2.2.2.2.1 High efficient use of senior management and bring new concepts and new capacity for the company.

2.2.2.2.2 Enhance the overall effectiveness and efficiency of operations to the company.

2.2.2.2.3 Comprehensively improve the operator's management level and the concept of operation.

2.2.2.2.4 Comprehensively enhance the management capacity of the management team and working ability of the related staff.

2.2.2.2.5 Clear the way for the change of management in the level of concept and awareness.

2.2.2.2.6 Assist in the development of enterprise development strategies and operational tactics.

2.2.2.2.7 Establish scientific and rational management basis, process and system.

2.3 Advertising and Development Services

2.3.1 Target

Through the participation and assistance of Party A’s actual operation and provide training of management expertise to staff and further enhance the management level and professionalism of ceramic products for Party A and eventually reach and enhance operational efficiency.

2.3.2 Contents of Service

2.3.2.1 Advertising Services

(1) Provide detailed and practical marketing plans for Party A and adjust from time to time based on the effects of such plans;

(2) Assist Party A in selecting suitable advertising companies for the promotion and advertising of its brand image;

(3) Assist Party A in communications with advertising companies on behalf of Party A, and determine the details of the advertising plan;

(4) Promptly report to Party A in detail with respect to the achievement and effect of the advertising.

2.3.2.2 Development Services

(1) Conduct research on the market and provide suggestions on the selection of location of new stores and the distribution of supermarkets;

(2) Conduct research on the competitors of Party A, and provide related competition strategies;

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Consigned Management Agreement

(3) Conduct research on the impressions of customers, and provide suggestions for perfection of customer services in accordance with the results of that research.

2.4 Human Resources Management Services

2.4.1 Target:

Achieve the proper distribution of human resources, maintain the stability of the management team, and stimulate the employees to positively work so as to increase economic achievement.

2.4.2 Contents

2.4.2.1 Recommend and nominate candidates for senior management staff positions of Party A, its wholly-owned supermarkets and all subsidiaries. Party A shall appoint such candidates in accordance with the requirement of each position;

2.4.2.2Assist in perfecting organizational structure to improve management;

2.4.2.3Establish a labor management system for Party A, including without limitation employment policies, training, a system of leaves and vacations, overtime work, resignation, dismissal, etc.;

2.4.2.4Complete the employee salary system including for senior management staff;

2.4.2.5Assist in completing the working effectiveness assessment system for employees and perfect the salary incentive system;

2.4.2.6Provide training of labor management to the workers in the human resources department of Party A;

2.4.2.7Provide consulting services to Party A relating to labor policies and social insurance;

2.4.2.8Assist Party A in standardizing the management of human resources and establishment of related systems.

2.5 Internal Control Services

Party B shall assist Party A in establishing internal control systems and provide counseling on the following systems:

(1) System for use of company seals;

(2) System for collection of bills and checks;

(3) Budgeting management system;

(4)Asset management system;

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Consigned Management Agreement

(5)Quality management system;

(6) Authorization and agency system;

(7) Management system of subsidiaries of Party A.

Article 3 Consigned Management Service Fee

3.1 Party A shall pay the Consigned Management Service Fee, equal to 2% of its total revenue as the Consideration for services provided by Party B as set forth in Article 2 hereof.

3.2 Party A shall pay to Party B the last year’s Consigned Management Services Fee before January 31^st of each year.

3.3 Whereas the business relationship between Party A and Party B has been established through the Technical Services Agreement and the daily business operations of Party A shall bear a material impact on its capacity to make the payments due to Party B, the Shareholders of Party A jointly agree that they will immediately and unconditionally pay or transfer to Party B any bonus, dividends or any other incomes or benefits (regardless of the forms) obtained from Party A as the shareholders of Party A at the time when such payables occur and provide all necessary documents or take all necessary actions required by Party B to realize such payment or transfer .

3.4 Party B shall be entitled to request in writing that Party A adjust the Consideration in accordance with the quantity and quality of the consigned services. The Parties shall positively negotiate with each other in respect of the Consigned Management Service Fee, and Party A shall agree with such adjustment.

Article 4 Warranties and Undertakings by Party A

4.1 Within the term of this Agreement, Party B shall be the entity exclusively appointed by Party A to provide the services as set forth in Article 2 hereunder, and Party A shall not appoint any other entities to provide to Party A (including its branches and subsidiaries) any services the same as or similar to those services described in Article 2 hereof.

4.2 Without the prior written consent of Party B, Party A (including its branches and subsidiaries) shall not change its business target.

4.3 Without the prior written consent of Party B, Party A (including its branches and subsidiaries) shall not change its systems and policies regarding business operations, management and finance.

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Consigned Management Agreement

4.4 Without the prior written consent of Party B, Party A shall not change its internal control system.

4.5 Without the prior written consent of Party B, Party A shall not change its internal organization.

4.6 Without the prior written consent of Party B, Party A shall not replace any senior management staff (including the senior management staff of its branches and subsidiaries).

4.7 Party A will provide information to Party B regarding the business operations, management and finances of Party A (including its branches and subsidiaries).

4.8 Party A will promptly and proactively notify Party B of any matters that adversely affect Party A.

4.9 Party A will give full cooperation to Party B, and provide assistance and convenience to Party B for its on-site work, and shall not hinder Party B from providing services as set forth in Article 2 hereof.

4.10 Party A will promptly make full payment of the Consigned Management Services Fee to Party B in accordance with the provisions hereof.

4.11Without the prior written consent by Party B, Party A shall not commit any act or omission that would materially affect Party B’s rights and interests hereunder.

Article 5 Warrants and Undertakings by Party B

5.1 Party B shall take advantage of its capacity and resources to provide the services as stipulated in Article 2 hereunder.

5.2 Party B shall timely adjust and complete the services in accordance with practical requests from Party A.

5.3 In the event that Party B intends to provide services to any other entities engaged in business similar to that of Party A, it shall give prior notice to Party A and strictly keep the confidential information obtained during the course of providing services to Party A.

5.4 Party B shall accept any reasonable suggestions from Party A during the course of providing services to Party A.

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Consigned Management Agreement

Article 6 Guaranty

6.1 To secure the performance of the obligations assumed by Party A hereunder, Shareholders agree to pledge all their equity interests in Party A to Party B, and the Parties agree to execute an equity pledge agreement with respect thereto.

Article 7 Taxes and Expenses

7.1 The Parties shall pay, in accordance with relevant PRC laws and regulations, their respective taxes arising from the execution and performance of this Agreement.

Article 8 Assignment of the Agreement

8.1 Party A shall not transfer part or all its rights and obligations under this Agreement to any third party without the prior written consent of Party B.

8.2 The Parties agree that Party B shall be entitled to transfer, at its own discretion, any or all of its rights and obligations under this Agreement to any third party upon six (6) days’ written notice to Party A.

Article 9 Liability of Breach

9.1 If Party A fails to duly pay the Consigned Management Service Fee in accordance with the provisions of Article 3 hereunder, then Party A shall pay liquidated damages per day equal to 0.03% of the unpaid Consideration which falls due; if any delay of payment amounts to sixty (60) days, then Party B shall be entitled to exercise the right of pledge under the equity pledge agreement.

9.2 If Party A violates its representations and warranties hereunder and fails to redress such violation within sixty (60) days upon receipt of written notice from Party B, Party B shall be entitled to exercise the right of pledge under the equity pledge agreement.

9.3 If Party B is in non-performance, or incomplete performance, of this Agreement, or is otherwise in default of any of its representations and warranties hereunder, Party A shall be entitled to request Party B to redress its default.

Article 10 Effect, Modification and Cancellation

10.1 This Agreement shall take effect on the date of execution hereof, and the valid term hereof shall be expired upon the date of completion of the acquisition of the assets or the equity of Party A by Party B or its designated third party.

10.2 The modification of this Agreement shall not be effective without written agreement through negotiation. If the Parties do not reach an agreement, this Agreement remains effective.

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Consigned Management Agreement

10.3 This Agreement shall not be discharged or canceled without written agreement through negotiation, provided that Party B may, by giving thirty days’ prior notice to the other Parties hereto, terminate this Agreement.

10.4 If Party B fails to provide the loan in accordance with the Loan Agreement signed between Party B and the Shareholders on May 30^th, 2008, this Agreement shall be automatically terminated.

Article 11 Confidentiality

11.1 Any information, documents, data and all other materials (herein “Confidential Information”) arising out of the negotiation, signing, and implementation of this Agreement, shall be kept in strict confidence by the Parties. Without the written approval of the other Parties, no Party shall disclose to any third party any Confidential Information, but the following circumstances shall be excluded:

(1) Material that is known or may be known by the Public (but not including materials disclosed by each Party receiving the Confidential Information);

(2) Materials required to be disclosed subject to applicable laws or rules or provisions of a stock exchange; or

(3) Materials disclosed by each Party to its legal or financial consultant relating to the transaction of this Agreement, and this legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of the Confidential Information by staff or a consignee of any Party shall be deemed the disclosure of such Confidential Information by such Party, and such Party shall bear the liabilities for breaching the contract. This Clause shall survive whether this Agreement is invalid, amended, revoked, terminated or unable to be implemented for any reason.

11.2 If this Agreement is terminated or becomes invalid or unenforceable, the validity and enforceability of Article 11 shall not be affected or impaired.

Article 12 Force Majeure

12.1 “Force Majeure” refers to any event that could not be foreseen, and could not be avoided and overcome, which includes among other things, but without limitation, acts of nature (such as earthquakes, floods or fires), government acts, strikes or riots.

12.2 If an event of force majeure occurs, any of the Parties that is prevented from performing its obligations under this Agreement by an event of force majeure shall notify the other Parties without delay and within fifteen (15) days of the event provide detailed information about and notarized documents evidencing the event, shall take appropriate measures to minimize or remove the negative effects of force majeure on the other Parties and shall not assume the liabilities for breaching this Agreement. The Parties shall continue performing this Agreement after the event of force majeure disappears.

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Consigned Management Agreement

Article 13 Governing Law and Dispute Resolution

13.1 The effectiveness, interpretation, implementation and dispute resolution related to this Agreement shall be governed under PRC Laws.

13.2 Any dispute arising out of this Agreement shall be resolved by the Parties through mutual negotiation. If the Parties cannot reach an agreement within thirty (30) days from the date on which the dispute is brought forward, each Party may submit the dispute to the Beijing Arbitration Commission for arbitration under its applicable rules, and the language of arbitration proceedings shall be Chinese. The arbitration award shall be final and binding upon both parties.

13.3 During the process of dispute resolution, the Parties shall continue to perform other terms under this Agreement, except for the provisions subject to the dispute resolution.

Article 14 Miscellaneous

14.1 The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters hereof and supersedes and replaces all prior or contemporaneous oral or written agreements and understandings.

14.2 This Agreement shall bind and benefit the successor of each Party and any transferee permitted hereunder with the same rights and obligations as if such successor or transferee were an original party hereto.

14.3 Any notice required to be given or delivered to the Parties hereunder shall be in writing and delivered to the address as indicated below or such other address or as such party may designate, in writing, from time to time. All notices shall be deemed to have been given or delivered upon by personal delivery, fax and registered mail. It shall be deemed to be delivered upon: (1) registered air mail: 5 business days after deposit in the mail; (2) personal delivery and fax: 2 business days after transmission. If the notice is delivered by fax, it should be confirmed by original through registered air mail or personal delivery:

Party A:

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

12

Consigned Management Agreement

Party B:

Contact person: Wang Chen

Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Tel: 86-22-28590002 Fax: 86-22-28590003

The Representative designated by the Shareholders

Contact person: Wang Chen

Address: Shengkai Ind. Park Wanggang R.d Jinnan (Shuanggang) Dev. Area Tianjin

Tel: 86-22-28590002Fax: 86-22-28590003

14.4 This Agreement is executed in eleven originals with each party holding one original, and each of the originals shall be equally valid and authentic.

[Signature Page Follows]

13

Consigned Management Agreement

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and delivered as of the date first written above.

Party A Tianjin Shengkai Industrial Technology Development Co., Ltd.

Legal Representative: Wang Chen

Signature and Company seal:

Party B Shengkai (Tianjin) Ceramic Valve Co., Ltd.

Legal Representative: Wang Chen

Signature and Company Seal:

Shareholders

Name of the Shareholders	Signature	Name of the Shareholders	Signature
Wang Chen	/s/ Wang Chen	Guo Wei	/s/ Guo Wei
Zhao Yanqiu	/s/ Zhao Yanqiu	Ji Haihong	/s/ Ji Haihong
Zhang Ying	/s/ Zhang Ying	Miao Yang	/s/ Miao Yang
Chen Fang	/s/ Chen Fang	Wu Yanping	/s/ Wu Yanping
Liu Naifan	/s/ Liu Naifan

14

EX-10.10

Loan Agreement

By and between

Tianjin Shengkai Industrial Technology Development Co., Ltd.

and

Shengkai (Tianjin) Ceramic Valve Co., Ltd.

May 30^th, 2008

Loan Agreement

Loan Agreement

This Loan Agreement (this “Agreement”) is executed by and between the following Parties on May 30^th, 2008, in Tianjin, PRC.

(1) All Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter collectively called the “Borrowers” or “Party A”), and the shareholding structure refers to the following:

Name of Each Shareholder	Shareholding Ratio (%)	ID Card No.	Contact Address
Wang Chen	71.39%	120103196412022118	204-209,Gate 8,Zhonghuan Deppartment,No.2 Road, Wujiayao, Heping District, Tianjin
Guo Wei	13.33%	120103196607222128	204-209,Gate 8,Zhonghuan Department,No.2 Road, Wujiayao, Heping District, Tianjin
Zhao Yanqiu	6.55%	2310851197903050762	Tuanjie Wei, Muleng Town, Muleng City, Helongjiang Province
Ji Haihong	6.55%	140102197002012349	No.7,Unit1,4th/F,No.11,Xinmin Zhongjie,Xinghualing District, Taiyuan City,Shanxi Province
Zhang Ying	0.48%	51010319740824628X	No.3,4th/F, Dong 315, Huangtian Bawei 4th Road, Qingyang District, Chengdu City
Miao Yang	0.48%	110108197106111811	No.1905,No.1Building, Yangguang 100 International Department, No.2, Guanghua Road,Chaoyang District, Beijing
Chen Fang	0.48%	440402197211205769	Room 401, Unit 1, Dong 3,No.2013,Xiangzhou Fenghuang North Road,  Xiangzhou District,Zhuhai City,Guangzhou Province
Wu Yanping	0.37%	120106196505060526	No.101,Gate 3,No.25 Building,Xinghuali,Shengli Street,Da Gang District,Tianjin
Liu Naifan	0.37%	372832196010257414	Dormitory District,Yinan Gold Mine,Yinan County,Shandong Province

Loan Agreement

(2) Shengkai (Tianjin) Ceramic Valve Co., Ltd. (hereinafter referred to as the “Lender” or “Party B”)

Legal Representative : Wang Chen

Address : Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

(Party A and Party B are collectively called “the Parties” and individually called “each Party” or “a Party” in this agreement.)

WHEREAS:

(1) Borrowers (Party A) hold 100% of the equity interests in Tianjin Shengkai Industrial Technology Development Co., Ltd. (the “Company”);

(2) Party B is a wholly foreign-owned enterprise incorporated under PRC laws;

(3) Party A desires to secure a loan from Party B, for the purpose of increasing the registered capital of the Company, by pledging its equity in the Company to Party B as a guaranty of the loan, and Party B agrees to provide the loan to Party A ;

NOW, THEREFORE, The Parties have agreed through friendly negotiation to the terms and conditions with respect to the loan hereunder as follows:

1. DEFINITION

Except where provided otherwise, the terms used in this Agreement shall mean:

1.1 “PRC” refers to the People’s Republic of China, excluding the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Province;

1.2 “PRC Laws” refers to all PRC laws, administrative regulations and government rules in effect;

1.3 “RMB” refers to the legal currency within the PRC;

1.4 “Loan” refers to the Total Principal to be loaned to the Borrowers by the Lender in accordance with Article 2 hereunder;

Loan Agreement

1.5 “The Company” refers to Tianjin Shengkai Industrial Technology Development Co., Ltd., a domestic company which is incorporated and validly existing under PRC Laws; its business license No. is 120191000015144, and its registered address is Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area;

1.6 “Shareholder” refers to each of the Shareholders in the Company;

1.7 “Equity” or “Equity Interests” refers to the equity interests in the Company;

1.8 “Equity Transfer” refers to the assignment of Equity Interests in the Company held by Party A to Party B or its designated third party in accordance with the provisions of the exclusive purchase option agreement (the “Exclusive Purchase Option Agreement”) executed on May 30^th, 2008.

1.9 “Asset Transfer” refers to the assignment of the assets of the Company by the Company to Party B or its designated third party in accordance with the provisions of the Exclusive Purchase Option Agreement.

1.10 “Consideration for Equity Transfer” has the meaning set forth in Section 6 of this Agreement.

1.11 “Consideration for Assets Transfer” has the meaning set forth in Section 6 of this Agreement.

2. THE TOTAL LOAN AMOUNT

2.1 The total principal amount of the loan hereunder is RMB 49,000,000Yuan (the “Total Principal”), and the amount and ratio of the loan to be made to each Shareholder are as set forth in the following table:

Name of the Shareholders	Amount of the Loan (Ten Thousand Yuan)		Percentage of Total Principal ( % )
Wang Chen		34,981,100		71.39	%
Guo Wei		6,531,700		13.33	%
Zhao Yanqiu		3,209,500		6.55	%
Ji Haihong		3,209,500		6.55	%
Zhangying		235,200		0.48	%
Miao Yang		235,200		0.48	%
Chen Fang		235,200		0.48	%
Wu Yanping		181,300		0.37	%
Liu Naifan		181,300		0.37	%

Loan Agreement

3. TERM OF THIS AGREEMENT

3.1 Unless otherwise provided, the term of this Agreement shall begin from the Effective Date and expire when the loan is completely repaid by the Borrowers in accordance with the provisions of Article 6 hereunder.

4. LOAN USAGE

4.1 The full amount of the loan provided hereunder shall be used to increase the registered capital of the Company, and the Borrowers shall in no event change the usage without the prior written consent of the Lender.

4.2 The Borrowers shall cause the Company to complete the registration of the Company with the competent Administration Bureau of Industry and Commerce in respect of the increase in the registered capital of the Company within 30 business days upon receipt of the Loan hereunder, and such period may be prolonged upon the consent of the Lender.

5. LOAN INTEREST

5.1 Except as provided in Section 5.2 hereunder, the Loan hereunder shall be interest-free.

5.2 If the Consideration for Equity Transfer or the Consideration for Asset Transfer, in accordance with Section 6 hereof, is higher than the Total Principal as a result of the requirements of then applicable law or for any other reason, the excess shall be deemed to be loan interest/utilizing fees of the Loan to the largest extent permitted by PRC Laws, and will be paid to Party B by Party A together with loan principal.

6. LOAN REPAYMENT

6.1 The Loan shall be repaid upon receipt of written notice sent by Party B to Party A (the “Repayment Notice”), which shall instruct Party A to repay the Loan in accordance with Section 6.3.1 or 6.3.2 hereof.

6.2 The Repayment Notice shall indicate the term of repayment, which shall be adjusted from time to time by Party B in accordance with the provisions of PRC Laws regarding equity transfers (the “Repayment Term”).

6.3 Except as provided otherwise by the Repayment Notice, Party A shall make payment to Party B during the Repayment Term as follows:

Loan Agreement

6.3.1 In the event of any Equity Transfer by Party A, the after-tax consideration paid to Party A in exchange for such Equity Transfer (including the principal and interest of the loan, if applicable) (hereinafter referred to as the “Consideration for Equity Transfer”) shall be used by Party A to repay the Loan to Party B;

6.3.2 In the event that the Company receives consideration for any Asset Transfer, Party A shall cause the Company to adopt a plan of profit distribution to transfer all after-tax income of the Company to Party B to the greatest extent permitted by PRC Laws, in order to repay the loan made by Party B under this agreement.

6.4 If the Consideration for Equity Transfer or Consideration for Asset Transfer is lower than the total principal under this Agreement, Party A shall be exempted from the shortfall repayment obligation.

7. CONDITONS FOR GRANTING OF THE LOAN

7.1 The loan shall be granted only upon satisfaction of all the following conditions:

7.1.1 Party A shall cause the Shareholders General Meeting of the Company to approve increasing the registered capital by an amount equal to the Total Principal.

7.1.2 Party A, or the Company on behalf of Party A, shall execute all documents necessary for the registration with the competent Administration Bureau of Industry and Commerce in respect of the increase of registered capital of the Company.

7.2 Party B shall grant the Loan immediately and deposit it in the escrow account as agreed by Party B for increasing the registered capital of the Company after it receives written evidence which proves that Party A has fulfilled all the conditions under Section 7.1 hereof.

8. WARRANTIES AND UNDERTAKINGS

8.1 Party A hereby represents and warrants to Party B that, as of the execution date of this Agreement:

8.1.1 Party A legally holds 100% of the Equity in the Company;

8.1.2 Except as otherwise provided in the Equity Pledge Agreement and Exclusive Purchase Option Agreement, there is no pledge or other form of encumbrance on the Equity;

Loan Agreement

8.1.3 There are no material debts which will adversely affect the Equity of Party A;

8.1.4 Execution of this Agreement by Party A shall not constitute a breach of the articles of association of the Company.

8.2 Party A warrants to Party B that, as of the execution date of this Agreement:

8.2.1 Except as otherwise provided in the Equity Pledge Agreement and Exclusive Purchase Option Agreement, without Party B’s prior written consent, Party A shall not transfer, sell, mortgage or otherwise dispose of assets or income of the Company;

8.2.2 Without Party B’s prior written consent, Party A shall not supplement or amend the articles of association or rules of the Company, nor shall it increase or decrease the registered capital or change the shareholding structure of the Company in any manner;

8.2.3 Without Party B’s prior written consent, Party A shall not cause or allow the Shareholders’ General Meeting of the Company to approve the resolutions for the Company or any subsidiary controlled or wholly owned by the Company to dissolve, liquidate or change legal form;

8.2.4 Without Party B’s prior written consent, Party A shall not cause or allow the Shareholders’ General Meeting of the Company to approve any Profit Distribution Proposal, nor shall it accept such a distributed dividend; and at Party B’s request, Party A shall promptly approve a Profit Distribution Proposal and accept such a distributed dividend;

8.2.5 At Party B’s request, Party A shall provide Party B with all information regarding Party B’s business operations and financial condition;

8.2.6 Without Party B’s prior written consent, Party A shall not incur or succeed to any debts or liabilities which may adversely affect its Equity Interests;

8.2.7 Party A shall appoint, and appoint only, the candidates nominated by Party B to the board of directors of the Company, and shall not replace such candidates without Party B’s written consent;

8.2.8 Without Party B’s prior written consent; Party A shall not cause or allow the board of directors of the Company appointed by Party A to approve any acquisition of, any consolidation with, or any investment in any third party;

8.2.9 Party A shall promptly notify Party B of any pending or threatened lawsuit, arbitration or administrative dispute which involves the assets, business or income of the Company; and shall make every effort to take action to resolve such lawsuit, arbitration or administrative dispute in order to safeguard the legal rights and interests of the Company;

8.2.10 Without Party B’s prior written consent, Party A shall not commit any act or omission that would materially affect the Company’s assets, business or liabilities;

Loan Agreement

8.2.11 Party A shall strictly comply with the provisions of this Agreement, and effectively perform its obligations hereunder, and shall be prohibited from committing any act or omission which may affect the validity or enforceability of this Agreement.

8.3 Party A warrants to Party B that it shall use its best efforts to ensure that the Company:

8.3.1 shall not, without Party B’s prior written consent, supplement or amend the articles of association or rules of the Company, or any subsidiary controlled or wholly owned by the Company, in any manner, nor shall it increase or decrease the registered capital or change the shareholding structure of the aforesaid entities in any manner;

8.3.2 shall prudently and effectively maintain its business operations according to good financial and business standards so as to maintain or increase the value of its assets;

8.3.3 shall not transfer, mortgage or otherwise dispose of the lawful rights and interests to and in its assets or incomes, nor shall it encumber its assets and income in any way that would affect Party B’s security interests unless as required for the business operations of the Company or upon prior written consent by Party B;

8.3.4 shall not incur or succeed to any debts or liabilities without Party B’s prior written consent;

8.3.5 without Party B’s prior written consent, shall not enter into any material contract (exceeding RMB 3,000,000 in value);

8.3.6 without Party B’s prior written consent, shall not provide any loans or guaranty to any third party;

8.3.7 at Party B’s request, shall provide Party B with all information regarding the Company’s business operation and financial condition;

8.3.8 without Party B’s prior written consent, shall not acquire or consolidate with any third party, nor shall it invest in any third party;

8.3.9 shall promptly notify Party B of any pending or threatened lawsuit, arbitration or administrative dispute which involves the assets, business or income of the Company; and shall make every effort to take action to resolve such lawsuit, arbitration or administrative dispute in order to safeguard the legal rights and interests of the Company;

8.3.10 without Party B’s prior written consent, shall not distribute any dividends to the shareholders in any manner, and, at Party B’s request, shall promptly distribute all distributable dividends to the shareholders;

8.3.11 without Party B’s prior written consent, shall not commit any act or omission that would materially affect the Company’s assets, business or liabilities.

Loan Agreement

9. GUARANTY OF THE LOAN

9.1 To secure the repayment of the debts under this Agreement, Party A agrees to pledge all its equity in the Company to Party B, and both Parties agree to execute the Equity Pledge Agreement with respect thereto.

10. TAX AND EXPENSE

10.1 The Parties shall pay their respective taxes and expenses in relation to the execution and performance hereof in accordance with PRC Laws.

10.2 Party B shall pay taxes and expenses in accordance with Section 6.4 hereof (if applicable).

11. ASSIGNMENT OF AGREEMENT

11.1 Party A shall not transfer any or all of its rights and obligations under this Agreement to any third party without the prior written consent of Party B.

11.2 The Parties agree that Party B shall have the right to transfer any or all of its rights and obligations under this Agreement to any third party upon a six (6) days’ written notice to Party A without approval by Party A.

12. LIABILITIES AND INDEMITIES FOR BREACH OF THIS AGREEMENT

12.1 If Party A uses the Loan other than in compliance with the terms of this Agreement, Party B shall require Party A repay the improperly used part promptly.

12.2 If Party A breaches the warranties and undertakings as provided in Article 8 hereof or other provisions under this Agreement and fails to redress such breach within 60 days upon receipt of written notice from Party B, Party B shall be entitled to require Party A to repay the granted Loan promptly.

13. EFFECTIVENESS, MODIFICATION AND CANCELLATION

13.1 This Agreement shall take effect on the date of execution hereof by Party A and the duly authorized representatives of Party B.

13.2 The modification of this Agreement shall not be effective without written agreement through negotiation. If the Parties do not reach an agreement as to modification, this Agreement remains effective.

13.3 This Agreement shall not be discharged or canceled without written agreement through negotiation, provided that Party B may, by giving thirty (30) days’ prior notice to Party A, terminate this Agreement.

Loan Agreement

13.4 Unless Party B fails to grant the Loan as required hereunder after the satisfaction of all conditions as set forth in Section 7.1 hereof by Party A, Party A shall in no event unilaterally terminate this Agreement.

13.5 If Party B fails to provide the Loan in accordance with the terms hereof, this Agreement shall be automatically terminated.

14. CONFIDENTIALITY

14.1 Any information, documents, data and all other materials (herein “confidential information”) arising out of the negotiation, signing, and implementing of this Agreement shall be kept in strict confidence by the Parties. Without the written approval of the other Parties, no Party shall disclose to any third party any relevant materials, but the following circumstances shall be excluded:

(1)  Material that is known or may be known by the Public (but not including material disclosed by each party receiving the materials);

(2)  Material required to be disclosed subject to the applicable laws or the rules or provisions of a stock exchange; or

(3)  Material disclosed by each Party to its legal or financial consultant relating to the transaction of this Agreement, and this legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of confidential material by staff or a consignee of any Party shall be deemed to be disclosure of such materials by such Party, and such Party shall bear the liabilities for breaching the contract.

14.2 This Clause shall survive whether this Agreement is invalid, amended, revoked, terminated or incapable of implementation for any reason.

15. FORCE MAJEURE

15.1 “Force Majeure” refers that any event that could not be foreseen, and could not be avoided and overcome, which includes among other things, but without limitation, acts of nature (such as earthquakes, flood or fire), government acts, strikes or riots.

15.2 If an event of force majeure occurs, any of the Parties that is prevented from performing its obligations under this Agreement by an event of force majeure shall notify the other Party without delay and within fifteen (15) days of the event provide detailed information about and notarized documents evidencing the event, shall take appropriate means to minimize or remove the negative effects of force majeure on the other Party and shall not assume the liabilities for breaching this Agreement. The Parties shall continue performing this Agreement after the event of force majeure disappears.

Loan Agreement

16. GOVERNING LAW AND DISPUTE RESOLUTION

16.1 The effectiveness, interpretation, implementation and dispute-resolution related to this Agreement shall be governed under PRC Laws.

16.2 Any dispute arising out of this Agreement shall be resolved by both parties through mutual negotiation. If both parties cannot reach an agreement within 30 days from the date on which the dispute is brought forward, either Party may submit the dispute to the Beijing Arbitration Commission for arbitration under its applicable rules, and the language of arbitration proceedings shall be Chinese. The arbitration award shall be final and binding upon both parties.

16.3 During the process of dispute-resolution, both parties shall continue to perform other terms under this Agreement, except for the provisions subject to the dispute resolution.

17. MISCELLANEOUS

17.1 The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters herein and supersedes and replaces all prior or contemporaneous oral or written agreements and understandings.

17.2 This Agreement shall bind and benefit the successor of each Party and any transferee permitted hereunder with the same rights and obligations as if such successor or transferee were an original party hereto.

16.3 Any notice required to be given or delivered to the Parties hereunder shall be in writing and delivered to the address as indicated below or such other address or as such party may designate, in writing, from time to time. All notices shall be delivered by personal delivery, fax or registered mail. It shall be deemed to be delivered upon: (1) registered air mail: 5 business days after deposit in the mail; (2) personal delivery: 2 business days after transmission. If the notice is delivered by fax, it should be confirmed by original through registered air mail or personal delivery:

The Representative designated by Party A:

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

Party B:

Contact person: Wang Chen

Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Tel: 86-22-28590002 Fax: 86-22-28590003

Loan Agreement

17.4 This Agreement is executed in eleven originals with each of the person for signing this Agreement holding one original, and each of originals shall be equally valid and authentic.

Loan Agreement

IN WITNESS THEREFORE, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

For and on behalf of

Party A All Shareholders of Tianjin Shengkai Industrial Technology development Co., Ltd.

Name of the Shareholders	Signature	Name of the Shareholders	Signature
Wang Chen	/s/ Wang Chen	Guo Wei	/s/ Guo Wei
Zhao Yanqiu	/s/ Zhao Yanqiu	Ji Haihong	/s/ Ji Haihong
Zhang Ying	/s/ Zhang Ying	Miao Yang	/s/ Miao Yang
Chen Fang	/s/ Chen Fang	Wu Yanping	/s/ Wu Yanping
Liu Naifan	/s/ Liu Naifan

Party B Shengkai (Tianjin) Ceramic Valves Co., Ltd. (Seal)

Legal Representative (or Authorized Representative): Wang Chen

Signature /s/ Wang Chen

EX-10.11

Technology Service Agreement

by and among

Tianjin Shengkai Industrial Technology Development Co., Ltd.

Shengkai (Tianjin) Ceramic Valve Co., Ltd.

and

The Shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

May 30^th, 2008

Technology Service Agreement

Technology Service Agreement

This Technology Service Agreement (“this Agreement”) is executed by the following Parties on May 30^th, 2008 in Tianjin, PRC:

(1)   Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter called “Party A”) is a limited liability company, duly incorporated in Tianjin, People’s Republic of China (“PRC”) whose legal address is: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area.

(2)   Shengkai (Tianjin) Consulting Company Limited (hereinafter referred to as “Party B”) is a wholly foreign owned enterprise (“WFOE”) duly incorporated in Tianjin, PRC, whose legal address is:Room A2-191,No.166 Xisandao,Konggang Logistic Processing Zones,Tianjin.

(3)   All of the shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd. (hereinafter collectively called the “Shareholders”). 

Name of Each Shareholder	Shareholding Ratio (%)	ID Card No.	Contact Address
Wang Chen	71.39%	120103196412022118	204-209,Gate 8,Zhonghuan Deppartment,No.2 Road, Wujiayao, Heping District, Tianjin
Guo Wei	13.33%	120103196607222128	204-209,Gate 8,Zhonghuan Department,No.2 Road, Wujiayao, Heping District, Tianjin
Zhao Yanqiu	6.55%	2310851197903050762	Tuanjie Wei, Muleng Town, Muleng City, Helongjiang Province
Ji Haihong	6.55%	140102197002012349	No.7,Unit1,4th/F,No.11,Xinmin Zhongjie,Xinghualing District, Taiyuan City,Shanxi Province
Zhang Ying	0.48%	51010319740824628X	No.3,4th/F, Dong 315, Huangtian Bawei 4th Road, Qingyang District, Chengdu City
Miao Yang	0.48%	110108197106111811	No.1905,No.1Building, Yangguang 100 International Department, No.2, Guanghua Road,Chaoyang District, Beijing
Chen Fang	0.48%	440402197211205769	Room 401, Unit 1, Dong 3,No.2013,Xiangzhou Fenghuang North RoadôXiangzhou District,Zhuhai City,Guangzhou Province
Wu Yanping	0.37%	120106196505060526	No.101,Gate 3,No.25 Building,Xinghuali,Shengli Street,Da Gang District,Tianjin
Liu Naifan	0.37%	372832196010257414	Dormitory District,Yinan Gold Mine,Yinan County,Shandong Province

(Party A, Party B and the Shareholders are referred to collectively in this agreement as the “Parties” and individually as “a Party” or “each Party”.)

2

Technology Service Agreement

WHEREAS:

(1)        Party A’s business scope is as follows: The design, manufacturing and marketing of Environmental pollution control equipments (including flue gas desulphurization governance, de-dusting equipment); the production and manufacturing of industrial control systems of its transportation systems and equipments; the design, manufacturing and marketing of ceramic valves; the manufacturing environmental dedicated instrumentation electronic equipments; the manufacturing of ceramic coatings; the manufacturing and sale of high-tech ceramics; electromechanical products (except cars), chemical products (flammable, explosive, dangerous goods except prone to cause toxicity); technical consultation; technical services; operating the enterprise home-grown products as well as related technology import and export business;

(2)        Party B is engaged in researching, developing, technology consulting service of ceramic valves and ceramic materials;

(3)        The Parties agree that Party B shall provide Party A with technology services, such as is researching, developing, technology consulting, technology service of ceramic valves and ceramic materials;

(4)        The Shareholders hold 100% of the equity interests in Party A. 

NOW THEREFORE, the Parties hereby agree through friendly negotiation as follows:

Article 1 Definitions

1.1 “PRC” refers to the People’s Republic of China, for the purpose of this Agreement, excluding the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Provinceå

3

Technology Service Agreement

1.2 “PRC Laws” refers to all PRC laws, administrative regulations and government rules in effect;

1.3 “RMB” refers to the legal currency within the PRC;

1.4 “Technology Service Fee” or “Consideration” refers to the consideration as defined in Article 3.1 and to be paid to Party B by Party A.

Article 2 Contents of Technology Services

2.1 Select, purchase and update the proper software on finance management in accordance with practical requirements with respect thereto and conduct training on the use of such software, and provide relevant consulting services.

2.2 Select, purchase and update the proper software on human resource management in accordance with practical requirements with respect thereto and conduct training on the use of such software, and provide relevant consulting services.

2.3 Select, purchase and update the proper software on the management of supermarkets in accordance with practical requirements with respect thereto and conduct training on the use of such software, and provide relevant consulting services.

2.4 Assist with other related systems and software in accordance with the specific requirements of Party A.

2.5 Seek qualified network service companies to provide services to Party A with respect to its application for the domain name and design of website, assist Party A in communication with the network service company on matters relating to the domain name and website.

2.6 Assist with the computers, server and other facilities in accordance with the requirements of Party A, and make periodic maintenance on aforesaid facilities.

2.7 Conduct training of the technical employees of Party A.

2.7.1 Conduct Party A to the research of new formulations of ceramics, increase the toughness and machinability of ceramics, raise manufacturing ceramic materials burn rate and lower sintering temperature, significantly lower production costs, fulfill precision match between ceramic pieces and the metal valve bodies.

2.7.2 Conduct Party A to the research and development of the new product of ceramic valves, further improve the resilience and corrosion-resistant of industrial ceramics and other fine performance, increase the caliber of ceramic valves, pressure and temperature range, wider application of ceramic valves, fulfill the bigger large-scale replacement of metal valves.

4

Technology Service Agreement

2.7.3 Strengthen the training of Party A’s staff to use new equipments, quickly create productivity of the new equipments and improve the company production capacity

2.8 In the event of occurrence of technical problems of Party A, Party B shall designate with 12 hours relevant staff to perform on-site research for assisting Party A to resolve such problems.

2.9Party B shall be the sole and exclusive owner of all rights, title, interests and intellectual property rights arising from the performance of this Agreement (including but not limited to, any copyrights, patent, know-how, commercial secrets and otherwise), regardless developed independently by Party B or by Party A based on Party B’s intellectual property or by Party B based on Party A’s intellectual property. Party A shall not claim against Party B on any rights, ownership, interests or intellectual property.

If such development is conducted on the basis of Party A’s intellectual property, Party A shall ensure that such intellectual property is clear and free from any lien or encumbrance or license, or Party A shall indemnify Party B any and all damages incurred thereby. In case Party B shall be liable to any third party by reason thereof, Party B shall be compensated in full by Party A as long as Party B has compensated the third party.

Article 3 Technology Service Fee

3.1 Party A shall pay the Technology Service Fee annually, equal to 1% of its total revenue as the Consideration for services provided by Party B as set forth in Article 2 hereof.

3.2 Party A shall pay to Party B the last year’s Technology Service Fee before January 31^st of each year.

3.3 Party B shall be entitled to request in writing that Party A adjust the Consideration in accordance with the quantity and quality of the technology services. The Parties shall positively negotiate with each other in respect of the Technology Service Fee, and Party A shall agree with such adjustment.

3.4Both Parties agree that any losses incurred during the performance of this Agreement shall be jointly burden by both Parties.

Article 4 Warranties and Undertakings by Party A

4.1 Within the term of this Agreement, Party B shall be the entity exclusively appointed by Party A to provide the services as set forth in Article 2 hereunder, and Party A shall not appoint any other entities to provide to Party A (including its branches and subsidiaries) any services the same as or similar to those services described in Article 2 hereof.

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Technology Service Agreement

4.2 Party A will provide Party B with all information related to the content of service as set forth in Article 2.

4.3 Party A will give full cooperation to Party B, and provide assistance and convenience to Party B for its on-site work, and shall not hinder Party B from providing services as set forth in Article 2 hereof.

4.4 Party A will promptly make full payment of the Consigned Management Service Fee to Party B in accordance with the provisions hereof.

4.5 Without the prior written consent of Party B, Party A shall not commit any act or omission that would materially affect Party B’s rights and interests hereunder.

Article 5 Warrants and Undertakings by Party B

5.1 Party B shall take advantage of its capacity and resources to provide the services as stipulated in Article 2 hereunder.

5.2 Party B shall timely adjust and complete the technology services in accordance with practical requests from Party A.

5.3 In the event that Party B intends to provide services to any other entities engaged in business similar to that of Party A, it shall give prior notice to Party A and strictly keep the confidential information obtained during the course of providing services to Party A .

5.4 Party B shall accept any reasonable suggestions regarding hardware, software and staff training from Party A during the course of providing services to Party A.

Article 6 Guaranty

6.1 To secure the performance of the obligations assumed by Party A hereunder, Shareholders agree to pledge all their equity interests in Party A to Party B, and the Parties agree to execute an equity pledge agreement with respect thereto.

Article 7 Taxes and Expenses

7.1 The Parties shall pay, in accordance with relevant PRC laws and regulations, their respective taxes arising from the execution and performance of this Agreement.

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Technology Service Agreement

Article 8 Assignment of the Agreement

8.1 Party A shall not transfer part or all its rights and obligations under this Agreement to any third party without the prior written consent of Party B.

8.2 The Parties agree that Party B shall be entitled to transfer, at its own discretion, any or all of its rights and obligations under this Agreement to any third party upon six (6) days’ written notice to Party A.

Article 9 Liability of Breach

9.1 If Party A fails to duly pay the Technology Service Fee in accordance with the provisions of Article 3 hereunder, then Party A shall pay liquidated damages per day equal to 0.03% of the unpaid Consideration which falls due; if any delay of payment amounts to sixty (60) days, then Party B shall be entitled to exercise the right of pledge under the equity pledge agreement.

9.2 If Party A violates its representations and warranties hereunder and fails to redress such violation within sixty (60) days upon receipt of written notice from Party B, Party B shall be entitled to exercise the right of pledge under the equity pledge agreement.

9.3 If Party B is in non-performance, or incomplete performance, of this Agreement, or is otherwise in default of any of its representations and warranties hereunder, Party A shall be entitled to request Party B to redress its default.

Article 10 Effectiveness, Modification and Cancellation

10.1 This Agreement shall take effect on the date of execution hereof, and the valid term hereof shall be expired upon the date of completion of the acquisition of the assets or the equity of Party A by Party B or its designated third party.

10.2 The modification of this Agreement shall not be effective without written agreement through negotiation. If the Parties do not reach an agreement, this Agreement remains effective.

10.3 This Agreement shall not be discharged or canceled without written agreement through negotiation, provided that Party B may, by giving thirty (30) days’ prior notice to the other Parties hereto, terminate this Agreement.

10.4 If Party B fails to provide the loan in accordance with the Loan Agreement signed between Party B and the Shareholders on May 30^th, 2008, this Agreement shall be automatically terminated.

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Technology Service Agreement

Article 11 Confidentiality

11.1 Any information, documents, data and all other materials (herein “Confidential Information”) arising out of the negotiation, signing, and implementation of this Agreement, shall be kept in strict confidence by the Parties. Without the written approval of the other Parties, no Party shall disclose to any third party any Confidential Information, but the following circumstances shall be excluded:

(1) Material that is known or may be known by the Public (but not including materials disclosed by each Party receiving the Confidential Information);

(2) Materials required to be disclosed subject to applicable laws or rules or provisions of a stock exchange; or

(3) Materials disclosed by each Party to its legal or financial consultant relating to the transaction of this Agreement, and this legal or financial consultant shall comply with the confidentiality set forth in this Section. The disclosure of Confidential Information by staff or a consignee of any Party shall be deemed the disclosure of such Confidential Information by such Party, and such Party shall bear the liabilities for breaching the contract. This Clause shall survive whether this Agreement is invalid, amended, revoked, terminated or unable to be implemented for any reason.

11.2 If this Agreement is terminated or becomes invalid or unenforceable, the validity and enforceability of this Article 11 shall not be affected or impaired.

Article 12 Force Majeure

12.1 “Force Majeure” refers to any event that could not be foreseen, and could not be avoided and overcome, which includes among other things, but without limitation, acts of nature (such as earthquakes, floods or fires), government acts, strikes or riots.

12.2 If an event of force majeure occurs, any of the Parties that is prevented from performing its obligations under this Agreement by an event of force majeure shall notify the other Parties without delay and within fifteen (15) days of the event provide detailed information about and notarized documents evidencing the event, shall take appropriate measures to minimize or remove the negative effects of force majeure on the other Parties and shall not assume the liabilities for breaching this Agreement. The Parties shall continue performing this Agreement after the event of force majeure disappears.

Article 13 Governing Law and Dispute Resolution

13.1 The effectiveness, interpretation, implementation and dispute resolution related to this Agreement shall be governed under PRC Laws.

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Technology Service Agreement

13.2 Any dispute arising out of this Agreement shall be resolved by all the Parties through mutual negotiation. If all the Parties cannot reach an agreement within thirty (30) days from the date on which the dispute is brought forward, any Party may submit the dispute to the Beijing Arbitration Commission for arbitration under its applicable rules. The arbitration award shall be final and binding upon both parties.

13.3 During the process of dispute resolution, all the Parties shall continue to perform under the other terms of this Agreement, except for the provisions subject to the dispute resolution.

Article 14 Miscellaneous

14.1 The Parties acknowledge that this Agreement constitutes the entire agreement of the Parties with respect to the subject matters hereof and supersedes and replaces all prior or contemporaneous oral or written agreements and understandings.

14.2 This Agreement shall bind and benefit the successor of each Party and any transferee permitted hereunder with the same rights and obligations as if such successor or transferee were an original party hereto.

14.3 Any notice required to be given or delivered to the Parties hereunder shall be in writing and delivered to the address as indicated below or such other address or as such party may designate, in writing, from time to time. All notices shall be deemed to have been given or delivered upon by personal delivery, fax and registered mail. It shall be deemed to be delivered upon: (1) registered air mail: 5 business days after deposit in the mail; (2) personal delivery or fax: 2 business days after transmission. If the notice is delivered by fax, it should be confirmed by original through registered air mail or personal delivery:

Party A:

Contact person: Wang Chen

Address: Room324, 3/F, 1stStreet, Tianjin Economic-Technological Development Area

Tel: 86-22-28590002Fax: 86-22-28590003

Party B:

Contact person: Wang Chen

Address: Room A2-191, No.166 Xisandao, Konggang Logistics Processing Zones, Tianjin

Tel: 86-22-28590002 Fax: 86-22-28590003

The Representative designated by the Shareholders

Contact person: Wang Chen

Address: Shengkai Ind. Park Wanggang R.d Jinnan (Shuanggang) Dev. Area Tianjin

Tel: 86-22-28590002Fax: 86-22-28590003

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Technology Service Agreement

14.4 This Agreement is executed in eleven originals with each party holding one original, and each of the originals shall be equally valid and authentic.

[Signature Page Follows]

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Technology Service Agreement

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and delivered as of the date as written above.

Party A Tianjin Shengkai Industrial Technology Development Co., Ltd.

Legal Representative: Wang Chen

Signature and Company Seal:

Party B Shengkai (Tianjin) Ceramic Valve Co., Ltd.

Legal Representative: Wang Chen

Signature and Company Seal:

All shareholders of Tianjin Shengkai Industrial Technology Development Co., Ltd.

Name of the Shareholders	Signature	Name of the Shareholders	Signature
Wang Chen	/s/ Wang Chen	Guo Wei	/s/ Guo Wei
Zhao Yanqiu	/s/ Zhao Yanqiu	Ji Haihong	/s/ Ji Haihong
Zhang Ying	/s/ Zhang Ying	Miao Yang	/s/ Miao Yang
Chen Fang	/s/ Chen Fang	Wu Yanping	/s/ Wu Yanping
Liu Naifan	/s/ Liu Naifan

11

EX-10.12

EX-16.1

Southern Sauce Company, Inc.

Shengkai Industrial Park, Wang Gang Road

Jin Nan (Shuang Gang) Economic and Technology Development Area

Tianjin, People’s Republic of China 300350

June 12, 2008

EX-16.2

EXHIBIT 16.2

SHERB & CO., LLP

Certified Public Accountants and Consultants

1900 NW Corporate Boulevard, Suite E210

Boca Raton, FL 33431

June 13, 2008

Securities and Exchange Commission

Washington, DC 20549

Re: Southern Sauce Company, Inc.

File No. 000-51972

Dear Sir or Madam:

We have read Item 4.01 of the Form 8-K of Southern Sauce Company, Inc. dated June 13, 2008 and agree with the statements relating only to Sherb & Co., LLP, contained therein.

/s/ Sherb & Co., LLP                           

Certified Public Accountants

EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES

Southern Sauce Company, Inc. has the following subsidiaries and affiliates:

Subsidiaries’ or Affiliate’s Name	Jurisdiction of Incorporation or Organization	Percentage of Ownership
Shen Kun International Limited (“Shen Kun”)	British Virgin Islands	100% by Southern Sauce Company, Inc.
Shengkai (Tianjin) Ceramic Valves Co., Ltd. (“WFOE”)	PRC	100% by Shen Kun

EX-99.1

TO BUSINESS AND RETAILING EDITORS:

Southern Sauce Company, Inc. Acquires Tianjin Shengkai Industrial Technology Development Co., Ltd. and Completes $15 Million Financing

TIANJIN, China, June 12 /PRNewswire-FirstCall/ -- Southern Sauce Company, Inc. (the "Company")(OTC Bulletin Board: SOSA.OB) today announced the acquisition on June 9, 2008 of Shen Kun International Limited, a British Virgin Islands corporation which, through Shengkai (Tianjin) Ceramic Valves Co., Ltd., a Chinese company, has a series of contracts with Tianjin Shengkai Industrial Technology Development Co., Ltd., a Chinese company ("Shengkai"), which gives it control over Shengkai's business, personnel and finances as if it were a wholly-owned subsidiary. Shengkai is engaged in the design, manufacturing and sales of ceramic valves, the manufacturing and sales of high-tech ceramic materials, technical consultation and services, and the import and export of ceramic valves and related technologies. Shengkai sells its products in China, North America and the Asia-Pacific region.

On June 11, 2008, the Company also closed a private placement through the sale of Units, consisting of shares of its Series A Convertible Preferred Stock and attached five-year warrants, at a purchase price of $2.5357 per Unit for aggregate gross proceeds of $15 million. The Series A Convertible Preferred Stock is convertible into an aggregate of up to 5,915,526 shares of the Company's common stock at the option of the holders of such Series A Convertible Preferred Stock. The five-year warrants are exercisable at an exercise price of $3.52 per share for a number of shares of common stock equal to 120% of the number of shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock (an aggregate of up to 7,098,632 shares of common stock).

Over the past two years, Shengkai's business has shown significant growth with net revenues increasing to $23,124,748 for the fiscal year ended June 30, 2007 from $13,677,946 for the fiscal year ended June 30, 2006. Net income was $6,571,802 for the fiscal year ended June 30, 2007, an increase from $4,173,926 for the fiscal year ended June 30, 2006.

Mr. Wang Chen, Chief Executive Officer of the Company stated, "The closing of our merger transaction and financing provide us with the capital investment we need to accelerate the growth of Shengkai's business. We plan to use the proceeds from the financing towards the expansion of our existing production capacity as we work to meet the growing demand for our products. We also plan to use the funds towards the research and development of new ceramic products."

About Tianjin Shengkai Industrial Technology Development Co., Ltd.

Shengkai is engaged in the design, manufacturing and sales of ceramic valves, the manufacturing and sales of high-tech ceramic materials, technical consultation and services, and the import and export of ceramic valves and related technologies. These industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as high-performance, more durable alternatives to traditional metal valves.

Shengkai develops ceramic products with more than 700 types and specifications in 32 series, under nine categories. Of these, Chinese patents have been obtained for 12 products, and applications for nine more are pending. Shengkai's products have won the title of "National Key New Product" in China four times from 1999-2003 and won a silver medal in the Shanghai International Industry Fair in 2002.

Shengkai's products are sold across China and are exported to North America, and other countries in the Asia-Pacific region, totaling over 300 customers. After a six-year application process, Shengkai became a supplier of China Petroleum & Chemical Corporation in 2005 and a Class A member of the PetroChina Co. Ltd. supply network in 2006.

Safe Harbor Statement

The statements contained herein that are not historical facts are considered "forward-looking statements." Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In particular, statements regarding the potential growth of the markets are examples of such forward-looking statements. The forward-looking statements include risks and uncertainties, including, but not limited to, the effect of political, economic, and market conditions and geopolitical events; legislative and regulatory changes that affect our business; the availability of funds and working capital; the actions and initiatives of current and potential competitors; investor sentiment; and our reputation. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events, which may cause actual results to differ from those expressed or implied by any forward-looking statements. The factors discussed herein are expressed from time to time in our filings with the Securities and Exchange Commission available at http://www.sec.gov.

SOURCE Southern Sauce Company, Inc.

-0- 06/12/2008

/CONTACT: Wei Guo of Southern Sauce Company, Inc., +86-22-28571971, Fax, +86-22-28590003, wei.guo@shengkai.com /

/First Call Analyst: /

/FCMN Contact: /

/Web site: http://www.shengkai.com /

(SOSA SOSA.OB)