8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): May 30, 2007

China Water and Drinks Inc.

(Exact name of registrant as specified in charter)

Nevada

(State or other jurisdiction of incorporation)

333-131131	20-2304161
(Commission File Number)	(IRS Employer Identification No.)

17, J Avenue Yijing Garden, Aiguo Road, Louhu District, Shenzhen City, PRC 

(Address of principal executive offices and zip code)

+86-0755-25526332

(Registrant’s telephone number including area code)

Ugods, Inc.

9101 West Sahara, Suite 105

Las Vegas, NV 89117

(Former Name and Former Address)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:

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

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

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))

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Form 8-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about the Registrant’s expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Registrant believes,” “management believes” and similar words or phrases. The forward-looking statements are based on the Registrant’s current expectations and are subject to certain risks, uncertainties and assumptions. The Registrant’s actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to the Registrant on the date hereof, and the Registrant assumes no obligation to update any such forward-looking statements.

Item 1.01Entry into a Material Definitive Agreement.

See Item 3.02 below.

Item 3.02 Unregistered Sales of Equity Securities

On May 31, 2007, the Registrant entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the sale of an aggregate of 4,477,612 shares of Series A Convertible Preferred Stock, par value of $0.001 per share (the “Preferred Stock”) with a stated value equal to $6.70 per share (the “Share Sale”) for aggregate gross proceeds equal to $30,000,000 in a series of transactions exempt from registration under the Securities Act. The Share Sale was consummated on June 4, 2007.

Each share of Preferred Stock is convertible into five (5) shares of the Registrant’s common stock, par value $.001 per share (the “Common Stock”), subject to adjustment. The shares of Preferred Stock shall be converted into shares of the Common Stock on the second trading day following the filing with the State of Nevada of an amendment to the Registrant’s Articles of Incorporation increasing the number of authorized shares of Common Stock of the Registrant from 70,000,000 to 150,000,000 shares (the “Amendment”). On May 30, 2007, the Board of Directors and a majority of the shareholders of the Registrant each approved the Amendment by written consent. The Amendment will be filed with the State of Nevada twenty (20) days after the mailing of a Definitive Information Statement meeting the requirements of Schedule 14C to the Registrant’s shareholders disclosing the approval of the Amendment by a majority of the Registrant’s shareholders. The Securities Purchase Agreement provides that the Registrant will cause the Amendment to be filed with the State of Nevada by no later than the date which is forty five (45) days after the consummation of the Share Sale.

The Securities Purchase Agreement provides that until the date which is the first anniversary of the effective date of the initial registration statement required to be filed by the Registrant with respect to the shares of Common Stock underlying the shares of Preferred Stock sold to the Investors in the Share Sale that the Registrant may not sell any equity securities (or securities convertible into or exchangeable for equity securities) to any third party without first offering the Investors the right to purchase such securities on the same terms and conditions as proposed to be sold to such third party.

The Securities Purchase Agreement also provides that the Investors shall be have the right, by written notice to the Registrant, to demand that the Registrant pay to them, as liquidated damages, their entire investment amount in the Registrant in the event that either (i). any governmental agency in the People's Republic of China challenges or otherwise takes any action that adversely affects the transactions contemplated by the Exchange Agreement (as defined in Item 5.01 below), and the Registrant cannot undo such governmental action or otherwise remedy the material adverse effect caused thereby so that the transaction contemplated by the Exchange Agreement can legally occur to the reasonable satisfaction of the Investors or (ii) at any time prior to the time that a registration statement with respect to the shares of Common Stock underlying the shares of Preferred Stock sold to the Investors in the Share Sale is effective (A) for any or no reason either the NASD or the Securities and Exchange Commission (the “Commission”) takes any action which has the effect of suspending the effectiveness of any registration statement of the Registrant filed with the Commission or (B) the Common Stock is not listed on a trading market.

2

In connection with the Share Sale, the Registrant has agreed to provide the Investors rights to register for resale the shares of Common Stock underlying the Preferred Stock pursuant to the terms of a registration rights agreement (the “Registration Rights Agreement”). The Registration Rights Agreement also requires the Registrant to register for resale any shares of Common Stock that may be released to the Investors pursuant to the terms of the Make Good Escrow Agreement (as defined below) and any shares of Common Stock that may be transferred to the Investors pursuant to the terms of the Stock Pledge Agreement (as defined below). Pursuant to the terms of the Registration Rights Agreement, the Registrant has agreed to file with the Securities and Exchange Commission a registration statement with respect to the resale of the shares of Common Stock underlying the Preferred Stock issued to the Investors in the Share Sale by no later than the date which is 90 days after the consummation of the Share Sale. In the event that the Registrant does not file timely such registration statement and/or in the event that such registration statement is not declared effective on or prior to the date which is 180 days after the consummation of the Share Sale, the Registrant will be required to pay liquidated damages to each Investor in an amount equal to 1% of the aggregate investment amount originally paid by such Investor for each month during which the Registrant has not complied with its registration obligations up to a maximum of 10% of such Investor's investment amount.

In connection with the Share Sale, the Investors, the Registrant, Mr Xu Hong Bin, a shareholder of the Registrant, the Pinnacle Fund, as agent and Loeb & Loeb LLP , as escrow agent have entered into a Make Good Escrow Agreement (the "Make Good Escrow Agreement ") , whereby Mr Xu Hong Bin has agreed to transfer 11,194,030 shares of Common Stock owned by him to the Investors on a pro rata basis in the event that the Registrant does not meet certain performance targets for its fiscal year ended December 31, 2007 and 11,194,030 shares of Common Stock owned by him to the Investors in the event that the Registrant does not meet certain performance targets for its fiscal year ended December 31, 2008. The performance target for the Registrant's fiscal year ended December 31, 2007 is the achievement of after-tax net income of at least $19,000,000. The performance target for the Registrant's fiscal year ended December 31, 2008 are the achievement of after-tax net income of at least $30,000,000 and earnings per share of at least $0.30.

In connection with the Share Sale, certain shareholders of the Registrant have entered into Lock-Up Agreements by which each of them agreed not to transfer any Common Stock of the Registrant owned by them until the date which is the one year anniversary of the effective date of the initial registration statement filed by the Registrant with respect to the resale of the shares of Common Stock underlying the shares of Preferred Stock purchase by the Investors in the Share Sale.

In connection with the Share Sale, the Registrant, Mr Xu Hong Bin, Mr Chen Xing Hua and the Pinnacle Fund, as agent, have entered into a Stock Pledge Agreement pursuant to which Mr Xu Hong Bin and Mr Chen Xing Hua have each agreed to transfer on a pro rata basis to the Investors, upon the demand on the Investors, 11,194,030 shares of Common Stock owned by such shareholder in the event that the Registrant does not file the Amendment with the State of Nevada on or prior to the date which is 45 days after the consummation of the Share Sale.

The foregoing descriptions of the Securities Purchase Agreement, the Registration Rights Agreement, the Lock-Up Agreement, the Make Good Escrow Agreement and the Stock Pledge Agreement are merely summaries, and are not intended to be complete. The Securities Purchase Agreement is filed as exhibit 10.1, the Registration Rights Agreement is filed as exhibit 10.2, the Lock-Up Agreement is filed as exhibit 10.3, the Make Good Escrow Agreement is filed as exhibit 10.4 and the Stock Pledge Agreement is filed as exhibit 10.5 to this Form 8-K, and the full text of each such exhibit is incorporated herein by reference.

Item 5.01Changes In Control of the Registrant

On May 11, 2007, the Registrant entered into an Amended and Restated Agreement for Share Exchange (the “ Exchange Agreement”) with Gain Dynasty Investments Limited (“Gain Dynasty”).   The Agreement amends, restates, combines and supersedes each of (i) the Agreement for Share Exchange among the Company , Guangdong Taoda Beverage Company Limited (“Guangdong Taoda”) and the shareholder of Guangdong Taoda, dated as of February 13, 2007 and (ii) the Agreement for Share Exchange among the Company and Zhan jiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited (collectively, the “Taoda Group”) and the shareholder of Taoda Group, dated as of February 16, 2007.  Guangdong Taoda and the entities comprising the Taoda Group are wholly-owned subsidiaries of Olympic Forward Trading Company Limited, which is a wholly-owned subsidiary of Gain Dynasty.

3

Pursuant to the Exchange Agreement, the Registrant agreed to purchase 100% of the equity ownership of Gain Dynasty in exchange for a total of 59,872,000 shares of the Registrant’s common stock (the “Exchange Shares”).

On May 30, 2007 (the “Closing Date”), the Registrant consummated the transactions contemplated by the Exchange Agreement (the “Share Exchange”). Upon closing of the transaction, a change of control of the Registrant occurred. Following the closing of this transaction and the issuance of the Exchange Shares, the Company had a total of 70,000,000 shares issued and outstanding.  

Other than the transactions and agreements disclosed in this Form 8-K, the Registrant knows of no arrangements which may result in a change in control of the Registrant.

No officer, director, promoter, or affiliate of the Registrant has, or proposes to have, any direct or indirect material interest in any asset proposed to be acquired by the Registrant through security holdings, contracts, options, or otherwise.

Corporate Overview

A summary of the business of Guangdong Taoda and the entities comprising the Taoda Group are wholly-owned subsidiaries of Olympic Forward Trading Company Limited, which is a wholly-owned subsidiary of Gain Dynasty is described in Item 5.01 herein. The Taoda Group is a group of bottled water manufacturing companies in China, producing bottled water under its own brands and for other brands including Coca-Cola and Danone. As used herein, unless the context otherwise requires, “Registrant” and the “Company” (and “we”, “our” and similar expressions) refer to the business of China Water and Drinks Inc. (formerly named Ugods, Inc.) before the Share Exchange and the Taoda Group after the Share Exchange.

Prior to the Share Exchange, the Registrant was a public “shell” company with nominal assets whose sole business had been to identify, evaluate and investigate various companies with the intent that, if such investigation warranted, a reverse merger transaction be negotiated and completed pursuant to which the Registrant would acquire a target company with an operating business with the intent of continuing the acquired company’s business as a publicly held entity.

We were incorporated in the State of Nevada on February 8, 2005 as UGODS, Inc for the purpose of pursuing mining opportunities in Canada. We were considered an exploration stage company. In February of 2005 we acquired interest in 14 mining claims registered with the district office in Atlin, B.C. Canada; an additional 9 claims were acquired in November 2006.

Beginning on February 12, 2007, we entered into a series of agreements with various individuals and entities calculated to effect a change in our control and which will ultimately result in a change in our business direction presuming the completion of the transactions.  On May 11, 2007, we entered into the Agreement whereby we amended and restated our agreements with respect to the Share Exchange.

On May 1, 2007, we caused to be formed a corporation under the laws of the State of Nevada called China Water and Drinks Inc. ("Merger Sub") and on May 2, 2007, we acquired one hundred shares of Merger Sub's common stock for cash. As such, Merger Sub became our wholly-owned subsidiary. On May 14, 2007, Merger Sub was merged with and into us. As a result of the merger, our corporate name was changed to "China Water and Drinks Inc." We were the surviving corporation in the merger and, except for the name change provided for in the Agreement and Plan of Merger, there was no change in the directors, officers, capital structure or business of the Registrant.

On May 30, 2007, we consummated the Share Exchange whereby we issued a total of 59,872,000 shares of our common stock. As a result of the Share Exchange, Gain Dynasty became our direct wholly owned subsidiary and Guangdong Taoda and the entities comprising the Taoda Group which are wholly owned subsidiaries of Olympic Forward Trading Company Limited, which is a wholly-owned subsidiary of Gain Dynasty, became our indirectly wholly owned subsidiaries.

4

Business Overview

The Company is a large bottled water producer in China. It produces and markets bottled water in China using the brand name “Darcunk”. It also supplies bottled water for beverage companies and servicing companies including Coca-Cola, Uni-President and Sands Casino. The Company also provides total solutions from bottle design, production, packaging and delivery services for some private label bottled water companies and servicing industry.

The Company now operates four bottled water production plants in China. The four plants are located at the cities of Guangzhou (Guangdong Province), Zhanjiang (Guangdong Province), Changchun (Jilin Province) and Fexian (Shandong Province). Each production plant has two production lines: one production line produces bottle size bottled water (200ml-1500ml); one production line produces carboy size (18.9L) bottled water. By applying different processes and procedures, the Company produces bottled water of different tastes and with different ingredients. The major market of the Company is China. Currently, the Company’s product is sold in 11 provinces of China covering Guangdong Province, Guangxi Province, Shandong Province, Heilongjiang Province, Jilin Province, Shanxi Province, Shaanxi Province, Gansu Province, Liaoning Province, Anhui Province, Sichuan Province.

Risk Factors

Risks Related to Our Business

Our expansion strategy may not be proven successful.

One of our key strategies to grow our business is to aggressively expand our production capacity and distribution channels. We will need to engage in various forms of capacity expansion activities at corporate level, and of promotional and marketing activities at operational level in order to carry out our plans. Therefore, the Company’s proposed operations are subject to all of the risks inherent in the unforeseen costs and expenses, challenges, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the bottled water industry in general. Despite our best efforts, we may never overcome these obstacles to financial success. There can be no assurance that the Company’s efforts will be successful or result in revenue or profit, or that investors will not lose their entire investment

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

We sell our own brand “Darcunk” through distributors. We rely on these distributors for the distribution of our products. The distribution service provided by these distributors could be suspended and could cause interruption to the supply of our products to retailers in the case of unforeseen events. Delivery disruptions may occur for various reasons beyond our control, including poor handling by distributors or third party transport operators, transportation bottlenecks, natural disasters and labor strikes, and could lead to delayed or lost also transportation seasons. Poor handing by distributors and third-party transport operators could also result in damage to our products. If our products are not delivered to retailers on time, or are delivered damaged, we could lose business and our reputation could be harmed.

Supplying bottled water to beverage and service companies constitutes a major portion of our revenue. Any delays in delivery may affect our sales, damage our long-term relationship with our client, and even incur penalty.

Sales made to beverage and service companies account for a large portion of our total sales, especially at the beginning stages of our newly built plants. At the same time, the aggregate market demand for our product has also increased rapidly. Recently, our production capacity is at more than 95%. It is more and more of a difficult task to balance between production of our own brand and producing for branded beverage and drinks companies. If we failed in deliver the goods to those companies on time, we may run into a risk of damaging our long-term relationship with the client.

5

Our results of operations may fluctuate due to seasonality.

Our sales are subject to seasonality. For example, we typically experience higher sales of bottled water in summer time in coastal cities while the sales remain constant through out the entire year in some inland cities. In general, we believe our sales will be higher in the second and third quarter of the year when the weather is hot and dry, and lower in the fourth and first quarter of the year when the weather is cold and wet. Sales peak during the months from June to September. Sales can also fluctuate during the course of a financial year for a number of other reasons, including weather conditions and the timing of advertising and promotional campaigns. As a result of these reasons, our operating results may fluctuate. In addition, the seasonality of our results may be affected by other unforeseen circumstances, such as production interruptions. Due to these fluctuations, comparison of sales and operating results between the same periods within a single year, or between different periods in different financial years, are not necessarily meaningful and should not be relied on as indicators of our performance.

There could be a shortage of raw materials, if governments put a usage limit on bottled water producers for potable waters.

Our product is water, which is made by sterilizing potable water supplied by municipal water supplies aimed at eliminating any harmful and unpleasant substances such as residues, precipitates, toxic chemicals, fungi, microbial contents and germs presented in the water source or induced during the production processes. We depend mainly on municipal water supplies to provide us with potable water as raw material. There could be a possibility that the municipal government put a usage limit on bottled water producers, when the potable water reserves for their city is low.

Increases in raw material prices that we are not able to pass on to our Customers would reduce our profit margins

The principal raw materials we use in our production, including bottle containers, caps and packaging materials, are subject to a high degree of price volatility caused by external conditions like price fluctuations of PET raw materials-the byproducts of oil, which account for a significant portion of our product cost. We cannot guarantee that the price we pay for our raw materials will be stable in the future. Price changes to our raw materials may result in unexpected increases in production, packaging and distribution costs, and we may be unable to increase the prices of our final products to offset these increased costs and therefore may suffer a reduction to our profit margins. We do not currently hedge against changes in our raw material prices.

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

The bottled water industry in China is highly competitive, and we expect it to continue to become even more competitive. Currently, there are more than 3,000 water brands in China, including domestic and foreign-invested enterprises. Our ability to compete against these enterprises is, to a significant extent, dependent on our ability to distinguish our products from those of our competitor by providing high quality products at reasonable prices that appeal to consumers’ tastes and preferences. Some of our competitors may have been in business longer than we have, may have substantially greater financial and other resources than we have and may be better established in their markets. Our competitors in any particular market may also benefit from raw material sources or production facilities that are closer to such markets, which provide them with competitive advantages in terms of costs and proximity to consumers.

We cannot assure you that our current or potential competitors will not provide products comparable or superior to those we provide or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that there will be significant consolidation in the bottled water industry among our competitors, alliances may develop among competitors and these alliances may rapidly acquire significant market share, and some of our distributors may commence production of products similar to those we sell to them. Furthermore, competition may lead competitors to substantially increase their advertising expenditures and promotional activities or to engage in irrational or predatory pricing behavior. We also cannot assure you that third parties will not actively engage in activities, whether legal or illegal, designed to undermine our brand name and product quality or to influence consumer confidence in our product. Increased competition may result in price reductions, reduced margins and loss of market share, any of which could materially adversely affect our profit margin. We cannot assure you that we will be able to compete effectively against current and future competitors.

6

Changes in the existing laws and regulations or additional or stricter laws and regulations on environmental protection in China may cause us to incur significant capital expenditures, and we cannot assure that we will be able to comply with any such laws and regulations.

We carry on our business in an industry that is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to control and properly dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well as fee payments from producers discharging waste substances. Fines may be levied against producers causing pollution. If failure to comply with such laws or regulations results in environmental pollution, the administrative department for environmental protection can levy fines. If the circumstances of the breach are serious, it is at the discretion of the central government of the PRC including all governmental subdivisions to cease or close any operation failing to comply with such laws or regulations. There can also be no assurance that operation will fail to comply with such laws or regulations. There can also be no assurance that the PRC government will not change the exiting laws or regulations or impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital expenditure, which we may be unable to pass on to our customers through higher prices for our products. In addition, we cannot assure that we will be able to comply with any such laws and regulations.

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

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

We may not successfully manage our growth.

Our success will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and administrative, operational, and financial resources. To manage this growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel. If we are unable to manage our growth effectively, our business would be harmed.

We rely on key executive officers. Their knowledge of our business and technical expertise would be difficult to replace.

We were founded in 1996 by Mr. Xu, the general manager of Olympic Forward Trading Company Limited. Since then, Mr. Xu Hongbin and our highly experienced senior management team have developed us into a large scale bottled water production company. Mr. Xu, together with other senior management, has been the key driver of our strategy and has been fundamental to our achievements to date. The successful management of our business is, to a considerable extent, dependent on the services of Mr. Xu Hongbin and other senior management. The loss of the services of any key management employee or failure to recruit a suitable or comparable replacement could have a significant impact upon our ability to manage our business effectively and our business and future growth may be adversely affected.

7

The concentrated ownership of our common stock may have the effect of delaying or preventing a change in control of our Company.

Our directors, officers, key personnel and their affiliates as a group beneficially own a majority of our outstanding common stock. As a result, these stockholders will be able to continue to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of mergers, acquisitions and other significant corporate transactions. Please read “Principal Stockholders.”

Because our assets and operations are located outside the United States and a majority of our officers and directors are non-United States citizens living outside of the United States, investors may experience difficulties in attempting to enforce judgments based upon United States federal securities laws against us and our directors. United States laws and/or judgments might not be enforced against us in foreign jurisdictions.

All of our operations are conducted through a subsidiary corporation organized and located outside of the United States, and all the assets of our subsidiary are located outside the United States. In addition, all of our officers and directors are foreign citizens. As a result, it may be difficult or impossible for U.S. investors to enforce judgments made by U.S. courts for civil liabilities against our operating entities or against any of our individual directors or officers. In addition, U. S. investors should not assume that courts in the countries in which our subsidiary is incorporated or where the assets of our subsidiary are located (i) would enforce judgments of U.S. courts obtained in actions against us or our subsidiary based upon the civil liability provisions of applicable U.S. federal and state securities laws or (ii) would enforce, in original actions, liabilities against us or our subsidiary based upon these laws.

We are subject to the reporting requirements of federal securities laws, which can be expensive.

We are a public reporting company in the U.S. and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we remained a privately-held company. In addition, we will incur substantial expenses in connection with the preparation of the registration statement and related documents with respect to the registration of resales of the shares and the reporting of the Share Exchange.

Because we became public by means of a “reverse merger”, we may not be able to attract the attention of major brokerage firms.

Additional risks may exist since we will become public through a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our company in the future.

Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.

Although individual members of our management team have experience as officers of publicly-traded companies, much of that experience came prior to the adoption of the Sarbanes-Oxley Act of 2002. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by Sarbanes-Oxley after the Share Exchange. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley’s internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.

8

When the Registration Statement becomes effective, there will be a significant number of shares of common stock eligible for sale, which could depress the market price of such stock.

Following the effective date of the Registration Statement, a large number of shares of common stock will become available for sale in the public market, which could harm the market price of our stock. Further, shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect as well. In general, a person who has held restricted shares for a period of one year may, upon filing a notification with the SEC on Form 144, sell common stock into the market in an amount equal to the greater of one percent of the outstanding shares or the average weekly trading volume during the last four weeks prior to such sale.

There is not now, and there may not ever be, an active market for our common stock.

There currently is no market for our common stock. Further, although our common stock may be quoted on the OTC Bulletin Board, trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. There can be no assurance that a more active market for the common stock will develop.

We cannot assure you that the common stock will become liquid or that it will be listed on a securities exchange.

We plan to list our common stock on the American Stock Exchange or the NASDAQ Global Capital Market as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of either of those or of any other stock exchange, or that it will be able to maintain any such listing. Until the common stock is listed on an exchange, we expect that it would be eligible to be quoted on the OTC Bulletin Board, another over-the-counter quotation system, or in the “pink sheets.” In those venues, however, an investor may find it difficult to obtain accurate quotations as to the market value of the common stock. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.

There may be issuances of shares of preferred stock in the future.

Although we currently do not have preferred shares outstanding, the board of directors could authorize the issuance of a series of preferred stock that would grant holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to common stockholders, and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock. To the extent that we do issue preferred stock, the rights of holders of common stock could be impaired thereby, including without limitation, with respect to liquidation.

We have never paid dividends.

We have never paid cash dividends on our common stock and do not anticipate paying any for the foreseeable future.

Our common stock is considered a “penny stock.”

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and therefore is a “penny stock.” Broker and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares. In addition, if our common stock is quoted on the OTC Bulletin Board as anticipated, investors may find it difficult to obtain accurate quotations of the stock, and may find few buyers to purchase such stock and few market makers to support its price.

9

Risks relating to doing business in China

Substantially all of our business assets are located in China, and substantially all of our sales is derived from China. Accordingly, our results of operations, financial position and prospects are subject to a significant degree to the economic, political and legal development in China.

We derive a substantial portion of ours sales from China

Substantially all of our sales are generated from China. We anticipated that sales of our products in China will continue to represent a substantial proportion of our total sales in the near future. Any significant decline in the condition of the PRC economy could adversely affect consumer buying power and reduce consumption of our products, among other things, which in turn would have a material adverse effect on our business and financial condition.

Our inability to diversify our operations may subject us to economic fluctuations within our industry.

Our limited financial resources reduce the likelihood that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one business area will subject us to economic fluctuations within the bottled water industry and therefore increase the risks associated with our operations.

We may not continue to receive the preferential tax treatment we currently enjoy, and dividends paid to us from our operations in China may become subject to income tax.

The rate of income tax on companies in China may vary depending on the availability of preferential tax treatment or subsidies based on their industry or location. The current maximum corporate income tax rate is 33%. Under current PRC law, a foreign-invested enterprise shall enjoy preferential enterprise income tax treatment in the PRC. A full exemption from PRC enterprise income tax applies in the first and second years a profit is made and a 50% from PRC enterprise income tax applies in the third, fourth and fifth years. Certain of our subsidiaries enjoy tax concessions due to their status as foreign-invested enterprises. However, PRC government promulgated on March 16, 2007 the Enterprise Income Tax Law that will be effective as of January 1, 2008. Pursuant to the new law, the enterprise income tax of 25% shall be apply to any enterprise, in which case the foreign-invested enterprise shall not enjoy the preferential tax treatment as before. . Any loss or substantial reduction of the tax benefits enjoyed by us would reduce our net profit.

Our ability to implement our planned development is dependent on many factors, including the ability to receive various governmental permits.

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

The Company faces the risk that changes in the policies of the Chinese government could have a significant impact upon our ability to sustain our growth and expansion strategies.

Since 1978, the PRC government has promulgated various reforms of its economic system and government structure. These reforms have resulted in significant economic growth and social progress for China in the last two decades. Many of the reforms are unprecedented or experimental, and such reforms are expected to be modified from time to time. Although we can not predict whether changes in China’s political, economic and social conditions, laws, regulations and policies will have any materially adverse effect on our current or future business, results of operation or financial condition.

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Our ability to continue to expand our business is dependent on a number of factors, including general economic and capital market conditions in China and credit availability from banks and other lenders in China. Recently, the PRC government has implemented various measures to control the rate of economic growth and tighten its monetary policies. Slower economic growth rate may in turn have an adverse effect on our ability to sustain the growth rate we have historically achieved due to the aggregate market demand for consumer goods like bottled water.

Failure to comply with the State Administration of Foreign Exchange regulations relating to the establishment of offshore special purpose companies by PRC residents may adversely affect our business operations.

On October 21, 2005, the State Administration of Foreign Exchange issued a new public notice which became effective on November 1, 2005. The notice requires PRC residents to register with the local State Administration of Foreign Exchange branch before establishing or controlling any company, referred to in the notice as a “special purpose offshore company”, outside of China for the purpose of capital financing. PRC residents who are shareholders of a special purpose offshore company established before November 1, 2005 were required to register with the local State Administration of Foreign Exchange Branch. Our beneficial owners need to comply with the relevant the State Administration of Foreign Exchange requirements in all material respects in connection with our investments and financing activities. If such beneficial owners fail to comply with the relevant the State Administration of Foreign Exchange requirements, such failure may subject the beneficial owners to fines and legal sanctions and may also adversely affect our business operations.

The outbreak of any severe contagious diseases in China, if uncontrolled, could adversely affect our results of operations.

The outbreak of any server communicable disease in China, if uncontrolled, could adversely affect the overall business sentiments and environment in China, which in turn may lead to slower overall gross domestic product growth in China. As our sales are currently derived from our Chinese operations, any contraction or slow down in the growth of the gross domestic product of China may adversely affect our financial condition, results of operations and future growth. In addition, if any of our employees are infected or affected by any severe communicable diseases outbreak, it could adversely affect or disrupt our production at the relevant production facility and adversely affect our business operations as we may be required to close our production facilities to prevent the spread of the disease. The spread of any severe communicable disease in China may also affect the operations of our distributors and suppliers, causing delivery disruptions which could in turn adversely affect our operating results and share price.

DESCRIPTION OF BUSINESS

Corporate Information

We are an OTCBB trading company (UGOD.OB) which was incorporated in the State of Nevada on February 8, 2005 as UGODS, Inc for the purpose of pursuing mining opportunities in Canada. We were considered an exploration stage company. In February of 2005 we acquired interest in 14 mining claims registered with the district office in Atlin, B.C. Canada; an additional 9 claims were acquired in November 2006.

Beginning on February 12, 2007, we entered into a series of agreements with various individuals and entities calculated to effect a change in our control and which will ultimately result in a change in our business direction presuming the completion of the transactions.  As of the date of this report, the transactions have not been completed.

On May 11, 2007, we entered into an amended and restated share exchange agreement whereby we issued a total of 59,872,000 shares of our common stock and the Gain Dynasty became our direct wholly owned subsidiary and Guangdong Taoda and the entities comprising the Taoda Group which are wholly owned subsidiaries of Olympic Forward Trading Company Limited, which is a wholly-owned subsidiary of Gain Dynasty, became or indirectly wholly owned subsidiaries.

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On May 1, 2007, we caused to be formed a corporation under the laws of the State of Nevada called China Water and Drinks Inc. ("Merger Sub") and on May 2, 2007, we acquired one hundred shares of Merger Sub's common stock for cash. As such, Merger Sub became our wholly-owned subsidiary. On May 14, 2007, Merger Sub was merged with and into us. As a result of the merger, our corporate name was changed to "China Water and Drinks Inc." We were the surviving corporation in the merger and, except for the name change provided for in the Agreement and Plan of Merger, there was no change in the directors, officers, capital structure or business of the Registrant.

Executive Summary

We operate bottled water production plants through four subsidiaries in the cities of Guangzhou (Guangdong Province), Zhanjiang (Guangdong Province), Changchun (Jilin Province) and Fexian (Shandong Province). In 2006, the company produced 175 million bottles of purified water with a total volume of 650 million liters, constituted around 4% of total bottled water consumption in China. In 2006, the total revenue of the company was US$35.7 million. The net profit before tax was US$8.8 million.

Product description

Our Bottled water is sealed in sterilized containers that meet government hygiene standards. There are three major types of bottled water: natural mineral water, spring water and purified water. The PRC government has set standards to categorize each type of water. Due to the scarcity of sources of natural mineral water and spring water, purified water is the most popular bottled water type in the PRC market.

We produce purified bottled water from raw material to end product. We produce the container, plastic bottles, and use drinking water supplied by municipal water supplies or natural water collected from streams, lakes and wells to manufacture bottled water. Before filling into the bottle, water is processed through a series of procedures in accordance with industrial standard and the standards set by the customers. Clarification, pre-filtration, final filtration, UV radiation, sterilization are basic but necessary steps in processing water. Special treatment and additional processing such as oxy-hydrating or water softening is applied according to different product requirements. After water is filled into the bottle, bottled water will undergo the final stage of quality and hygiene check. The bottled water is then packaged and delivered. All bottles produced are PET (Polyethylene terephthalate) bottles. PET bottle is well known for its high standard in the industry and is much superior to the traditional PVC bottle and glass bottle because it is much clearer, lightweight, durable, good resistance to heat and chemicals. We produce a wide range of bottled water sizes in volume from 200ml to 18.9L.

We have three sources of revenue:

· bottled water production on behalf of other drinks and beverage companies such as Coca-Cola, Danone and Uni-President;

· bottled water production for corporations such as Sands, the Macau Casino; and

· bottled water production in our own brand

Marketing and Sales

Water resources per capita in China only reaches 28% of the world average. In the past 20 years, water resources in northern China have been decreasing due to climate change and human activity impacts. In 2005, a senior official estimated that 360 million people in China were without safe water supplies. Tap water is unstable in quality. Industrial wastewater treatment has not been completely established, which causes grave water pollution problem. A large amount of wastewater is directly discharged into water bodies. Quality degradation occurs in water-rich areas. Safety in drinking water is one of the most concerned topics in China. The situation is not going to be improved and the drinking water issue is not easy to be solved in the short run.

China’s bottled water industry started to grow as drinking water of China began to deteriorate. The market grew at a compound rate of around 37% yearly from 1994 to 2005. In 1994, the total production capacity in China was 300 million liters. In 2005, the total capacity reached nearly 14 billion liters.

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We supply bottled water for drinks and beverage companies. Major customers include Coca-Cola (USA), Danone (France), Uni-President (Taiwan) and JianLiBao (China). We are one of the few qualified suppliers for Coca-Cola to produce products from raw material to end product out of Coca-Cola’s premises. Being a supplier of Coca-Cola, we are recognized as one of the leading bottled water suppliers in China. We also market to the service industry such as hotels and bus companies. We provide total solutions from bottle design, production, packaging to delivery for the service industry. We produce bottled water under the brand “Darcunk” and distributes through local distribution network also.

To strengthen our competitive advantage, we are focusing the effort in:

· increasing production capacity;

· enlarging product availability coverage to cope with the demand of the market and its growth ;

· expanding distribution channel for its own branded products

Corporate Milestones

We are one of the leaders in the bottled water industry in China. We started producing bottle water since 1996. Certain of our milestones are illustrated in the table below:

Milestone	Completion Date
Plant in Zhanjiang city in production	1996
Production of first Coca-Cola’s bottled water in China	1996
Sales of own branded product	1997
Plant in Shandong (Fexian city) established	2002
Plant in Shandong (Fexian city) in production	2003
Plant in Guangzhou city established and in production	2003
“Darcunk” product sold in Shandong province and Guangdong province	2003
Registration of trademark “Darcunk”	2005
“Darcunk” product sold in six provinces of Northern China	2005
Plant in Changchun city established and in production	2005
“Darcunk” products sold in more than 3,600 distributors in China	2006

Industry and Market Overview

China’s bottled water industry started in 1930 and had one brand of bottled water until middle of 70s. In 80s, the bottled water industry began to develop and reached a total production capacity of 5 million liters. Since 90s, the industry took off and had a total production capacity of 300 million liters and 2 billion liters in 1994 and in 1997 respectively. In 2005, the total capacity reached nearly 14 billion liters. From 1994 to 2006, the growth rate of the industry was more than 37% yearly¹. The total production capacity of bottled water in China and its growth rate is in figure shown below.

¹Compass Information, 2007-2008 Research report of China drinking water market

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Figure 1Total production capacity of bottled water in China and its growth rate

(Source: Compass Information, 2007-2008 Research Report of China drinking water market)

In 2003, the top three brands of bottled water (Wahaha, Nong Fu Spring, Robust) accounted for around 57% of total market share². While the market is concentrated in several brands, there are still more than 3,000 bottled water brands in China. Every bottled water plant has a limited perimeter of servicing area owing to the high transportation cost. The penetration rate of a brand of bottled water is bounded by the geographical coverage and production capability of their plants. The structure of the market is formed by two layers of companies, the branding companies and production companies. The first layer composes of those which have marketing, distribution and branding capabilities. The second layer is those who produce bottled water. Although some branding companies also build plants themselves, they still need production companies to fill in their production gaps and fill in the locations that their facilities do not cover. The PRC market is so large and fast growing. No single company can cover all locations by building their own plants alone.

Contrary, production companies market their products via distribution networks and retail shops within their covered regions. They have developed various marketing strategies such as price differentiation, good customer service and customer loyalty program. This phenomenon is more prominent in carboy size bottled water market.

We built our first plant in 1996 in Zhanjiang city. In the same year, we started to provide bottled water for Coca-Cola and a number of local beverage companies.

We were the first bottled water supplier for Coca-Cola in China. In 1997, we expanded our business and began to market our own branded products in Zhanjiang. In 2005, we registered the trademark “Darcunk”. Through December 2006, there were more than 3,600 distributors and retailers in China selling “Darchunk” products in eight provinces.

Each plant has two production lines. One production line produces bottle size bottled water (200ml-1500ml) and one production line produces carboy size (18.9L) bottled water. The aggregated production capacity of the eight production lines in total is 150 million bottle size bottled water and 25 million carboy size. The total production volume per year is 650 million liters. The production capacity of the company is equivalent to about 4% of China’s total consumption in volume in 2006. Our product is now selling in 11 provinces covering Guangdong Province, Guangxi Province, Shandong Province, Heilongjiang Province, Jilin Province, Shanxi Province, Shaanxi Province, Gansu Province, Liaoning Province, Anhui Province, Sichuan Province.

² Compass Information, 2007-2008 Research report of China drinking water market

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Competition

A number of foreign drinks and beverage companies have acquired some local companies before and after China joined the World Trade Organization (“WTO”). The WTO agreement also allows foreign investors invest and participate in the industry.

While there are around 3,000 bottled water brands in China, only about 280 bottled water companies compete with our scale. While the market is big and is growing in high rate, the demand of bottled water is elastic. The customers are price sensitive in nature and are concerned with quality and hygiene standard of the bottled water they buy. Bottled water companies mainly compete in price, perceived quality and hygiene standard, branding and availability. Owing to the high transportation cost, every bottled water plant has a limited perimeter of servicing area. Most up to scale bottled water companies cannot fully penetrate the Chinese market by solely building their own production plants. They increase their availability by building their own plants and outsourcing their production to other bottled water suppliers in order to increase their products’ availability. Due to the high demand of the market, low penetration rate of bottled water production facilities and food safety regulation of the industry, competition between up to standard bottled water should be moderate in the coming 5-10 years.

Competitive Advantages

· Strong Relationship with Brands

Coca-Cola’s bottled water production is fully outsourced to three companies namely Taoda, Zhan Fu and Wei Tung. Taoda is our wholly owned subsidiary and is supplying largest volume of bottled water to Coca-Cola amongst the three companies. As the long term sponsor of Olympic Games, Coca-Cola cited in 2003 that they will expand their penetration rate five times before the 2008 Olympics in Beijing. We have been successful in expanding and capturing the growth of market by aligning with Coca-Cola’s China plan.

· Top Graded Production Capability and Quality Control

As a long term supplier of Coca-Cola and other world class drinks and beverage companies, we are required to comply with the rigid standard set by Coca-Cola’s customers. Our plants are required to be audited by independent assessors on compliance in procedures, quality, standards and hygiene periodically. As a result, our plants and products are top graded and of world standard in contrast to most of local bottled water production plants which are workshop with minimal supervision in quality.

· Strong Market Demand and Growth

We are updating our production line to be fully automatic. The updated production line is expected to reduce the number of workers in the plants so as to reduce the impact of the shortage of worker supply and increase the production yield and efficiency.

Government Regulation

Manufacturers within the China bottled water industry are subject to compliance with PRC food hygiene laws and regulations. These food hygiene laws require all enterprises engaged in the production of bottled water to obtain a hygiene license for each of their production facilities. They also set out hygiene standards with respect to food processing, packaging and containers, information to be disclosed on packaging as well as hygiene requirements of food production and sites, facilities and equipment used for the transportation and sale of food.

We carry on our business in an industry that is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to control and properly dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well as fee payments from producers discharging waste substances. Fines may be levied against producers causing pollution.

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The rate of income tax chargeable on companies in China may vary depending on the availability of preferential tax treatment or subsidies based on their industry or location. The current maximum corporate income tax rate is 33%. Under current PRC law, a foreign-invested enterprise shall enjoy preferential enterprise income tax treatment in the PRC. A full exemption from PRC enterprise income tax applies in the first and second years a profit is made and a 50% from PRC enterprise income tax applies in the third, fourth and fifth years. Certain of our subsidiaries enjoy tax concessions due to their status as foreign-invested enterprises.

PRC Food and Hygiene Regulatory System

The laws regulating the production, distribution and sale of bottled water in the PRC include the Food Hygiene Law of the PRC, the Environmental Protection Law of the PRC and other laws and regulations relating to the hygiene of export food and standardizing bottled water products in the PRC. Certain important provisions of the above laws and regulations relating to the bottled water industry are set out below.

Food Hygiene Law

The Food Hygiene Law, which promulgated in 1995, is the principal law regulating food production and processing and its supervision. The Food Hygiene Law sets out the hygiene standards for the production of food, food additives, food packaging and containers; and the prescribed contents of food packaging labels. It also stipulates hygiene requirements in respect of premises, facilities and equipment for the production, transport and sale of food.

The Ministry of Health is responsible for the regulation and supervision of food hygiene in the PRC. The Food Hygiene Law requires all enterprises proposing to be involved in food production and processing to obtain a hygiene license from the relevant local department of the Ministry of Health before they can register their enterprise with the relevant Local Administration for Industry and Commerce, which is responsible for issuing the business license. Enterprises can not begin food production and processing activities without first obtaining a hygiene license.

If an enterprise fails to comply with the provision of the Food Hygiene Law, the Ministry of Health may issue a warning notice or rectification order, confiscate the proceeds earned as a result of the unlawful behavior, impose a fine, order the enterprise to cease production and operation, recall and destroy the food already sold or revoke the enterprise’s hygiene license. In more extreme cases where harm has been caused to human health, criminal proceeding may be initiated against the enterprise and its management.

Regulation by the Administration of Production Licenses for Industrial Products.

Regulation by the Administration of Production Licenses for Industrial Products began on September 1, 2005, whereby the PRC required a production license for companies manufacturing important industrial products, including bottled water products. Under this system, companies are not permitted to manufacture such products before they obtain a production license. Any enterprise or individual shall not sell or use such products without obtaining the necessary product licenses.

According to the Production License Administrative Regulation, upon application for a production license, a spot test and product inspection, as well periodic supervisory inspections are conducted. To date, we have passed all such spot tests and product inspections but have yet to be subject to any supervisory inspections.

Environmental Protection Law

The Environmental Protection Law, promulgated in 1989, establishes a basic legal framework for environmental protection in the PRC. The purposes of the Environmental Protection Law are to protect and enhance the living environment, prevent and cure pollution and other public hazards, and safeguard human health. The State Environment Protection Administration is responsible for the overall supervision and administration of environmental protection work at the national level and the environmental protection bureaus at the county level and above are responsible for environmental protection in their respective jurisdictions.

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Enterprises causing environmental pollution and other public hazards are required to adopt environmental protection measures in their operations and to establish responsibility systems for environmental protection. These enterprises are also required to adopt effective measures to prevent and control environmental pollution and hazards caused by the discharge of wasted gas, waste water, waste solids, dust, foul-smelling gases and radioactive matter, as well as by noise, vibration, and magnetic radiation in the course of production, construction or other activities.

Enterprises discharging pollutants must report to and register with the State Environment Protection Administration or the relevant local environmental protection department. Enterprises discharging pollutants in excess of the standards set by the State Environment Protection Administration will be responsible for eliminating the pollution and will be charged a fee for excessive discharge.

Government authorities can impose various types of penalties on persons or enterprises who are in violation of the Environmental Protection Law depending on the circumstances and extent of pollution. Penalties can include issuing a warning notice, imposing fines, setting a time limit for rectification, suspending production, ordering, reinstallation and operation of environmental protection facilities which have been dismantled or left unused, imposing administrative sanctions against management in charge, or ordering the termination and closure of enterprises or institutions conducting such operations. In cases where the pollution causes physical damage, compensation may be paid to victims. In serious cases, those who are directly responsible may be subject to criminal liability.

In accordance with the requirement of the Environmental Protection Law, we have installed the necessary environmental protection equipment, adopted advance environmental protection technologies, established responsibility systems for environmental protection, and reported to and registered with the relevant local environmental protection department. We have complied with the relevant law and have never paid a fee for excessive discharge pollutants.

Properties

The Company has four production plants with executive offices. The following table summaries the location of real property the Company owns or leases.

Item	Address	Leased/Owned
1	No. 2 Zhu Ji Road, Ji Shan Village, Zhu Ji Street, Dong Pu,Tian He District, Guangzhou City, Guangdong Province, China	Leased
2	No. 88 Qian Jin Road, Chi Kan District, Zhanjiang City, Guangdong Province, China	Leased
3	Kao Shan Village, Economic and Technology Development District, Changchun City, Jilin Province, China	Leased
4	Shang Zhi County, Fei Xian, Shandong Province, China	Company possesses a land use right

The leasing period of item 1, 2 and 3 will expire in 2008. All leasing agreements are with customary Chinese leasing conditions. The period of land use right of item 4 will expire in 2023 at which time the property will be acquired by the State under PRC laws.

Intellectual Property

The Company has the rights to the trademark “Darcunk” in China. The company is selling its bottled water under the brand ‘Darcunk” in China.

Legal Proceedings

We are not a party to any material legal proceedings nor are we aware of any circumstance that may reasonably lead a third party to initiate legal proceedings against us.

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Market for Common Equity

There is no change to the market for the Registrant’s securities as a result of the Share Exchange. Disclosure regarding the market for the Common Stock of the Registrant is contained in the Registrant’s Annual Report on Form 10-KSB for the year ended January 31, 2007.

Changes in and Disagreements with Accountants

None.

Recent Sales of Unregistered Securities

See Item 3.02 above.

Indemnification of Directors and Officers

In connection with the Share Exchange, the Registrant did not amend Articles of Incorporation or Bylaws. Disclosure regarding indemnification of directors and officer of the Registrant was previously disclosed in the Registrant’s Registration Statement on Form SB-2 (as amended) filed with the United States Securities and Exchange Commission on January 19, 2006.

Principal Stockholders

The following table sets forth certain information regarding beneficial ownership of shares of common stock as of May 31, 2007 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director and executive officer, and (iii) all of our directors and executive officers as a group. As of May 31, 2007 there were 70,000,000 shares of issued and outstanding common stock of the Registrant.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. We believe that all persons named in the table have sole voting and investment power with respect to shares beneficially owned by them. All share ownership figures include shares issuable upon exercise of options or warrants exercisable within 60 days of May 31, 2007, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.

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Name and Address of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned (1)	Percent of Fully Diluted Shares Outstanding After the Share Exchange
Hong Bin, Xu 17, J Avenue Yijing Garden, Aiguo Road, Louhu District, Shenzhen City, PRC	36,000,000	51.43%
Xing Hua, Chen, Chief Executive Officer and Director Hua Qiao City, Jin Xiu Apartments #202, Nan Shan District, Shen Zhen, China 518000	12,200,000	17.43%
Qiu Xia, Liang, Director Luo Hu Area, Lian Tang, Xian Tai Road, Hui Lai Ya Ju, Block 1 #602, Shen Zhen, China 518000	0	*
Tak Kau, Ng Zhong San 7th Road, Xi Meng Square, Block 2 #1506, Guang Zhou, China 510000	6,000,000	8.57%
Shu Xing, Jin Guang Hua 3rd Street, He Yi 3rd Street, 5th Floor, #21-501, China 510000	3,500,000	5%

Total Held by Directors and Executive Officers (two individuals) 12,200,000 17.43%

* Less than 5%.

(1) Unless otherwise noted, the Registrant believes that all persons named in the table have sole voting and investment power with respect to all shares of the Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within sixty (60) days from the date indicated above upon the exercise of options, warrants or convertible securities. Each beneficial owner’s percentage of ownership is determined by assuming that options, warrants or convertible securities that are held by such person (not those held by any other person) and which are exercisable within sixty (60) days of the date indicated above, have been exercised. To date, other than as issued in connection with the Share Sale, the Registrant has not granted any options, warrants or any other form of securities convertible into its common stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report are forward-looking statements that involve risks and uncertainties. The factors listed in the section captioned “Risk Factors,” as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this report.

OVERVIEW

The Company is a bottled water producer located in China. It produces and markets bottled water in China using the brand name “Darcunk”. It also supplies bottled water for beverage companies and servicing companies including Coca-Cola, Uni-President and Sands Casino. The Company also provides total solutions from bottle design, production, packaging and delivery services for some private label bottled water companies and servicing industry.

The Company now operates four bottled water production plants in China. The four plants are locating at the cities of Guangzhou (Guangdong Province), Zhanjiang (Guangdong Province), Changchun (Jilin Province) and Fexian (Shandong Province). Each production plant has two production lines: one production line produces bottle size bottled water (200ml-1500ml); one production line produces carboy size (18.9L) bottled water. By applying different processes and procedures, the Company produces bottled water of different tastes and with different ingredients. The major market of the Company is China. Currently, the Company’s product is sold in 11 provinces of China covering Guangdong Province, Guangxi Province, Shandong Province, Heilongjiang Province, Jilin Province, Shanxi Province, Shaanxi Province, Gansu Province, Liaoning Province, Anhui Province, Sichuan Province.

CRITICAL ACCOUNTING POLICIES

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The Company does not believe that there are any critical or significant accounting estimates included in the condensed consolidated financial statements.

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Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104. All of the following criteria must exist in order for us to recognize revenue:

1. Persuasive evidence of an arrangement exists;

2. Delivery has occurred or services have been rendered;

3. The seller's price to the buyer is fixed or determinable; and

4. Collectibility is reasonably assured.

The majority of the Company's revenue results from sales contracts with direct customers and revenues are generated upon the shipment of goods. The Company's pricing structure is fixed and there are no rebate or discount programs. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectibility. Based on these factors, the Company believes that it can apply the provisions of SAB 104 with minimal subjectivity.

RESULTS OF OPERATIONS.

THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006

	Three Months Ended March 31,
	2007					2006
Consolidated Statement of Operations Data:
Revenues	$	6,216,731		100	%	$	7,266,053		100	%
Costs of revenues	$	(4,263,291	)	68.58	%	$	(4,857,004	)	66.85	%
Selling, marketing, general and administrative expenses	$	(266,281	)	4.28	%	$	(271,161	)	3.73	%
Finance expenses		_				$	(1,588	)	0.02	%
Total costs and expenses	$	(4,529,572	)	72.86	%	$	(5,129,753	)	70.60	%
Income from Operations	$	1,687,159		27.14	%	$	2,136,300		29.40	%
Interest expense		-		-			-		-
Other income, net		-		-			-		-
Net Income	$	1,687,159		27.14	%	$	2,136,300		29.40	%

REVENUES. Revenues were $6,216,731 for the three months ended March 31, 2007 compared to $7,266,053 in the three months ended March 31, 2006. The decrease in revenues in the three-month period was attributable to bad weather in the first quarter in 2007 which caused the market demand to decrease significantly in the Northern China markets. Also, during the first three months of 2007, one of our major customers conducted an internal re-organization and postponed a certain portion of its first quarter orders to the second quarter.

COST OF REVENUES. Cost of revenues was $4,263,291 for the three months period ended March 31, 2007 as compared to $4,857,004 in the same period last year. The decease of cost of revenues for the three months period ended March 31, 2007 as compared the same period last year was as a result of decrease in sales in the current quarter against the same quarter last year. Gross profit was $1,953,440 for the three months ended March 31, 2007 compared to $2,409,049 for the three months ended March 31, 2006. Gross profit margin decreased to 31.42% for the three months period ended March 31, 2007 from 33.15% for the three months period ended March 31, 2006. The decrease in gross profit margin was due to certain labor related, fixed manufacturing overhead costs which could not be reduced in response to the decrease in revenues.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $266,281 for the three months period ended March 31, 2007 compared to $271,176 for the three months period ended March 31, 2006. The sales, general and administrative expenses mainly consists of the rental costs of three plants and the salaries of the plants’ managers and administration and accounting staffs. These expenses were relatively stable during the periods.

INCOME BEFORE INCOME TAX AND INCOME TAX EXPENSES. Income before income tax was 1,687,159 for the three months period ended March 31, 2007 compared to $2,136,300 for the three months period ended March 31, 2006. The decrease in income before tax was attributable to the decrease in sales and overall gross profits.

INTEREST EXPENSE. There were no interest expenses for the three months period ended March 31, 2007 and insignificant interest expense was incurred for the three months period ended March 31, 2006.

NET INCOME. Net income was $1,687,159 for the three months period ended March 31, 2007 as compared to $2,136,300 for the three months period ended March 31, 2006. The decrease in net income in current quarter was attributable to the decrease in sales and gross profit.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005:

	Year Ended December 31,
	2006					2005
Consolidated Statement of Operations Data:
Revenues	$	35,700,410		100	%	$	27,680,196		100	%
Costs of revenues	$	(24,069,220	)	67.42	%	$	(19,665,967	)	71.05	%
Selling, marketing general and administrative expenses	$	(3,101,390	)	8.69	%	$	(1,045,297	)	3.78	%
Finance Expenses
Total costs and expenses	$	(27,170,610	)	76.11	%	$	20,711,264		74.82	%
Income from Operations	$	8,529,800		23.89	%	$	6,968,932		25.18	%
Interest expense		-		-			-		-
Other income, net	$	285,646		0.8	%	$	189		0.001	%
Net Income	$	8,815,446		24.69	%	$	6,969,121		25.18	%

REVENUES. Revenues were $35,700,410 for the year ended December 31, 2006 as compared to $27,680,196 for the year ended December 31, 2005. The increase in revenues was attributable to the increase in demand associated with the growth of the China bottled water market. Such demand led to a greater number of sales which contributed to the increase in revenues.

COST OF REVENUES. Cost of revenues was $24,069,220 for the year ended December 31, 2006 as compared to $19,665,967 for the year ended December 31, 2005 due to increase in revenue. Gross profit was $11,631,190 for the year ended December 31, 2006 as compared to $8,014,229 for the year ended December 31, 2005. Gross profit margin increased to 32.58% for the year ended December 31, 2006 from 28.95% for the year ended December 31, 2005. The increase gross profit margin was due to the increase in the efficiency of our production achieved through economies of scale. The labor related cost, which is fixed, gave a lower average labor related cost as the sales increase during the year 2006. Increase in revenue reduced the average labor related costs and thus give a higher percentage of gross profit over revenue.

22

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $3,101,390 for the year ended December 31, 2006 as compared to $1,045,297 for the year ended December 31, 2005. This increase was primarily attributable to provision of doubtful account receivable and written down of the value of prepayments during 2006 that were not collected in 2005. There were also certain inventory and consumables written off during the year ended December 31, 2006. As a percentage of revenues, selling, general and administrative expenses increased to 8.69% for the year ended December 31, 2006 from 3.78% for the year ended December 31, 2005.

INCOME BEFORE INCOME TAX AND INCOME TAX EXPENSES. Income before income tax was $8,815,446 for the year ended December 31, 2006 compared to $6,696,121 for the year ended December 31, 2005. This increase was attributable to the increase in revenue associated with the overall growth of consumer demand of the China bottled water market.

There were no income tax expenses for the year ended December 31, 2006 and for the year ended December 31, 2005.

NET INCOME. Net income was $8,815,446 for the year ended December 31, 2006 compared to $6,696,121 for the year ended December 31, 2005. This increase was attributable to increase in sales and gross profit.

LIQUIDITY AND CAPITAL RESOURCES

	March 31, 2007	December 31, 2006
Cash and cash equivalents	$ 3,703,236	$ 1,836,491
Working capital	$ 4,253,926	$ 1,594,955

As of March 31, 2007, the Company had $3,703,236 of cash and cash equivalents and $4,253,926 of working capital as compared to $1,836,491 and $1,594,955, respectively, at of December 31, 2006.

CASH FLOW

	Three Months Ended March 31						Year Ended December 31
	2007			2006			2006			2005
Net cash provided by operating activities	$	1,939,796		$	4,743,567		$	10,586,815		$	2,415,013
Net cash (used in) investing activities	$	(66,973	)	$	(87,595	)	$	(200,282	)	$	(1,814,987	)
Net cash provided by (used in) financial activities	$	(6,078	)	$	(2,739,750	)	$	(9,921,159	)	$	(26,980	)
Net cash flow	$	1,866,745		$	1,916,222		$	465,374		$	573,046

Cash Flows from Operating Activities

Net cash provided by operating activities was $10,586,815 for the year ended December 31, 2006, an increase of $8,171,802from $2,415,013net cash provided by operating activities for the same period in 2005. The increase in net cash provided by operating activities in 2006 was mainly due to the increase in revenue and increase in payable in 2006. Net cash provided by operating activities was $1,939,796 for the quarter ended March 31, 2007, a decrease of $2,803,771from the $4,743,567net cash provided by operating activities for the same period in 2006. The decrease in net cash provided by operating activities in the first quarter of 2007 was mainly due to the increase of prepayment, other receivables and inventory in the first quarter of 2007.

23

Cash Flows from Investing Activities

Net cash used for investing activities for the year ended December 31, 2006 was $200,282, a decrease of $1,614,705from net cash used for investing activities of $1,814,987in the same period of 2005 as a result of decrease in equipment purchase in 2006.

Net cash used for investing activities in the quarter ended March 31, 2007 was $66,973, a decrease of $20,622from net cash used for investing activities of $87,595in the same period of 2006 due to decrease of fixed assets purchase for the first quarter of 2007 as compared to same quarter in 2006.

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2006 was $9,921,159as compared to $26,980 in 2005. The increase of cash used in financing activities was mainly attributable to the issuance of dividend in 2006.

Net cash used in financing activities for the quarter ended March 31, 2007 was $6,087as compared to $2,739,750 in the same period of 2006. The cash used in financing activities for the first quarter of 2007 decreased because there was no dividend payout in the period while dividend was paid to shareholder in the first quarter of 2006.

We believe that our available cash, cash equivalents of as of March 31, 2007, along with the expected proceeds from our operations, will provide adequate liquidity to fund our operations through at least the next twelve months. However, we may seek to raise additional liquidity to fund our operations in periods thereafter or to acquire development projects for our pipeline. Accordingly, we may seek to raise additional funds when market conditions permit. However, there can be no assurance that funding will be available or that, if available, will be on acceptable terms.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by rules recently enacted by the Financial Accounting Standards Board, and accordingly, no such arrangements are likely to have a current or future effect on our financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Operating lease commitments

As of December 31, 2006 and 2005, our three subsidiaries, including Guangdong Taoda Drink Co., Limited, Zhanjiang Taoda Drink Co., Limited and Changchun Taoda Beverage Co., Limited, had each arranged a non-cancelable operating lease with a third party for its production plant.

Item	Address	Leasing period until
1	No. 2 Zhu Ji Road, Ji Shan Village, Zhu Ji Street, Dong Pu,Tian He District, Guangzhou City, Guangdong Province, China	March, 2008
2	No. 88 Qian Jin Road, Chi Kan District, Zhanjiang City, Guangdong Province, China	August, 2008
3	Kao Shan Village, Economic and Technology Development District, Changchun City, Jilin Province, China	April, 2008

24

Directors and Executive Officers

Set forth below is information regarding the Company’s directors and executive officers after the Share Exchange. The directors are elected annually by stockholders. The executive officers serve at the pleasure of the board of directors.

Name	Age	Title
Chen Xing Hua	42	Chief Executive Officer and Director
Liang Qiu Xia	50	Director

Chen Xing Hua, age 42, is Chief Executive Officer and director of the Company. Mr. Chen is in charge of business development and overall operation of the company.  Mr. Chen has over 20 years of experience in manufacturing and factory operation management.  From 2001 to 2002, he was the President and General Manager of Shenzhen In - Tech Technology Co., Ltd., a manufacturer of auto parts, auto diagnosis and care systems. He was responsible for the firm’s strategic planning, operation and business development.  From 2002 to 2005, Mr. Chen was the Vice President of Golden Group Corporation, a Chinese producer of surveillance systems and consultancy services. From 2005 to 2006, he served as a director of China Security & Surveillance Technology, Inc, a company listed on the OTCBB. He was responsible for decision-making, operations management and marketing. Mr. Chen graduated from Jiangxi Technical Institute with a major in Industry and Civil Building Industry in 1984.

Liang Qiu Xia, age 50, is a director of the Company. Mr. Liang graduated from Shenzhen Adult Education Institute with a major in Accounting in 1984.  Ms. Liang has over twenty years of experience in accounting and financial management. From 1996 to 2007, she was a section head of China Nonferrous Metals Financial Company Limited in Shenzhen and was responsible for management accounting, financial accounting and other accounting related duties. From 1992 to 1996, she was an accounting officer of Guangdong Silk Corporation Group. Ms Liang is also a Certified Accounting Professional in China.

The term of office of each director expires at the Company’s annual meeting of stockholders or until their successors are duly elected and qualified. Directors are not compensated for serving as such. Officers serve at the discretion of the Board of Directors.

Employment Agreements

The Company does not have any employment agreements with its executive officers and directors.

Compensation of Officers

The Company has not paid its officers any compensation in respect of their services. The Company intends to maintain this policy in the future.

Director Compensation

The Company has not paid its directors any compensation in respect of their services on the board. The Company intends to maintain this policy in the future.

Certain Relationships and Related Party Transactions

Except as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.

25

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

Change in Fiscal Year

As previously described in Item 5.01, on May 30, 2007, the Registrant completed the transactions contemplated by that certain Share Exchange Agreement pursuant to which the Registrant acquired all of the issued and outstanding shares of stock of Gain Dynasty. Prior to such transaction, Gain Dynasty’s fiscal year end was December 31 and the Registrant’s was January 31.

Accordingly, and following the interpretive guidelines of the SEC, the Registrant has changed its fiscal year end to match its accounting predecessor’s fiscal year end. In addition, on May 30, 2007, the Company voted to change its fiscal year end from January 31 to December 31. As a result of the interpretive guidelines of the Commission mentioned above, no transition report is required in connection with such change in fiscal year end.

Item 5.06Change in Shell Company Status.

On May 30, 2007, the Registrant closed the Share Exchange pursuant to which the parties agreed that the Registrant acquired all of the issued and outstanding shares of stock of Gain Dynasty in exchange for the issuance in the aggregate of 59,872,000 of the Registrant’s shares of common stock.

Gain Dynasty became a wholly-owned operating subsidiary of the Registrant and, upon the issuance of the Shares, shareholders of the Gain Dynasty owned approximately 85.5% of all of the Registrant’s issued and outstanding stock. The Registrant currently has a total of 70,000,000 issued and outstanding shares of Common Stock and 4,477,612 issued and outstanding shares of Preferred Stock.

As the result of the completion of the Share Exchange, the Registrant believes it is no longer a shell company as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of business acquired.

Audited consolidated financial statements of the Company as of December 31, 2006 and 2005 and for the years then ended and unaudited consolidated financial statements as of March 31, 2007 and 2006 and for the quarters then ended, appear elsewhere herein, commencing on page F-1.

(b)Pro forma financial information.

Unaudited pro forma consolidated financial statements of the Company for December 31, 2006 and March 31, 2007 appear elsewhere herein.

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(c) Exhibits.

Exhibit No.	Description
2.1	Amended and Restated Agreement for Share Exchange dated as of May 11, 2007 (filed on the Current Report on Form 8-K date May 11, 2007).
3.1	Certificate of Designation for Series A Preferred Stock. *
10.1	Form of Securities Purchase Agreement dated as of May 31, 2007. *
10.2	Form of Registration Rights Agreement dated as of May 31, 2007. *
10.3	Lock Up Agreement dated as of May 31, 2007. *
10.4	Make Good Escrow Agreement dated as of May 31, 2007. *
10.5	Stock Pledge Agreement dated as of May 31, 2007. *
23.1	Consent of Madsen & Associates CPA’s, Inc. Independent Registered Public Accounting Firm. *
99.1	Press Release dated June 5, 2007.

* filed herewith.

27

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.

CHINA WATER AND DRINK INC.
By:	/s/ Chen Xing Hua
	Name: Chen Xing Hua Title: Chief Executive Officer

Dated: June 4, 2007

28

MADSEN & ASSOCIATES CPA’s, Inc.	684 East Vine St #3
Certified Public Accountants and Business Consultants	Murray, UT 84107
	Telephone 801-268-2632
	Fax 801-262-3978

Board of Directors

Olympic Forward Trading Company, Limited

Hong Kong, HK

Report of Independent Registered Public Accounting Firm

We have audited the accompanying balance sheets of Olympic Forward Trading Company, Limited as of December 31, 2006 and 2005 and the related statements of income and comprehensive income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance 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, significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these financial statements referred to above present fairly, in all material aspects, the financial position of Olympic Forward Trading Company, Limited as of December 31, 2006 and 2005 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

s/ Madsen & Associates CPA’s, Inc.

Madsen & Associates CPA’s, Inc.

May 26, 2007

Salt Lake City, Utah  

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2006		December 31, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalent	$	1,836,491	$	1,371,118
Accounts receivable, net of allowance for doubtful accounts		6,990,368		3,855,002
Inventories		5,259,717		3,213,425
Prepaid expenses and other receivables		4,299,482		4,436,159
Total current assets		18,386,058		12,875,704
PROPERTY, PLANT & EQUIPMENT, NET OF ACCUMULATED DEPRECIATION		3,350,207		3,494,976
LAND USE RIGHT, NET OF ACCUMULATED AMORTIZATION		93,866		105,520
DUE FROM DIRECTORS		3,593,484		—
OTHER ASSETS		638,054		650,200
TOTAL ASSETS	$	26,061,669	$	17,126,400
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	3,093,928	$	1,244,662
Customer deposits, accrued expenses and other payables		3,967,447		2,554,951
Current portion of long term debt		28,700		27,849
Taxes payable		2,268,057		125,846
Due to directors		7,432,971		2,844,013
Total current liabilities		16,791,103		6,797,321
LONG TERM DEBT, LESS CURRENT PORTION		162,534		191,234
TOTAL LIABILITIES		16,953,637		6,988,555
STOCKHOLDERS’ EQUITY
Common stock		1,291		1,291
Retained earnings		8,813,544		9,891,408
Accumulated other comprehensive income		293,197		245,146
TOTAL STOCKHOLDERS’ EQUITY		9,108,032		10,137,845
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	26,061,669	$	17,126,400

See accompanying notes to the consolidated financial statements

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	For the year ended December 31,
	2006		2005
Revenue	$	35,700,410	$	27,680,196
Cost of goods sold		24,069,220		19,665,967
Gross profit		11,631,190		8,014,229
Expenses
Selling and marketing		178,310		—
General and administrative		2,923,080		1,045,297
Income from operations		8,529,800		6,968,932
Other income		285,646		189
Income before income taxes		8,815,446		6,969,121
Provision for income taxes		—		—
Net income		8,815,446		6,969,121
Foreign currency translation		48,051		245,146
Comprehensive income	$	8,863,497	$	7,214,267

See accompanying notes to the consolidated financial statements

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income		Total
As at January 1, 2005		1,291	$	2,922,287		$	—	$	2,923,578
Net income		—		6,969,121			—		6,969,121
Foreign currency
Translation adjustment		—		—			245,146		245,146
As at December 31, 2005		1,291		9,891,408			245,146		10,137,845
Net income		—		8,815,446			—		8,815,446
Foreign currency
Translation adjustment		—		—			48,051		48,051
Dividends paid to shareholder		—		(9,893,310	)		—		(9,893,310	)
As at December 31, 2006		1,291	$	8,813,544		$	293,197	$	9,108,032

See accompanying notes to the consolidated financial statements

OLYMPIC FORWARD TRADING COMAPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2006			2005
Cash flows from operating activities
Net income for the year	$	8,815,446		$	6,969,121
Adjustments to reconcile net income to net
Cash (used in) provided by operating activities:
Depreciation and amortization		308,469			395,933
Changes in operating assets and liabilities:
Accounts receivable		(3,135,366	)		(1,693,989	)
Inventory		(2,046,292	)		(1,844,734	)
Prepaid expenses and other receivable		136,677			(3,013,598	)
Due from director		(3,593,484	)		—
Accounts payable		1,849,266			(124,224	)
Due to directors		4,588,958			699,781
Customer deposits and accrued expenses		1,412,496			1,049,361
Other assets		10,355			(63,355	)
Other taxes payable		2,240,290			40,717
Net cash flows from operating activities		10,586,815			2,415,013
Cash flows from investing activities
Capital injection to a subsidiary		(50,028	)		(150,230)-
Purchase of fixed assets		(150,254	)		(1,664,757)	)
Net cash flows used in investing activities		(200,282	)		(1,814,987	)
Cash flows from financing activities
Repayment of loan		(27,849	)		(26,980	)
Cash dividends paid to shareholders		(9,893,310	)		—
Net cash outflows provided by financing activities		(9,921,159	)		(26,980	)
Net increase in cash and cash equivalents		465,374			573,046
Cash and cash equivalents - beginning of year		1,371,118			798,072
Cash and cash equivalents - end of year		1,836,491			1,371,118

See accompanying notes to the consolidated financial statements

OLYMPIC FORWARD TRADING COMAPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2006

--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The Company was incorporated on October 22, 2002 under the laws of Hong Kong. The Company owns and operates four wholly owned subsidiaries in China including:

1. Guangdong Taoda Drink Co., Limited

2. Zhanjiang Taoda Drink Co., Limited

3. Changchun Taoda Beverage Co., Limited

4. Shandong Olympic Forward Drink Co., Limited

Each of these subsidiaries is a wholly owned foreign enterprise registered in China and is a bottled water producer. Each company produces and markets bottled water in China under a proprietary name and also bottles water on a contractual basis for other beverage and servicing companies. Each of these subsidiaries also engages in bottle design, production, packaging and delivery services.

NOTE 2 - PRINCIPLES OF CONSOLIDATION

For year ended and as of December 31, 2006 and 2005, the consolidated financial statements include the accounts of the Company and the following wholly-owned subsidiaries:

1. Guangdong Taoda Drink Co., Limited

2. Zhanjiang Taoda Drink Co., Limited

3. Changchun Taoda Beverage Co., Limited

4. Shandong Olympic Forward Drink Co., Limited

The accompanying consolidated financial statements include the accounts of its subsidiaries. All significant inter-company balances and transactions have been eliminated.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Economic and Political Risk

The Company’s major operations are conducted in China “PRC”. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.

The Company’s major 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. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

(b) 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 in Hong Kong and China through its wholly owned subsidiaries.

(c) Accounts Receivable

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. The Company has recorded an allowance for doubtful accounts at December 31, 2006. There were no bad debts incurred during the years ended December 31, 2006 and 2005.

(d) Inventories

Inventories consisting of raw materials, work-in-progress, and finished goods are stated at the lower of cost or net realizable value. Finished goods are comprised of direct materials, direct labor and a portion of overhead. Inventory costs are calculated using a weighted average, first in first out (FIFO) method of accounting.

(e) Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. The cost of maintenance and repairs is charged to the statement of income as incurred, whereas significant renewals and betterments are capitalized. The cost and the 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.

(f) Land Use Right

According to the law of PRC, the government owns all the land in PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government for 40 to 50 years.

Land use right represent the cost for purchasing the right to use the leasehold land for the production facilities of Shandong Olympic Forward Drink Co., Limited. It is stated at cost less amortization. Land use rights are being amortized using the straight-line method over the lease term of 8 years.

Amortization expense for the years ended December 31, 2006 and 2005 was $11,564 for each year.

(g) Depreciation and Amortization

The Company provides for depreciation of plant and equipment principally by use of the straight-line method for financial reporting purposes. Plant and equipment are depreciated over the following estimated useful lives:

Building	25 years
Furniture and fixtures	5 - 7 years
Machinery and equipment	3 - 5 years
Transportation equipment	5 - 7 years

The depreciation expense for the year ended December 31, 2006 and December 31, 2005 amounted to $296,905 and $384,369, respectively.

(h) 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. There were no impairments of long-lived assets for the periods ended December 31, 2006 and 2005.

(i) Income Tax

The Company has adopted the provisions of statements of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which incorporates the use of the asset and liability approach of accounting for income taxes. The Company 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.

In accordance with the relevant tax laws and regulations of PRC and Hong Kong, the corporation income tax rate applicable ranges from 17.5% to 33%. At times generally accepted accounting principles requires the Company to recognize certain income and expenses that do not conform to the timing and conditions allowed by the PRC. The Company's income tax expense for year ended December 31, 2006 and December 31, 2005 were both zero.

(j) Fair Value of Financial Instruments

The carrying amounts of the Company's cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. Term debt secured by various properties have interest rates attached to them commensurate with the finance market at the time and management believes approximate fair values in the short as well as the long term. It is currently not practicable to estimate the fair value of the other debt obligations because these note agreements contain unique terms, conditions, covenants and restrictions which were negotiated at arm's length with the Company's lenders, and there is no readily determinable similar instrument on which to base an estimate of fair value. Accordingly, no computation or adjustment to fair value has been determined.

(k) Revenue Recognition

Revenue represents the invoiced value of goods sold recognized upon the shipment of goods to customers. Revenue is recognized when all of the following criteria are met:

a) Persuasive evidence of an arrangement exists,

b) Delivery has occurred or services have been rendered,

c) The seller's price to the buyer is fixed or determinable, and

d) Collectibility is reasonably assured.

(l) Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2006 and December 31, 2005, there was no dilutive security outstanding.

(m) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 period. Actual results may differ from those estimates.

(n) Retirement Benefits

The country of PRC mandates companies to contribute funds into the national retirement system, which benefits qualified employees based on where they were born within the country. The Company pays the required payment of qualified employees of the Company as a payroll tax expense. Very few employees in the Company fall under the mandatory conditions requiring the Company to pay as a payroll tax expense into the retirement system of the PRC. The Company provides no other retirement benefits to its employees.

(o) 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. Comprehensive income includes net income and the foreign currency translation gain, net of tax.

(p) Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:

	2006		2005
Year end RMB : US$ exchange rate		7.807		8.070
Average yearly RMB : US$ exchange rate		7.939		8.201

On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/$ exchange rate into a flexible rate under the control of the PRC's government.

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 dollars ($) at the rates used in translation.

(q) Recent Accounting Pronouncements

Below is a listing of the most recent accounting standards SFAS 150-154 and their effect on the Company.

Statement No. 150

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03)

This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.

Statement No. 151

Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04)

This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight and re-handling costs may be so abnormal ass to require treatment as current period charges….” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.

Statement No. 152

Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)

This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions.

This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2.

Statement No. 153

Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)

The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

Statement No. 154

Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3)

This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.

The Company does not expect that the adoption of other recent accounting pronouncements to have any material impact on its financial statements.

NOTE 4 - ACCOUNTS RECEIVABLE, NET

	As of December 31,
	2006			2005
Accounts receivable	$	7,264,385		$	3,855,002
Less: Allowance for doubtful accounts		(274,017	)		—
Accounts receivable, net	$	6,990,368		$	3,855,002

NOTE 5 - INVENTORIES

Inventories consisting of raw materials and finished goods are stated at the lower of weighted average cost or market value. Inventories are bottled water and its raw material to manufacture the bottles.

Inventories as of December 31, 2006 and December 31, 2005 are summarized as follows:

	As of December 31,
	2006		2005
Raw materials	$	4,029,724	$	2,184,274
Work-in-progress		403,008		369,730
Finished goods		826,985		659,421
Total	$	5,259,717	$	3,213,425

NOTE 6 - PREPAID EXPENSES AND OTHER RECEIVABLES

Prepaid expenses consists of payments and deposits made by the Company to third parties in the normal course of business operations with no interest being charged and no fixed repayment terms. These payments are made for the purchase of goods and services that are used by the Company for its current operations.

The Company evaluates the amounts recorded as prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company

Prepaid expenses and other receivables as of December 31, 2006 and December 31, 2005 are summarized as follows:

	December 31, 2006		December 31, 2005
Prepaid expenses	$	4,241,640	$	3,100,415
Other receivables		57,842		1,335,744
Total	$	4,299,482	$	4,436,159

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment of the Company consist primarily of manufacturing facilities and equipment owned and operated by the Company’s wholly owned subsidiaries in China. Property, plant and equipment as of December 31, 2006 and December 31, 2005 are summarized as follows:

	As of December 31,
	2006		2005
At cost:
Buildings	$	281,670	$	272,485
Machinery and equipment		4,626,823		4,497,621
Motor Vehicles		129,411		103,174
Office equipment		67,038		64,530
		5,104,942		4,937,810
Less: Accumulated depreciation
Buildings	$	30,030	$	20,456
Machinery and equipment		1,655,270		1,374,816
Motor Vehicles		50,172		36,649
Office equipment		19,263		10,913
		1,754,735		1,442,834
Plant and equipment , net	$	3,350,207	$	3,494,976

Depreciation expense for the years ended December 31, 2006 and 2005 was $296,905 and $384,369, respectively.

NOTE 8 - OTHER ASSETS

Other assets consist of an investment property owned by the Company and deferred expenses.

The investment property represents the cost of a residential apartment located in Hong Kong and is held by the Company for long term investment purpose. The investment property is carried at lower of cost or market value on the balance sheet of the Company as of December 31, 2006 and 2005.

Deferred expenses are expenses with economic benefits extending to a future periods. The Company considers these deferred expenses to be classified as intangible assets and tests the carrying amount for impairment on an annual basis. The Company determined that there was no impairment of deferred expenses as of December 31, 2006 and 2005.

	As of December 31,
	2006		2005
Investment property	$	585,053	$	586,845
Deferred expenses		53,001		63,355
TOTAL	$	638,054	$	650,200

NOTE 9 - CUSTOMER DEPOSITS, ACCRUED EXPENSES AND OTHER PAYABLES

	As of December 31,
	2006		2005
Other payables	$	1,307,283	$	2,479,218
Customer deposits		2,639,957		—
Accrued expenses		20,207		75,733
TOTAL	$	3,967,447	$	2,554,951

Other payables consist of amounts owed by the Company to various entities that are incurred by the Company outside of the normal course of business operations. These liabilities do not carry an interest rate and are generally payable within a year. Customer deposits consist of advance payments made by customers for the purchase of products from the Company.

NOTE 10 - LONG TERM DEBT, LESS CURRENT PORTION

The Company borrowed funds from a bank in October of 2003 to acquire an investment property that is held by the Company for long term investment purposes. The funds borrowed were collateralized by a mortgage on this investment property. The monthly installments of the long term loan vary from month to month depending on the interest rate and the interest rate the loan carried ranges from 5.5% to 5.6% per annum during 2006 and 2005. The long term debt matures in October 2012. The maturities of the long term bank borrowing for the next six years are summarized below:

	As of December 31,
Year Ended	2006		2005
2006	$	—	$	27,849
2007		28,700		28,700
2008		30,000		30,000
2009		32,000		32,000
2010		34,500		34,500
2011		38,000		38,000
2012		28,034		28,034

NOTE 11 - INCOME TAX AND DEFERRED TAX LIABILITIES

(a) Corporation Income Tax (“CIT”)

In accordance with the relevant tax laws and regulations of Hong Kong and PRC, the statutory corporate income tax rates are 17.5% for Hong Kong and 15% to 33% in PRC. The corporate income tax rates applicable to the Company and its subsidiaries for the year ended December 31, 2006 and December 31, 2005 were as follows:

	2006			2005
Olympic Forward Trading Company Limited		17.5	%		17.5	%
Guangdong Taoda Drink Co., Limited		33.0	%		33.0	%
Zhanjiang Taoda Drink Co., Limited		33.0	%		33.0	%
Changchun Taoda Beverage Co., Limited		33.0	%		33.0	%
Shandong Olympic Forward Drink Co., Limited		33.0	%		33.0	%

The actual and effective corporate income tax was 0% for both of the years ended December 31, 2006 and 2005. Each of the four subsidiaries of the Company is registered with the PRC as wholly owned foreign enterprises. According to the tax laws that are currently in effect in the PRC, wholly owned foreign enterprises are allowed a 100% tax exemption for two years and a 50% tax exemption for the subsequent two years.

The Company’s actual tax expense differs from the “expected” tax expense for the years ended December 31, 2006 and 2005 (computed by applying the CIT rate of 17.5% to net profits of Olympic Forward Trading Company Limited, 33% to net profit of Guangdong Taoda Drink Co., Limited, 33% to net profit of Zhanjiang Taoda Drink Co., Limited, 33% to net profit of Zhanjiang Taoda Drink Co., Limited, 33% to net profit of Changchun Taoda Beverage Co., Limited and 33% to net profit of Shandong Olympic Forward Drink Co., Limited).

	For the year ended December 31,
	2006			2005
Computed “expected” expense	$	2,912,623		$	2,299,809
Permanent difference due to tax exemption		(2,912,623	)		(2,299,809	)
TOTAL	$	—		$	—

The permanent difference originated from the two years tax exemption enjoyed by the subsidiaries of the Company for the year ended December 31, 2006 and December 31, 2005 under the PRC tax regulations.

The provisions for income taxes for each of the two years ended December 31 are summarized as follows:

	As of December 31,
	2006		2005
Current	$	—	$	—
Deferred		—		—
TOTAL	$	—	$	—

There are no other timing differences between reported book or financial income and income computed for income tax purposes. Therefore, the Company has made no adjustment for deferred tax assets or liabilities.

(b) Value Added Tax (“VAT”)

There is no VAT under current tax laws in Hong Kong.

In accordance with the current tax laws in the PRC, the VAT rate for export sales is 0% and domestic sales is 17%. VAT is levied at 17% on the invoiced value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority, but may offset this tax liability from the VAT for the taxes that it has paid on eligible purchases. The VAT payable balance of $2,268,057 and $125,846 at December 31, 2006 and 2005, respectively has been accrued and reflected as taxes payable in the accompanying consolidated balance sheets.

NOTE 12 - RELATED PARTY TRANSACTIONS

Due to directors consists of advances from directors and payments on behalf of the Company by directors. Due to directors are unsecured and interest free with no fixed payment terms, but are expected to be repaid to the directors within the current year.

Due from directors consists of advances to directors and payments on behalf for directors. Due from directors is unsecured and interest free with no fixed payment terms.

NOTE 13 - COMMON STOCK

The Company authorized 10,000 shares $0.13 par value of common stock. The Company has a total of 10,000 shares of common stock outstanding as of December 31, 2006 and December 31, 2005.

NOTE 14 - CONTINGENCIES AND COMMITMENTS

Operating lease commitments

As of December 31, 2006 and 2005, three subsidiaries of the Company, including Guangdong Taoda Drink Co., Limited, Zhanjiang Taoda Drink Co., Limited and Changchun Taoda Beverage Co., Limited, had each arranged a non-cancelable operating lease with a third party for its production plant. The expected annual lease payments under these operating leases are as follows:

	As of December 31,
	2006		2005
For the year ended December 31,
2006	$	—	$	106,276
2007		106,276		106,276
2008		60,090		60,090
TOTAL	$	166,366	$	272,642

NOTE 15 - SUBSEQUENT EVENTS

On February 13, 2006, the Company and Guangdong Taoda Drink Co., Limited, one of the wholly owned subsidiaries of the Company, entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with UGODS, Inc. Pursuant to the terms of the Share Exchange Agreement, UGOD shall acquire 100% ownership of Guangdong Taoda Drink Co., Limited from the Company. Consideration to be issued by Ugods, Inc. shall be a total of 9,874,000 shares of its common stock in exchange for 100% ownership of Guangdong Taoda Drink Co., Limited. The closing of Share Exchange Agreement will close subject to the provisions and conditions of the Share Exchange Agreement and the discretion of the parties. The transaction has not yet closed as of the date of this report.

On February 16, 2007, the Company, Zhanjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limit ed, three of the wholly owned subsidiaries of the Company, entered into a Share Exchange Agreement (the “Share Exchange Agreement II”) with UGODS, Inc. Pursuant to the Agreement, the Company agreed to sell 100% of the equity ownership of Zhanjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited to UGOD. In consideration of such purchase, UGOD will issue a total of 49,998,000 shares of its common stock to the Company. The closing of Share Exchange Agreement II will close subject to the provisions and conditions of the Share Exchange Agreement II and the discretion of the parties. The transaction has not yet closed as of the date of this report.

On May 11, 2007, the Company entered into an Amended and Restated Agreement for Share Exchange (the “Amended Agreement”) with UGODS, Inc.   The Agreement amends, restates, combines and supercedes each of (i) the Agreement for Share Exchange among the Company, Guangdong Taoda Beverage Company Limited and UGODS, Inc., dated as of February 13, 2007 and (ii) the Agreement for Share Exchange among the Company and Zhangjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited and UGODS, Inc., dated as of February 16, 2007. Pursuant to the Agreement, UGODS, Inc. agreed to purchase 100% of the equity ownership of the Company through Gain Dynasty Investments Limited, a British Virgin Island registered company that the shareholders of the Company have established to hold the ownership of the Company.

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED FINANCIAL STATEMENTS

-------------------------------------------------

INDEX TO FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED BALANCE SHEET, MARCH 31, 2007	F-1
UNAUDITED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2007 AND 2006	F-2
UNAUDITED STATEMENT OF CASH FLOW FOR THE QUARTER ENDED MARCH 31, 2007 AND 2006	F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-4

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2007		December 31, 2006
ASSETS	(Unaudited)
Current assets
Cash and cash equivalent	$	3,703,236	$	1,836,491
Accounts receivable, net of allowance		6,091,745		6,990,368
Inventories		8,011,010		5,259,717
Prepayment and other receivables		7,673,904		4,299,482
Total current assets		25,479,895		18,386,058
Property, plant & equipment, net of depreciation		3,324,893		3,350,207
Intangible assets, net of amortization		90,953		93,866
Due from directors		2,599,429		3,593,484
Other assets - Investment prop and deferred expenses		642,710		638,054
TOTAL ASSETS	$	32,137,880	$	26,061,669
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities
Accounts payable	$	5,678,482	$	3,093,928
Customer deposits, other payable and accrued expenses		5,576,676		3,967,447
Short term loan		28,800		28,700
Taxes payable		2,264,268		2,268,057
Amount due to directors		7,677,743		7,432,971
Total current liabilities		21,225,969		16,791,103
LONG TERM LIABILITIES		156,356		162,534
TOTAL LIABILITIES		21,382,325		16,953,637
STOCKHOLDERS’ EQUITY
Common shares		1,291		1,291
Surplus		10,500,703		8,813,544
Accumulated other comprehensive income		253,561		293,197
TOTAL STOCKHOLDERS’ EQUITY		10,755,555		9,108,032
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	32,137,880	$	26,061,669

See accompanying notes to the consolidated financial statements

F-1

OLYMPIC FORWARD TRADING COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

	For the quarter ended March 31,
	2007			2006
Revenue	$	6,216,731		$	7,266,053
Cost of goods sold		(4,263,291	)		(4,857,004	)
Gross profit		1,953,440			2,409,049
Expenses
Selling and marketing		—			(2,084	)
General and administrative		(266,281	)		(269,077	)
Finance		—			(1,588	)
Income from operations		1,687,159			2,136,300
Other income		—			—
Income before income taxes		1,687,159			2,136,300
Provision for income taxes		—			—
Net income		1,687,159			2,136,300
Foreign currency translation		(39,636	)		25,569
Comprehensive income	$	1,647,523		$	2,161,869

See accompanying notes to the consolidated financial statements

F-2

OLYMPIC FORWARD TRADING COMAPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For quarter ended March 31,
	2007			2006
Cash flows from operating activities
Net income for the year	$	1,647,523		$	2,161,869
Adjustments to reconcile net income to net
Cash (used in) provided by operating activities:
Depreciation and amortization		95,200			99,882
Changes in operating assets and liabilities:
Accounts receivable		898,623			274,505
Inventory		(2,751,293	)		(1,382,217	)
Prepaid expenses and other receivable		(3,374,422	)		562,110
Due from director		994,055			—
Accounts payable		2,584,554			65,554
Due to directors		244,772			(7,357	)
Customer deposits and accrued expenses		1,609,229			2,749,591
Other assets		(4,656	)		4,688
Other taxes payable		(3,789	)		214,942
Net cash flows from operating activities		1,939,796			4,743,567
Cash flows from investing activities
Purchase of fixed assets		(66,973	)		(87,595	)
Net cash flows used in investing activities		(66,973	)		(87,595	)
Cash flows from financing activities
Repayment of loan		(6,078	)		(6,925	)
Dividends paid to shareholder		—			(2,732,825	)
Net cash outflows provided by financing activities		(6,078	)		(2,739,750	)
Net increase in cash and cash equivalents	$	1,866,745		$	1,916,222
Cash and cash equivalents - beginning of period		1,836,491			1,371,118
Cash and cash equivalents - end of period	$	3,703,236		$	3,287,340

See accompanying notes to the consolidated financial statements

F-3

OLYMPIC FORWARD TRADING COMAPANY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Olympic Forwarding Trading Company Limited and subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles for financial information and pursuant to the requirements for reporting on Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly they do not include all the information and footnotes required by accounting principles generally accepted in the United States of American for complete financial statements. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of March 31, 2007 was derived from the audited consolidated financial statements included in the Company’s audited accounts for the year ended December 31, 2006. These annual financial statements should be read in conjunction with that report.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries including:

1. Guangdong Taoda Drink Co., Limited

2. Zhanjiang Taoda Drink Co., Limited

3. Changchun Taoda Beverage Co., Limited

4. Shandong Olympic Forward Drink Co., Limited

All material inter-company accounts and transactions have been eliminated in the consolidation.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

NOTE 2 - USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates.

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments including cash and cash equivalents, accounts receivable, advances to suppliers, other receivables, due from employees and other assets, accounts payable, short-term bank loans, customer deposits, taxes payable, other payables and accrued expenses and debt, approximates their fair value at March 31, 2007 and December 31, 2006 due to the relatively short-term nature of these instruments. Accordingly, no computation or adjustment to fair value has been determined.

F-4

NOTE 4 - FOREIGN CURRENCY CONVERSION

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars ($) from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:

	March 31, 2007		December 31, 2006
Period / year end RMB : $ exchange rate		7.723		7.807
Average yearly RMB : $ exchange rate		7.759		7.939

On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB / $ exchange rate into a flexible rate under the control of the PRC's government.

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 $ at the rates used in translation.

NOTE 5 - SUBSEQUENT EVENTS

On February 13, 2006, the Company and Guangdong Taoda Drink Co., Limited, one of the wholly owned subsidiaries of the Company, entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with UGODS, Inc. Pursuant to the terms of the Share Exchange Agreement, UGOD shall acquire 100% ownership of Guangdong Taoda Drink Co., Limited from the Company. Consideration to be issued by Ugods, Inc. shall be a total of 9,874,000 shares of its common stock in exchange for 100% ownership of Guangdong Taoda Drink Co., Limited. The closing of Share Exchange Agreement will close subject to the provisions and conditions of the Share Exchange Agreement and the discretion of the parties. The transaction has not yet closed as of the date of this report.

On February 16, 2007, the Company, Zhanjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limit ed, three of the wholly owned subsidiaries of the Company, entered into a Share Exchange Agreement (the “Share Exchange Agreement II”) with UGODS, Inc. Pursuant to the Agreement, the Company agreed to sell 100% of the equity ownership of Zhanjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited to UGOD. In consideration of such purchase, UGOD will issue a total of 49,998,000 shares of its common stock to the Company. The closing of Share Exchange Agreement II will close subject to the provisions and conditions of the Share Exchange Agreement II and the discretion of the parties. The transaction has not yet closed as of the date of this report.

On May 11, 2007, the Company entered into an Amended and Restated Agreement for Share Exchange (the “Amended Agreement”) with UGODS, Inc.   The Agreement amends, restates, combines and supercedes each of (i) the Agreement for Share Exchange among the Company, Guangdong Taoda Beverage Company Limited and UGODS, Inc., dated as of February 13, 2007 and (ii) the Agreement for Share Exchange among the Company and Zhangjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited and UGODS, Inc., dated as of February 16, 2007. Pursuant to the Agreement, UGODS, Inc. agreed to purchase 100% of the equity ownership of the Company through Gain Dynasty Investments Limited, a British Virgin Island registered company that the shareholders of the Company have established to hold the ownership of the Company.

F-5

UGODS, INC.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

-------------------------------------------------

INDEX TO PRO-FORMA FINANCIAL STATEMENTS

UNAUDITED PRO-FORMA COMBINED CONSOLIDATED BALANCE SHEET, DECEMBER 31, 2006	F-1
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006	F-2
UNAUDITED PRO-FORMA COMBINED CONSOLIDATED BALANCE SHEET, MARCH 31, 2007	F-3
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2007	F-4
NOTES TO UNAUDITED PRO-FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS	F-5

UGODS, INC.

UNAUDITED PRO-FORMA COMBINED CONSOLIDATED BALANCE SHEET,

DECEMBER 31, 2006

		UGOD Historical			OLYMPIC Historical		Pro forma Adjustments			Pro forma Combined
ASSETS
Current assets
Cash and cash equivalent	$	2,724		$	1,836,491	$			$	$1,839,215
Accounts receivables, net of allowance for doublful accounts					6,990,368					6,990,368
Inventories					5,259,717					5,259,717
Prepayment and other receivable					4,299,482					4,299,482
Total current assets		2,724			18,386,058		—			18,388,782
Property, plant & equipment, net of accumulated depreciation					3,350,207					3,350,207
Land use right, net of accumulated amortization					93,866					93,866
Due from directors					3,593,484					3,593,484
Other long term assets					638,054					638,054
TOTAL ASSETS	$	2,724		$	26,061,669	$	—		$	26,064,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable					3,093,928					3,093,928
Customer deposits, accrued expenses and other payables					3,967,447					3,967,447
Current portion of long term debt					28,700					28,700
Taxes payable					2,268,057					2,268,057
Due to directors	$	5,750			7,432,971		(5,750	)(1)		7,432,971
Total current liabilities		5,750			16,791,103		(5,750	)		16,791,103
Long term debt, less current portion					162,534					162,534
TOTAL LIABILITIES		5,750			16,953,637		(5,750	)		16,953,637
STOCKHOLDERS’ EQUITY
Common stock		10,128			1,291		58,581	(2)		70,000
Paid in Capital		50,872			—		(50,872	)(3)		—
Shareholders’deficit (surplus)		(64,026	)		8,813,544		(1,959	)(4)		8,747,559
Accumulated other comprehensive income		—			293,197		—			293,197
TOTAL STOCKHOLDERS’ SURPLUS		(3,026	)		9,108,032		5,750			9,110,756
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,724		$	26,061,669	$	—		$	26,064,393

F-1

UGODS, INC.
UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED

DECEMBER 31, 2006

		UGOD Historical			OLYMPIC Historical			Pro forma Adjustments			Pro forma Combined
Revenue	$	—		$	35,700,410		$			$	35,700,410
Cost of revenue		—			(24,069,220	)					(24,069,220	)
Gross profit		—			11,631,190			—			11,631,190
Expenses
Selling and marketing		—			(178,310	)					(178,310	)
General and administration		(6,323	)		(2,923,080	)		5,750	(5)		(2,923,653	)
Income from operations		(6,323	)		8,529,800			5,750			8,529,227
Other income		—			285,646						285,646
Income before income taxes		(6,323	)		8,815,446			5,750			8,814,873
Provision for income taxes		—			—						—
Net income		(6,323	)		8,815,446			5,750			8,814,873
Foreign currency translations		—			48,051						48,051
Comprehensive income	$	(6,323	)	$	8,863,497		$	5,750		$	8,862,924

F-2

UGODS, INC.

UNAUDITED PRO-FORMA COMBINED CONSOLIDATED BALANCE SHEET

MARCH 31, 2007

		UGOD Historical			OLYMPIC Historical		Pro forma Adjustments			Pro forma Combined
ASSETS
Current assets
Cash and cash equivalent	$	7,624		$	3,703,236	$			$	3,710,860
Accounts receivables, net of allowance for doublful accounts					6,091,745					6,091,745
Inventories					8,011,010					8,011,010
Prepayment and other receivable					7,673,904					7,673,904
Total current assets		7,624			25,479,895		—			25,487,519
Property, plant & equipment, net ofaccumulated depreciation					3,324,893					3,324,893
Land use right, net of accumulated amortization					90,953					90,953
Due from directors					2,599,429					2,599,429
Other long term assets					642,710					642,710
TOTAL ASSETS	$	7,624		$	32,137,880	$	—		$	32,145,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable					5,678,482					5,678,482
Customer deposits, accrued expenses and other payables					5,576,676					5,576,676
Current portion of long term debt					28,800					28,800
Taxes payable					2,264,268					2,264,268
Due to directors	$	25,750			7,677,743		(5,750	) (1)		7,697,743
Total current liabilities		25,750			21,225,969		(5,750	)		21,245,969
Long term debt, less current portion					156,356					156,356
TOTAL LIABILITIES		25,750			21,382,325		(5,750	)		21,402,325
STOCKHOLDERS’ EQUITY
Common stock		10,128			1,291		58,581	(2)		70,000
Paid in Capital		50,872			—		(50,872	) (3)		—
Shareholders’deficit (surplus)		(79,126	)		10,500,703		(1,959	) (4)		10,419,618
Accumulated other comprehensive income		—			253,561		—			253,561
TOTAL STOCKHOLDERS’ SURPLUS		(18,126	)		10,755,555		5,750			10,743,179
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,624		$	32,137,880	$	—		$	32,145,504

F-3

UGODS, INC.

UNAUDITED PRO-FORMA COMBINED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED

MARCH 31, 2007

		UGOD Historical			OLYMPIC Historical			Pro forma Adjustments			Pro forma Combined
Revenue	$	—		$	6,216,731		$	—		$	6,216,731
Cost of revenue		—			(4,263,291	)		—			(4,263,291	)
Gross profit		—			1,953,440			—			1,953,440
Expenses
Selling and marketing		—			—			—			—
General and administration		(15,100	)		(266,281	)		5,750	(5)		(275,631	)
Income from operations		(15,100	)		1,687,159			5,750			1,677,809
Other income		—			—			—			—
Income before income taxes		(15,100	)		1,687,159			5,750			1,677,809
Provision for income taxes		—			—			—			—
Net income		(15,100	)		1,687,159			5,750			1,677,809
Foreign currency translations		—			(39,636	)		—			(39,636	)
Comprehensive income	$	(15,100	)	$	1,647,523		$	5,750		$	1,638,173

F-4

UGODS, INC.

NOTES TO PRO-FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------

NOTE 1BASIS OF PRESENTATION

The unaudited pro-forma consolidated financial statements include the accounts of Ugods, Inc. (“UGOD” or the “Company”), Gain Dynasty Investments Limited (“Gain Dynasty”) and Olympic Forward Trading Company Limited (“Olympic”.)

On February 13, 2006, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Olympic to acquire 100% ownership of Guangdong Taoda Beverage Company Limited one of subsidiaries of Olympic. 9,874,000 shares of UGOD’s common stock will be issued as a consideration. On February 16, 2007, the Company entered into another agreement with Olympic to acquire the remaining 3 subsidiaries of Olympic, including Zhanjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited 49,998,000 shares of UGOD’s common stock will be issued as a consideration and a change of control of the Company will occur following the closing of this transaction.

On May 11, 2007, the Company entered into an Amended and Restated Agreement for Share Exchange with Gain Dynasty, the sole shareholder of Olympic. The Agreement amends, restated, combines and supersedes each of (i) the Agreement for Share Exchange among the Company, Guangdong Taoda Beverage Company Limited and Olympic, dated as of February 13, 2007 and (ii) the Agreement for Share Exchange among the Company, Zhangjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited, Shandong Olympic Forward Drink Co. Limited and Olympic dated February 16, 2007. Pursuant to the Agreement, the Company agreed to purchase 100% of the equity ownership of Gain Dynasty. Through Gain Dynasty, UGOD owns 100% of Olympic that owns 100% of Guangdong Taoda Beverage Company Limited, Zhangjiang Taoda Drink Co. Limited, Changchun Taoda Beverage Co. Limited and Shandong Olympic Forward Drink Co. Limited. The Company will issue a total of 59,872,000 shares as consideration. Upon closing of the transaction, a change of control of the Company will occur. Following the closing of this transaction and the issuance of the Exchange Shares, the Company will have a total of 70,000,000 shares issued and outstanding.

F-5

Olympic is a group of bottled water manufacturing companies in China, producing bottled water under its own brands and for other brands including Coca-Cola and Danone. The company is a limited liability company incorporated in Hong Kong.

NOTE 2PRO FORMA FINANCIAL STATEMENTS

The Company acquired 100% ownership of Olympic through Gain Dynasty (It has no business transactions except as an investment holding company for Olympic). The accompanying unaudited pro forma combined financial statements are based upon the historical condensed balance sheets and consolidated statements of operations of the Company and Olympic. The unaudited pro forma combined balance sheet has been prepared as if the acquisition occurred on March 31, 2007 and December 31, 2006. The unaudited pro forma combined financial statements of operations for the year ended December 31, 2006 and for the three months ended March 31, 2007 have been prepared as if the acquisition had occurred on January 1, 2006. The statements are based on accounting for the business combination as a reverse acquisition, whereby the Company will be the surviving corporate entity, but Olympic is the accounting acquirer. As Olympic is the accounting acquirer in a transaction accounted for as a purchase in accordance with generally accepted accounting principles, the purchase price has been allocated to the Company's assets and liabilities based upon preliminary estimates of their respective fair values. The pro forma information may not be indicative of the results that actually would have occurred if the merger had been in effect from and on the dates indicated or which may be obtained in the future.

NOTE 3CONSOLIDATING ENTRIES

The consolidating entries on the pro-forma consolidated balance sheet to eliminate investments in subsidiary accounts:

(1) Cancellation of due from directors by respective directors upon completion of merger

(2) Net effect of increase in common stock as a result of issuing shares for merger and elimination of share capital of Olympic

(3) Net effect of increase in paid up capital as a result of issuing shares for merger and reduction of paid up capital as a result of elimination of deficits of UGOD before merger

(4) Elimination of deficits of UGOD before merger and the excess of UGOD’s deficits over its paid in capital

(5) Cancellation of due from directors

F-6

.

.

 

EX-10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of May 31, 2007, by and among China Water and Drinks Inc., a Nevada corporation (f/k/a/ Ugods, Inc.), and all predecessors thereof (collectively, the “Company”), and the investors identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”).

WHEREAS, the Company entered into an Amended and Restated Agreement for Share Exchange, dated May 11, 2007 (the “Exchange Agreement”), with Gain Dynasty Investments Limited, a company formed under the laws of the British Virgin Islands (“BVI”) and Mr. Xu Hong Bin, the sole shareholder of BVI, pursuant to which the Company will, subject to the terms and conditions thereof, acquire all of the equity interest of BVI, in exchange for 85.53% of the Common Stock (as defined below) on a fully diluted basis as of the time of the closing of the exchange under the Exchange Agreement and immediately prior to the Closing under this Agreement (the “Exchange”).

WHEREAS, the closing of the Exchange is conditioned, among other things, on the consummation of the financing contemplated by this Agreement immediately thereafter.

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to exemptions from registration under the Securities Act (as defined below), the Company desires to issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase from the Company, shares of the Company’s Common Stock, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors agree as follows:

ARTICLE 1.

DEFINITIONS

1.1.Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

“2007 Annual Report” means the Annual Report on Form 10-KSB of the Company for the fiscal year ending December 31, 2007, as filed with the Commission.

“2007 Guaranteed ATNI” has the meaning set forth in Section 4.11.

“2007 Make Good Shares” has the meaning set forth in Section 4.11.

“2008 Annual Report” means the Annual Report on Form 10-KSB of the Company for the fiscal year ending December 31, 2008, as filed with the Commission.

“2008 Guaranteed ATNI” has the meaning set forth in Section 4.11.

“2008 Guaranteed EPS” has the meaning set forth in Section 4.11.

“2008 Make Good Shares” has the meaning set forth in Section 4.11.

“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

“Available Undersubscription Amount” has the meaning set forth in Section 4.14(c).

“Basic Amount” has the meaning set forth in Section 4.14(b).

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York, the State of Nevada or the province of Guangdong in the PRC are authorized or required by law or other governmental action to close.

“Buy-In” has the meaning set forth in Section 4.1(c).

“BVI” has the meaning set forth in the recitals to this Agreement.

“BVI Financial Statements” has the meaning set forth in Section 5.1(e).

“Certificate of Amendment” means the Certificate of Amendment to the Company’s Articles of Incorporation increasing the Company’s authorized Common Stock to not less than 150,000,000 shares.

"Certificate of Designation" shall mean a Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of the State of Nevada, setting forth the rights, preferences and privileges of the Shares, in the form attached as Exhibit A hereto.

“Closing” means the closing of the purchase and sale of the Shares pursuant to Article II.

“Closing Date” means the Business Day on which all of the conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other date as the parties may agree.

"Closing Escrow Agreement" means the Closing Escrow Agreement, dated as of the date hereof, between the Company and the escrow agent (the “Escrow Agent”) identified therein, in the form of Exhibit B hereto.

2

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

“Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.

“Company Deliverables” has the meaning set forth in Section 2.2(a).

“Company U.S. Counsel” means Loeb & Loeb LLP.

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

“Effective Date” means the date that the Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission.

“Evaluation Date” has the meaning set forth in Section 3.1(s).

“Exchange” has the meaning set forth in the recitals to this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Agreement” has the meaning set forth in the recitals to this Agreement.

“GAAP” means U.S. generally accepted accounting principles.

“Intellectual Property Rights” has the meaning set forth in Section 3.1(p).

“Investment Amount” means, with respect to each Investor, the Investment Amount indicated on such Investor’s signature page to this Agreement.

“Investor Deliverables” has the meaning set forth in Section 2.2(b).

“Investor Party” has the meaning set forth in Section 4.7.

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal, right of participation or other restrictions of any kind.

“Lockup Agreement” means the Lockup Agreement, dated as of the date hereof, by and between the Company and each person listed as a signatory thereto, in the form attached as Exhibit C hereto.

3

“Losses” means any loss, liability, obligation, claim, contingency, damage, cost or expense, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation related thereto.

“Make Good Escrow Agreement” means the Make Good Escrow Agreement, dated as of the date hereof, among the Company, The Pinnacle Fund, L.P., as agent (the “Agent”), the escrow agent identified therein (the “Make Good Escrow Agent”), the Make Good Pledgor and the Investors, in the form of Exhibit D hereto.

“Make Good Pledgor” means Mr. Xu Hong Bin.

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its obligations under any Transaction Document.

“Money Laundering Laws” has the meaning set forth in Section 3.1(gg).

“New York Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“Notice of Acceptance” has the meaning set forth in Section 4.14(c).

“OFAC” has the meaning set forth in Section 3.1(ff).

“Offer” has the meaning set forth in Section 4.14(b).

“Offer Notice” has the meaning set forth in Section 4.14(b).

“Offer Period” has the meaning set forth in Section 4.14(c).

“Offered Securities” has the meaning set forth in Section 4.14(b).

“Outside Date” means the thirtieth day following the date of this Agreement.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“PRC” means the People’s Republic of China, not including Taiwan, Hong Kong and Macau.

“PRC Subsidiaries” means, collectively, JuanJiang TaoDa Ltd, Co, a Wholly Owned Foreign Enterprise registered in the PRC, ShuanDong TaoDa Ltd, Co, a Wholly Owned Foreign Enterprise registered in the PRC, GuangDong TaoDa Ltd, Co, a Wholly Owned Foreign Enterprise registered in the PRC, and ChuangChun TaoDa Ltd, Co, a Wholly Owned Foreign Enterprise registered in the PRC.

4

“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.

“Refused Securities” has the meaning set forth in Section 4.14(d).

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date hereof, among the Company and the Investors, in the form of Exhibit E hereto.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Investors of the Underlying Shares.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” has the meaning set forth in Section 3.1(h).

“Securities” means the Shares and the Underlying Shares.

“Securities Act” means the Securities Act of 1933, as amended.

“Share Delivery Date” has the meaning set forth in Section 4.1(c).

“Shares” means the 4,477,612 shares of Series A Convertible Preferred Stock issued or issuable to the Investors pursuant to this Agreement.

“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

“Stock Pledge Agreement” means the Stock Pledge Agreement, dated as of the date hereof, by and among the Company, the Investors, Xu Hong Bin and Chen Xing Hua, in the form of Exhibit F hereto.

“Stockholder Approval” has the meaning set forth in Section 4.16.

“Subsequent Placement” has the meaning set forth in Section 4.14(a).

“Subsequent Placement Agreement” has the meaning set forth in Section 4.14(f).

5

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the Exchange Act. The term “Subsidiaries” shall be deemed to include BVI, and its subsidiaries as if the Exchange shall have been consummated as of the time of the execution of this Agreement, with the effect that all references to Subsidiaries of the Company in this Agreement shall also refer to BVI, and its subsidiaries.

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

“Transaction Documents” means this Agreement, the Certificate of Designation, the Registration Rights Agreement, the Closing Escrow Agreement, the Lockup Agreements, the Make Good Escrow Agreement, the Stock Pledge Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Trigger Date” has the meaning set forth in Section 4.14(a).

“Underlying Shares” means the shares of Common Stock issuable upon conversion or exchange of the Shares.

“Undersubscription Amount” has the meaning set forth in Section 4.14(b).

ARTICLE 2.

PURCHASE AND SALE

2.1.Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company, the Shares representing such Investor’s Investment Amount. The Closing shall take place at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY 10104 on the Closing Date or at such other location or time as the parties may agree.

2.2.Closing Deliveries. (a) At the Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “Company Deliverables”):

(i)one or more stock certificates, evidencing Shares with an aggregate stated value equal to such Investor’s Investment Amount, registered in the name of such Investor;

6

(ii)a copy of the executed, filed and effective Certificate of Designation, accompanied by a certificate evidencing the acceptance thereof by the Secretary of State of the State of Nevada;

(iii)an executed consent of at least a majority of the shares of Common Stock then outstanding, irrevocably approving an increase in the Company’s authorized Common Stock to not less than 150,000,000 shares;

(iv)the Closing Escrow Agreement, duly executed by all parties thereto;

(v)the Make Good Escrow Agreement, duly executed by all parties thereto, together with written confirmation that the “Escrow Shares” (as defined therein) have been delivered to the escrow agent thereunder, along with bank signature stamped stock powers executed in blank (or such other signed instrument of transfer acceptable to the Company’s transfer agent);

(vi)the Stock Pledge Agreement, duly executed by all parties thereto, together with the certificates representing the Shares comprising the Collateral (each as defined in the Pledge Agreement) for the benefit of each such Investor in accordance with the Stock Pledge Agreement, stamped with a bank medallion guarantee, along with stock powers duly executed in blank;

(vii)the legal opinion of Company U.S. Counsel, in agreed form, addressed to the Investors;

(viii)the legal opinion of special Nevada counsel to the Company, in agreed form, addressed to the Investors;

(ix)the legal opinion of special British Virgin Islands counsel to BVI, in agreed form, addressed to the Investors;

(x)the legal opinion of special PRC counsel to each of the PRC Subsidiaries, in agreed form, addressed to the Investors;

(xi)the Registration Rights Agreement, duly executed by the Company;

(vi)the Lockup Agreement, duly executed by each party thereto.

(b)At the Closing, each Investor shall deliver or cause to be delivered the following (collectively, the “Investors Deliverables”):

(i)to the Escrow Agent for deposit and disbursement in accordance with the Closing Escrow Agreement, its Investment Amount, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose;

7

(ii)to the Company, the Registration Rights Agreement, duly executed by such Investor;

(iii)to the Company, the Make Good Escrow Agreement, duly executed by such Investor; and

(iv)to the Company, the Stock Pledge Agreement, duly executed by such Investor.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

3.1.Representations and Warranties of the Company. The Company, hereby makes the following representations and warranties to each Investor:

(a)Subsidiaries. The Company has no direct or indirect Subsidiaries other than as specified in the Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. As of the Closing, the Company shall own 100% of the capital stock of BVI, free and clear of all Liens. BVI is the indirect beneficial owner of 100% of the capital stock of each of the PRC Subsidiaries.

(b)Organization and Qualification. The Company and each Subsidiary are duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company and each Subsidiary are duly qualified to conduct its respective businesses and are in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(c)Authorization; Enforcement. Upon the filing of the Certificate of Designation with the State of Nevada, the Company and Subsidiaries will have the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and each Subsidiary (to the extent such Subsidiary is a party thereto) and the consummation by each of them of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and each Subsidiary and no further action is required by the Company or Subsidiaries in connection with such authorization. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company (and each Subsidiary to the extent any such Subsidiary is a party thereto) and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company (and each such Subsidiary, as applicable) enforceable against the Company (and each Subsidiary, as applicable) in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

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(d)No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company (and each Subsidiary to the extent a party thereto) and the consummation by the Company (and each such Subsidiary, as applicable) of the transactions contemplated thereby do not and will not (i) subject to the filing of the Certificate of Designation with the State of Nevada, conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any United States or PRC court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(e)Filings, Consents and Approvals. Neither the Company, nor any Subsidiary, is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any United States or PRC court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company and each Subsidiary to the extent a party thereto of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) filings required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filings required in accordance with Section 4.5, (v) filings, consents and approvals required by the rules and regulations of the applicable Trading Market, (vi) the filing of the Certificate of Designation with the State of Nevada and (vii) those that have been made or obtained prior to the date of this Agreement.

(f)Issuance of the Shares. Immediately following the filing of the Certificate of Designation with the State of Nevada, the Shares shall be duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens. Upon the Stockholder Approval and immediately following the filing of the Certificate of Amendment with the State of Nevada, the Company shall reserve from its duly authorized capital stock the shares of Common Stock issuable pursuant to this Agreement in order to issue the Underlying Shares.

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(g)Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Company’s various option and incentive plans, is specified in the SEC Reports. Except as specified in the SEC Reports, no securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as specified in the SEC Reports, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issue and sale of the Securities hereunder will not, immediately or with the passage of time, obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company or Subsidiary securities to adjust the exercise, conversion, exchange or reset price under such securities.

(h)SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports), including, for this purpose, the current reports on Form 8-K that are being filed by the Company on or about the date hereof to disclose the transactions contemplated hereby and by the Exchange Agreement (the foregoing materials being collectively referred to herein as the “SEC Reports” and, together with the Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Except as set forth on Schedule 3.1(h) hereto, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company and each Subsidiary included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. The BVI Financial Statements 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 BVI Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of BVI and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

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(i)Press Releases. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

(j)Material Changes. Except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) neither the Company nor any Subsidiary of the Company has incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s or its Subsidiaries’ financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) neither the Company nor any of its Subsidiaries has altered its method of accounting or the identity of its auditors, (iv) neither the Company nor any of its Subsidiaries has declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) neither the Company nor any of its Subsidiaries has issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information.

(k)Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports. There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company, any of its Subsidiaries or any of their respective current or former directors or officers (in his or her capacity as such). The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

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(l)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. Neither the Company nor any Subsidiary has any employment or labor contracts, agreements or other understandings with any Person.

(m)Indebtedness; Compliance. Except as disclosed on Schedule 3.1(m), neither the Company nor any Subsidiary is a party to any indenture, debt, loan or credit agreement by which it or any of its properties is bound. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Exchange Agreement complies with all applicable laws, rules and regulations of the United States and the PRC. The Company is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Material Adverse Effect.

(n)Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such permits.

(o)Title to Assets. The Company and the Subsidiaries have valid land use rights for all real property that is material to their respective businesses and good title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(p)Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. Except as set forth in the SEC Reports, to the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. No former or current employee, no former or current consultant, and no third-party joint developer of the Company or any Subsidiary has any Intellectual Property Rights made, developed, conceived, created or written by the aforesaid employee or consultant during the period of his or her retention by the Company or any Subsidiary, as the case may be, which can be asserted against the Company or any Subsidiary, as the case may be.

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(q)Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. The Company has no reason to believe that it will not be able to renew its and the Subsidiaries’ existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s and such Subsidiaries’ respective lines of business.

(r)Transactions With Affiliates and Employees; Customers. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary of the Company, and, to the knowledge of the Company, none of the employees of the Company, or any of its Subsidiaries, is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. No material customer of the Company or any Subsidiary has indicated their intention to diminish their relationship with the Company or any Subsidiary (as the case may be) and neither the Company nor any Subsidiary has any knowledge from which it could reasonably conclude that any such customer relationship may be adversely affected.

(s)Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and its Subsidiaries and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-KSB or 10-QSB, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures in accordance with Item 307 of Regulation S-B under the Exchange Act for the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the “Evaluation Date”). The Company presented in its most recently filed Form 10-KSB or Form 10-QSB the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s or its Subsidiaries’ internal controls (as such term is defined in Item 308(c) of Regulation S-B under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s or its Subsidiaries’ internal controls.

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(t)Solvency. Based on the financial condition of the Company, including its Subsidiaries, as of the Closing Date (and assuming that the Closing shall have occurred), (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(u)Certain Fees. Except as described in Schedule 3.1(u), no brokerage or finder’s fees or commissions are or will be payable by the Company or any of its Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Investors shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by an Investor pursuant to written agreements executed by such Investor which fees or commissions shall be the sole responsibility of such Investor) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

(v)Certain Registration Matters. Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3.2(b)-(e), no registration under the Securities Act is required for the offer and sale of the Shares and the offer of the Underlying Shares by the Company to the Investors under the Transaction Documents. The Company is eligible to register its Common Stock for resale by the Investors under Form S-1 promulgated under the Securities Act. Except as specified in Schedule 3.1(v), the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied.

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(w)Listing and Maintenance Requirements. Except as specified in the SEC Reports, the Company has not, in the two years preceding the date hereof, received notice from any Trading Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market on which the Common Stock is currently listed or quoted. The issuance and sale of the Securities under the Transaction Documents does not contravene the rules and regulations of the Trading Market on which the Common Stock is currently listed or quoted, and no approval of the stockholders of the Company thereunder is required for the Company to issue and deliver to the Investors the Securities as contemplated by the Transaction Documents.

(x)Investment Company. The Company is not, and is not an Affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(y)Application of Takeover Protections. The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Articles of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company’s issuance of the Securities and the Investors’ ownership of the Securities.

(z)No Additional Agreements. Neither the Company nor any Subsidiary has any agreement or understanding with any Investor with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.

(aa)Consultation with Auditors. The Company has consulted its independent auditors concerning the accounting treatment of the transactions contemplated by the Transaction Documents, and in connection therewith has furnished such auditors complete copies of the Transaction Documents.

(bb)Make Good Shares. Make Good Pledgor is the sole record and beneficial owner of the 2007 Make Good Shares and 2008 Make Good Shares, and holds such shares free and clear of all Liens.

(cc)Foreign Corrupt Practices Act. Neither the Company nor any Subsidiary, nor to the knowledge of the Company, any agent or other person acting on behalf of any of the Company or any Subsidiary, has, directly or indirectly, (i) used any funds, or will use any proceeds from the sale of the Shares, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any Person acting on their behalf of which the Company is aware) which is in violation of law, or (iv) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder.

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(dd)PFIC. Neither the Company nor any Subsidiary is or intends to become a “passive foreign investment company” within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

(ee)OFAC. Neither the Company nor any Subsidiary nor, to the knowledge of the Company, any director, officer, agent, employee, Affiliate or Person acting on behalf of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the sale of the Shares, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

(ff)Money Laundering Laws. The operations of each of the Company and any Subsidiary are and have been conducted at all times in compliance with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company and/or any Subsidiary with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

(gg)Other Representations and Warranties Relating to the PRC Subsidiaries.

(i)All material consents, approvals, authorizations or licenses requisite under PRC law for the due and proper establishment and operation of each of the PRC Subsidiaries have been duly obtained from the relevant PRC governmental authorities and are in full force and effect.

(ii)All filings and registrations with the PRC governmental authorities required in respect of each of the PRC Subsidiaries and their respective operations including, without limitation, the registration with the Ministry of Commerce, the State Administration of Industry and Commerce, the State Administration for Foreign Exchange, tax bureau and customs authorities have been duly completed in accordance with the relevant PRC rules and regulations, except where, the failure to complete such filings and registrations does not, and would not, individually or in the aggregate, have a Material Adverse Effect.

(iii)Each of the PRC Subsidiaries has complied with all relevant PRC laws and regulations regarding the contribution and payment of its registered share capital, the payment schedule of which has been approved by the relevant PRC governmental authorities. There are no outstanding rights of, or commitments made by the Company or any Subsidiary to sell any equity interest in any of the PRC Subsidiaries.

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(iv)None of the PRC Subsidiaries is in receipt of any letter or notice from any relevant PRC governmental authority notifying it of revocation of any licenses or qualifications issued to it or any subsidy granted to it by any PRC governmental authority for non-compliance with the terms thereof or with applicable PRC laws, or the need for compliance or remedial actions in respect of the activities carried out by such PRC Subsidiary, except such revocation does not, and would not, individually or in the aggregate, have a Material Adverse Effect.

(v)Each of the PRC Subsidiaries has conducted its respective business activities within the permitted scope of business or has otherwise operated its respective business in compliance with all relevant legal requirements and with all requisite licenses and approvals granted by competent PRC governmental authorities other than such non-compliance that do not, and would not, individually or in the aggregate, have a Material Adverse Effect. As to licenses, approvals and government grants and concessions requisite or material for the conduct of any part of the business of any PRC Subsidiary which is subject to periodic renewal, the Company has no knowledge of any grounds on which such requisite renewals will not be granted by the relevant PRC governmental authorities.

(vi)With regard to employment and staff or labor, each of the PRC Subsidiaries has complied with all applicable PRC laws and regulations in all material respects, including without limitation, laws and regulations pertaining to welfare funds, social benefits, medical benefits, insurance, retirement benefits, pensions or the like, other than such non-compliance that do not, and would not, individually or in the aggregate, have a Material Adverse Effect.

(hh)Disclosure. All disclosure provided to the Investors regarding the Company, the Subsidiaries or their respective businesses and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

3.2.Representations and Warranties of the Investors. Each Investor hereby, for itself and for no other Investor, represents and warrants to the Company as follows:

(a)Organization; Authority. Such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Investor of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Investor is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Investor. Each of this Agreement and the Registration Rights Agreement has been duly executed by such Investor, and when delivered by such Investor in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

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(b)Investment Intent. Such Investor is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is acquiring the Securities hereunder in the ordinary course of its business. Such Investor does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(c)Investor Status. At the time such Investor was offered the Securities, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Investor is not a registered broker-dealer under Section 15 of the Exchange Act.

(d)General Solicitation. Such Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(e)Access to Information. Such Investor acknowledges that it has reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.

(f)Certain Trading Activities. Such Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the earlier to occur of (1) the time that such Investor was first contacted by the Company regarding an investment in the Company and (2) the 30^th day prior to the date of this Agreement. Such Investor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

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(g)Independent Investment Decision. Such Investor has independently evaluated the merits of its decision to purchase the Securities pursuant to the Transaction Documents, and such Investor confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel in making such decision. Such Investor has not relied on the business or legal advice of the Company or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to such Investor in connection with the transactions contemplated by the Transaction Documents.

(h)Confidentiality. Such Investor hereby acknowledges that all information pertaining to the investment in the Securities that was provided to such Investor is confidential and such Investor shall not disclose any such confidential information to any third party prior to the public announcement of the transaction contemplated by this Agreement in accordance with Section 4.5 herein, other than as set forth herein.

The Company acknowledges and agrees that no Investor has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.

ARTICLE 4.

OTHER AGREEMENTS OF THE PARTIES

4.1.          (a)  Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement, to the Company, to an Affiliate of an Investor or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.

(b)Certificates evidencing the Securities will contain the following legend, until such time as they are not required under Section 4.1(c):

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

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The Company acknowledges and agrees that an Investor may from time to time pledge, and/or grant a security interest in some or all of the Securities pursuant to a bona fide margin agreement in connection with a bona fide margin account and, if required under the terms of such agreement or account, such Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion may be required in connection with a subsequent transfer following default by the Investor transferee of the pledge. No notice shall be required of such pledge. At the appropriate Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder. Except as otherwise provided in Section 4.1(c), any Securities subject to a pledge or security interest as contemplated by this Section 4.1(b) shall continue to bear the legend set forth in this Section 4.1(b) and be subject to the restrictions on transfer set forth in Section 4.1(a).

(c)Certificates evidencing Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b)): (i) following a sale or transfer of such Underlying Shares pursuant to an effective registration statement (including the Registration Statement), or (ii) following a sale or transfer of such Underlying Shares pursuant to Rule 144 (assuming the transferee is not an Affiliate of the Company), or (iii) while such Underlying Shares are eligible for sale under Rule 144(k). If an Investor shall make a sale or transfer of Underlying Shares either (x) pursuant to Rule 144 or (y) pursuant to a registration statement and in each case shall have delivered to the Company or the Company’s transfer agent the certificate representing Underlying Shares containing a restrictive legend which are the subject of such sale or transfer and a representation letter in customary form(the date of such sale or transfer and Underlying Share delivery being the “Share Delivery Date”) and (1) the Company shall fail to deliver or cause to be delivered to such Investor a certificate representing such Underlying Shares that is free from all restrictive or other legends by the third Trading Day following the Share Delivery Date and (2) following such third Trading Day after the Share Delivery Date and prior to the time such Underlying Shares are received free from restrictive legends, the Investor, or any third party on behalf of such Investor, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Investor of such Underlying Shares (a "Buy-In"), then the Company shall pay in cash to the Investor (for costs incurred either directly by such Investor or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceed the proceeds received by such Investor as a result of the sale to which such Buy-In relates. The Investor shall provide the Company written notice indicating the amounts payable to the Investor in respect of the Buy-In. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.

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4.2.Furnishing of Information. As long as any Investor owns the Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Investor owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Investors and make publicly available in accordance with Rule 144(c) such information as is required for the Investors to sell the Underlying Shares under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell the Underlying Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

4.3.Integration. The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Investors, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market in a manner that would require stockholder approval of the sale of the Securities to the Investors.

4.4.Subsequent Registrations. The Company may not file any registration statement (other than on Form S-8) with the Commission with respect to any securities of the Company prior to the time that all Underlying Shares are registered pursuant to one or more effective Registration Statement(s), and the prospectuses forming a portion of such Registration Statement(s) is available for the resale of all Underlying Shares.

4.5.Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time) on the Trading Day following the execution of this Agreement, and by 9:00 a.m. (New York time) on the Trading Day following the Closing Date, the Company shall issue press releases disclosing the transactions contemplated hereby and the Closing (including details with respect to the make good provision contained in Section 4.11 herein). On the Trading Day following the execution of this Agreement the Company will file a Current Report on Form 8-K disclosing the material terms of the Transaction Documents, including details with respect to the make good provision contained in Section 4.11 herein (and attach as exhibits thereto the Transaction Documents), and on the Trading Day following the Closing Date the Company will file an additional Current Report on Form 8-K to disclose the Closing. In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Investor, or include the name of any Investor in any filing with the Commission (other than the Registration Statement and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the Exchange Act) or any regulatory agency or Trading Market, without the prior written consent of such Investor, except to the extent such disclosure is required by law or Trading Market regulations.

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4.6.Limitation on Issuance of Future Priced Securities. During the six months following the Closing Date, the Company shall not issue any “Future Priced Securities” as such term is described by NASD IM-4350-1.

4.7.Indemnification of Investors. In addition to the indemnity provided in the Registration Rights Agreement, the Company will indemnify and hold the Investors and their directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party may suffer or incur as a result of or relating to any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made by the Company in any Transaction Document. In addition to the indemnity contained herein, the Company will reimburse each Investor Party for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 4.7 shall be the same as those set forth in Section 5 of the Registration Rights Agreement.

4.8.Non-Public Information. The Company covenants and agrees that following the Closing Date neither it nor any other Person acting on its behalf will provide any Investor or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Investor shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Investor shall be relying on the foregoing representations in effecting transactions in securities of the Company. The Company shall file a Form 8-K or make a public announcement describing the offering not later than the business day after the Closing Date. In the Form 8-K or public announcement, the Company will specifically disclose any material non-public information provided to the Investors by it or any Person acting on its behalf, such that following such filing, the Investors will not be in possession of any material, non-public information with respect to the Company.

4.9.Listing of Securities. The Company agrees, (i) if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application the Underlying Shares, and will take such other action as is necessary or desirable to cause the Underlying Shares to be listed on such other Trading Market as promptly as possible, and (ii) the Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.

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4.10.Use of Proceeds. The Company will use the net proceeds from the sale of the Shares hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables and accrued expenses in the ordinary course of the Company’s business and consistent with prior practices), or to redeem any Common Stock or Common Stock Equivalents.

4.11.Make Good Shares.

(a)The Make Good Pledgor agrees that in the event that the After-Tax Net Income reported in the 2007 Annual Report is less than $19,000,000 (the “2007 Guaranteed ATNI”), the Agent will instruct the Make Good Escrow Agent to release to the Investors (in accordance with the Make Good Escrow Agreement) on a pro-rata basis (determined by dividing each Investor’s Investment Amount as of the Closing Date by the aggregate of all Investment Amounts delivered to the Company by the Investors hereunder) for no consideration other than their part of their respective Investment Amount at Closing, 11,194,030 shares of Common Stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2007 Make Good Shares”). In the event that either (i) the earnings per share reported in the 2008 Annual Report is less than $0.300 on a fully diluted basis (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2008 Guaranteed EPS”) or (ii) the After-Tax Net Income reported in the 2008 Annual Report plus the amount of any charges recorded against the Company’s After-Tax Net Income that were attributable to the release or transfer of any or all of the 2007 Make Good Shares is less than $30,000,000 (the “2008 Guaranteed ATNI”), the Agent will instruct the Make Good Escrow Agent to release to the Investors (in accordance with the Make Good Escrow Agreement) on a pro rata basis (determined by dividing each Investor’s Investment Amount as of the Closing Date by the aggregate of all Investment Amounts delivered to the Company by the Investors hereunder) for no consideration other than their part of their respective Investment Amount at Closing, 11,194,030 shares of Common Stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2008 Make Good Shares”). In the event that the After-Tax Net Income reported in the 2007 Annual Report is equal to or greater than the 2007 Guaranteed ATNI, the Agent shall instruct the Make Good Escrow Agent to release the 2007 Make Good Shares to the Make Good Pledgor in accordance with the Make Good Escrow Agreement.In the event that both (i) the earnings per share reported in the 2008 Annual Report is equal to or greater than the 2008 Guaranteed EPS and (ii) the After-Tax Net Income reported in the 2008 Annual Report plus the amount of any charges recorded against the Company’s After-Tax Net Income that were attributable to the release or transfer of any or all of the 2007 Make Good Shares is equal to or greater than the 2008 Guaranteed ATNI, the Agent shall instruct the Make Good Escrow Agent to release the 2008 Make Good Shares to the Make Good Pledgor in accordance with the Make Good Escrow Agreement. Any such release to the Investors or to the Make Good Pledgor of the 2007 Make Good Shares or the 2008 Make Good Shares shall be made to the Investors or the Make Good Pledgor, as applicable, within 10 Business Days after the date which the 2007 Annual Report or 2008 Annual Report, as applicable, is filed.

(b)In connection with the foregoing, the Make Good Pledgor agrees that no later than the date of the Closing, the Make Good Pledgor will deposit the 2007 Make Good Shares and the 2008 Make Good Shares into escrow in accordance with the Make Good Escrow Agreement along with bank signature stamped stock powers executed in blank (or such other signed instrument of transfer acceptable to the Company’s transfer agent), and the handling and disposition of the 2007 Make Good Shares and 2008 Make Good Shares shall be governed by this Section 4.11 and the Make Good Escrow Agreement. The Make Good Pledgor hereby agrees that its obligation to transfer shares of Common Stock to Investors pursuant to this Section 4.11 and the Make Good Escrow Agreement shall continue to run to the benefit of any Investor who shall have transferred or sold all or any portion of its Securities, and that each Investor shall have the right to assign its rights to receive all or any such shares of Common Stock to other Persons in conjunction with negotiated sales or transfers of any of its Securities.

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(c)The Company covenants and agrees that upon any transfer of 2007 Make Good Shares or 2008 Make Good Shares to the Investors in accordance with the Make Good Escrow Agreement, the Company shall promptly instruct its transfer agent to reissue such 2007 Make Good Shares or 2008 Make Good Shares in the applicable Investor’s name and deliver the same as directed by such Investor.

(d)If any term or provision of this Section 4.11 is in contradiction of or conflicts with any term or provision of the Make Good Escrow Agreement, the terms of the Make Good Escrow Agreement shall control.

(e)Each Investor, by their execution hereof, agrees to hold the Agent harmless from and against any losses arising from Agent’s acceptance of its duties as Agent under the Make Good Escrow Agreement or performance of its duties as Agent under the Make Good Escrow Agreement other than as expressly set forth therein.

4.12.Independent Board of Directors. The Company covenants and agrees that no later than 120 days following the date of this Agreement, the Board of Directors of the Company shall be comprised of a minimum of five members, a majority of which shall be “independent directors” as such term is defined in NASDAQ Marketplace Rule 4200(a)(15).

4.13.Third Party Hiring. By the thirtieth day following the Closing Date, the Company shall hire (i) either of CCG Elite, Hayden Communications, or Integrated Corporate Relations as the Company’s investor relations firm, (ii) Loeb & Loeb LLP as the Company’s primary United States corporate legal counsel and (iii) Weinburg & Company or Horwath International as the Company’s independent public auditors (or with the consent of the Investors, another independent public audit firm).

4.14.Right of First Refusal.

(a)From the date hereof until the one year anniversary of the Effective Date (plus one additional day for each Trading Day following the Effective Date of any Registration Statement during which either (1) the Registration Statement is not effective or (2) the prospectus forming a portion of the Registration Statement is not available for the resale of all Registrable Securities (as defined in the Registration Rights Agreement)) (the "Trigger Date"), the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ equity or equity equivalent securities, including, without limitation, any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement") unless the Company shall have first complied with this Section 4.14.

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(b)The Company shall deliver to each Investor hereunder a written notice (the "Offer Notice") of any proposed or intended issuance or sale or exchange (the "Offer") of the securities being offered (the "Offered Securities") in a Subsequent Placement, which Offer Notice shall (v) identify and describe the Offered Securities, (w) include the final form of documents and agreements governing the Subsequent Placement, (x) specify the price and other terms upon which the Offered Securities are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Investors all of the Offered Securities, allocated among such Investors (a) based on such Investor's pro rata portion of the total Investment Amount hereunder (the "Basic Amount"), and (b) with respect to each Investor that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Investors as such Investor shall indicate it will purchase or acquire should the other Investors subscribe for less than their Basic Amounts (the "Undersubscription Amount"), which process shall be repeated until the Investors shall have an opportunity to subscribe for any remaining Undersubscription Amount.

(c)To accept an Offer, in whole or in part, such Investor must deliver a written notice to the Company prior to the end of the fifth Business Day after such Investor's receipt of the Offer Notice (the "Offer Period"), setting forth the portion of such Investor's Basic Amount that such Investor elects to purchase and, if such Investor shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Investor elects to purchase (in either case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by all Investors are less than the total of all of the Basic Amounts, then each Investor who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the "Available Undersubscription Amount"), each Investor who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Investor bears to the total Basic Amounts of all Investors that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent its deems reasonably necessary.

(d)The Company shall have twenty Business Days from the expiration of the Offer Period above to (i) offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Investors (the "Refused Securities"), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring person or persons or less favorable to the Company than those set forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreement (as defined below), and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the Commission on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto. If no disclosure has been made by the Company by the end of the twenty Business Day period referred to in this subsection (d), the Subsequent Placement shall be deemed to have been abandoned and the Investors shall no longer be deemed to be in possession of any non-public information with respect to the Company.

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(e)In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in this Section 4.14), then each Investor may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Investor elected to purchase pursuant to Section 4.14(c) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Investors pursuant to Section 4.14(c) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Investor so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Investors in accordance with Section 4.14(b) above.

(f)Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Investors shall acquire from the Company, and the Company shall issue to the Investors, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4.14(e) above if the Investors have so elected, upon the terms and conditions specified in the Offer. The purchase by the Investors of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Investors of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Investors and their respective counsel (such agreement, the “Subsequent Placement Agreement”).

(g)Any Offered Securities not acquired by the Investors or other persons in accordance with Section 4.14(f) above may not be issued, sold or exchanged until they are again offered to the Investors under the procedures specified in this Agreement.

(h)In exchange for the Company’s willingness to agree to these procedures, each Investor hereby irrevocably agrees that it will hold in strict confidence any and all Offer Notices, the information contained therein, and the fact that the Company is contemplating a Subsequent Placement, until such time as the Company is obligated to make the disclosures required by Section 4.14(d), or unless it notifies the Company in writing that it no longer desires to receive Offer Notices.

4.15.Liquidated Damages for Governmental Rescission of Restructuring Transaction. If any governmental agency in the PRC challenges or otherwise takes any action that adversely affects the transactions contemplated by the Exchange Agreement, and the Company cannot undo such governmental action or otherwise remedy the material adverse effect caused thereby so that the transaction contemplated by the Exchange Agreement can legally occur as contemplated under this Agreement, to the reasonable satisfaction of the Investors within sixty (60) days of the occurrence of such governmental action, then, upon written demand from an Investor, the Company shall promptly, and in any event within thirty (30) days from the date of such written demand, pay to that Investor, as liquidated damages, an amount equal to that Investor’s entire Investment Amount without interest thereon. As a condition to the receipt of such payment, the Investor shall return to the Company, or to an agreeable third party for the benefit of the Company, for cancellation the certificates evidencing the Securities acquired by the Investor under the Agreement.

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4.16.Stockholder Approval.

(a)By the Closing Date, the Company shall have obtained the approval of its stockholders in order to increase the number of authorized shares of Common Stock to not less than 150,000,000 (the “Stockholder Approval”).

(b)In furtherance of obtaining the Stockholder Approval, the Company shall take such action as is necessary in order to file the Certificate of Amendment as contemplated in subsection (c) below and effectuate the actions set forth in subsection (a) above (including, without limitation, the mailing by the Company of an Information Statement meeting the requirements of Section 14C of the Exchange Act).

(c)Within forty-five (45) calendar days following the Closing, the Company shall have filed the Certificate of Amendment amending the Articles of Incorporation of the Company to increase the authorized shares of Common Stock of the Company to not less than 150,000,000 shares with the Secretary of State of the State of Nevada and delivered to the Investors a copy date stamped by the Secretary of State of the State of Nevada indicating their receipt and acceptance thereof.

4.17.Liquidated Damages for Deregistration or Failure of Common Stock to be Listed. In the event that at any time following the Closing Date and prior to the time that a Registration Statement is effective (i) for any or no reason either the NASD or the Commission takes any action which has the effect of suspending the effectiveness of any registration statement of the Company filed with the Commission or (ii) the Common Stock is not listed on a Trading Market, then, upon written demand from an Investor, the Company shall promptly, and in any event within thirty (30) days from the date of such written demand, pay to that Investor, as liquidated damages, an amount equal to that Investor’s entire Investment Amount. As a condition to the receipt of such payment, the Investor shall return to the Company, or to an agreeable third party for the benefit of the Company, for cancellation the certificates evidencing the Securities acquired by the Investor under the Agreement.

4.18.Form 8-A. The Company covenants and agrees to file a Form 8-A with the Commission in order to register the Common Stock pursuant to Section 12(b) or Section 12(g) of the Exchange Act prior to the filing of any Registration Statement with the Commission.

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4.19.Business Activities. For two (2) years following the Closing Date, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, engage in any business other than that conducted on the date of this Agreement by BVI and its consolidated subsidiaries and as described in the Current Report on Form 8-K required by Section 5.1(g).

ARTICLE 5.

CONDITIONS PRECEDENT TO CLOSING

5.1.Conditions Precedent to the Obligations of the Investors to Purchase Securities. The obligation of each Investor to acquire Securities at the Closing is subject to the satisfaction or waiver by such Investor, at or before the Closing, of each of the following conditions:

(a)Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects (other than those qualified by materiality which must be true and correct in all respects) as of the date when made and as of the Closing as though made on and as of such date;

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

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

(d)Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably could have or result in a Material Adverse Effect or a material adverse change with respect to the Subsidiaries;

(e)BVI Financial Statements. BVI shall have delivered audited consolidated financial statements of Olympic Forward Trading Company, Limited for the fiscal years ended December 31, 2005 and 2006, which shall have been audited by Madsen & Associates CPA’s, Inc. and the Investors and shall have received an audit report from Madsen & Associates CPA’s, Inc. for such financial statements, a copy of which shall be promptly provided to the Investors (collectively, the “BVI Financial Statements”) which report and the BVI Financial Statements contained therein shall be satisfactory to the Investors in their sole and absolute discretion;

(f)PRC and BVI Opinions. The Company shall have delivered to the Investors, and the Investors shall be able to rely upon, the legal opinions that the Company shall have received from its legal counsel in the PRC and in the British Virgin Islands, with such legal opinions being in a form acceptable to the Investors in their sole discretion;

(g)Exchange Agreement Form 8-K. Concurrently with or immediately prior to the Closing, the Company shall have acquired all of the outstanding capital stock of BVI pursuant to the Exchange Agreement, and the Company shall provide the Investors with the Current Report on Form 8-K to be filed in accordance with the Exchange Agreement, containing the audited financial statements of BVI and other required disclosure with respect to BVI;

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(h)Derivative Securities. Any issued and outstanding options, convertible notes or other securities of the Company that are exercisable or exchangeable for or convertible into Common Stock shall have been exercised, converted or exchanged for Common Stock in a manner satisfactory to the Investors;

(i)Certificate of Designation The Company shall have filed the Certificate of Designation with the State of Nevada and delivered to the Investors a copy date stamped by the Secretary of State of the State of Nevada indicating their receipt and acceptance thereof;

(j)Related Business. Since the date of execution of this Agreement, neither the Company nor any of its Subsidiaries has, directly or indirectly, engaged in any business other than as conducted by BVI and its consolidated subsidiaries on the date of this Agreement;

(k)Company Deliverables. The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a); and

(l)Termination. This Agreement shall not have been terminated as to such Investor in accordance with Section 6.5.

5.2.Conditions Precedent to the Obligations of the Company to Sell Securities. The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions:

(a)Representations and Warranties. The representations and warranties of each Investor contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date;

(b)Performance. Each Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Investor at or prior to the Closing;

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

(d)Investors Deliverables. Each Investor shall have delivered its Investors Deliverables in accordance with Section 2.2(b); and

(e)Termination. This Agreement shall not have been terminated as to such Investor in accordance with Section 6.5.

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ARTICLE 6.

MISCELLANEOUS

6.1.Fees and Expenses. At the Closing, the Company shall pay to Bryan Cave LLP $50,000 as reimbursement of Pinnacle China Fund, L.P. and The Pinnacle Fund, L.P. for their respective legal fees in connection with the Transaction Documents (either of Pinnacle China Fund, L.P. or The Pinnacle Fund, L.P. may deduct such amount from the Investment Amount deliverable to the Company at Closing), it being understood that Bryan Cave LLP has only rendered legal advice to Pinnacle China Fund, L.P. and The Pinnacle Fund, L.P., and not to the Company or any other Investor in connection with the transactions contemplated hereby, and that each of the Company and the other Investors has relied for such matters on the advice of its own respective counsel. Except as specified in the immediately preceding sentence, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Securities.

6.2.Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

6.3.Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (c) upon actual receipt by the party to whom such notice is required to be given, if sent by any means other than facsimile transmission. The address for such notices and communications shall be as follows:

If to the Company:	China Water and Drinks Inc.
	9101 West Sahara, Suite 105-195
	Las Vegas, NV 89117
	Facsimile: +86 0755 2552 3376
	Attn.: Chen Xing Hua
With a copy to:	Loeb & Loeb LLP
	345 Park Avenue
	New York, NY 10154
	Facsimile: (212) 504-3013
	Attn.: Mitchell S. Nussbaum, Esq.

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If to an Investor: To the address set forth under such Investor’s name on the signature pages hereof;

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

6.4.Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investors holding a majority of the Securities. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. No consideration shall be offered or paid to any Investor to amend or consent to a waiver or modification of any provision of any Transaction Document unless the same consideration is also offered to all Investors who then hold Securities.

6.5.Termination. This Agreement may be terminated prior to Closing:

(a)by written agreement of the Investors and the Company; and

(b)by an Investor (as to itself but no other Investor) upon written notice to the Company, if the Closing shall not have taken place by 6:30 p.m. Eastern time on the Outside Date; provided, that the right to terminate this Agreement under this Section 6.5(b) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time.

In the event of a termination pursuant to Section 6.5(a) upon delivery of a joint written notice from the Company and the Investors to the Escrow Agent or in the event of a termination pursuant to Section 6.5(b) upon delivery of written notice by an Investor to the Escrow Agent, such Investor shall have the right to a return of up to its entire Investment Amount deposited with the Escrow Agent pursuant to Section 2.2(b)(i), without interest or deduction. The Company covenants and agrees to cooperate with such Investor in obtaining the return of its Investment Amount, and shall not communicate any instructions to the contrary to the Escrow Agent.

In the event of a termination pursuant to this Section, the Company shall promptly notify all non-terminating Investors. Upon a termination in accordance with this Section 6.5, the Company and the terminating Investor(s) shall not have any further obligation or liability (including as arising from such termination) to the other and no Investor will have any liability to any other Investor under the Transaction Documents as a result therefrom.

6.6.Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

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6.7.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors. Any Investor may assign any or all of its rights under this Agreement to any Person to whom such Investor assigns or transfers any Shares, provided such transferee agrees in writing to be bound, with respect to the transferred Shares, by the provisions hereof that apply to the “Investors.”

6.8.No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 (as to each Investor Party).

6.9.Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

6.10.Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares.

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

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6.12.Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

6.13.Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Investor exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Investor may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

6.14.Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

6.15.Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

6.16.Payment Set Aside. To the extent that the Company makes a payment or payments to any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

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6.17.Independent Nature of Investors’ Obligations and Rights. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

6.18.Limitation of Liability. Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of an Investor arising directly or indirectly, under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of the assets of such Investor, and that no trustee, officer, other investment vehicle or any other Affiliate of such Investor or any investor, shareholder or holder of shares of beneficial interest of such a Investor shall be personally liable for any liabilities of such Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

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

CHINA WATER AND DRINKS INC.
By:	Name: Title:
Only as to Sections 2.2(a)(v), 2.2(a)(vi) and 4.11 herein:
Xu Hong Bin
Only as to Sections 2.2(a)(vi):
Chen Xing Hua

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR INVESTORS FOLLOWS]

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

NAME OF INVESTOR

By:

Name:

Title:

Investment Amount: $ ___________________________

Tax ID No.: ___________________________________

ADDRESS FOR NOTICE

c/o: _________________________________________

Street: _______________________________________

City/State/Zip: _________________________________

Attention: ____________________________________

Tel: _________________________________________

Fax: _________________________________________

DELIVERY INSTRUCTIONS

    (if different from above)

c/o: _________________________________________

Street: _______________________________________

City/State/Zip: _________________________________

Attention: ____________________________________

Tel: _________________________________________

Schedule 3.1(a)

List of Subsidiaries

Subsidiary	Jurisdiction of Organization/Registration	Ownership
Gain Dynasty Investments Limited	BVI limited company	100% owned by the Company
Olympic Forward Trading Company, Limited	Registered in Hong Kong	100% owned by Gain Dynasty
Guangdong Taoda Drink Co., Limited	WOFE registered in China	100% owned by Olympic
Zhanjiang Taoda Drink Co., Limited	WOFE registered in China	100% owned by Olympic
Changchun Taoda Beverage Co., Limited	WOFE registered in China	100% owned by Olympic
Shandong Olympic Forward Drink Co., Limited	WOFE registered in China	100% owned by Olympic

Schedule 3.1(g)

Capitalization

Warrants to purchase an aggregate of 2,238,806 shares of Common Stock.

Schedule 3.1(h)

SEC Reports; Financial Statements

None.

Schedule 3.1(m)

Indebtedness

The Company borrowed funds from a bank in October of 2003 to acquire an investment property that is held by the Company for long term investment purposes.  The funds borrowed were collateralized by a mortgage on this investment property.  The monthly installments of the long term loan vary from month to month depending on the interest rate and the interest rate the loan carried ranged from 5.5% to 5.6% per annum during 2006 and 2005.  The long term debt matures in October 2012. 

Schedule 3.1(u)

Certain Fees

Commission and Placement Agent Fees:

·   $3,000,000 cash fee

·   Warrants to purchase an aggregate of 2,238,806 shares of Common Stock

Schedule 3.1(v)

Certain Registration Matters

The following Persons have been granted piggy back registration rights:

Ipacific Assets Management Limited	2,576,000 shares
Michael Daniels	100,000 shares
Micah Eldred	100,000 shares

EX-10.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this "Agreement") is made and entered into as of May 31, 2007, by and among China Water and Drinks Inc., a Nevada corporation (the "Company"), and the investors signatory hereto (each an "Investor" and collectively, the "Investors").

This Agreement is made pursuant to the Securities Purchase Agreement, dated as the date hereof among the Company and the Investors (the “Purchase Agreement”).

The Company and the Investors hereby agree as follows:

1.Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement will have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms have the respective meanings set forth in this Section 1:

“2007 Delivery Date” means the date on which the 2007 Make Good Shares are required to be delivered to the Investors by the Make Good Pledgors pursuant to the Make Good Escrow Agreement.

“2008 Delivery Date” means the date on which the 2008 Make Good Shares are required to be delivered to the Investors by the Make Good Pledgors pursuant to the Make Good Escrow Agreement.

“Advice” has the meaning set forth in Section 6(d).

“Commission Comments” means written comments pertaining solely to Rule 415 which are received by the Company from the Commission, and a copy of which shall have been provided by the Company to the Holders, to a filed Registration Statement which limit the amount of shares which may be included therein to a number of shares which is less than such amount sought to be included thereon as filed with the Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.

“Effective Date” means, as to a Registration Statement, the date on which such Registration Statement is first declared effective by the Commission.

“Effectiveness Date” means (a) with respect to the Registration Statement required to be filed under Section 2(a), the earlier of (i) the 180^th day following the Closing Date, and (ii) the fifth Trading Day following the date on which the Company is notified by the Commission that such Registration Statement will not be reviewed or is no longer subject to further review and comments, (b) with respect to a Registration Statement required to be filed under Section 2(b), the earlier of: (i) the 60^th day following the Filing Date for any Registration Statement required to be filed under Section 2(b), and (ii) the fifth Trading Day following the date on which the Company is notified by the Commission that such Registration Statement will not be reviewed or is no longer subject to further review and comments, (c) with respect to a Registration Statement required to be filed under Section 2(c), the earlier of: (i) the 60^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (c)(i) shall be the 90^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock, and (ii) the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments, (d) with respect to a Registration Statement required to be filed under Section 2(d), the earlier of: (i) the 90^th day following the 2007 Delivery Date; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (d)(i) shall be the 120^th day following the 2007 Delivery Date, and (ii) the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments and (e) with respect to a Registration Statement required to be filed under Section 2(e), the earlier of: (i) the 90^th day following the 2008 Delivery Date; provided, that, if the Commission reviews and has written comments to such filed Registration Statement that would require the filing of a pre-effective amendment thereto with the Commission, then the Effectiveness Date under this clause (e)(i) shall be the 120^th day following the 2008 Delivery Date, and (ii) the fifth Trading Day following the date on which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments.

"Effectiveness Period" means, as to any Registration Statement required to be filed pursuant to this Agreement, the period commencing on the Effective Date of such Registration Statement and ending on the earliest to occur of (a) the second anniversary of such Effective Date, (b) such time as all of the Registrable Securities covered by such Registration Statement have been publicly sold by the Holders of the Registrable Securities included therein, or (iii) such time as all of the Registrable Securities covered by such Registration Statement may be sold by the Holders pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Filing Date” means (a) with respect to the Registration Statement required to be filed under Section 2(a), the 90^th day following the Closing Date, (b) with respect to any Registration Statements required to be filed under Section 2(b), each such Registration Statement shall be filed by the earlier of (i) for the initial Registration Statement required to be filed under Section 2(b), the six-month anniversary of the Effective Date of the Registration Statement required to be filed under Section 2(a) and for all subsequent Registration Statements, the six-month anniversary of the Effective Date of the immediately preceding Registration Statement required to be filed under Section 2(b), as applicable, and (ii) for the initial Registration Statement required to be filed under Section 2(b), the 60^th day following such time as 75% of all Registrable Securities which are included in the Registration Statement required to be filed under Section 2(a) have been sold and for all subsequent Registration Statements, the 60^th day following such time as 75% of all Registrable Securities which are included in the immediately preceding Registration Statement required to be filed under Section 2(b) have been sold, as applicable, (c) with respect to the Registration Statement required to be filed under Section 2(c), the 30^th day following the date on which the Company becomes eligible to utilize Form S-3 to register the resale of Common Stock, (d) with respect to the Registration Statement required to be filed under Section 2(d), the 45^th day following the 2007 Delivery Date (provided that if the Company is then eligible to utilize Form S-3 to register the resale of Common Stock, the Filing Date under this clause (d) shall be 30 days following the 2007 Delivery Date) and (e) with respect to the Registration Statement required to be filed under Section 2(e), the 45^th day following the 2008 Delivery Date (provided that if the Company is then eligible to utilize Form S-3 to register the resale of Common Stock, the Filing Date under this clause (e) shall be 30 days following the 2008 Delivery Date).

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“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” has the meaning set forth in Section 5(c).

“Indemnifying Party” has the meaning set forth in Section 5(c).

“Losses” has the meaning set forth in Section 5(a).

“New York Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“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 a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means: (i) the Underlying Shares, (ii) the 22,388,060 shares of Common Stock of the Company which are the subject of the Stock Pledge Agreement, (iii) the 2007 Make Good Shares, if the 2007 Delivery Date has occurred, (iv) the 2008 Make Good Shares, if the 2008 Delivery Date has occurred and (v) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, or any price adjustment as a result of such stock splits, reverse stock splits or similar events with respect to any of the securities referenced in (i), (ii), (iii), or (iv) above.

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“Registration Statement” means the registration statement required to be filed in accordance with Section 2(a) and any additional registration statement(s) required to be filed under Section 2(b), Section 2(c), Section 2(d) or Section 2(e), including (in each case) the Prospectus, amendments and supplements to such registration statements or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference therein. Registration Statement will also include any other required or acceptable form and any successor form promulgated by the Commission.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities Act” means the Securities Act of 1933, as amended.

"Shares" means the shares of Series A Convertible Preferred Stock issuable to the Investors pursuant to the Purchase Agreement, having the rights, preferences and privileges set forth in the Certificate of Designation.

“Stock Pledge Agreement” means the Stock Pledge Agreement, dated as May 31, 2007, by and among the Company, the Investors, Xu Hong Bin and Chen Xing Hua.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of the Shares.

2.Registration.

(a)On or prior to the applicable Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the Registrable Securities (other than, in the case of the initial Registration Statement to be filed under this Section 2(a), the 2007 Make Good Shares and the 2008 Make Good Shares) not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415, on Form S-1 (or on such other form appropriate for such purpose). Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement, other than as to the characterization of any Holder as an underwriter, which shall not occur without such Holder’s consent) the “Plan of Distribution” attached hereto as Annex A. The Company shall cause such Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than its Effectiveness Date, and shall use its reasonable best efforts to keep the Registration Statement continuously effective during the entire Effectiveness Period. In the event that the amount of securities which may be included in the Registration Statement filed pursuant to this Section 2(a) is limited due to Commission Comments, the inclusion of the Underlying Shares in such initial Registration Statement shall take precedence over and shall not be cut back until the following securities of the Company are cut back and removed from such Registration Statement (in the following order): (i) all other Registrable Securities and (ii) any securities of the Company to be included in such Registration Statement pursuant to Section 6(b). By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

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(b)If all of the Registrable Securities to be included in the Registration Statement filed pursuant to Section 2(a) cannot be so included due to Commission Comments, then the Company shall prepare and file by the applicable Filing Date for such Registration Statement(s), such number of additional Registration Statements as may be necessary in order to ensure that all Registrable Securities (other than the 2007 Make Good Shares and 2008 Make Good Shares, unless the 2007 Delivery Date or 2008 Delivery Date, as the case may be, shall have occurred) are covered by an existing and effective Registration Statement. Accordingly, if for example, an initial Registration Statement is filed under Section 2(b) to register shares taken off a Registration Statement filed under Section 2(a) due to Commission Comments and Commission Comments again require shares to be removed for such newly filed Registration Statement under this Section 2(b), then the Company will prepare and file additional Registration Statements until such time as all such required shares are covered by effective Registration Statements. In the event that the amount of securities which may be included in any such Registration Statement is limited due to Commission Comments, the inclusion of the Underlying Shares in such Registration Statement shall take precedence over and shall not be cut back until the following securities of the Company are cut back and removed from any such Registration Statement (in the following order): (i) all other Registrable Securities (other than the 2007 Make Good Shares and the 2008 Make Good Shares, if applicable) and (ii) any securities of the Company to be included in such Registration Statement pursuant to Section 6(b). Any Registration Statements to be filed under this Section shall be for an offering to be made on a continuous basis pursuant to Rule 415, on Form S-1 (or on such other form appropriate for such purpose). Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement, other than as to the characterization of any Holder as an underwriter, which shall not occur without such Holder’s consent) the "Plan of Distribution" attached hereto as Annex A. The Company shall cause such Registration Statement to be declared effective under the Securities Act as soon as possible but, in any event, by its Effectiveness Date, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period. By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

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(c)Promptly following any date on which the Company becomes eligible to use a registration statement on Form S-3 to register Registrable Securities for resale, the Company shall file a Registration Statement on Form S-3 covering all such Registrable Securities (or a post-effective amendment on Form S-3 to the then effective Registration Statement) and shall cause such Registration Statement to be filed by the Filing Date for such Registration Statement and declared effective under the Securities Act as soon as possible thereafter, but in any event prior to the Effectiveness Date therefor. Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement, other than as to the characterization of any Holder as an underwriter, which shall not occur without such Holder’s consent) the “Plan of Distribution” attached hereto as Annex A. The Company shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period. By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

(d)On or prior to the applicable Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the 2007 Make Good Shares on Form S-3 if the Company is then eligible to utilize such Form (or on such other form appropriate for such purpose) and shall cause such Registration Statement to be filed by the Filing Date for such Registration Statement and declared effective under the Securities Act as soon as possible thereafter, but in any event prior to the Effectiveness Date therefor. Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement, other than as to the characterization of any Holder as an underwriter, which shall not occur without such Holder’s consent) the “Plan of Distribution” attached hereto as Annex A. The Company shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period which is applicable to it. By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

(e)On or prior to the applicable Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the 2008 Make Good Shares on Form S-3 if the Company is then eligible to utilize such Form (or on such other form appropriate for such purpose) and shall cause such Registration Statement to be filed by the Filing Date for such Registration Statement and declared effective under the Securities Act as soon as possible thereafter, but in any event prior to the Effectiveness Date therefor. Such Registration Statement shall contain (except if otherwise required pursuant to written comments received from the Commission upon a review of such Registration Statement, other than as to the characterization of any Holder as an underwriter, which shall not occur without such Holder’s consent) the “Plan of Distribution” attached hereto as Annex A. The Company shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act during the entire Effectiveness Period which is applicable to it. By 5:00 p.m. (New York City time) on the Business Day immediately following the Effective Date of such Registration Statement, the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (whether or not such filing is technically required under such Rule).

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(f)If: (i) a Registration Statement is not filed on or prior to its Filing Date covering the Registrable Securities required under this Agreement to be included therein (if the Company files a Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) hereof, the Company shall not be deemed to have satisfied this clause (i)), or (ii) a Registration Statement is not declared effective by the Commission on or prior to its required Effectiveness Date or if by the Business Day immediately following the Effective Date the Company shall not have filed a “final” prospectus for the Registration Statement with the Commission under Rule 424(b) (whether or not such a prospectus is technically required by such Rule), or (iii) after its Effective Date, without regard for the reason thereunder or efforts therefore, such Registration Statement ceases for any reason to be effective and available to the Holders as to the Registrable Securities to which it is required to cover at any time prior to the expiration of its Effectiveness Period for more than an aggregate of 30 Trading Days (which need not be consecutive) (any such failure or breach being referred to as an “Event,” and for purposes of clauses (i) or (ii) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 Trading Day-period is exceeded, being referred to as “Event Date”), then in addition to any other rights the Holders may have hereunder or under applicable law: on each such Event Date, and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the aggregate Investment Amount paid by such Holder for Securities pursuant to the Purchase Agreement; provided, however, that the total amount of partial liquidated damages payable by the Company pursuant to all Events under this Section shall be capped at an aggregate of 10.0% of the aggregate Investment Amount paid by the Investors under the Purchase Agreement. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event, except in the case of the first Event Date. In no event will the Company be liable for liquidated damages under this Agreement in excess of 1.0% of the aggregate Investment Amount of the Investors in any 30-day period. The Company shall not be liable for liquidated damages under this Agreement as to any Registrable Securities which are not permitted by the Commission to be included in a Registration Statement due solely to Commission Comments from the time that it is determined that such Registrable Securities are not permitted to be registered solely due to Commission Comments until such time as the provisions of this Agreement as to the next applicable Registration Statement required to be filed hereunder are triggered, in which case the provisions of this Section 2(f) shall once again apply, if applicable.

(g)Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Holder Questionnaire”). The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statement and shall not be required to pay any liquidated or other damages under Section 2(f) to any Holder who fails to furnish to the Company a fully completed Selling Holder Questionnaire at least two Trading Days prior to the Filing Date (subject to the requirements set forth in Section 3(a)).

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3.Registration Procedures.

In connection with the Company's registration obligations hereunder, the Company shall:

(a)Not less than three Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to each Holder copies of the “Selling Stockholders” section of such document, the “Plan of Distribution” and any risk factor contained in such document that addresses specifically this transaction or the Selling Stockholders, as proposed to be filed which documents will be subject to the review of such Holder. The Company shall not file a Registration Statement, any Prospectus or any amendments or supplements thereto in which the “Selling Stockholder” section thereof differs from the disclosure received from a Holder in its Selling Holder Questionnaire (as amended or supplemented). The Company shall not (i) file a Registration Statement, any Prospectus or any amendments or supplements thereto in which it characterizes any Holder as an underwriter or (ii) determine not to include a Holder as a Selling Stockholder in a Registration Statement, without such Holder’s express written authorization.

(b)(i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period and prepare and file with the Commission such additional Registration Statements in accordance with Section 2(b) in order to register for resale under the Securities Act all of the required Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that would not result in the disclosure to the Holders of material and non-public information concerning the Company; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of the Registrable Securities covered by each Registration Statement.

(c)Notify the Holders as promptly as reasonably possible (and, in the case of (i)(A) below, not less than two Trading Days prior to such filing and, in the case of (v) below, not less than two Trading Days prior to the financial statements in any Registration Statement becoming ineligible for inclusion therein) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders that pertain to the Holders as a Selling Stockholder or to the Plan of Distribution, but not information which the Company believes would constitute material and non-public information); and (C) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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(d)Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Person (including those previously furnished) promptly after the filing of such documents with the Commission.

(f)Promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(g)Prior to any public offering of Registrable Securities, register or qualify the Registrable Securities for offer and sale under the securities or Blue Sky laws of each jurisdiction within the United States, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statements.

(h)Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

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(i)Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5.Indemnification.

(a)Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors, partners, members and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. The action or inaction of any Holder shall not impair the indemnification rights of any other Holder hereunder.

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(b)Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon: (x) such Holder's failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if and to the extent that following the receipt of the Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c)Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

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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; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d)Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

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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. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6.Miscellaneous.

(a)Remedies. In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)No Piggyback on Registrations. Except as and to the extent specified in Schedule 3.1(v) to the Purchase Agreement, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in a Registration Statement other than the Registrable Securities, and the Company shall not during the Effectiveness Period enter into any agreement providing any such right to any of its security holders.

(c)Compliance. Each Holder severally and not jointly covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)Discontinued Disposition. Each Holder severally and not jointly agrees by its acquisition of Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

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(e)Piggy-Back Registrations. If at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights.

(f)Amendments and Waivers. The provisions of this Agreement, including the provisions of this Section 6(f), may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of no less than a majority in interest of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates.

(g)Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (c) upon actual receipt by the party to whom such notice is required to be given if sent by any means other than facsimile transmission. The address for such notices and communications shall be as follows:

If to the Company:	China Water and Drinks Inc.
	9101 West Sahara, Suite 105-195
	Las Vegas, NV 89117
	Facsimile: + 86 0755 2552 3376
	Attn.: Chen Xing Hua

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With a copy to:	Loeb & Loeb LLP
	345 Park Avenue
	New York, NY 10154
	Facsimile: (212) 504-3013
	Attn.: Mitchell S. Nussbaum, Esq.
If to an Investor:	To the address set forth under such Investor's name on the signature pages hereto.
If to any other Person who is then the registered Holder:
	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(h)Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign its respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(h)Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(i)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective Affiliates, employees or agents) will be commenced in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

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(j)Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(k)Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(l)Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(m)Independent Nature of Investors' Obligations and Rights. The obligations of each Investor under this Agreement are several and not joint with the obligations of each other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or any other Transaction Document. Each Investor acknowledges that no other Investor will be acting as agent of such Investor in enforcing its rights under this Agreement. Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any Proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Registration Rights Agreement for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

CHINA WATER AND DRINKS INC.
By:
	Name: Title:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF INVESTORS TO FOLLOW]

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

NAME OF INVESTING ENTITY
By:
	Name: Title:

ADDRESS FOR NOTICE

c/o:

Street:

City/State/Zip:

Attention:

Tel:

Fax:

Email:

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Annex A

Plan of Distribution

The Selling Stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares:

· ordinary brokerage transactions and transactions in which the broker-dealer solicits Investors;

· 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 resale 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 this Registration Statement is declared effective by the Commission;

· broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

· a combination of any such methods of sale; and

· any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The Selling Stockholders may from time to time pledge or grant a security interest in some or all of the shares of Common Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of Common Stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

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Upon the Company being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of Common Stock were sold, (iv)the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the Company being notified in writing by a Selling Stockholder that a donee or pledgee intends to sell more than 500 shares of Common Stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.

The Selling Stockholders also may transfer the shares of Common Stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such 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. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the securities will be paid by the Selling Stockholder and/or the purchasers. Each Selling Stockholder has represented and warranted to the Company that it acquired the securities subject to this registration statement in the ordinary course of such Selling Stockholder’s business and, at the time of its purchase of such securities such Selling Stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.

The Company has advised each Selling Stockholder that it may not use shares registered on this Registration Statement to cover short sales of Common Stock made prior to the date on which this Registration Statement shall have been declared effective by the Commission. If a Selling Stockholder uses this prospectus for any sale of the Common Stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such Selling Stockholders in connection with resales of their respective shares under this Registration Statement.

The Company is required to pay all fees and expenses incident to the registration of the shares, but the Company will not receive any proceeds from the sale of the Common Stock. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

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Annex B

CHINA WATER AND DRINKS INC.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Common Stock”), of China Water and Drinks Inc., a Nevada corporation (the “Company”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a Registration Statement for the registration and resale of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of May 31, 2007 (the “Registration Rights Agreement”), among the Company and the Investors named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1.Name.

(a)	Full Legal Name of Selling Securityholder
(b)	Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:
(c)	Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):

2. Address for Notices to Selling Securityholder:

Telephone:

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Fax:

Contact Person:

3. Beneficial Ownership of Registrable Securities:

Type and Principal Amount of Registrable Securities beneficially owned:

4. Broker-Dealer Status:

(a) Are you a broker-dealer?

Yes oNo o

Note: If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(b) Are you an affiliate of a broker-dealer?

Yes oNo o

(c) If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes oNo o

Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

Type and Amount of Other Securities beneficially owned by the Selling Securityholder:

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6. Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

7. The Company has advised each Selling Stockholder that it may not use shares registered on the Registration Statement to cover short sales of Common Stock made prior to the date on which the Registration Statement is declared effective by the Commission, in accordance with 1997 Securities and Exchange Commission Manual of Publicly Available Telephone Interpretations Section A.65. If a Selling Stockholder uses the prospectus for any sale of the Common Stock, it will be subject to the prospectus delivery requirements of the Securities Act. The Selling Stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such Selling Stockholders in connection with resales of their respective shares under the Registration Statement.

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof and prior to the Effective Date for the Registration Statement.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated: _______________________	Beneficial Owner: ___________________________
	By:
		Name: Title:

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PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

Loeb & Loeb LLP

345 Park Avenue

New York, NY 10154

Facsimile: 646-607-0682

Attn: Susie L. Kim, Esq.

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EX-10.3

LOCK-UP AGREEMENT

THIS LOCK-UP AGREEMENT (the "Agreement") is made and entered into on May 31, 2007 between the stockholder set forth on the signature page to this Agreement (each, a "Holder") and China Water and Drinks Inc., a Nevada corporation (the "Company").

RECITALS

A.The Company has determined that it is advisable and in its best interest to enter into that certain Securities Purchase Agreement, dated May 31, 2007 (the "Purchase Agreement") with the Investors named therein (the "Investors") and certain other parties named therein, pursuant to which the Company will issue and sell in a private offering securities of the Company (the "Offering"). Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement will have the meanings given such terms in the Purchase Agreement.

B.In connection with the Offering, the Company has agreed to provide the Investors certain registration rights, and in furtherance thereof has agreed to file a registration statement to enable the Investors to resell certain of the securities subject of the Offering.

C.It is a condition to the Investors' respective obligations to close under the Purchase Agreement and provide the financing contemplating by the Offering that the Holder execute and deliver to the Company this Agreement.

D.In contemplation of, and as a material inducement for the Investors to enter into, the Purchase Agreement, the Holder and the Company have each agreed to execute and deliver this Agreement.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:

1.Effectiveness of Agreement. This Agreement shall become null and void if the Purchase Agreement is terminated prior to closing.

The Holder has independently evaluated the merits of its decision to enter into and deliver this Agreement, and such Holder confirms that it has not relied on the advice of the Company or any other person.

2. Representations and Warranties. Each of the parties hereto, by their respective execution and delivery of this Agreement, hereby represents and warrants to the others and to all third party beneficiaries of this Agreement that (a) such party has the full right, capacity and authority to enter into, deliver and perform its respective obligations under this Agreement, (b) this Agreement has been duly executed and delivered by such party and is the binding and enforceable obligation of such party, enforceable against such party in accordance with the terms of this Agreement except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application and (c) the execution, delivery and performance of such party’s obligations under this Agreement will not conflict with or breach the terms of any other agreement, contract, commitment or understanding to which such party is a party or to which the assets or securities of such party are bound.

3.Beneficial Ownership. Holder hereby represents and warrants that it does not beneficially own (as determined in accordance with Section 13(d) of the Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) any shares of Common Stock, or any economic interest therein or derivative therefrom, other than those shares of Common Stock specified on its signature page to this Agreement. For purposes of the Agreement the shares of Common Stock beneficially owned by such Holder as specified on its signature page to this Agreement are collectively referred to as the “Holder’s Shares.”

4.Lockup. From and after the date of this Agreement and through and including the one year anniversary of the Effective Date (plus one additional day for each Trading Day following the Effective Date of any Registration Statement during which either (1) the Registration Statement is not effective or (2) the prospectus forming a portion of the Registration Statement is not available for the resale of all Registrable Securities (as defined in the Registration Rights Agreement) required to be covered thereby) (the "Lockup Period"), the Holder irrevocably agrees it will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or announce the offering of, any of its Holder’s Shares (including any securities convertible into, or exchangeable for, or representing the rights to receive, Holder’s Shares). In furtherance thereof, the Company will (x) place a stop order on all Holder’s Shares covered by any registration statements, (y) notify its transfer agent in writing of the stop order and the restrictions on such Holder’s Shares under this Agreement and direct the transfer agent not to process any attempts by the Holder to resell or transfer any Holder’s Shares under such registration statements or otherwise in violation of this Agreement.

5.Third-Party Beneficiaries. The Holder and the Company acknowledge and agree that this Agreement is entered into for the benefit of and is enforceable by the Investors and their successors and assigns.

6.No Additional Fees/Payment. Other than the consideration specifically referenced herein, the parties hereto agree that no fee, payment or additional consideration in any form has been or will be paid to the Holder in connection with this Agreement.

7.Enumeration and Headings. The enumeration and headings contained in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.

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8.Counterparts. This Agreement may be executed in facsimile and in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all of which shall together constitute one and the same agreement.

9.Successors and Assigns. This Agreement and the terms, covenants, provisions and conditions hereof shall be binding upon, and shall inure to the benefit of, the respective heirs, successors and assigns of the parties hereto.

10.Severability. If any provision of this Agreement is held to be invalid or unenforceable for any reason, such provision will be conformed to prevailing law rather than voided, if possible, in order to achieve the intent of the parties and, in any event, the remaining provisions of this Agreement shall remain in full force and effect and shall be binding upon the parties hereto.

11.Amendment. This Agreement may not be amended or modified in any manner except by a written agreement executed by each of the parties hereto if and only if such modification or amendment is consented to in writing by the Investors holding a majority in interest of the Common Stock issued or issuable under the Purchase Agreement.

12.Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

13.No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

14.Remedies. The Company and the Investors shall have the right to specifically enforce all of the obligations of the Holder under this Agreement (without posting a bond or other security), in addition to recovering damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Holder recognizes that if it fails to perform, observe, or discharge any of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Company or the Investors. Therefore, the Holder agrees that each of the Company and the Investors shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.

15.Governing Law. The terms and provisions of this Agreement shall be construed in accordance with the laws of the State of New York and the federal laws of the United States of America applicable therein.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement as of the day and year first above written.

Name:
Number of shares of Common Stock beneficially owned:
CHINA WATER AND DRINKS INC.
By:
	Name: Title:

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EX-10.4

MAKE GOOD ESCROW AGREEMENT

This Make Good Escrow Agreement (the "Make Good Agreement"), dated effective as of May 31, 2007, is entered into by and among China Water and Drinks Inc., a Nevada corporation (the "Company"), The Pinnacle Fund, L.P., as agent (“Agent”), Mr. Xu Hong Bin, in his individual capacity ("Make Good Pledgor"), and Loeb & Loeb LLP, as escrow agent ("Escrow Agent").

WHEREAS, each of the investors in the private offering of securities of the Company (the "Investors") has entered into a Securities Purchase Agreement, dated May 31, 2007 (the "SPA"), evidencing their participation in the Company's private offering (the "Offering") of securities. As an inducement to the Investors to participate in the Offering and as set forth in the SPA, Make Good Pledgor agreed to place the Escrow Shares (as defined in Section 2 hereto) into escrow for the benefit of the Investors in the event the Company failed to satisfy certain Guaranteed After-Tax Net Income thresholds.

WHEREAS, pursuant to the requirements of the SPA, the Company and Make Good Pledgor have agreed to establish an escrow on the terms and conditions set forth in this Make Good Agreement;

WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to the terms and conditions of this Make Good Agreement; and

WHEREAS, all capitalized terms used but not defined herein shall have the meanings assigned them in the SPA;

NOW, THEREFORE, in consideration of the mutual promises of the parties and the terms and conditions hereof, the parties hereby agree as follows:

1. Appointment of Escrow Agent. Make Good Pledgor and the Company hereby appoint Escrow Agent to act in accordance with the terms and conditions set forth in this Make Good Agreement, and Escrow Agent hereby accepts such appointment and agrees to act in accordance with such terms and conditions.

2. Establishment of Escrow. No later than the date of the closing of the Offering, Make Good Pledgor shall deliver, or cause to be delivered, to the Escrow Agent certificates evidencing an aggregate of 22,388,060shares of the Company’s common stock, par value $0.001 per share (the "Escrow Shares"), along with bank signature stamped stock powers executed in blank (or such other signed instrument of transfer acceptable to the Company’s Transfer Agent). One-half of the Escrow Shares (the “2007 Make Good Shares”) shall be pledged to secure the Company’s commitment to achieve the 2007 Guaranteed ATNI (as defined below) and one-half of the Escrow Shares (the “2008 Make Good Shares”) shall be pledged to secure the Company’s commitment to achieve the 2008 Guaranteed ATNI (as defined below). As used in this Make Good Agreement, “Transfer Agent” means Island Stock Transfer, or such other entity hereafter retained by the Company as its stock transfer agent as specified in a writing from the Company to the Escrow Agent and Agent.

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3.Representations of Make Good Pledgor. Make Good Pledgor hereby represents and warrants to Agent as follows:

(i) All of the Escrow Shares are validly issued, fully paid and nonassessable shares of the Company, and free and clear of all pledges, liens and encumbrances. Upon any transfer of Escrow Shares to Investors hereunder, Investors will receive good title to such shares of Common Stock of the Company.

(ii)Performance of this Make Good Agreement and compliance with the provisions hereof will not violate any provision of any applicable law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any of the properties or assets of Make Good Pledgor pursuant to the terms of any indenture, mortgage, deed of trust or other agreement or instrument binding upon Make Good Pledgor, other than such breaches, defaults or liens which would not have a material adverse effect taken as a whole.

4. Disbursement of Escrow Shares.

a.Fiscal Year Ended December 31, 2007. Make Good Pledgor agrees that if the After-Tax Net Income for the fiscal year ended December 31, 2007 reported in the Company’s Annual Report on Form 10-KSB for the fiscal year ending December 31, 2007, as filed with the Commission (the “2007 Annual Report”) is less than $19,000,000 (the “2007 Guaranteed ATNI”), Agent shall provide written instruction (with a copy to the Company) to the Escrow Agent to release to each Investor on a pro rata basis (based upon such Investor’s Investment Amount specified on Exhibit A attached hereto relative to the aggregate Investment Amounts of all Investors specified on Exhibit A attached hereto), for no additional consideration, 11,194,030 shares of Common Stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2007 Make Good Shares”) and shall instruct the Transfer Agent to transfer into the name of each Investor, the number of 2007 Make Good Shares released to such Investor. The Escrow Agent need only rely on the letter of instruction from Agent in this regard and will disregard any contrary instructions. The Escrow Agent shall be entitled to rely on the calculations provided by Agent with the letter of instruction in releasing the Escrow Shares for disbursement, with no further responsibility to calculate or confirm amounts. If the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2007 specify that the 2007 Guaranteed ATNI shall have been achieved (i.e. the After-Tax Net Income reported in the 2007 Annual Report is equal to or greater than the 2007 Guaranteed ATNI), the Agent shall provide written instruction (with a copy to the Company) to the Escrow Agent to release all 2007 Make Good Shares deposited with the Escrow Agent to the Make Good Pledgor within 10 Business Days after the date which the 2007 Annual Report is filed with the Commission, provided that Escrow Agent is given notice of the 2007 Annual Report’s filing and results. Any releases of 2007 Make Good Shares to Investors required under this Section shall be made to Investors within 10 Business Days after the date which the 2007 Annual Report is filed with the Commission, provided that Escrow Agent is given notice of the 2007 Annual Report’s filing and results.

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b.Fiscal Year Ending December 31, 2008. Make Good Pledgor agrees that in the event that either (A) (i) the After-Tax Net Income for the fiscal year ended December 31, 2008 reported in the Company’s Annual Report on Form 10-KSB for the fiscal year ending December 31, 2008, as filed with the Commission (the “2008 Annual Report”) plus (ii) the amount of any charges recorded against the Company’s After-Tax Net Income that were attributable to the release or transfer of any or all of the 2007 Make Good Shares is less than $30,000,000 (the “2008 Guaranteed ATNI”) or (B) the earnings per share reported in the 2008 Annual Report is less than $0.300 on a fully diluted basis (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2008 Guaranteed EPS”), Agent shall provide written instruction (with a copy to the Company) to the Escrow Agent to release to each Investor on a pro rata basis (based upon such Investor’s Investment Amount specified on Exhibit A attached hereto relative to the aggregate Investment Amounts of all Investors specified on Exhibit A attached hereto), for no additional consideration, 11,194,030 shares of Common Stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions) (the “2008 Make Good Shares”) and shall instruct the Transfer Agent to transfer into the name of each Investor, the number of 2008 Make Good Shares released to such Investor. The Escrow Agent need only rely on the letter of instruction from Agent in this regard and will disregard any contrary instructions. The Escrow Agent shall be entitled to rely on the calculations provided by Agent with the letter of instruction in releasing the Escrow Shares for disbursement, with no further responsibility to calculate or confirm amounts. If the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2008 specify that both (i) the 2008 Guaranteed ATNI and (ii) 2008 Guaranteed EPS shall each have been achieved (i.e. both (i) the After-Tax Net Income reported in the 2008 Annual Report plus the amount of any charges recorded against the Company’s After-Tax Net Income that were attributable to the release or transfer of any or all of the 2007 Make Good Shares is equal to or greater than the 2008 Guaranteed ATNI and (ii) the earnings per share reported in the 2008 Annual Report is equal to or greater than the 2008 Guaranteed EPS), the Agent shall provide written instruction (with a copy to the Company) to the Escrow Agent to release all 2008 Make Good Shares deposited with the Escrow Agent to the Make Good Pledgor within 10 Business Days after the date which the 2008 Annual Report is filed with the Commission, provided that Escrow Agent is given notice of the 2008 Annual Report’s filing and results. Any releases of 2008 Make Good Shares required to be made to Investors under this Section shall be made to Investors within 10 Business Days after the date which the 2008 Annual Report is filed with the Commission, provided that Escrow Agent is given notice of the 2008 Annual Report’s filing and results.

c.The Make Good Pledgor’s obligation to transfer shares of Common Stock to Investors pursuant to Section 4.11 of the SPA shall continue to run to the benefit of an Investor who shall have transferred or sold all or any portion of its Securities, and each Investor shall have the right to assign its rights to receive all or any such shares of Common Stock to other persons in conjunction with negotiated sales or transfers of any of its Securities.

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d.The Company and Make Good Pledgor covenant and agree to provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and such other forms and documents that the Escrow Agent may request, including appropriate W-9 or W-8 forms for each Investor. The Company and Make Good Pledgor understand that if such tax reporting documentation is not provided and certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder, to withhold a portion of any interest or other income earned on the investment of the Escrow Shares.

5. Duration. This Make Good Agreement shall terminate upon the distribution of all the Escrow Shares. The Company agrees to promptly provide the Escrow Agent written notice of the filing with the Commission of any financial statements or reports referenced herein.

6. Escrow Shares. If any Escrow Shares are deliverable to the Investors pursuant to the SPA and in accordance with this Make Good Agreement, (i) Make Good Pledgor covenants and agrees to execute all such instruments of transfer (including stock powers and assignment documents) as are customarily executed to evidence and consummate the transfer of the Escrow Shares from Make Good Pledgor to the Investors, to the extent not done so in accordance with Section 2, and (ii) following its receipt of the documents referenced in Section 6(i), the Company and Escrow Agent covenant and agree to cooperate with the Transfer Agent so that the Transfer Agent promptly reissues such Escrow Shares in the applicable Investor’s name and delivers the same as directed by such Investor. Until such time as (if at all) the Escrow Shares are required to be delivered pursuant to the SPA and in accordance with this Make Good Agreement, any dividends payable in respect of the Escrow Shares and all voting rights applicable to the Escrow Shares shall be retained by Make Good Pledgor. Should the Escrow Agent receive dividends or voting materials, such items shall not be held by the Escrow Agent, but shall be passed immediately on to the Make Good Pledgor and shall not be invested or held for any time longer than is needed to effectively re-route such items to the Make Good Pledgor. In the event that the Escrow Agent receives a communication requiring the conversion of the Escrow Shares to cash or the exchange of the Escrow Shares for that of an acquiring company, the Escrow Agent shall solicit and follow the written instructions of the Make Good Pledgor; provided that the cash or exchanged shares are instructed to be redeposited into the Escrow Account. Make Good Pledgor shall be responsible for all taxes resulting from any such conversion or exchange.

7. Interpleader. Should any controversy arise among the parties hereto with respect to this Make Good Agreement or with respect to the right to receive the Escrow Shares, Escrow Agent and/or Agent shall have the right to consult and hire counsel and/or to institute an appropriate interpleader action to determine the rights of the parties. Escrow Agent and/or Agent are also each hereby authorized to institute an appropriate interpleader action upon receipt of a written letter of direction executed by the parties so directing either Escrow Agent or Agent. If Escrow Agent or Agent is directed to institute an appropriate interpleader action, it shall institute such action not prior to thirty (30) days after receipt of such letter of direction and not later than sixty (60) days after such date. Any interpleader action instituted in accordance with this Section 7 shall be filed in any court of competent jurisdiction in the State of New York, and the Escrow Shares in dispute shall be deposited with the court and in such event Escrow Agent and Agent shall be relieved of and discharged from any and all obligations and liabilities under and pursuant to this Make Good Agreement with respect to the Escrow Shares and any other obligations hereunder.

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8.Exculpation and Indemnification of Escrow Agent and Agent.

a.Escrow Agent is not a party to, and is not bound by or charged with notice of any agreement out of which this escrow may arise. Escrow Agent acts under this Make Good Agreement as a depositary only and is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of the escrow, or any part thereof, or for the form or execution of any notice given by any other party hereunder, or for the identity or authority of any person executing any such notice. Escrow Agent will have no duties or responsibilities other than those expressly set forth herein. Escrow Agent will be under no liability to anyone by reason of any failure on the part of any party hereto (other than Escrow Agent) or any maker, endorser or other signatory of any document to perform such person's or entity's obligations hereunder or under any such document. Except for this Make Good Agreement and instructions to Escrow Agent pursuant to the terms of this Make Good Agreement, Escrow Agent will not be obligated to recognize any agreement between or among any or all of the persons or entities referred to herein, notwithstanding its knowledge thereof. Agent’s sole obligation under this Make Good Agreement is to provide written instruction to Escrow Agent (following such time as the Company files certain periodic financial reports as specified in Section 4 hereof) directing the distribution of the Escrow Shares. Agent will provide such written instructions upon review of the relevant After-Tax Net Income amount reported in such periodic financial reports as specified in Section 4 hereof. Agent is not charged with any obligation to conduct any investigation into the financial reports or make any other investigation related thereto. In the event of any actual or alleged mistake or fraud of the Company, its auditors or any other person (other than Agent) in connection with such financial reports of the Company, Agent shall have no obligation or liability to any party hereunder.

b.Escrow Agent will not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, absent gross negligence or willful misconduct. Escrow Agent may rely conclusively on, and will be protected in acting upon, any order, notice, demand, certificate, or opinion or advice of counsel (including counsel chosen by Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is reasonably believed by Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Make Good Agreement and no other or further duties or responsibilities shall be implied, including, but not limited to, any obligation under or imposed by any laws of the State of New York upon fiduciaries. THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

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c.The Company and Make Good Pledgor each hereby, jointly and severally, indemnify and hold harmless each of Escrow Agent, Agent and any of their principals, partners, agents, employees and affiliatesfrom and against any expenses, including reasonable attorneys' fees and disbursements, damages or losses suffered by Escrow Agent or Agent in connection with any claim or demand, which, in any way, directly or indirectly, arises out of or relates to this Make Good Agreement or the services of Escrow Agent or Agent hereunder; except, that if Escrow Agent or Agent is guilty of willful misconduct or gross negligence under this Make Good Agreement, then Escrow Agent or Agent, as the case may be, will bear all losses, damages and expenses arising as a result of its own willful misconduct or gross negligence. Promptly after the receipt by Escrow Agent or Agent of notice of any such demand or claim or the commencement of any action, suit or proceeding relating to such demand or claim, Escrow Agent or Agent, as the case may be, will notify the other parties hereto in writing. For the purposes hereof, the terms "expense" and "loss" will include all amounts paid or payable to satisfy any such claim or demand, or in settlement of any such claim, demand, action, suit or proceeding settled with the express written consent of the parties hereto, and all costs and expenses, including, but not limited to, reasonable attorneys' fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding. The provisions of this Section 8 shall survive the termination of this Make Good Agreement, and the resignation or removal of the Escrow Agent.

9. Compensation of Escrow Agent. Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit B, which compensation shall be paid by the Company. The fee agreed upon for the services rendered hereunder is intended as full compensation for Escrow Agent's services as contemplated by this Make Good Agreement; provided, however, that in the event that Escrow Agent renders any material service not contemplated in this Make Good Agreement, or there is any assignment of interest in the subject matter of this Make Good Agreement, or any material modification hereof, or if any material controversy arises hereunder, or Escrow Agent is made a party to any litigation pertaining to this Make Good Agreement, or the subject matter hereof, then Escrow Agent shall be reasonably compensated by the Company for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company. Prior to incurring any costs and/or expenses in connection with the foregoing sentence, Escrow Agent shall be required to provide written notice to the Company of such costs and/or expenses and the relevancy thereof and Escrow Agent shall not be permitted to incur any such costs and/or expenses which are not related to litigation prior to receiving written approval from the Company, which approval shall not be unreasonably withheld.

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10. Resignation of Escrow Agent. At any time, upon ten (10) days' written notice to the Company, Escrow Agent may resign and be discharged from its duties as Escrow Agent hereunder. As soon as practicable after its resignation, Escrow Agent will promptly turn over to a successor escrow agent appointed by the Company the Escrow Shares held hereunder upon presentation of a document appointing the new escrow agent and evidencing its acceptance thereof. If, by the end of the 10-day period following the giving of notice of resignation by Escrow Agent, the Company shall have failed to appoint a successor escrow agent, Escrow Agent may interplead the Escrow Shares into the registry of any court having jurisdiction.

11. Records. Escrow Agent shall maintain accurate records of all transactions hereunder. Promptly after the termination of this Make Good Agreement or as may reasonably be requested by the parties hereto from time to time before such termination, Escrow Agent shall provide the parties hereto, as the case may be, with a complete copy of such records, certified by Escrow Agent to be a complete and accurate account of all such transactions. The authorized representatives of each of the parties hereto shall have access to such books and records at all reasonable times during normal business hours upon reasonable notice to Escrow Agent and at the requesting party’s expense.

12. Notice. All notices, communications and instructions required or desired to be given under this Make Good Agreement must be in writing and shall be deemed to be duly given if sent by registered or certified mail, return receipt requested, or overnight courier, to the addresses listed on the signature pages hereto.

13. Execution in Counterparts. This Make Good Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

14. Assignment and Modification. This Make Good Agreement and the rights and obligations hereunder of any of the parties hereto may not be assigned without the prior written consent of the other parties hereto. Subject to the foregoing, this Make Good Agreement will be binding upon and inure to the benefit of each of the parties hereto and their respective successors and permitted assigns. No other person will acquire or have any rights under, or by virtue of, this Make Good Agreement. No portion of the Escrow Shares shall be subject to interference or control by any creditor of any party hereto, or be subject to being taken or reached by any legal or equitable process in satisfaction of any debt or other liability of any such party hereto prior to the disbursement thereof to such party hereto in accordance with the provisions of this Make Good Agreement. This Make Good Agreement may be amended or modified only in writing signed by all of the parties hereto.

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15. Applicable Law. This Make Good Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof.

16. Headings. The headings contained in this Make Good Agreement are for convenience of reference only and shall not affect the construction of this Make Good Agreement.

17. Attorneys' Fees. If any action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Make Good Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees from the other party (unless such other party is the Escrow Agent), which fees may be set by the court in the trial of such action or may be enforced in a separate action brought for that purpose, and which fees shall be in addition to any other relief that may be awarded.

18. Merger or Consolidation. Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Make Good Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.

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IN WITNESS WHEREOF, the parties have duly executed this Make Good Agreement as of the date set forth opposite their respective names.

COMPANY:
CHINA WATER AND DRINKS INC.
By:	Name:
	Title:
Address:
9101 West Sahara, Suite 105-195 Las Vegas, NV 89117 Facsimile: +86 0753 2552 3376 Attn.: President
MR. XU HONG BIN:
Address:

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ESCROW AGENT:
LOEB & LOEB LLP, as Escrow Agent
By:	Name: Title:
Address:
Attn.: Facsimile:
AGENT:
THE PINNACLE FUND, L.P., as Agent
By:	Name: Title:
Address:
Attn.: Facsimile:

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Exhibit A (attached as a MS Excel spreadsheet)

ESCROW SHARES TO BE ISSUED TO INVESTORS

Investor’s Legal Name Investor’s Investment Amount Make Good Shares (2007) Make Good Shares (2008)

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Exhibit B

ESCROW AGENT FEES

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EX-10.5

STOCK PLEDGE AGREEMENT (this “Agreement”), dated as of May 31, 2007, among China Water and Drinks Inc., a Nevada corporation (f/k/a/ Ugods, Inc.) (the “Company”), Xu Hong Bin (“Bin”), Chen Xing Hua (“Hua” and together with Bin, each a “Pledgor” and collectively, the “Pledgors”), and the pledgees signatory hereto and their respective endorsees, transferees and assignees (individually, the “Pledgee” and collectively, the “Pledgees”). Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement (as defined below) will have the meanings given such terms in the Purchase Agreement.

WITNESSETH:

WHEREAS, the Company and the Pledgees are parties to a Securities Purchase Agreement, dated May 31, 2007 (the “Purchase Agreement”), pursuant to which the Company, concurrently with the execution hereof, issued and sold to Pledgees in the aggregate 4,477,612 shares of its Series A Convertible Preferred Stock (the “Preferred Stock”); and

WHEREAS, each Pledgor is an affiliate of the Company (as defined in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”)); and

WHEREAS, as a material inducement to the Pledgees purchase of the Preferred Stock, the Pledgees have required and the Pledgors have agreed to grant to the Pledgees a security interest in 22,388,060 shares of Common Stock of the Company (the “Shares”), consisting of 13,611,940 shares of Common Stock currently owned by Bin (as set forth below such Pledgor’s name on the signature pages hereto) and 8,776,120 shares of Common Stock currently owned by Hua (as set forth below such Pledgor’s name on the signature pages hereto), as full recourse and collateral security for the timely and full satisfaction of the obligations of the Company under Section 4.16 of the Purchase Agreement, (such obligations are collectively the “Obligations”).

NOW, THEREFORE, in consideration of the foregoing recitals, and the mutual covenants contained herein, the parties hereby agree as follows:

1.Security. As collateral security for the punctual performance, by the Company of the Obligations, each of the Pledgors, hereby pledges with, hypothecates, transfers and assigns to Pledgees, its successors and assigns, such number of the Shares owned by such Pledgor, as set forth below such Pledgor’s name on the signature pages hereto, and all proceeds, shares and other securities received, receivable or otherwise distributed in respect of or in exchange for such Shares, (collectively referred to as the “Collateral”). Simultaneously herewith, each Pledgor shall deliver to The Pinnacle Fund, L.P., as agent for the Pledgees (the “Agent”) the certificate(s) representing such number of Shares owned by such Pledgor, as set forth below such Pledgor’s name on the signature pages hereto, stamped with a bank medallion guarantee, along with a stock transfer power duly executed in blank by such Pledgor, to be held by Agent for the benefit of the Pledgees as security. Any other Collateral received by each Pledgor shall also be delivered to Agent together with any executed stock powers or other transfer documents requested by a Pledgee, which request may be made at any time prior to the date when the Obligations shall have been paid and otherwise satisfied in full. Each Pledgee, by their execution hereof, appoints the Agent to act as their agent for the purposes contemplated herein. Each of the parties hereto, by their execution hereof, agrees to hold the Agent harmless from and against any losses arising from Agent’s acceptance of its duties as Agent hereunder or performance of its duties as Agent hereunder other than as arising from Agent’s willful misconduct.

2.Voting Power, Dividends, Etc. and other Agreements.

(a)Unless and until an Event of Default as set forth in Section 3 hereof has occurred, each Pledgor shall be entitled to:

(i)exercise all voting and/or consensual powers pertaining to the Shares or other Collateral applicable to such Pledgor, or any part thereof, for all purposes;

(ii)receive and retain dividends paid with respect to the Shares or other Collateral applicable to such Pledgor; and

(iii)receive the benefits of any income tax deductions available to such Pledgor as a shareholder of the Company.

(b)Each Pledgor agrees that it will not sell, assign, transfer, pledge, hypothecate, encumber or otherwise dispose of the Shares applicable to such Pledgor.

(c)Each Pledgor and the Company jointly and severally agree to pay all costs including all reasonable attorneys’ fees and disbursements incurred by Pledgees in enforcing this Agreement in accordance with its terms.

3.Default and Remedies.

(a)For the purposes of this Agreement “Event of Default” shall mean:

(i)a default in or under the Obligations;

(ii)the failure of the Company to have filed the Certificate of Amendment amending the Articles of Incorporation of the Company to increase the authorized shares of Common Stock of the Company to not less than 150,000,000 shares with the Secretary of State of the State of Nevada and deliver to the Pledgees a copy date stamped by the Secretary of State of the State of Nevada indicating their receipt and acceptance thereof by the forty-fifth (45^th) calendar day following the Closing; or

(iii)a breach in any material respect by a Pledgor or the Company of any of their respective representations or warranties in this Agreement.

(b)Pledgees representing a majority of the Shares purchased pursuant to the Purchase Agreement (upon the written request to the Agent) shall have the following rights upon any Event of Default and for so long as the Obligations are not satisfied in full:

(i)the rights and remedies provided by the Uniform Commercial Code as adopted by the State of New York (as said law may at any time be amended);

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(ii)the right to receive and retain all dividends, payments and other distributions of any kind upon any or all of the Shares or other Collateral; and

(iii)the right to cause the Shares and other Collateral to be transferred to their own names or to the name of their respective designees, in each case, on a pro rata basis (determined by dividing each Pledgee’s Investment Amount as of the Closing Date by the aggregate of all Investment Amounts delivered to the Company by the Pledgees pursuant to the Purchase Agreement) and have such transfer recorded in any place or places deemed appropriate by Pledgees; provided however that, notwithstanding the foregoing, as of the date of the transfer of any such Shares to any Pledgee, and as a condition to the effectiveness of such transfer to such Pledgee, such Pledgee shall be required to surrender to the Company for cancellation shares of Preferred Stock corresponding to such number of Shares so transferred pursuant to this Section 3(b)(iii).

4.Representations and Warranties.

(a) Each Pledgor severally hereby represents and warrants to Pledgees that:

(i)such Pledgor has full power and authority and legal right to pledge the Shares applicable to such Pledgor and any other Collateral to Pledgees pursuant to this Agreement and this Agreement constitutes a legal, valid and binding obligation of such Pledgor enforceable against such Pledgor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application;

(ii)the execution, delivery and performance of this Agreement and other instruments contemplated herein will not violate any provision of any order or decree of any court or governmental instrumentality or of any mortgage, indenture, contract or other agreement to which such Pledgor is a party or by which such Pledgor, the Shares applicable to such Pledgor and the Collateral may be bound, and will not result in the creation or imposition of any lien, charge or encumbrance on, or security interest in, any of such Pledgor’s properties pursuant to the provisions of such mortgage, indenture, contract or other agreement;

(iii)such Pledgor is the sole record and beneficial owner of the number of Shares as is set forth below such Pledgor’s name on the signature pages hereto;

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(iv)such Pledgor owns the Shares applicable to such Pledgor and other Collateral relating thereto pledged by it hereunder free and clear of all Liens; and

(v)such Pledgor is an Affiliate of the Company. Bin represents and warrants that he acquired the Shares set forth under his name on the signature pages hereto on May 31, 2007. Hua represents and warrants that he acquired the Shares set forth under his name on the signature pages hereto on May 31, 2007.

(b) The Company represents and warrants to the Pledgees that:

(i) it has no knowledge that any of the representations or warranties of the Pledgors above are incorrect or false in any material respect;

(ii) all of the Shares were validly issued, fully paid and non-assessable; and

(iii) each Pledgor is the sole record and beneficial owner of the Shares set forth below such Pledgor’s name on the signature pages hereto.

5.No Waiver; No Election of Remedies. No failure on the part of any Pledgee to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by such Pledgee of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law. In addition, the exercise of any right or remedy of any Pledgee at law or equity or under this Agreement or any of the documents shall not be deemed to be an election of such Pledgee’s rights or remedies under such documents or at law or equity.

6.Termination. This Agreement shall terminate on the earlier of (i) the date on which the Company shall have filed the Certificate of Amendment amending the Articles of Incorporation of the Company to increase the authorized shares of Common Stock of the Company to not less than 150,000,000 shares with the Secretary of State of the State of Nevada and delivered to the Pledgees a copy date stamped by the Secretary of State of the State of Nevada indicating their receipt and acceptance thereof, (ii)  the date on which all Obligations have been satisfied, paid or discharged in full or (iii) the written consent of the Pledgors, Pledgees representing a majority of the Shares purchased pursuant to the Purchase Agreement and the Company.

7.Further Assurances. Each Pledgor agrees that, from time to time upon the written request of Pledgees representing a majority of the Shares purchased pursuant to the Purchase Agreement, such Pledgor will execute and deliver such further documents and do such other acts and things as such Pledgee(s) may reasonably request in order fully to effect the purposes of this Agreement.

8.Miscellaneous.

(a)Modification. This Agreement contains the entire understanding between the parties with respect to the subject matter hereof and specifically incorporates all prior oral and written agreements relating to the subject matter hereof. No portion or provision of this Agreement may be changed, modified, amended, waived, supplemented, discharged, canceled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing executed by the Pledgors, Pledgees representing a majority of the Shares purchased pursuant to the Purchase Agreement, the Agent and the Company.

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(b)Notice. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	China Water and Drinks Inc.
	9101 West Sahara, Suite 105-195
	Las Vegas, NV 89117
	Facsimile: +86 0755 2552 3376
	Attn.: Chen Xing Hua
With copies to:	Loeb & Loeb LLP
	345 Park Avenue
	New York, NY 10154
	Facsimile: (212) 504-3013
	Attn.: Mitchell S. Nussbaum, Esq.
If to Bin:	17, J Avenue Yijing Garden
	Aiguo Road
	Louhu District
	Shenzen City, PRC
If to Hua:	Hua Qiao City
	Jin Xiu Apartments #202
	Nan Shan District
	Shenzen, PRC 518000
If to the Pledgees:	To the address set forth under such Pledgee’s name on the signature pages hereof.

(c)Invalidity. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable laws or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

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(d)Benefit of Agreement. This Agreement shall be binding upon and inure to the parties hereto and their respective successors and assigns.

(e)Mutual Agreement. This Agreement embodies the arm’s length negotiation and mutual agreement between the parties hereto and shall not be construed against either party as having been drafted by it.

(f)New York Law to Govern. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and Federal courts sitting in the city of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court or that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and 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 contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

(g)Counterparts. This Agreement may be executed in two or more counterparts, which will be effective as original agreements of the parties hereto. Original signatures transmitted by facsimile will be effective to create counterparts.

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SIGNATURE PAGE FOLLOWS]

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

CHINA WATER AND DRINKS INC.

By:  

Name:

Title:

XU HONG BIN

Xu Hong Bin

Number of Shares and Date Acquired

CHEN XING HUA

Chen Xing Hua

Number of Shares and Date Acquired

PLEDGEE:

By:  

Name:

Title:

Address for Notice:

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ACKNOWLEDGED AND AGREED:

THE PINNACLE FUND, L.P., as Agent

By:

Name:

Title:

8

EX-23.1

CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors of

Olympic Forward Trading Company Limited and Subsidiaries

We consent to the inclusion in Form 8-K pertaining to the Share Exchange with Gain Dynasty Investments Limited (“Gain Dynasty”) of our report dated May 26, 2007, relating to the consolidated financial statements of Olympic Forward Trading Company Limited and Subsidiaries as of and for the years ended December 31, 2006 and 2005.

s/ Madsen & Associates CPA’s, Inc.

Madsen & Associates CPA’s, Inc.

June 4, 2007

Salt Lake City, Utah

EX-99.1

China Water and Drinks Inc. Completes $30 Million Private Placement

SHENZHEN, CHINA, June 5, 2007 - China Water and Drinks Inc. (OTC BB: UGOD.OB - News) today announced that it had completed a $30 million private placement with investors led by Pinnacle China Fund, L.P.

China Water issued an aggregate of 4,477,612 shares of Series A Convertible Preferred Stock, which are automatically convertible into an aggregate of 22,388,060 shares of China Water’s common stock upon the satisfaction of certain conditions. Effectively, the price per share for each share of common stock is $1.34 per share. Proceeds from the financing will be used to expand the production capacity of China Water’s existing facilities and to potentially acquire quality bottled water producers in China.

According to a make good arrangement, Mr. Xu Hong Bin, the majority shareholder of China Water, agreed to put into escrow 22,388,060 shares of his common stock of which 11,194,030 shares will be transferred to the investors in the event that the after tax net income (“ATNI”) of China Water for the year ended 2007 is less than $19 million. An additional 11,194,030 shares will be transferred by the majority shareholder to investors if (i) the ATNI for the year ended 2008 is less than $30 million or (ii) China Water’s 2008 fully diluted EPS is less than $0.30.

Mr. Xing Hua Chen, CEO of China Water, commented “This financing is an important achievement for China Water. We are very pleased to have attracted new, high profile investors into the Company and look forward to a continued, productive relationship.”

Results of operations

China Water had revenue of $35.7 million and net income of $8.8 million for the year ended 2006 as compared to $27.7 million and $7 million for the year ended 2005, respectively. The increase in revenue and net income for the year ended 2006 against 2005 are $8 million and $1.8 million, reflecting a growth rate of 25.3% and 25.7%, respectively. The growth in revenue and net income are mainly attributable to the surge in demand as a result of the growth of the Chinese bottled water market.

China Water achieved $6.2 million in revenue and $1.7 million in net income for the first quarter of 2007, reflecting a decrease of $1.1 million and $0.4 million as compared to the revenue and net income during same quarter in 2006. The decrease in revenue and net income was due to the impact of severe weather conditions on one of China Water’s manufacturing facilities and postponement of orders by a significant customer from the first quarter of 2007 to second quarter of 2007.

Mr. Chen commented “Management believes that we are in a position to achieve approximately $14 million in revenue for the second quarter of 2007 (an approximate increase of 57% from the second quarter of 2006). We believe that the projected results for the second quarter will align with our growth targets for the full 2007 fiscal year.”

About China Water and Drinks Inc.

China Water and Drinks Inc. is a leading producer and distributor of bottled water in China. Through its production facilities in Guangdong, Zhangjiang, Fexian and Changchun, China Water produces bottled waters ranged from 350 ml to 18.9 liters for local and international beverage brands including Coca-Cola and Uni-President. China Water also produces and distributes bottled water under its own brand name over 11 provinces in China.

Disclaimer Regarding ``Forward-Looking Statements''

Certain of the statements set forth in this press release constitute “Forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may” “project,” “plan,” “will,” “should,” “could,” “would,” or words or expressions of similar meaning. Such forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from any future results described by the forward-looking statements. Risk factors that could contribute to such differences include those matters more fully disclosed in the Company's reports filed with the Securities and Exchange Commission. The forward-looking information provided herein represents the Company's estimates as of the date of the press release, and subsequent events and developments may cause the Company's estimates to change. The Company specifically disclaims any obligation to update the forward-looking information in the future. Therefore, this forward-looking information should not be relied upon as representing the Company's estimates of its future financial performance as of any date subsequent to the date of this press release.