10-12G

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

FUQI INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) N/A (I.R.S. Employer Identification No.)

5/F., Block 1, Shi Hua Industrial Zone

Cui Zhu Road North

Shenzhen, 518019

People’s Republic of China

(Address, including zip code, of principal executive office)

86-0755-2580 6333

(Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

TABLE OF CONTENTS

	Page
ITEM 1. DESCRIPTION OF BUSINESS	2
ITEM 1A: RISK FACTORS	7
ITEM 2. FINANCIAL INFORMATION	16
ITEM 3. PROPERTIES	28
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	28
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS	29
ITEM 6. EXECUTIVE COMPENSATION	30
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	32
ITEM 8. LEGAL PROCEEDINGS	32
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS	33
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES	35
ITEM 11. DESCRIPTION OF SECURITIES TO BE REGISTERED	35
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS	37
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	39
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE	39
ITEM 15. FINANCIAL STATEMENTS	39

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this registration statement on Form 10, including in the documents incorporated by reference into this registration statement, includes some statement that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our and their management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations, and the expected impact of the Merger on the parties’ individual and combined financial performance. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this registration statement are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following:

·   Vulnerability of our business to general economic downturn;

·   Fluctuation and unpredictability of costs related the gold, platinum and precious metals and other commodities used to make our product;

·   Changes in the laws of the PRC that affect our operations;

·   Our inexperience in the retail jewelry market;

·   Our inability to achieve the benefits expected from our share exchange agreement;

·   Competition from our competitors;

·   Any recurrence of severe acute respiratory syndrome (SARS) or Avian Flu;

·   Our ability to obtain all necessary government certifications and/or licenses to conduct our business;

·   Development of a public trading market for our securities;

·   The cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations;

·   Fluctuation of the foreign currency exchange rate between U.S. Dollars and Renminbi; and

·   The other factors referenced in this registration statement, including, without limitation, under the sections entitled “Risk Factors,” “Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Business.”

These risks and uncertainties, along with others, are also described above under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the parties’ assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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ITEM 1. DESCRIPTION OF BUSINESS

Overview

We are engaged in the design, manufacture, marketing and wholesale distribution of a full range of precious metal jewelry in China. We currently operate through two divisions: (i) production and (ii) sales and marketing. The production division is responsible for manufacturing of our jewelry products and the sales and marketing division is responsible for the selling and marketing functions of the products, including customer relations and customer service. We intend to enter into the retail distribution of our jewelry products by opening or acquiring retail stores in China during 2007.

We operate through our wholly-owned subsidiary Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation and its wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., (“Fuqi China”) a company established under the laws of the People's Republic of China.

Corporate History

We were originally incorporated in the State of Arizona on September 3, 2004 as VT Marketing Services, Inc. We were a wholly-owned subsidiary of Visitalk Capital Corporation (“VCC”), and formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”). Visitalk.com filed for Chapter 11 Bankruptcy in November 2000. The Visitalk Plan became effective on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan.

Our original business was to use Visitalk.com’s technology to facilitate peer-to-peer marketing activities. The Visitalk Plan authorized us to acquire certain technology rights from VCC on the Effective Date. To acquire these rights, we issued to VCC 324,044 shares of our common stock and common stock purchase warrants allowing holders to purchase additional shares of our common stock (the “Plan Warrants”). The Visitalk Plan further authorized VCC to distribute 54,837 of the 324,044 shares of common stock to 240 creditors of Visitalk.com and all of the Plan Warrants to 645 claimants of Visitalk.com, in accordance with the Visitalk Plan. After the distribution of the shares of our common stock and Plan Warrants, but prior to the Bay Peak Sale, discussed below, VCC owned approximately 82.1% of our issued and outstanding common stock.

On July 21, 2006, we sold 1,368,761 shares of common stock (post Reverse Split described below) to BayPeak, LLC. As part of this transaction (the “Bay Peak Sale”), we abandoned our peer-to-peer marketing business, which was transferred to VCC, and began to seek companies in Asia with potential, in particular companies based in China, to acquire. The shares issued in the Bay Peak Sale represented 74.49% of our outstanding shares. On July 28, 2006, Visitalk.com was granted its Final Decree by the Bankruptcy Court. On November 6, 2006, we conducted a reverse stock split of our shares common stock and issued one share for each 15.43 shares of our common stock then outstanding (the “Reverse Split”). No shareholder was reversed below 100 shares in the Reverse Split and the then outstanding Plan Warrants were not effected by the Reverse Split. On November 8, 2006, we changed our state of incorporation from Arizona to Nevada.

On November 20, 2006, we entered into a share exchange agreement with Yu Kwai Chong, who is the sole shareholder of Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) pursuant to which we agreed to acquire all of the issued and outstanding capital stock of Fuqi BVI (the “Exchange Transaction”). The Exchange Transaction closed on November 22, 2006 and, per the terms of the share exchange agreement (the “Share Exchange Agreement”), we issued an aggregate of 18,886,666 shares of our common stock in exchange for all of the issued and outstanding securities of Fuqi BVI. Pursuant to the Share Exchange Agreement, BayPeak agreed to cancel 8,761 shares of common stock.

Immediately after the closing of the Exchange Transaction and Reverse Split, we had 20,715,384 outstanding shares of common stock, no options and warrants to purchase 16,846,982 shares of our common stock. Immediately after the Exchange Transaction and Reverse Split, the former Fuqi BVI stockholder held approximately 91.2% of our voting capital stock.

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On December 8, 2006, we changed our corporate name from “VT Marketing Services, Inc.” to “Fuqi International, Inc.” and reincorporated from the State of Nevada to the State of Delaware.

Our shares of common stock are not currently listed or quoted for trading on any national securities exchange or national quotation system. The transactions contemplated by the Share Exchange Agreement, as amended, were intended to be a “tax-free” incorporation pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986, as amended.

All share information presented in this registration statement reflect the Reverse Split. For financial accounting purposes, the Exchange Transaction was treated as a reverse acquisition by Fuqi BVI, under the purchase method of accounting, and was treated as a recapitalization with Fuqi BVI as the accounting acquirer. Accordingly, our historical financial statements have been prepared to give retroactive effect to the reverse acquisition completed on November 22, 2006, and represent the operations of Fuqi BVI and its wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., a company established under the laws of the People's Republic of China. Upon the acquisition of Fuqi BVI, our sole business operations became that of Fuqi BVI.

Design and Product Development

Since the commencement of our jewelry operations in 2001, we have expanded our line of products from basic gold jewelry to a range of products that include rings, bracelets, necklaces, earrings and pendants made from precious metals such as platinum, gold, palladium and Karat gold (K-gold). We also manufacture jewelry with diamond and other precious stone inlays, in addition to gold coins and gold bars.

Our product series include the following:

·   Gold Series. This series includes K-gold, 24K gold ornaments, gold bars, gold coins, gold works and gifts and other customized products.

·   Platinum Series (pt). This series includes pt990, pt950 and pt900 products. The quality markings for platinum are based on parts per thousand. For example, the marking pt900 means that 900 parts out of 1000 are pure platinum, or in other words, the item is 90% platinum and 10% other metals.

·   K-Gold Series. This series is primarily derived from Italian-influenced arts and designs.

·   Studded Jewelry Series. This series is made from pt950, pt900, 18K gold, 18K platinum and other customer-designated rare metals studded with diamonds, emerald, jade and semi-precious stones.

We continuously design and produce new styles of jewelry and currently carry more than 11,000 product styles. We assign serial numbers to each of our products styles, and we maintain an information management system that utilizes a product database.

Manufacturing

We have a large-scale production base that includes a modern factory of more than 53,000 square feet, a dedicated senior design team, and more than 600 trained technical workers. In the production of our jewelry, we use the latest jewelry processing equipment and procedures. In the year 2000, we were one of the first jewelry makers in China to become ISO 9001 certified. We have produced thousands of product styles on the following product processing lines:

·   Jewelry processing line for manufacturing precious metal, pure-color gold ornaments, including gold, platinum, palladium and other related metals;

·   K-gold product line for processing multiple types of metals including 8K through 24K gold and platinum ornaments;

·   Studded jewelry processing line;

·   Gold bar and gold coin processing line; and

·   Rare metals craftwork and collections manufacturing line.

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Our maximum annual output capacity of the gold jewelry, other rare and precious metal jewelry, K-gold jewelry and inlaid jewelry is approximately 15.0 tons, 8.5 tons, 3.0 tons and 60,000 pieces, respectively.

Business and Growth Strategy

Our current business and growth strategy is to:

·   develop platinum as the primary metal from which our jewelry is manufactured to capitalize on the recent increase in consumption of platinum jewelry in China;

·   strengthen our brand name in the China jewelry industry by expanding the marketing and promotion of our products and maintaining large-scale production of quality products;

·   grow with the large and developing Chinese jewelry market by controlling costs and raising additional capital to fund such growth; and

·   continue to rely on our production and wholesale operations while moving resources into the commencement of our retail distribution operations by opening retail stores throughout China.

We intend to establish a retail sales plan aimed at gaining market share in the growing consumer market in China. We intend to open retail stores throughout China, initially, and in Hong Kong and the United States in the future. During 2007, we intend to open 15 retail stores in municipalities and provincial capitals in China, including Beijing, Shanghai, Shenyang, Wuhan and Chengdu.

We believe that China represents an excellent retail sales opportunity for various reasons that include:

·   increased profit potential - with the intensified competition and increases in the cost of raw materials, profit from the production and wholesale distribution of jewelry is generally decreasing. We believe that entering into the retail market is a viable strategy to maintain and increase profitability in the China jewelry industry.

·   large retail market— China’s retail sales market is one of largest in the world.

·   growing jewelry market—China’s jewelry market has recently experienced significant growth.

·   large pool of potential consumers— China has a large population including a substantial number of potential customers.

·   favorable regulatory changes— as a member of the World Trade Organization (WTO), China is eliminating a number of restrictions on foreign ownership and operation of retail stores. Tariffs on colored gem stones, gold, silver and pearls have been reduced in the past and economic and trade relationships between China and Hong Kong have generally been liberalized.

·   changing consumer preferences— we believe that Chinese consumers are embracing a more Western view of jewelry as a fashion accessory and desire more contemporary, colorful designs.

Sales and Marketing

We rely on our sales and marketing division, which is located at our executive offices in Shenzhen, China for the distribution of our products. We train our salespeople in our product lines. Our marketing and distribution strategy is to screen and identify the strongest retail customers in each distribution channel and to focus on design and sales efforts towards the largest and fastest growing retailers and distributors. Our jewelry is sold to a network of approximately 1,000 distributors, retailers and wholesale agencies. We maintain a broad base of customers and concentrate our efforts on department stores, wholesalers, national jewelry chains, fine jewelers, and stores that sell fashionable jewelry to youth. We also work closely with our major customers and attempt to adjust our product strategies and structure based on customer feedback. We believe this helps decrease the likelihood of overstocked, undesired products.

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We expect to move into the retail distribution of our products in 2007. As discussed above in “Business and Growth Strategies,” we intend open retail stores throughout China, initially, and in Hong Kong and in the future, the United States.

We continue to devote our efforts towards brand development and utilize marketing concepts in an attempt to enhance the marketability of our products. During the past two years, we have carried out a brand development strategy based on product quality and design excellence. We have participated in various marketing activities and exhibitions to promote our products and brand. For example, in 2004, we were the laurel sponsor for multiple beauty pageants, including the “Miss Intercontinental Final” and the “Miss China Universe.” We also became the assigned brand for numerous beauty contests such as:

·   the Final of Miss Global of WTO;

·   the 17th World Miss University Contest;

·   the 1st China Miss University Contest; and

·   China Final of Miss World.

We believe that our participation in the beauty pageant circuit has strengthened our brand recognition. In addition, we have received various governmental awards with respect to our brand, including recognition as a “Chinese Famous Brand,” which is reserved for the top ten most recognized brands of the jewelry in China. We have also received other recognitions, including “Famous Brand in China Jewelry Industry”, “Shenzhen Well-known Brand”, “Shenzhen 300 enterprises with Ultimate Growth” and “China Quality Promise Credit Management Enterprise (Brand)”. The “Fuqi” trademark has been registered in the United States, Italy, Japan and Hong Kong.

Supply of Raw Materials

We are a full member of the Shanghai Gold Exchange, a manufacturer designated by the Platinum Guild International, and a standing council member of Shenzhen Gold Association of China. Shanghai Gold Exchange is our primary source of supply for our raw materials, which consist of precious metals.

We maintain our supply of raw materials at our warehouse in Shenzhen, China. We purchase large volume of precious metals approximately five times per month from Shanghai Gold Exchange in advance and in anticipation of orders resulting from our marketing programs. In order to minimize the risk of storage and devaluation, we only purchase pre-cut gemstones, including ruby and jade, upon customers’ requests.

Competition

The jewelry production industry is highly competitive, and our competitors include domestic and foreign jewelry manufacturers, wholesalers, and importers who may operate on a national, regional and local scale. Many of our competitors have substantially greater financial, technical and marketing resources and personnel than us. Our competitors in the jewelry production industry include Nongjia, Cuilu, ADK, Junli, Baohengde and Anshenghua. Our strategy is to provide competitively priced, moderate- to high-quality products to the high-volume retail jewelry market. We believe competition is largely based on quality, service, pricing, and established customer relationships.

We intend to enter into the jewelry retail industry, which is also highly competitive. Many of our potential competitors in the retail industry will have larger customer bases, longer operating histories and significantly greater financial, technical, marketing and other resources. Most of these retailers, including Chow Sang Sang Group, Luk Fook Jewelry, TSL Jewelry and Hang Fung Gold Technology, have numerous branches set up across China and may have secured the most desirable locations for retail stores. It is difficult for a newcomer to enter into the retail industry, but we believe that our established production and wholesale distribution business will facilitate our entrance into the retail market.

Major Customers

During the year ended December 31, 2005, 15% of the Company’s sales were generated from one customer, Beijing Hua Shang Rui Lin Trading Co., Ltd. During the nine months ended September 30, 2006 and the years ended December 31, 2004 and 2003, there were no single customers generated more than 10% of the total sales.

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Seasonality

Our business is seasonal in nature. Our sales and net income are traditionally higher in the fourth calendar quarter than the rest of the year. During fiscal 2005, a larger portion of our sales was generated during the fourth calendar quarter ending December 31, 2005, and our net income was $1.7 million for the fourth quarter of 2005, as compared to net income of $1.5 million, $1.2 million and $1.0 million for the first, second and third calendar quarters, respectively, of 2005. The primary factors that affect the seasonal changes in our business operations are holidays and traditional Chinese festivals. In the fourth quarter, retailers often experience increased sales due to the golden week of Chinese National Day, Christmas and New Year’s Day. In addition, jewelry retailers commonly stock up from wholesalers to prepare for potentially higher sales during the period before Chinese New Year, which is a peak season of marriage and newborns in China.

Government Regulations

In April 2001, the Shenzhen Business Bureau granted us the right to operate for a period of ten years from the date of the inception of wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., a company established under the laws of the People's Republic of China (“Fuqi China”). On May 17, 2006, this right allowed us to transform Fuqi China into a Wholly Owned Foreign Enterprise (a “WOFE”) and formally transfer the ownership of Fuqi China from the founder to Fuqi BVI. Neither this transfer nor our acquisition by the VTM changed our business plan. The right to operate as a WOFE expires 30 years from the date of this approval but based on current PRC legislation, this right is renewable by application. A WOFE can only conduct business within its approved business scope, which ultimately appears on the business license. Our license permits us to design, manufacture, sell and market jewelry products to department stores throughout the PRC. Any amendment to the scope of our business requires further application and government approval. We cannot assure you that we will be able to obtain the necessary government approval for any change or expansion of our business.

Under the PRC laws, supplies of precious metals such as platinum, gold and silver are highly regulated by certain government agencies. Shanghai Gold Exchange is our primary source of supply for our raw materials, which almost substantially consist of precious metals. We are required to obtain several membership and approval certificates from these government agencies in order to continue to conduct our business. We may be required to renew such memberships and to obtain approval certificates periodically. If we are unable to renew these periodic membership or approval certificates, it would materially affect our business operations. We are currently in good standing with these agencies.

We have also been granted independent import and export rights. These rights permit us to import and export jewelry in and out of China. With the relatively lower cost of production in China, we intend to expand into overseas markets after the launch of our China-based retail plan. We do not currently have plans to import jewelry into China.

Employees

We have more than 600 full-time employees. We are not subject to any collective bargaining agreements and we believe our relationship with our employees is good.

Fuqi China is required to contribute a portion of its employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, and a housing assistance fund, in accordance with relevant regulations. Fuqi China contributed approximately $93,000, $138,000 and $152,000 for the nine months ended September 30, 2006 and the years ended December 31, 2005 and 2004, respectively. We expect that the amount of Fuqi China’s contribution to the government’s social insurance funds to increase in the future as it expands its workforce and operations.

Facilities

Our principal executive offices are located at 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen 518019, China. We own approximately 15,000 square feet of office and showroom at this location.

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Our jewelry production facility is located in Shenzhen, China and consists of approximately 66,000 square feet of building space. We own approximately 33,000 square feet of this space and the remainder is leased from a landlord, Guanghong Jin Tong Hai Enterprises Ltd. We have acquired the space for production facility, office and show room located at 5/F., Block 1, Shi Hua Industrial Zone during 2005.

In July 2005, we entered into a leasing agreement with Shenzhen Jin Tong Hai Enterprises Ltd. to lease the production plan on 4th floor Block 1, Shi Hua Industrial Park for a approximately $112,000 per annum. from July 2005 to June 2010. The lease agreement will terminate in June 2010. We have the right to renew the lease prior to its termination. At the time of renewal, the lease amount will be renegotiated, and based on the current industrial leasing market, we expect that the lease amount will be increased by approximately 35% in the year of 2010.

Legal Proceedings

We are not a party to any material legal proceedings.

ITEM 1A: RISK FACTORS

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this registration statement before deciding whether to purchase any of our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. None of our securities are currently listed or quoted for trading on any national securities exchange or national quotation system. If and when our securities are traded, the trading price could decline due to any of these risks, and an investor may lose all or part of his investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This filing also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced described below and elsewhere in this registration statement.

Risks Related To Our Operations

Jewelry purchases are discretionary and may be particularly affected by adverse trends in the general economy.

The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending in China. These factors include economic conditions and perceptions of such conditions by consumers, employment, the rate of change in employment, the level of consumers’ disposable income, business conditions, interest rates, consumer debt levels, availability of credit and levels of taxation for the economy as a whole and in regional and local markets in China where we manufacture and sell our products. There can be no assurance that consumer spending on jewelry will not be adversely affected by changes in general economic conditions in China and globally.

Most of our sales are of products that include gold, platinum, precious metals and other commodities, and fluctuations in the availability and pricing of commodities would adversely impact our ability to obtain and produce products at favorable prices.

The jewelry industry generally is affected by fluctuations in the price and supply of diamonds, gold, platinum and, to a lesser extent, other precious and semi-precious metals and stones. In the past, we have not hedged our requirement for gold, platinum or other raw materials through the use of options, forward contracts or outright commodity purchasing, but we intend to engage in such hedging in the future, depending on our available resources. A significant disruption in our supply of gold, platinum, and other commodities could decrease our production and shipping levels, materially increase our operating costs and materially adversely affect our profit margins. Shortages of gold, platinum, and other commodities or interruptions in transportation systems, labor strikes, work stoppages, war, acts of terrorism or other interruptions to or difficulties in the employment of labor or transportation in the markets in which we purchase our raw materials and may adversely affect our ability to maintain production of our products and sustain profitability. If we were to experience a significant or prolonged shortage of gold, platinum, and other commodities, we would be unable to meet our production schedules and to ship products to our customers in timely fashion, which would adversely affect our sales, margins and customer relations.

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We have only been engaged in the manufacture and wholesale distribution of jewelry products and have no experience or operating history with respect to our intended entry into the retail jewelry market. Our attempt to enter the retail market may fail, divert management’s attention and adversely affect our operating results.

We have derived nearly all of our net revenues from the production and wholesale distribution of our jewelry products. We intend to devote management time and resources to establishing retail stores throughout China. We have no experience or operating history in the retail market, and our attempt to enter the market could fail and use substantial resources. Because the retail industry is new to us, we may be unable to effectively assess or address the evolving risks and difficulties present in this market, which could threaten our capacity to continue overall operations successfully in the future.

We may need to raise additional funds in the future and these funds may not be available on acceptable terms or at all.

We expect to expend significant resources to commence our planned retail distribution of our manufactured jewelry in China. Our expansion into the retail market may require additional funds in the near future. We cannot be certain that additional capital will be available on favorable terms or at all. Any equity financing could result in dilution to shareholders. If we need to raise additional capital, adequate funds may be unavailable, and it may not be able to effectively execute our growth strategy (including entering the retail market), take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. In addition, we may be required to scale back or discontinue our production and development program, or obtain funds through strategic alliances that may require it to relinquish certain rights.

Our ability to increase our revenue could be harmed if we are unable to strengthen and maintain a brand image.

We believe that primary factors in determining customer buying decisions in the jewelry sector include customer price, confidence in the merchandise sold, and the level and quality of customer service. The ability to differentiate our products from competitors by our brand based marketing strategies is a factor in attracting consumers. We may experience difficulty in strengthening our brand name. Our objective is to become one of the top brand names in China, and the brand image that we are able to create may be quickly impaired.

We face significant competition from competitors, many of which are larger and have access to more resources.

The manufacture and distribution of jewelry in China is a highly competitive industry characterized by the diversity and sophistication of the product. We compete with major domestic and international companies with substantially greater financial, technical and marketing resources and personnel. There can be no assurance other jewelry makers will not similarly develop low-cost, high-volume production capability or an even better process, providing greater competition for us and materially affecting our business prospects.

If we are not able to adapt to changing jewelry trends in China, our inventory may be overstocked and our operating results may suffer.

We depend on consumer fashions, preferences for jewelry and the demand for particular products in China. Jewelry design trends in China can change rapidly, as evidenced by the recent increase in the consumption of platinum jewelry in the Chinese market. The ability to predict accurately future changes in taste, respond to changes in consumer preferences, carry the inventory demanded by customers, deliver the appropriate quality, price products correctly and implement effective purchasing procedures, all have an important influence on determining sales performance and achieved gross margin. If we fail to anticipate, identify or react appropriately to changes in styles and trends, we could experience excess inventories, higher than normal markdowns or an inability to sell our products. If such a situation exists, we may need to incur additional costs to recast our products to fit the demand recovering only the raw material with all labor invested in the product lost.

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The failure to manage growth effectively could have an adverse effect on our business, financial condition, and results of operations.

Any significant growth in the market for our current business of design, manufacture, marketing and wholesale distribution, and our planned retail distribution, may require us to expand our employee base for managerial, operational, financial, and other purposes. We currently have approximately 800 full-time employees. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees. Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the purchases of raw materials and supplies, development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and control. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on its profitability.

We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

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

We are controlled by one shareholder, whose interests may differ from those of other shareholders.

As of the close of the Share Exchange Transaction, Mr. Chong, our Chief Executive Officer and our largest shareholder, beneficially owns or controls approximately 91.2% of our outstanding shares. Mr. Chong was the former sole stockholders of Fuqi BVI. Mr. Chong possesses significant influence over us, giving him the ability, among other things, to elect a majority of the Board of Directors and to approve significant corporate transactions. Such stock ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. Without the consent of Mr. Chong, we could be prevented from entering into potentially beneficial transactions if they conflict with our major shareholder’s interests. The interests of this shareholder may differ from the interests of our other shareholders.

RISKS RELATED TO DOING BUSINESS IN CHINA

All of our assets are located in China and all of our revenues are derived from our operations in China, and changes in the political and economic policies of the PRC government could have a significant impact upon what business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

Our business operations may be adversely affected by the current and future political environment in the PRC. The PRC has operated as a socialist state since the mid-1900s and is controlled by the Communist Party of China. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. The PRC has only permitted provincial and local economic autonomy and private economic activities since 1988. The government of the PRC has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy, including the jewelry industry, through regulation and state ownership. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

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The PRC laws and regulations governing ourcurrent business operations are sometimes vague and uncertain. Any changes in such PRC laws and regulations may have a material and adverse effect on our business.

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

·   levying fines;

·   revoking our business, other licenses or authorities;

·   requiring that we restructure our ownership or operations; and

·   requiring that we discontinue some or all of our business.

Because the scope of our business license is limited, it may need government approval to expand or continue our business.

We are a wholly-owned foreign enterprise, commonly known as a WOFE. A WOFE can only conduct business within its approved business scope, which ultimately appears on the business license. Our license permits us to design, manufacture, sell and market jewelry products to department stores throughout the PRC. Any amendment to the scope of our business requires further application and government approval. In order for us to expand our business beyond the scope of our license, we will be required to enter into a negotiation with the authorities for the approval to expand the scope of our business. We cannot assure you that it will be able to obtain the necessary government approval for any change or expansion of our business.

The foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.

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

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

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Inflation in China could negatively affect our profitability and growth.

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

Any deterioration of political relations between the United States and the PRC could impair our operations.

The relationship between the United States and the PRC is subject to sudden fluctuation and periodic tension. Changes in political conditions in the PRC and changes in the state of Sino-U.S. relations are difficult to predict and could adversely affect our operations or cause potential acquisition candidates or their goods and services to become less attractive. Such a change could lead to a decline in our profitability. Any weakening of relations between the United States and the PRC could have a material adverse effect on our operations.

Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate, including our ability to pay dividends.

The PRC State Administration of Foreign Exchange, or “SAFE,” issued a public notice in January 2005 concerning foreign exchange regulations on mergers and acquisitions in China. The public notice states that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to strict examination by the relevant foreign exchange authorities. The public notice also states that the approval of the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of a PRC company's assets or equity interests to foreign entities for equity interests or assets of the foreign entities.

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

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

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These new rules may significantly affect the means by which offshore-onshore restructurings are undertaken in China in connection with offshore private equity and venture capital financings, mergers and acquisitions. It is expected that such transactional activity in China in the near future will require significant case-by-case guidance from MOFCOM and other government authorities as appropriate. It is anticipated that application of the new rules will be subject to significant administrative interpretation, and we will need to closely monitor how MOFCOM and other ministries apply the rules to ensure its domestic and offshore activities continue to comply with PRC law. Given the uncertainties regarding interpretation and application of the new rules, we may need to expend significant time and resources to maintain compliance.

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

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

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

Any recurrence of severe acute respiratory syndrome, or SARS, the Avian Flu, or another widespread public health problem, in the PRC could adversely affect our operations.

A renewed outbreak of SARS, the Avian Flu or another widespread public health problem in China, where all of our manufacturing facilities are located and where all of our sales occur, could have a negative effect on our operations. Such an outbreak could have an impact on our operations as a result of:

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

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

·   a general slowdown in the Chinese economy.

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

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

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

12

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based upon U.S. laws, including the federal securities laws or other foreign laws against us or our management.

All of our current operations, including the manufacturing and distribution of jewelry, are conducted in China. Moreover, all of our directors and officers are nationals and residents of China. All or substantially all of the assets of these persons are located outside the United States and in the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon these persons. In addition, uncertainty exists as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities laws of the United States or any state thereof.

RISKS RELATED TO OUR CAPITAL STRUCTURE

There is no current trading market for our common stock, and there is no assurance of an established public trading market, which would adversely affect the ability of our investors to sell their securities in the public market.

Our common stock is not currently listed or quoted for trading on any national securities exchange or national quotation system. In the future, we intend to apply for the quotation of our common stock on the OTC Bulletin Board. There is no guarantee that securities will be granted approval for quotation on the OTC Bulletin Board. In addition, the NASD has enacted changes that limit quotations on the OTC Bulletin Board to securities of issuers that are current in their reports filed with the Securities and Exchange Commission. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than, for example, the NASDAQ Global Market or AMEX. Quotes for stocks included on the OTC Bulletin Board are not listed in the financial sections of newspapers as are those for the NASDAQ Global Market or AMEX. Therefore, prices for securities traded solely on the OTC Bulletin Board may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price.

The ability of our Chinese operating subsidiary to pay dividends may be restricted due to foreign exchange control regulations of China.

The ability of our Chinese operating subsidiary to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balance of the Chinese operating subsidiary. Because substantially all of our operations are conducted in China and our revenues are generated in China, all of our revenue being earned and currency received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, we may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.

We may not be able to achieve the benefits expected to result from the Share Exchange Transaction.

On November 20, 2006, we entered into the Share Exchange Agreement with the sole shareholder of Fuqi BVI pursuant to which we agreed to acquire all of the issued and outstanding share capital of Fuqi BVI in exchange for newly issued shares of our common stock. On November 22, 2006, the Share Exchange closed, and Fuqi BVI became our wholly-owned subsidiary and our sole business operation became that of Fuqi BVI and its wholly-owned subsidiary, Fuqi China. Also, the management and directors of Fuqi BVI became the management and directors of our company upon the closing of the Share Exchange. In addition, we changed our corporate name from “VT Marketing Services, Inc.” to “Fuqi International, Inc.” and reincorporated from the State of Nevada to the State of Delaware.

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The Share Exchange was effected for various reasons, including:

·   access to the capital markets of the United States;

·   the increased market liquidity expected to result from exchanging stock in a private company for securities of a public company that may eventually be traded;

·   the ability to use registered securities to make acquisition of assets or businesses;

·   increased visibility in the financial community;

·   enhanced access to the capital markets;

·   improved transparency of operations; and

·   perceived credibility and enhanced corporate image of being a publicly traded company.

There can be no assurance that any of the anticipated benefits of the Share Exchange will be realized in respect to our new business operations. In addition, the attention and effort devoted to achieving the benefits of the Share Exchange and attending to the obligations of being a public company, such as reporting requirements and securities regulations, could significantly divert management’s attention from other important issues, which could materially and adversely affect our operating results or stock price in the future.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

Our internal control over financial reporting may have weaknesses and conditions that need to be addressed, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

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

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

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

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Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

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

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

We do not foresee paying cash dividends in the foreseeable future.

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and we currently intend to retain any future earnings for funding growth. We paid cash dividends of $3,975,904 during the year ended December 31, 2004 and cash dividends of $5,421,687 during the year ended December 31, 2005. Each of these dividends were paid by our subsidiary to Mr. Chong, as its sole stockholder, which offset the amounts due to our subsidiary by Mr. Chong. We currently have no intention to declare dividends in the foreseeable future. As a result, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future. Moreover, you may not be able to resell your shares in our company at or above the price you paid for them.

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ITEM 2. FINANCIAL INFORMATION

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data for the years ended December 31, 2005, 2004, 2003 and 2002 and the balance sheet data as of December 31, 2005 and 2004 is derived from our audited consolidated financial statements, which, except for 2002, are included elsewhere in this Form 10. The selected consolidated statement of operations data for the period from April 2, 2001 (inception) to December 31, 2001 and the balance sheet data as of December 31, 2001 is derived from our unaudited consolidated financial statements not included in this Form 10. The following selected consolidated statement of operations data for the nine months ended September 30, 2006 and 2005 and consolidated balance sheet data as of September 30, 2006 is derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this Form 10. In the opinion of management, unaudited financial statements include all adjustments, consisting principally of normal recurring accruals, that management considers necessary for a fair presentation of the financial position and the results of operations for these periods. Historical results are not necessarily indicative of the results of operations for future periods. The following data is qualified in its entirety by and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Form 10.

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	Nine Months Ended September 30,						Years Ended December 31,
	2006			2005			2005			2004			2003		2002		2001
	(unaudited)			(unaudited)													(unaudited)
							(in thousands)
Net sales	$	67,607		$	51,928		$	72,580		$	56,765		$	29,501	$	15,226	$	4,726
Cost of sales		61,751			47,163			64,964			50,862			26,019		13,592		4,214
Gross profit		5,856			4,765			7,616			5,903			3,482		1,634		512
Operating expenses:
Selling and marketing		328			442			624			549			251		199		93
General and administrative		645			516			671			1,006			1,006		390		394
Total operating expenses		973			958			1,295			1,555			1,257		589		487
Income from operations		4,883			3,807			6,321			4,348			2,225		1,045		25
Other income (expenses):
Interest expense		(577	)		(316	)		(498	)		(100	)		-		-		-
Interest income		-			-			-			-			1		1		1
Loss on disposal of fixed assets		-			-			-			(45	)		-		-		-
Miscellaneous		13			-			(1	)		4			40		48		-
Total other income (expenses)		(564	)		(316	)		(499	)		(141	)		41		49		1
Income before provision for income taxes		4,319			3,491			5,822			4,207			2,266		1,094		26
Provision for income taxes		625			262			452			359			193		81		-
Net income		3,694			3,229			5,370			3,848			2,073		1,013		26
Other comprehensive income - foreign currency translation adjustments		166			244			143			-			-		-		-
Comprehensive income	$	3,860		$	3,473		$	5,513		$	3,848		$	2,073	$	1,013	$	26

	As of September 30,		As of December 31,
	2006		2005		2004		2003		2002		2001
	(unaudited)										(unaudited)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	130	$	71	$	256	$	1,294	$	235	$	10
Total assets		28,569		28,115		11,230		8,579		9,097		6,924
Current loan payable - short term		13,908		12,392		4,819		380		-		-
Total stockholders’ equity (deficit)		8,716		7,607		2,695		2,823		437		389

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RECAPITALIZATION

The acquisition of Fuqi BVI, and its wholly owned subsidiary Fuqi China, by us pursuant to the Share Exchange Transaction was accounted for as a recapitalization by us. The recapitalization was, at the time of the Share Exchange, the merger of a private operating company (Fuqi BVI) into a non-operating private shell corporation with nominal net assets and as such is treated as a capital transaction, rather than a business combination. As a result no goodwill is recorded. The transaction is the equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation. The pre-acquisition financial statements of Fuqi BVI are treated as the historical financial statements of the consolidated companies. The financial statements presented reflect the change in capitalization for all periods presented, therefore the capital structure of the consolidated enterprise, being the capital structure of the legal parent, is different from that appearing in the financial statements of Fuqi BVI in earlier periods due to the recapitalization.

MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The following discussion contains forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements regarding future events, our plans and expectations and financial projections. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Form 10. See “ITEM 1A. RISK FACTORS.”

Overview

We are engaged in the design, manufacture, marketing and wholesale distribution of a full range of precious metal jewelry in China. We currently operate through two divisions: (i) production and (ii) sales and marketing. The production division is responsible for manufacturing of our jewelry products and the sales and marketing division is responsible for the selling and marketing functions of the products, including customer relations and customer service. We intend to enter into the retail distribution of our jewelry products by opening or acquiring retail stores in China during 2007.

          We generate our revenues primarily from the sale of gold and platinum jewelry. We intend to develop platinum as the primary metal from which our jewelry is manufactured to capitalize on the recent increase in consumption of platinum jewelry in China. We also will devote resources to strengthen our brand name in the China jewelry industry by expanding the marketing and promotion of our products and maintaining large-scale production of quality products. Our operations are subject to all of the risks inherent in establishing a business enterprise in China, particularly one that is dependent, initially, on the ever-changing retail trends in products that are discretionary. In addition, our ability to effectively conduct our operations must be evaluated in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with establishing a growth business, including uncertainty as to production capabilities, market acceptance, marketing methods, expenses and competition. We may not be successful in our proposed new business activities, such as entering the retail market for our products.

The Chinese jewelry industry has recently experienced growth due to a series of governmental reforms, an increase in income levels and growth in the urban population in China. The industry is also highly competitive, and our competitors include domestic and foreign jewelry manufacturers, wholesalers, and importers who may operate on a national, regional and local scale. Many of our competitors have substantially greater financial, technical and marketing resources and personnel than us. As we believe competition is largely based on quality, service, and pricing, our strategy is to provide competitively priced, moderate- to high-quality products to the high-volume retail jewelry market. We also intend to enter into the jewelry retail industry, which is also highly competitive. Many of our potential competitors in the retail industry will have larger customer bases, longer operating histories and significantly greater financial, technical, marketing and other resources. It may be difficult for a newcomer to enter into the retail industry, but we believe that our established production and wholesale distribution business will facilitate our entrance into the retail market.

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A substantial portion of our capital will be applied to the acquisition of materials, components and additional tooling, assembly and labor to manufacture jewelry and to expand our sales, marketing and promotional activities. We will require substantial additional capital for assembly or manufacturing activities, for purchase of additional components and for marketing and advertising activities. If we do not receive the consumer or business acceptance that we anticipate, our revenues and operating results will likewise not reach the levels we anticipate.

Corporate History

We were originally incorporated in the State of Arizona on September 3, 2004 as VT Marketing Services, Inc. We were a wholly-owned subsidiary of Visitalk Capital Corporation (“VCC”), and formed as part of the implementation of the Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”). Visitalk.com filed for Chapter 11 Bankruptcy in November 2000. The Visitalk Plan became effective on September 17, 2004 (the “Effective Date”). On September 22, 2004, Visitalk.com merged into VCC, which was authorized as the reorganized debtor under the Visitalk Plan. As part of the Visitalk Plan, we issued shares of our common stock and warrants to purchase shares of our common stock that were distributed to creditors and claimants of Visitalk.com. Our original business was to use Visitalk.com’s technology to facilitate peer-to-peer marketing activities. On July 21, 2006, we sold 1,368,761 shares of common stock (post Reverse Split) to BayPeak, LLC. As part of this transaction (the “Bay Peak Sale”), we abandoned our peer-to-peer marketing business, and began to seek companies in Asia with potential, in particular companies based in China, to acquire. The shares issued in the Bay Peak Sale represented 75% of our outstanding shares at the time of issuance. On July 28, 2006, Visitalk.com was granted its Final Decree by the Bankruptcy Court. On November 6, 2006, we conducted a reverse stock split of our shares common stock and issued one share for each 15.43 shares of our common stock then outstanding (the “Reverse Split”). No shareholder was reversed below 100 shares in the Reverse Split and the then outstanding Plan Warrants were not effected by the Reverse Split. On November 8, 2006, we changed our state of incorporation from Arizona to Nevada.

On November 20, 2006, we entered into a share exchange agreement with Yu Kwai Chong, who is the sole shareholder of Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) pursuant to which we agreed to acquire all of the issued and outstanding capital stock of Fuqi BVI (the “Exchange Transaction”). The Exchange Transaction closed on November 22, 2006 and, per the terms of the share exchange agreement (the “Share Exchange Agreement”), we issued an aggregate of 18,886,666 shares of our common stock (post Reverse Split) in exchange for all of the issued and outstanding securities of Fuqi BVI. Pursuant to the Share Exchange Agreement, BayPeak agreed to cancel 8,761 shares of common stock.

On December 8, 2006, we changed our corporate name from “VT Marketing Services, Inc.” to “Fuqi International, Inc.” and reincorporated from the State of Nevada to the State of Delaware.

For financial accounting purposes, the Exchange Transaction was treated as a reverse acquisition by Fuqi BVI, under the purchase method of accounting, and was treated as a recapitalization with Fuqi BVI as the acquirer. Accordingly, our historical financial statements have been prepared to give retroactive effect to the reverse acquisition completed on November 22, 2006, and represent the operations of Fuqi BVI and its wholly-owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd., a company established under the laws of the People's Republic of China. Upon the acquisition of Fuqi BVI, our sole business operations became that of Fuqi BVI.

Critical Accounting Policies, Estimates and Assumptions

Management's discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. The most significant estimates and assumptions include valuation of inventories, provisions for income taxes and allowance for doubtful accounts, the recoverability of the long-lived assets. Actual results could differ from these estimates. Periodically, we review all significant estimates and assumptions affecting the financial statements and records the effect of any necessary adjustments.

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The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of the our consolidated financial statements:

Revenue Recognition. Revenue is recognized upon delivery and acceptance of jewelry products by our customers, provided that the other conditions of sales are satisfied: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred, upon shipment when title passes, or services have been rendered; (iii) our price to the buyer is fixed or determinable; and (iv) collectibility is reasonably assured.

Currency Reporting.Amounts reported are stated in U.S. Dollars, unless stated otherwise. Our functional currency is reported in Renminbi ("RMB"). Foreign currency transactions (outside PRC) are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at period-end exchange rates. Our functional currency is RMB. For the purpose of preparing the consolidated financial statements, the consolidated balance sheets of our company have been translated into U.S. dollars at the current rates as of end of the respective period and the statements of operations have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized. The resulting translation gain adjustments are recorded as other comprehensive income in the statements of income and comprehensive income and as a separate component of statements of shareholders' equity.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Allowance for doubtful accounts is based on the our assessment of the collectibility of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer's credit worthiness deteriorates, or our customers' actual defaults exceed historical experience, our estimates could change and impact our reported results. We have not been experiencing any significant amount of bad debt in the past.

Inventory. Inventories are stated at lower of cost (using the first-in, first-out method) or market. WE continually evaluate the composition of our inventories assessing slow-moving and ongoing products. Our products contain gold and platinum material which will not become obsolete and accordingly we did not provide any reserve for slow-moving and obsolete inventory.

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Results of Operations

The following table sets forth our statements of operations for the nine months ended September 30, 2006 and 2005 (unaudited) and the years ended December 31, 2005, 2004 and 2003 in U.S. dollars:

	Nine Months Ended September 30,						Years Ended December 31,
	2006			2005			2005			2004			2003
	(unaudited)			(unaudited)
	(in thousands)
Net sales	$	67,607		$	51,928		$	72,580		$	56,765		$	29,501
Cost of sales		61,751			47,163			64,964			50,862			26,019
Gross profit		5,856			4,765			7,616			5,903			3,482
Operating expenses:
Selling and marketing		328			442			624			549			251
General and administrative		645			516			671			1,006			1,006
Total operating expenses		973			958			1,295			1,555			1,257
Income from operations		4,883			3,807			6,321			4,348			2,225
Other income (expenses):
Interest expense		(577	)		(316	)		(498	)		(100	)		-
Interest income		-			-			-			-			1
Loss on disposal of fixed assets		-			-			-			(45	)		-
Miscellaneous		13			-			(1	)		4			40
Total other income (expenses)		(564	)		(316	)		(499	)		(141	)		41
Income before provision for income taxes		4,319			3,491			5,822			4,207			2,266
Provision for income taxes		625			262			452			359			193
Net income		3,694			3,229			5,370			3,848			2,073
Other comprehensive income - foreign currency translation adjustments		166			244			143			-			-
Comprehensive income	$	3,860		$	3,473		$	5,513		$	3,848		$	2,073

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Nine Months Ended September 30, 2006 and 2005

Net sales for the nine months ended September 30, 2006 increased to $67.6 million, an increase of $15.7 million, or 30.2%, compared to net sales of $51.9 million for the nine months ended September 30, 2005. The increase in net sales was primarily the result of an increase in our prices, which was the result of an increase in the price of precious metals. The increase in sales quantity for the nine months ended September 30, 2006 compared to the same period for 2005 was approximately 1%.

Sales for the nine months ended September 30, 2006 and 2005 were comprised of the following (expressed in million of dollars):

	Nine Months Ended September 30,
	2006				2005
	Amount in $		%		Amount in $		%
Platinum		30.8		45.6		10.1		19.5
Gold		14.7		21.7		24.7		47.6
K-gold and Studded Jewelry		22.1		32.7		17.1		32.9
Total		67.6		100.0		51.9		100.0

Cost of sales is mainly comprised of costs of raw materials, primarily gold and platinum, in addition to direct manufacturing costs and factory overhead, which accounted for approximately 13% of the cost of sales for the nine months ended September 30, 2006. Cost of sales for the nine months ended September 30, 2006 increased to $61.8 million, an increase of $14.6 million, or 30.9%, compared to cost of sales of $47.2 million for the same period in 2005. The increase was primarily due to the increase in net sales for the nine months ended September 30, 2006, and the percentage of the increase in cost of sales was relatively equal to the increase in net sales.

Gross profit for the nine months ended September 30, 2006 increased to $5.9 million, an increase of $1.1 million, or 22.9%, compared to $4.8 million for the same period in 2005. The increase in gross profit resulted primarily from the increase in net sales. Gross profit margin decreased to 8.7% for the nine months ended September 30, 2006, compared to 9.2% for the same period in 2005. The decrease in gross profit margin was mainly attributed to our reduction in our selling prices for the period ended September 30, 2006. There was a general decrease in total demand caused by an increase in precious metal prices. We decreased our selling prices to encourage retailers to replenish their inventory through increased buying under the uncertain fluctuations in the prices of precious metal prices.

Selling and marketing expenses are primarily comprised of business taxes, advertising expenses, traveling expenses, production costs of marketing materials, insurance and delivery expenses. Selling and marketing expenses for the nine months ended September 30, 2006 was $328,000, a decrease of $114,000, or 25.8%, as compared to $442,000 for the same period in 2005. The decrease in selling and marketing expenses was primarily due to our more targeted and focused marketing efforts.

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General and administrative expenses consist primarily of payroll compensation, benefits and travel expenses for our staff, professional fees such as accountants and financial advisors, depreciation expenses, as well as administrative office expenses. General and administrative expenses for the nine months ended September 30, 2006 was $645,000, an increase of $129,000, or 25%, as compared to $516,000 for the same period in 2005. The increase in general and administrative expenses was mainly due to costs and fees incurred in connection with a reverse merger with a U.S. corporation. We expect that our general and administrative expenses will increase due to the various additional legal, accounting and other requirements applicable to a public company in the United States.

Interest expenses were approximately $577,000 for the nine months ended September 30, 2006, an increase of $261,000, or 82.6%, as compared to $316,000 for same period in 2005. The increase in interest expense was primarily a result of our increase in short term bank financing for the nine months ended September 30, 2006.

Provision for income tax expense was approximately $625,000 for the nine months ended September 30, 2006, an increase of $363,000, or 138.6%, as compared to approximately $262,000 for the same period in 2005. The increase was primarily due to the increase in our operating income for the nine months ended September 30, 2006. Companies in China are generally subject to a 30% state enterprise income tax and a 3% national income tax. Our subsidiary, Shenzhen Fuqi Jewelry Company Limited, enjoyed a reduced enterprise income tax rate of 15%, which is granted to all enterprises operating in Shenzhen Special Economic Zone. Prior to 2006, the Company was under the preferential income tax rate of 7.5% in 2005 and 2004 due to its status of being a new business. That status expired effective January 1, 2006.

Net income increased to $3.7 million for the nine months ended September 30, 2006 from $3.2 million for the nine months ended September 30, 2005, an increase of $0.5 million, or 15.6%.

Other comprehensive income was $166,000 during 2006, a decreased of $78,000 or 32%, as compared to $244,000 during 2005. The China government maintained a relatively fixed exchange rate against U.S. dollars until the end of the third quarter of 2005, which generated a larger appreciation of the RMB in the third quarter of 2005.

Years Ended December 31, 2005 and 2004

Net sales for the year ended December 31, 2005 increased to $72.6 million, an increase of $15.8 million, or 27.9%, compared to net sales of $56.8 million for the year ended December 31, 2004. The increase in net sales was primarily the result of an increase in sales of platinum jewelries.

Sales for the year ended December 31, 2005 and 2004 were comprised of the following (expressed in million of dollars):

	Year Ended December 31,
	2005				2004
	Amount in $		%		Amount in $		%
Platinum		34.9		48.1		26.3		46.3
Gold		13.2		18.2		9.3		16.4
K-gold and Studded Jewelry		24.5		33.7		21.2		37.3
Total		72.6		100.0		56.8		100.0

Cost of sales for the year ended December 31, 2005 increased to $65.0 million, an increase of $14.1 million, or 27.7%, compared to cost of sales of $50.9 million for the year ended December 31, 2004. The increase was primarily due to the increase in net sales for the year ended December 31, 2005, and the percentage of the increase in cost of sales was relatively level with the increase in net sales.

Gross profit for the year ended December 31, 2005 increased to $7.6 million, an increase of $1.7 million, or 28.8%, compared to $5.9 million for the year ended December 31, 2004. The increase in gross profit resulted primarily from the increase in net sales. Gross profit margin remained relatively stable at 10.5% for the year ended December 31, 2005, compared to 10.4% for the year ended December 31, 2004.

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Selling and marketing expenses for the year ended December 31, 2005 was $624,000, an increase of $75,000, or 13.7%, as compared to $549,000 for the year ended December 31, 2004. The increase in selling and marketing expenses was primarily due to the increase of promotion and advertising activities.

General and administrative expenses for the year ended December 31, 2005 was $671,000, a decrease of $335,000, or 33.3%, as compared to $1,006,000 for the year ended December 31, 2004. The decrease in general and administrative expenses was mainly due to a decrease in legal and professional fees in the year ended December 31, 2005 as majority of the audit fees for the historical financial statement were incurred in 2005. In addition we accrued estimated penalties on unpaid business taxes related to the cash revenues in 2004. We settled the outstanding taxes amount with the tax authority during 2006 and as a result, no penalties were assessed. Accordingly, no penalties were accrued for the year of 2005.

Interest expenses were approximately $498,000 for the year ended December 31, 2005, an increase of $398,000, or 398%, as compared to $100,000 for year ended December 31, 2004. The increase in interest expense was primarily a result of increased bank loans borrowed in the year ended December 31, 2005.

Provision for income tax expense was approximately $452,000 for the year ended December 31, 2005, an increase of $93,000, or 25.9%, as compared to approximately $359,000 for the year ended December 31, 2004. The increase was primarily due to the increase in our operating income for the year ended December 31, 2005.

Other comprehensive income increased by $143,000 during 2005 compared to $0 during 2004. The China government maintained a relatively fixed exchange rate against U.S. dollars until the end of the third quarter of 2005 and therefore there were no adjustments related to foreign currency translations during 2004.

Net income increased to $5.4 million for the year ended December 31, 2005 from $3.8 million for the year ended December 31, 2004, an increase of $1.6 million, or 42%.

Years Ended December 31, 2004 and 2003

Net sales for the year ended December 31, 2004 increased to $56.8 million, an increase of $27.3 million, or 92.4%, compared to net sales of $29.5 million for the year ended December 31, 2003. The increase in net sales was primarily the result of a significant growth in sales of platinum jewelry after the expansion of production facility, partially offset in a decrease in sales of our gold products.

Sales for the years ended December 31, 2004 and 2003 were comprised of the following (expressed in million of dollars):

	Year Ended December 31,
	2004				2003
	Amount in $		%		Amount in $		%
Platinum		26.3		46.3		2.1		7.1
Gold		9.3		16.4		18.2		61.7
K-gold and Studded Jewelry		21.2		37.3		9.2		31.2
Total		56.8		100.0		29.5		100.0

Cost of sales for the year ended December 31, 2004 increased to $50.9 million, an increase of $24.9 million, or 95.8%, compared to cost of sales of $26.0 million for the year ended December 31, 2003. The increase was primarily due to the increase in net sales for the year ended December 31, 2004, and the percentage of the increase in cost of sales was relatively level with the increase in net sales.

Gross profit for the year ended December 31, 2004 increased to $5.9 million, an increase of $2.4 million, or 68.6%, compared to $3.5 million for the year ended December 31, 2003. The increase in gross profit resulted primarily from the increase in net sales. Gross profit margin decrease to 10.4% for the year ended December 31, 2004, compared to 11.8% for the year ended December 31, 2003. The primary reason for the decrease in gross profit margin was our policy to reduce prices of our products in an attempt to broaden our consumer base.

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Selling and marketing expenses for the year ended December 31, 2004 was $549,000, an increase of $298,000, or 118.7%, as compared to $251,000 for the year ended December 31, 2003. The increase in selling and marketing expenses was primarily due to the increase of promotion and advertising activities.

General and administrative expenses for the years ended December 31, 2004 and 2003 was $1.0 million. Despite an increase in net sales for the year ended December 31, 2004, our general and administrative expenses did not increase primarily because our administrative structure was sufficient to manage the increased sales without the input of additional resources.

General and administrative expenses consist primarily of payroll compensation, benefits and travel expenses for our staff, professional fees such as accountants and financial advisors, depreciation expenses, as well as administrative office expenses.

Interest expenses were approximately $100,000 for the year ended December 31, 2004, compared to nil for year ended December 31, 2003. The increase in interest expense was primarily a result of obtaining bank loans in the year ended December 31, 2004.

Provision for income tax expense was approximately $358,000 for the year ended December 31, 2004, an increase of $165,000, or 85.5%, as compared to approximately $193,000 for the year ended December 31, 2003. The increase was primarily due to the increase in our operating income for the year ended December 31, 2004.

Other comprehensive income was $0 during 2004 and 2003 since during 2003 and 2004 and majority part of 2005, the China government maintained a relatively fixed exchange rate against U.S. dollars and therefore there were no adjustments related to foreign currency translations.

Net income increased to $3.8 million for the year ended December 31, 2004 from $2.1 million for the year ended December 31, 2003, an increase of $1.7 million, or 81%.

Liquidity and Capital Resources

At September 30, 2006, we had an retained earnings of $1,177,530 and had cash and cash equivalents of $129,670. We have historically financed our operations with cash flows from operations, as well as through the borrowing of long term or short term bank loans. We use our inventory as a guarantee to loans.

We currently have current loan payables in an aggregate amount of $13,908,206, which consists of (i) a note for $1,896,574 with an interest rate of 5.481% that matured in October 2006, (ii) a note for $1,264,382 with an interest rate of 5.58% that is due in December 2006, (iii) a note for $1,264,382 with an interest rate of 5.76% that is due in January 2007, (iv) four notes for $3,793,147 with an interest rate of 5.832% that is due in January 2007, (v) two notes for $2,528,765 with an interest rate of 5.85% that is due in February 2007, (vi) a note for $1,264,382 with an interest rate of 6.138% that is due in March 2007, (vii) a note for $948,287 with an interest rate of 6.732% that is due in July 2007, and (viii) a note for $948,287 with an interest rate of 6.732% that is due in September 2007. Our loans are secured by inventory, real property and/or guaranteed by our affiliates. In connection with loans that we have taken out for a total of $1,770,135, we are required pursuant to the loan agreements to maintain $1,770,135 in the bank to cover these loans. The amount was classified as restricted cash in the balance sheet as of September 30, 2006.

Net cash used by operating activities was $7.1 million for the nine months ended September 30, 2006, compared to net cash provided by operations of $0.8 million for the same period in 2005. Net cash used increased by $7.9 million primarily because of the decrease in accounts receivables of $3.3 million and increase in inventory of almost $8.9 million, in addition to a change in customer deposits.

Net cash provided by investing activities amounted to $8.0 million for the nine months ended September 30, 2006, compared to net cash used for investing activities of $13.8 million for the nine months ended September 30, 2005. The change is because the major shareholder repaid his advance to our company. The amount of the advance to the shareholder was approximately $12.5 million during the nine month ended September 30, 2005. The major shareholder from time to time made advances to or received advance from our company.

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Net cash used in financing activities amounted to $1.0 million for the nine months ended September 30, 2006, compared to net cash provided by financing activities of $15.0 million for the nine months ended September 30, 2005. The change was primarily a result of us taking our short-term bank loans in 2005 and while no new loans were taken out in 2006.

We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital, for the next 12 months. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

We intend to establish a retail sales plan aimed at gaining market share in the consumer market in China. We plan to open retail stores throughout China, initially, and in Hong Kong and other countries in the future. In order to expedite the process of entering into the retail market the Company intends to acquire two retail stores and 20 department store counters in municipalities and provincial capitals in China, including Beijing, Shanghai, Shenyang, Wuhan and Chengdu. In 2007, we plan to acquire another 6 to 7 stores and 70 to 80 counters while open 3 to 4 stores and 20 to 30 counters ourselves. Total cash required for the expansion into retail business up to the end of 2007 is approximately $29 million. Additional capital for this objective would be required that is in excess of our liquidity, requiring us to raise additional capital through an equity offering or secured or unsecured debt financing. The availability of additional capital resources will depend on prevailing market conditions, interest rates, and our existing financial position and results of operations.

The following table describes our contractual commitments and obligations as of December 31, 2005 (in thousands):

	Payments due by period (in $)
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Lease of Plant		503,990		113,656		334,572		55,762		—
Long Term Debt Obligations		1,239,157		—		1,239,157		—		—

Seasonality

Our business is seasonal in nature. Our sales and net income are traditionally higher in the fourth calendar quarter than the rest of the year. During fiscal 2005, a larger portion of our sales was generated during the fourth calendar quarter ending December 31, 2005, and our net income was $1.7 million for the fourth quarter of 2005, as compared to net income of $1.5 million, $1.2 million and $1.0 million for the first, second and third calendar quarters, respectively, of 2005. The primary factors that affect the seasonal changes in our business operations are holidays and traditional Chinese festivals. In the forth quarter, retailers often experience increased sales due to the golden week of Chinese National Day, Christmas and New Year’s Day. In addition, jewelry retailers commonly stock up from wholesalers to prepare for potentially higher sales during the period before Chinese New Year, which is a peak season of marriage and newborns in China.

Quantitative and Qualitative Disclosure Regarding Market Risk

Foreign Currency Risk. The functional currencies of our company are the Hong Kong Dollar (HKD) and Renminbi (RMB). Substantially all of our operations are conducted in the PRC. Our sales and purchases are conducted within the PRC in RMB. Conversion of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of the RMB, there can be no assurance that such exchange rate will not again become volatile or that the RMB will not devalue significantly against the U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC. In addition, the RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.

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Credit Risk. Our product revenues are concentrated in production and sales of fine jewelry products, which are highly competitive with frequent changes in styles and fashion. Significant customer preference changes in the industry or customer requirements, or the emergence of competitive products with better marketing strategies and more well-known brand name, could adversely affect our operating results. Financial instruments that potentially subject us to concentration of credit risk consist principally of trade accounts receivable. The credit risk in the accounts receivable is mitigated by the fact that we perform ongoing credit evaluations of our customers’ financial condition and that accounts receivable are primarily derived from large credit-worthy companies throughout the PRC. In addition, we have attempted to diversify our customer base. Historically, we have not experienced significant losses related to trade receivables. Generally, no collateral is required.

Country Risk. Substantially all of our business, assets and operations are located and conducted in China. While China’s economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations applicable to us. If there are any changes in any policies by the Chinese government and our business is negatively affected as a result, then our financial results, including our ability to generate revenues and profits, will also be negatively affected.

Off-Balance Sheet Transactions

We have no material off-balance sheet transactions.

New Accounting Pronouncements

In March 2006, the FASB issued SFAS No. 156 (“FAS 156”), “Accounting for Servicing of Financial Assets—An Amendment of FASB Statement No. 140.” Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effect beginning the first fiscal year that begins after September 15, 2006. We do not expect the adoption of FAS 156 will have a material impact on our financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are evaluating the impact of this new pronouncement to our financial position and results of operations or cash flows.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 provides interpretive guidance on the SEC's views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. We do not expect the adoption of SAB 108 will have a material impact on our financial position or results of operations.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are evaluating the impact of this new pronouncement to our financial position and results of operations or cash flows.

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In September 2006, the FASB issued Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)." SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. We do not expect the adoption of SFAS 158 will have a material impact on our financial position or results of operations, as we do not currently have any defined benefit pension or other post-retirement plans.

ITEM 3. PROPERTIES

Our principal executive offices are located at 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen 518019, China. We own approximately 15,000 square feet of office and showroom at this location.

Our jewelry production facility is located in Shenzhen, China and consists of approximately 66,000 square feet of building space. We own approximately 33,000 square feet of this space and the remainder is leased from a landlord, Guanghong Jin Tong Hai Enterprises Ltd. We have acquired the space for production facility, office and show room located at 5/F., Block 1, Shi Hua Industrial Zone during 2005.

In July 2005, we entered into a leasing agreement with Shenzhen Jin Tong Hai Enterprises Ltd. to lease the production plan on 4th floor Block 1, Shi Hua Industrial Park for a approximately $112,000 per annum. from July 2005 to June 2010. The lease agreement will terminate in June 2010. We have the right to renew the lease prior to its termination. At the time of renewal, the lease amount will be renegotiated, and based on the current industrial leasing market, we expect that the lease amount will be increased by approximately 35% in the year of 2010.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or become exercisable within 60 days of the closing of the date of this Form 10 are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

The following table sets forth certain information with respect to beneficial ownership of our common stock based on 20,715,384 issued and outstanding shares of common stock, by:

·   Each person known to be the beneficial owner of 5% or more of the outstanding common stock of our company;

·   Each executive officer;

·   Each director; and

·   All of the executive officers and directors as a group.

Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Fuqi International, Inc., 5/F., Block 1, Shi Hua Industrial Zone, Cui Zhu Road North, Shenzhen 518019, People’s Republic of China.

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Name and Address of Beneficial Owner	Title		Beneficially Owned Post-Share Exchange		Percent of Class
Directors and Executive Officers
YuKwai Chong		President, Chief Executive Officer and Chairman of the Board		18,886,666		91.2	%
LieXi Zhuang		Chief Operation Officer and Director		—		—
ChingWan Wong		Chief Financial Officer and Director		—		—
Officers and Directors as a group (total of 3 persons)				18,886,666		91.2	%
5% or more Stockholders
Bay Peak LLC 169 Bolsa Ave. Mill Valley, California 94941				1,360,000		6.6	%

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

The following individuals constitute our board of directors and executive management:

Name	Age	Position
YuKwai Chong	47	President, Chief Executive Officer and Chairman of the Board
ChingWan Wong	39	Chief Financial Officer and Director
LieXi Zhuang	39	Chief Operating Officer and Director

YuKwai Chong

Mr. Chong is the founder of Fuqi International and has been its President, Chief Executive Officer and Chairman of the Board of Directors since its inception in January 2004. From April 2001 to present, Mr. Chong has served as the CEO and a director of Shenzhen Fuqi Jewelry Co., Ltd., the wholly-owned subsidiary of Fuqi International. As CEO of FuQI Jewelry Co., Ltd., Mr. Chong is responsible for the strategic planning, marketing and overall growth of the company. Mr. Chong as currently holds a directorship position at a number of private companies in China, including Shenzhen Rongxing (Group) Limited, Guangdong Grand Heaven Information Security Systems Engineering Co., Ltd., Shenzhen Xinke Investment Co., Ltd., Shenzhen Laiyongchu Alcohol Distillery Co., Ltd., Shenzhen Professional Rugged Computer Co., Ltd., and Shenzhen Union Broadband Communication Co., Ltd. These companies engage in businesses that range from investment management, IT engineering to computer and communication equipment management.

ChingWan Wong

Mr. Wong has been Fuqi International’s Chief Financing Officer (CFO) since its inception in January 2004. From April 2002 to the present, Mr. Wong worked as a tax consultant at the Guandong Yuexin Registered Tax Agent Co., Ltd. From September 2000 to March 2002, Mr. Wong served as the finance director of MindShare China, a communications firm. Mr. Wong received his Bachelor of Business Administration from the Chinese University of Hong Kong and his Bachelor of Commerce from University of Southern Queensland. He is a registered accountant in Australia, Hong Kong, and Canada, and has taken the position of CFO in China for a multinational media company and is experienced in international financial management.

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LieXi Zhuang

Mr. Zhuang is a co-founder and Chief Operating Officer of Fuqi China with the responsibility for production management and cost control. Prior to founding Fuqi China in January 2004, Mr. Zhuang was the Business Manager of Shenzhen Ping Shen Gold and Silver Jewelry Co., Ltd. since 1997, and from 1993 to 1997, Mr. Zhuang was the Business Manager of Shenzhen Gao De Gold and Silver Jewelry Company. Mr. Zhuang was certified with a Higher Diploma in Management by Hunan Xiang Tan University.

Family Relationships

There are no family relationships among the individuals comprising the Company’s board of directors.

Director Compensation

We do not currently have an established policy to provide compensation to members of our Board of Directors for their services in that capacity. We intend to develop such a policy in the near future.

The Board of Directors and Committees

Our Board of Directors does not maintain a separate audit, nominating or compensation committee. Functions customarily performed by such committees are performed by our Board of Directors as a whole. We are not required to maintain such committees under the rules applicable to companies that do not have securities listed or quoted on a national securities exchange or national quotation system. We intend to create board committees in the near future.

ITEM 6. EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation for Fuqi International and its wholly owned subsidiary for the three fiscal years ended December 31, 2005 of the chief executive officer and other executive officers whose annual salary and bonus exceeded $100,000 in such years (collectively, the “Named Executive Officers”).

Name and Position	Year		Salary($)		All Other Compensation ($)
Yu Kwai Chong		2005	$	5,000	$	—(1	)
President, CEO and		2004		4,000		—(1	)
Chairman of the Board		2003		4,000		—(1	)
ChingWan Wong		2005	$	8,000		—
Chief Financial Officer		2004		37,000		—
		2003		-		—
LieXi Zhuang		2005	$	4,500		—
Chief Operating Officer		2004		3,800		—
		2003		3,800		—

(1) Excludes dividends paid to Mr. Chong, as the sole stockholder of our subsidiary, totaling $5,421,687, $3,975,904, and $1,734,940, during the years ended December 31, 2005, 2004, and 2003, respectively.

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Employment Agreements

We do not currently have employment agreements with any of our named executed officers.

Compensation of Directors

Other than as indicated above, we did not pay any other form of compensation to any of our officers or directors, including, but not limited to any stock option plans, stock appreciation rights, long term incentive plan awards, insurance or automobile or telephone allowances for the periods indicated in the table. Our directors received no fees for their services as a director; however, they are reimbursed for expenses incurred by them in connection with Company business.

Option Grants in 2005

There were no option grants in 2005.

Aggregated Option Exercises in 2005 and Option Values at December 31, 2005

There were no option exercises or options outstanding in 2005.

Equity Incentive Plans

In November 2006, our stockholders approved an equity incentive plan (“2006 EIP”) for employees, non-employee directors and other service providers covering 3,000,000 shares of common stock. Prior to this, we had an approved 2004 Equity Incentive Plan, which was replaced by the 2006 EIP. No options are currently outstanding under either plan. Any options to be granted under the 2006 EIP may be either “incentive stock options,” as defined in Section 422A of the Internal Revenue Code, or “nonqualified stock options,” subject to Section 83 of the Internal Revenue Code, at the discretion of our board of directors and as reflected in the terms of the written option agreement. The option price shall not be less than 100% of the fair market value of the optioned common stock on the date the option is granted. The option price shall not be less than 110% of the fair market value of the optioned common stock for an optionee holding at the time of grant, more than 10% of the total combined voting power of all classes of our stock. Options become exercisable based on the discretion of our board of directors and must be exercised within ten years of the date of grant.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides current information regarding compensation plans, including individual compensation arrangements, under which equity securities of our company are authorized for issuance.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		—	$	—		3,000,000(1	)
Equity compensation plans not approved by security holders		—		—		—
Total		—				3,000,000

(1) Represents options available for grant under our 2006 EIP.

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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Fuqi BVI Share Exchange Agreement

On November 22, 2006, pursuant to the Share Exchange Agreement, we acquired all of the outstanding capital stock of Fuqi BVI, in a stock for stock exchange. We issued to Yu Kwai Chong, who is the sole Fuqi BVI stockholder, 18,886,666 shares of common stock in exchange for all of the issued and outstanding shares of capital stock of Fuqi BVI. The new shares issued to the Fuqi BVI stockholder represented 91.2% of our voting capital stock immediately after the Exchange Transaction. Mr. Chong is also the Chairman of Fuqi BVI and our Chief Executive Officer and Chairman of the Board. Prior to the effective date of the Exchange Transaction, we were controlled by Bay Peak. Bay Peak is our second largest stockholder and owns approximately 6.6% of our issued and outstanding shares of common stock.

Transactions with Bay Peak

On July 21, 2006, we sold 1,368,761 shares of common stock (post Reverse Split) to BayPeak, LLC, of which 8,761 shares were subsequently cancelled upon the close of the Share Exchange. As part of this transaction (the “Bay Peak Sale”), we abandoned our peer-to-peer marketing business, which was transferred to VCC, and began to seek companies in Asia with potential, in particular companies based in China, to acquire. The shares issued in the Bay Peak Sale represented 75% of our outstanding shares. Certain affiliates of Bay Peak became executive officers and directors of our company after the Bay Peak Sale, all of which resigned upon the closing of the Share Exchange on November 22, 2006.

YuKwai Chong

YuKwai Chong, who is the Company’s largest shareholder, President, Chief Executive Officer and Chairman of the Board and was the principal executive officer and sole shareholder of Fuqi International prior to the Share Exchange, has conducted various related party transactions with Fuqi International in the past. These transactions include:

·   Fuqi International earned certain cash revenues from its customers that were subsequently collected by its Mr. Chong. During the years ended December 31, 2005, 2004, and 2003, cash revenues collected by Mr. Chong totaled $6,100,298, $4,505,023, and $2,434,245, respectively. These revenues were included in the total sales amounts in the financial statements for the years ended December 31, 2005, 2004 and 2003 included in this Form 10.

·   Mr. Chong made non-interest bearing advances to Fuqi International or borrowed from Fuqi International since the inception of its operations and the operations of Shenzhen Fuqi Jewelry Company Limited, its wholly owned subsidiary. Fuqi International advanced $14,363,046, $5,982,789, and $8,013,659 to Mr. Chong during the years ended December 31, 2005 and 2004, and 2003, respectively.

·   Fuqi International declared dividends to Mr. Chong, as its sole stockholder, totaling $5,421,687, $3,975,904, and $1,734,940, during the years ended December 31, 2005, 2004, and 2003, respectively, which offset the amounts due to Fuqi International by Mr. Chong.

·   Outstanding amounts owed to Fuqi International from Mr. Chong totaled $9,487,562 and $546,203 as of December 31, 2005 and 2004, respectively. All amounts owed by Mr. Chong to Fuqi International were repaid prior September 30, 2006

ITEM 8. LEGAL PROCEEDINGS

We are not involved in any legal proceedings, nor are we aware of any potential or threatened litigation, or any asserted claims that may result in litigation or other legal proceedings.

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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS

Market Information

The shares of common stock of the Company are not currently listed or quoted for trading on any national securities exchange or national quotation system. The Company intends to apply for quotation of its common stock on the OTC Bulletin Board. If and when the Company’s common stock is listed or quoted for trading, the price of its common stock will likely fluctuate in the future. The stock market in general has experienced extreme stock price fluctuations in the past few years. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have experienced dramatic volatility in the market prices of their common stock. The Company believes that a number of factors, both within and outside its control, could cause the price of the Company’s common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of its common stock:

·   The Company’s ability to obtain additional financing and, if available, the terms and conditions of the financing;

·   The Company’s financial position and results of operations;

·   Concern as to, or other evidence of, the reliability and efficiency of the Company’s proposed products and services or its competitors’ products and services;

·   Announcements of innovations or new products or services by the Company or its competitors;

·   Federal and state governmental regulatory actions and the impact of such requirements on the Company’s business;

·   The development of litigation against the Company;

·   Period-to-period fluctuations in the Company’s operating results;

·   Changes in estimates of the Company’s performance by any securities analysts;

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

·   Changes in interest rates;

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

·   Investor perceptions of the Company; and

·   General economic and other national conditions.

Stockholders

As of November 22, 2006, we had approximately 208 common stockholders. In addition, we have 330 holders of our Plan Warrants and no option holders.

Rule 144

We had 20,715,384 shares of common stock currently issued and outstanding as of the close of the Share Exchange Transaction. In general, under Rule 144 under the Securities Act of 1933, as amended (the Securities Act), a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

· 1% of the number of shares of our common stock then outstanding, which will equal approximately 207,241 shares of our common stock; or

· the average weekly trading volume of our common stock, if and when our common stock is traded publicly traded, during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us for at least 90 days.

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Under Rule 144(k) under the Securities Act, a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

Warrants

We also currently have outstanding two series of Plan Warrants with 8,423,491 in each series. Each Plan Warrant provides for the purchase of one share of common stock. The Series C Plan Warrants are exercisable at $3.00 per share and the Series E Plan warrants are exercisable at $4.00 per share. Any common stock issued upon exercise of a Plan Warrant is immediately tradable without restriction. The Plan Warrants are governed by a Warrant Agreement. The Warrant Agreement that governs the Plan Warrants restricts any one stockholder from acquiring ownership greater than 4.99% of our common stock.

Dividends

We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.

We paid cash dividends of $5,421,687 during the year ended December 31, 2005 and cash dividends of $3,975,904 during the year ended December 31, 2004. Each of these dividends were paid by our subsidiary to Mr. Chong, as its sole stockholder, which offset the amounts due to our subsidiary by Mr. Chong.

Transfer Agent

The transfer agent and registrar for our common stock is Computershare Trust Company, Inc.

Penny Stock Regulation

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

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

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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

On November 22, 2006, pursuant to an Exchange Agreement, we acquired all of the outstanding capital stock of Fuqi BVI in a stock for stock exchange. We issued a total of 18,886,666 shares of common stock to Yu Kwai Chong, who is the sole shareholder of Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (“Fuqi BVI”) in exchange for all of the issued and outstanding capital of Fuqi BVI. These shares of stock were issued in reliance on the exemption from registration of such shares as provided under Section 4(2) of the Securities Act.

On July 21, 2006, pursuant to Stock Purchase Agreements, we issued a total of 1,460,011 shares of common stock (post Reverse Split) to two investors for an aggregate amount of $67,500. On July 21, 2006, we issued 36,617 shares of common stock to VCC in connection with the Stock Purchase Agreements. We also issued 1,317 shares of common stock to 134 unaffiliated shareholders under an anti-dilution arrangement in the Visitalk Plan. These shares of stock were issued in reliance on the exemption from registration of such shares as provided under Section 4(2) of the Securities Act.

On September 17, 2004, and in accordance with the Visitalk Plan, we issued to VCC 324,044 shares of common stock and common stock purchase warrants allowing holders to purchase additional shares of our common stock (the “Plan Warrants”) to acquire certain technology rights from VCC. The Visitalk Plan further authorized VCC to distribute 54,837 of the 324,044 shares of common stock to 240 creditors of Visitalk.com and all of the Plan Warrants to 645 claimants of Visitalk.com, in accordance with the Visitalk Plan. This transaction was exempt from registration pursuant to Section 1145 of the Bankruptcy Code because the transaction was authorized by the Visitalk Plan as approved by the bankruptcy court.

ITEM 11. DESCRIPTION OF SECURITIES TO BE REGISTERED

In December 2006, we changed our state of incorporation from Nevada to Delaware and we are now governed by Delaware law and the Articles of Incorporation and Bylaws of the new Delaware corporation. Our authorized capital consists of 75,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of preferred stock. Our board of directors, in their sole discretion, may establish par value, divide the shares of preferred stock into series, and fix and determine the dividend rate, designations, preferences, privileges, and ratify the powers, if any, and determine the restrictions and qualifications of any series of preferred stock as established. No preferred shares have been designated.

Common Stock

We are authorized to issue 75,000,000 shares of common stock, $.001 par value per share. Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the stockholders.

Holders of our common stock:

(i) have equal ratable rights to dividends from funds legally available therefore, if declared by the Board of Directors;

(ii) are entitled to share ratably in all our assets available for distribution to holders of common stock upon our liquidation, dissolution or winding up;

(iii) do not have preemptive, subscription or conversion rights or redemption or sinking fund provisions; and

(iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote at all meetings of our stockholders.

The holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than fifty percent (50%) of outstanding shares voting for the election of directors can elect all of our directors if they so choose and, in such event, the holders of the remaining shares will not be able to elect any of the our directors.

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Preferred Stock

We may issue up to 5,000,000 shares of our preferred stock, par value $.001 per share, from time to time in one or more series. No shares of preferred stock have been issued. Our Board of Directors, without further approval of the our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series. Issuances of shares of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock and prior series of preferred stock then outstanding.

Plan Warrants

In accordance with the Visitalk Plan, we originally issued six series of common stock purchase warrants allowing holders to purchase additional shares of common stock (“Plan Warrants”). The Plan Warrants are governed by a Warrant Agreement. On August 31, 2006, we allowed the Series A, B, D and F Plan Warrants to expire in accordance with their terms. The expiration dates of the Series C and E Plan Warrants were extended until August 31, 2007, unless called earlier or extended in accordance with their terms. Each Series has 8,423,491 Plan Warrants outstanding. The exercise price of the Series C Plan Warrants is $3.00 per share and the Series E Plan Warrants is $4.00 per share. Each Plan Warrant provides for the purchase of one share of common stock and is callable for a price of $.0001 per warrant at any time. The Plan Warrants are held by approximately 330 warrant holders.

The Warrant Agreement restricts any one stockholder from acquiring a direct or beneficial ownership of more than 4.99% of our common stock. We believe only two holders are effected by this restriction. Currently, we are acting as the Warrant Agent but we have the right to appoint an alternative Warrant Agent.

Stock Options

In November 2006, our stockholders approved a new equity incentive plan (“2006 EIP”) for employees, non-employee directors and other service providers covering 3,000,000 shares of common stock. Prior to this, we had an approved 2004 Equity Incentive Plan. No options are currently outstanding under either plan.

Delaware Anti-Takeover Law and Charter Bylaws Provisions

We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder, unless:

·   prior to such date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

·   upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

·   on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

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Section 203 defines a business combination to include:

·   any merger or consolidation involving the corporation and the interested stockholder;

·   any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

·   subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

·   any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

·   the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by

such entity or person.

Our certificate of incorporation and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control of our, including changes a stockholder might consider favorable. In particular, our certificate of incorporation and bylaws, as applicable, among other things, will:

·   provide our board of directors with the ability to alter our bylaws without stockholder approval;

·   provide for an advance notice procedure with regard to the nomination of candidates for election as directors and with regard to business to be brought before a meeting of stockholders;

·   provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.

Such provisions may have the effect of discouraging a third-party from acquiring our company, even if doing so would be beneficial to its stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.

However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

In December 2006, we changed our state of incorporation from Nevada to Delaware and we are now governed by Delaware law and the Articles of Incorporation and Bylaws of the new Delaware corporation.

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Under Section 145 of the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our bylaws provide for the indemnification of our directors to the fullest extent permitted by the Delaware General Corporation Law. Our bylaws further provide that our Board of Directors has discretion to indemnify our officers and other employees. We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or executive officer in connection with that proceeding on receipt of an undertaking by or on behalf of that director or executive officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under the bylaws or otherwise. We are not, however, required to advance any expenses in connection with any proceeding if a determination is reasonably and promptly made by our Board of Directors by a majority vote of a quorum of disinterested Board members that (i) the party seeking an advance acted in bad faith or deliberately breached his or her duty to us or our stockholders and (ii) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the applicable sections of our bylaws.

We have been advised that in the opinion of the Securities and Exchange Commission, insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We may enter into indemnification agreements with each of our directors and officers that are, in some cases, broader than the specific indemnification provisions permitted by Delaware law, and that may provide additional procedural protection. As of the Effective Time of the Share Exchange, we had not entered into any indemnification agreements with our directors or officers, but may choose to do so in the future. Such indemnification agreements may require us, among other things, to:

·   indemnify officers and directors against certain liabilities that may arise because of their status as officers or directors;

·   advance expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to limited exceptions; or

·   obtain directors’ and officers’ insurance.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 13 is incorporated by reference to information contained in Item 15 of this Form 10.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

After the close of the Share Exchange, Fuqi International, Inc. (the “Company”) dismissed Epstein, Weber & Conover, P.L.C. ("EWC") as its independent registered public accounting firm following the change in control of the Company in connection with the Share Exchange. The Company engaged EWC to audit its financial statements for the year ended December 31, 2005 and 2004. The report of EWC on the financial statements of the Company for the fiscal years ended December 31, 2005 and 2004 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principle, except for an explanatory paragraph relative to the Company’s ability to continue as a going concern.

While EWC was engaged by the Company, there were no disagreements with EWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure with respect to the Company, which disagreements if not resolved to the satisfaction of EWC would have caused it to make reference to the subject matter of the disagreements in connection with its report on the Company’s financial statements for the fiscal years ended December 31, 2005 and 2004.

The Company engaged Stonefield Josephson, Inc., which served as Fuqi China’s independent registered certified public accountants for the fiscal years ended December 31, 2005, 2004 and 2003, as the Company’s independent registered public accounting firm as of November 22, 2006, the close of the Share Exchange.

ITEM 15. FINANCIAL STATEMENTS

(a) Index To Financial Statements

	Page
SEPTEMBER 30, 2006 AND 2005
Consolidated Financial Statements (Unaudited):
Balance Sheet as of September 30, 2006	40
Statements of Income and Comprehensive Income for the nine months ended
September 30, 2006 and 2005	41
Statements of Cash Flows for the nine months ended
September 30, 2006 and 2005	42
Notes to Unaudited Consolidated Financial Statements	43
DECEMBER 31, 2005, 2004, AND 2003
Report of Independent Registered Public Accounting Firm	53
Consolidated Financial Statements:
Balance Sheets as of
December 31, 2005 and 2004	54
Statements of Income and Comprehensive Income for the years ended
December 31, 2005, 2004, and 2003	55
Statements of Stockholders' Equity for the years ended
December 31, 2005, 2004 and 2003	56
Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003	57
Notes to Consolidated Financial Statements	58

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Fuqi International, Inc.

Condensed Consolidated Balance Sheet as of September 30, 2006 (Unaudited) 

Assets
Current assets:
Cash and cash equivalents	$	129,670
Restricted cash		1,770,135
Accounts receivable, net of allowance for
doubtful accounts of $296,000		7,501,205
Refundable value added taxes		1,422,047
Inventories		15,440,261
Prepaid expenses		172,717
Deposits		632,191
Deferred taxes		44,380
Total current assets		27,112,606
Property, equipment, and improvements, net		1,365,951
Deposits		63,219
Other assets		27,167
	$	28,568,943
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable	$	13,908,206
Accounts payable and accrued liabilities		318,701
Accrued business tax		939,581
Accrued penalties		1,105,007
Customer deposits		1,787,941
Due to stockholder		258,141
Income tax payable		1,535,632
Total current liabilities		19,853,209
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding		—
Common stock, $0.001 par value, 75,000,000 shares authorized,
18,886,666 shares issued and outstanding		18,887
Additional paid in capital		7,210,029
Accumulated foreign currency translation adjustments		309,288
Retained earnings		1,177,530
Total stockholders' equity		8,715,734
	$	28,568,943

The accompanying notes are an integral part of these financial statements

40

Fuqi International, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2006			2005
Net sales	$	67,606,850		$	51,927,967
Cost of sales		61,750,693			47,162,884
Gross profit		5,856,157			4,765,083
Operating expenses:
Selling and marketing		327,968			442,120
General and administrative		644,910			515,471
Total operating expenses		972,878			957,591
Income from operations		4,883,279			3,807,492
Other income (expenses):
Interest expense		(576,869	)		(315,792	)
Interest income		-			-
Loss on disposal of fixed assets		-			-
Miscellaneous		12,502			(312	)
Total other income (expenses)		(564,367	)		(316,104	)
Income before provision for income taxes		4,318,912			3,491,388
Provision for income taxes		624,959			261,915
Net income		3,693,953			3,229,473
Other comprehensive income - foreign currency
translation adjustments		165,582			243,038
Comprehensive income	$	3,859,535		$	3,472,511
Earnings per share - basic and diluted	$	0.20		$	0.17
Weighted average number of common shares -
basic and diluted		18,886,666			18,886,666

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

41

Fuqi International, Inc.

Condensed Consolidated Statement of Cash Flows (Unaudited)

Increase (Decrease) in Cash 

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2006			2005
Cash flows provided by operating activities:
Net income	$	3,693,953		$	3,229,473
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization		229,387			176,011
Loss on disposal of fixed assets		-			-
Bad debt		(12,502	)		26,774
Changes in operating assets and liabilities:
Accounts receivable		(331,054	)		(3,610,563	)
Refundable value added taxes		(1,163,132	)		(202,973	)
Inventories		(9,560,912	)		(729,790	)
Inventory loan receivable		687,936			-
Prepaid expenses		(54,840	)		(93,593	)
Deposits - short term		(284,486	)		(247,158	)
Deferred taxes		(21,242	)		(1,977	)
Other current assets		2,189			-
Deposits		18,966			14,995
Other assets		(23,283	)		(25,133	)
Accounts payable, accrued expenses, accrued business
tax and accrued penalties		235,018			17,431
Customer deposits		(1,055,564	)		2,016,114
Income tax payable		501,463			241,767
Net cash provided by (used for) operating activities		(7,138,103	)		811,378
Cash flows provided by (used for) investing activities:
Purchase of property, equipment and improvements		(20,864	)		(316,259	)
Advances (to) from stockholder		6,995,359			(12,532,431	)
Decrease (Increase) in restricted cash		1,011,506			(988,631	)
Net cash provided by (used for) investing activities		7,986,001			(13,837,321	)
Cash flows provided by (used for) financing activities:
Proceeds from short-term borrowing		-			7,414,731
Proceeds from long-term debt		-			1,235,788
Net advances (repayments) from (to) affiliate		-			-
Loan from (repayment to) a related party		(991,326	)		988,631
Proceeds from capital contribution		-			4,819,277
Net cash provided by (used for) financing activities		(991,326	)		14,458,427
Effect of exchange rate changes on cash		201,619			197,496
Net increase in cash		58,191			1,629,980
Cash, beginning of period		71,479			255,676
Cash, end of period	$	129,670		$	1,885,656
Supplemental disclosure of cash flow information:
Interest paid	$	573,541		$	310,210
Income taxes paid	$	150,141		$	25,773
Non-cash activities:
Decrease in due from stockholder for dividend declared and paid	$	2,750,344		$	-

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

42

FUQI INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Summary of Significant Accounting Policies:

Basis of Presentation and Nature of Business Operations

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by referring to the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements and related notes should be read in conjunction with the Company’s audited financial statements for the fiscal year ended December 31, 2005. In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Fuqi International Holdings Company Ltd. as of September 30, 2006 and the results of operations for the nine months ended September 30, 2005 and 2006 and the cash flows for the nine month periods ended September 30, 2005 and 2006. The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results which may be expected for the entire fiscal year.

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

On November 20, 2006, the Company entered into a Stock Exchange Agreement (“SEA”) with Fuqi International Holdings Company Ltd. (“Fuqi International Holding”). Under the terms of this new SEA, the Company issued 18,886,666 shares of its common stock in exchange for 100% of Fuqi International Holdings. For financial reporting purposes, the transaction is classified as a recapitalization of Fuqi International Holdings and the historical financial statements of Fuqi International Holdings are reported as the Company’s historical financial statements. The existing shareholders of the Fuqi International Holdings own 91.2% of the issued and outstanding shares of the Company upon closing of the merger. The SEA also included a condition requiring all of the previously issued warrants by VTM be expired on or before December 31, 2006. On November 22, 2006, the transaction was closed and the shares have been exchanged between the two parties.

Prior to May 17, 2006, Fuqi International Holdings Company Ltd. has minimal assets and no operations. On May 17, 2006, Shenzhen Fuqi Jewelry Company Limited (“Shenzhen Fuqi”) became a wholly-owned foreign enterprise of Fuqi International Holdings Company Ltd. and this arrangement has been approved by the PRC government. Subsequent to this transaction, Shenzhen Fuqi becomes the wholly owned subsidiary of Fuqi International Holdings and the shareholders of Shenzhen Fuqi become the shareholders of Fuqi International Holdings. For financial reporting purposes, the transaction is classified as a recapitalization of Shenzhen Fuqi and the historical financial statements of Shenzhen Fuqi are reported as Fuqi International Holdings’ historical financial statements. 

Upon the completion of the transactions on May 17, 2006 and November 22, 2006, the Company owns 100% of Fuqi International Holdings which owns 100% of Shenzhen Fuqi, the operating entity of the Company. The accompanying interim condensed consolidated financial statements were retroactively adjusted to reflect the effects of the two recapitalizations entered during 2006.

Business and Organization:

Fuqi International was incorporated in Arizona on September 3, 2004. Fuqi International Holdings was incorporated under the laws of the British Virgin Islands on January 2, 2004. Shenzhen Fuqi was formed in the People’s Republic of China (the “PRC”) on April 2, 2001 as a limited liability corporation. Shenzhen Fuqi is the operating entity and has substantially all the assets and operations.Under the provision of the Company’s By-Laws, the Shenzhen Business Bureau granted to Shenzhen Fuqi the right to operate for a period of 10 years. The principal activities of Shenzhen Fuqi are designing, manufacturing, sales, and marketing of jewelry products to department stores throughout the PRC.

43

FUQI INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company operates in two divisions: production, and sales and marketing. The production division is responsible for all the manufacturing of jewelry products, while the sales and marketing division is responsible for all of the selling and marketing functions of the products including customer relationships and customer service. The Company grants credit to the majority of its customers, which are located throughout the PRC, and the Company does not generally require collateral.

On May 17, 2006, along with approval of becoming a wholly-owned foreign enterprise, the Shenzhen Business Bureau granted to the Company the right to operate for a period of 30 years from the date of reformation. The principal business scopes of the Company are continued as designing, manufacturing, sales, and marketing of jewelry products to department stores throughout the PRC. This change did not have any impacts on accompanying financial statements.

Revenue Recognition:

Revenue is recognized upon delivery and acceptance of jewelry products by its customers, provided that the other conditions of sales, as established by the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104, are satisfied:

·   Persuasive evidence of an arrangement exists;

·   Delivery has occurred, upon shipment when title passes, or services have been rendered;

·   The seller’s price to the buyer is fixed or determinable; and

·    Collectibility is reasonably assured.

Currency Reporting:

Amounts reported in the accompanying condensed consolidated financial statements and disclosures are stated in U.S. Dollars, unless stated otherwise. The functional currency of the Company, which accounted for most of the Company’s operations, is reported in Renminbi (“RMB”). Foreign currency transactions (outside PRC) during the nine months ended September 30, 2006, and 2005 are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at period-end exchange rates.

The Company’s functional currency is RMB. For the purpose of preparing the condensed consolidated financial statements, the condensed consolidated balance sheet of the Company have been translated into U.S. dollars at the current rates as of September 30, 2006 and the condensed consolidated statements of operations have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized. The resulting translation gain adjustments are recorded as other comprehensive income in the statements of income and comprehensive income.

Use of Estimates:

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents:

For purposes of the condensed consolidated statements of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less that are not securing any corporate obligations. The Company had no cash equivalents at September 30, 2006.

44

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Restricted Cash:

The Company committed to loan a total of $1,770,135 to two related entities. Per the agreements with the bank, the Company is required to maintain $1,770,135 in the bank to cover these loans when they were drawn by these entities. The balance of the restricted amount was classified as restricted cash in the balance sheet as of September 30, 2006. Subsequent to September 30, 2006, the commitments to loan have been released and the restriction on cash by the bank has been relieved.

Comprehensive Income:

Statement on Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. For the nine months ended September 30, 2006 and 2005, other comprehensive income includes foreign currency translation adjustments.

Fair Value Disclosures of Financial Instruments:

The Company has estimated the fair value amounts of its financial instruments using available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s accounts receivable, refundable value added taxes, inventories, due from stockholder, notes payable, accounts payable and accrued expenses, accrued business tax, accrued penalties, customer deposits, and income tax payable, at September 30, 2006 approximate fair value.

Accounts Receivable:

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade account receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $296,000 at September 30, 2006.

Concentration of Credit Risk:

The Company’s product revenues are concentrated in production and sales of fine jewelry products, which are highly competitive with frequent changes in styles and fashion. Significant customer preference changes in the industry or customer requirements, or the emergence of competitive products with better marketing strategies and more well-known brand name, could adversely affect the Company’s operating results.

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. The credit risk in the Company’s accounts receivable is mitigated by the fact that the Company performs ongoing credit evaluations of its customers’ financial condition and that accounts receivable are primarily derived from large credit-worthy companies throughout the PRC. In addition, the Company has a diversified customer base. Historically, the Company has not experienced significant losses related to trade receivables. Generally, no collateral is required.

Major Customer:

During the nine months ended September 30, 2006, no customer accounted for over 10% of the Company’s sales. During the nine months ended September 30, 2005, 12% of the Company sales were generated from one customer.

45

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Major Supplier:

Under the PRC laws, supply of precious metals such as platinum, gold, and silver are highly regulated under certain government agencies. Shanghai Gold Exchange is the Company’s primary source of supply for its raw materials which consist of precious metals. The Company is required to obtain several membership and approval certificates from these government agencies in order to continue to do business involving precious metals. The Company may be required to renew such membership and to obtain approval certificates periodically. If the Company is unable to renew these periodic membership or approval certificates, it could materially affect the Company’s business operations. The Company was in good standing with these agencies as of September 30, 2006.

Inventories:

Inventories are stated at the lower of cost or fair market value using the first-in, first-out method.

Property, Equipment and Improvements:

Property, equipment and improvements are stated at cost. Depreciation and amortization are computed on the straight-line method based on the estimated useful life of respective assets.

The estimated service lives of property, equipment, and improvements are as follows:

Production	5 years
Office, furniture and fixture	5 years
Computer hardware	5 years
Computer software	5 years
Leasehold improvements	2 years
Buildings	20 years

Long-Lived Assets:

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

SFAS No. 144 relates to assets that can be amortized and the life can be determinable. The Company evaluates at each balance sheet dates whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less disposal costs. The Company determined that there was no impairment of long-lived assets as of September 30, 2006.

Advertising:

The Company expenses advertising costs when incurred. The Company incurred approximately $32,002 and $100,982 of advertising expense for the nine months ended September 30, 2006 and 2005 respectively.

46

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Income Taxes:

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates in the PRC expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years.

Segment Reporting:

Based on the Company’s integration and management strategies, the Company operated in a single business segment.

New Accounting Pronouncements:

In March 2006, the FASB issued SFAS No. 156 (“FAS 156”), “Accounting for Servicing of Financial Assets—An Amendment of FASB Statement No. 140.” Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effect beginning the first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of FAS 156 will have a material impact on our financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 provides guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for tax contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The Company is evaluating the impact of this new pronouncement to its financial position and results of operations or cash flows.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 provides interpretive guidance on the SEC's views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. The Company does not expect the adoption of SAB 108 will have a material impact on its financial position or results of operations.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is evaluating the impact of this new pronouncement to its financial position and results of operations or cash flows.

47

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

New Accounting Pronouncements, Continued:

In September 2006, the FASB issued Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)." SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. The Company does not expect the adoption of SFAS 158 will have a material impact on our financial position or results of operations, as the Company does not currently have any defined benefit pension or other post-retirement plans.

(2) Inventories:

	As of
	September 30, 2006
Raw materials	$	12,296,200
Work in process		727,813
Finished goods		2,416,248
	$	15,440,261

(3) Property, Equipment, and Improvements:

A summary is as follows:

	As of
	September 30, 2006
Production equipment	$	928,563
Computers		13,438
Office equipment and furniture		100,005
Automobiles		251,609
Leasehold improvements		321,209
Building		538,342
		2,153,166
Less accumulated depreciation and Amortization		787,215
	$	1,365,951

Depreciation and amortization expense for property, equipment, and improvements amounted to approximately $229,387 and $176,011, for the nine months ended September 30, 2006 and 2005 respectively.

48

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(4) Notes Payable:

On September 30, 2006, outstanding notes payable to the bank consist of loan agreements which are covered by a Maximum Banking Facility Agreement dated August 24, 2006. Under the agreement, maximum facility amounting $12,643,823 was secured by the Company’s inventories. Outstanding loan agreements consist of the followings:

A note payable to a bank, including interest at a rate of 5.76%, secured by the Company’s inventories and certain real estate properties owned by an affiliated company, matured in January 2007		1,264,382
Two notes payable to a bank, including interest at a rate of 5.481%, secured by certain real estate properties owned by an affiliated company, guaranteed by the affiliated companies, and personally guaranteed by the stockholder, matured in October 2006		1,896,574
A note payable to a bank, including interest at a rate of 5.58%, guaranteed by the affiliated companies and personally guaranteed by the stockholder, matured in December 2006		1,264,382
Two notes payable to a bank, including interest at a rate of 5.85%, guaranteed by the affiliated companies and personally guaranteed by the stockholder, matured in February 2007		2,528,765
Three notes payable to a bank, including interest at a rate of 5.832%, secured by the Company’s inventories, guaranteed by the affiliated companies, certain real estate properties owned by an affiliated company and personally guaranteed by the stockholder, matured in January 2007		2,528,765
A note payable to a bank, including interest at a rate of 5.832%, secured by the Company’s inventories, guarantee by the affiliated companies, and personally guaranteed by the stockholder, matured in January 2007		1,264,382
A note payable to a bank, including interest at a rate of 6.138%, guaranteed by the affiliated companies and personally guaranteed by the stockholder, matured in March 2007		1,264,382
A note payable to a bank, including interest at a rate of 6.732%, secured by certain real estate properties owned by the affiliated companies, guaranteed by the affiliated companies, and personally guaranteed by the stockholder, matured in July 2007		948,287
A note payable to a bank, including interest at a rate of 6.732%, secured by certain real estate properties owned by the affiliated companies, guaranteed by the affiliated companies, and personally guaranteed by the stockholder, matured in September 2007		948,287
	$	13,908,206

49

FUQI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5) Related-Party Transactions:

Due to stockholder

The Company earned certain cash revenues from its customers that were subsequently collected by its stockholder. During the nine months ended September 30, 2006 and 2005, cash revenues collected by its stockholder totaled $3,914,158 and $4,219,260 respectively. Effective December 1, 2006, the arrangement has been changed and all the cash revenues were deposited directly to the Company’s bank accounts. The shareholder no longer has any involvement related to the cash revenue transactions.

The Company’s stockholder made non-interest bearing advances to the Company or borrowed from the Company since the inception of its operations. The Company had an outstanding amount of due to this shareholder of $258,141 as of September 30, 2006.

The Company declared dividends to its stockholder totaling $2,750,344 and $0, during the nine months ended September 30, 2006 and 2005 respectively, which offset the amounts due from this stockholder.

(6) China Contribution Plan:

The Company participates in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate of 14% based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations and the Company has no further commitments beyond its monthly contribution. During the nine months ended September 30, 2006 and 2005, the Company contributed approximately of $42,191 and $40,156 respectively, to this fund.

(7) Income Taxes:

The income tax provision amounted to $624,959 and $261,915, respectively, for the nine months ended September 30, 2006 and 2005 (an effective rate of 15% for 2006 and 7.5% for 2005). A reconciliation of the provision for income taxes with amounts determined by applying the statutory China federal income tax rate to income before income taxes is as follows:

	2006			2005
Computed tax at federal statutory rate of 15%	$	647,837		$	523,708
Effect of tax holidays for new business		-			(261,854	)
Effect of tax rate changes		(22,878	)		-
Miscellaneous		-			61
	$	624,959		$	261,915

The components of provision for the income taxes are as follows:

	2006			2005
Current	$	645,962		$	263,862
Deferred		(21,003	)		(1,947	)
	$	624,959		$	261,915

50

FUQI INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(7) Income Taxes, Continued:

The regular federal income tax in Shenzhen, China, is 15%. As a new business, the Company is exempted from paying any income taxes for the first two years of its operations (2 years from the inception of the business, April 2, 2001), and a discounted income tax rate of 7.5% of pretax income during third, fourth and fifth years of its operations (the three years ended December 31, 2005). Beginning January, 2006, the Company is subject to the regular rate of 15% on its pretax income.

The Company did not report certain cash revenues related to fees charged to its customers for product design prior to 2005. Such fee revenues are subject to business tax and service charge of a total of 5.2%. The Company has not reported such revenues since the inception of its operations in 2001. The Company recorded the tax liabilities representing business tax and fees of 5.2% and income tax of 7.5% on the unreported design revenues during the years ended December 31, 2005, 2004 and 2003.

In April 2006, the Shenzhen local tax department has made an assessment of the total tax liabilities related to the cash revenues. Per the tax assessment notice dated April 24, 2006, the Company is obligated to pay a total of $1,790,523 (RMB14,161,249) including business tax, fees and income taxes related to these cash revenues for the period from inception to December 31, 2005. If the Company did not pay off these tax liabilities by April 30, 2006, the Company is subject to 0.05% per day of interest and penalties of the unpaid tax and fee liability amount from the due date (April 30, 2006). On July 5, 2006, Shenzhen City Tax Department granted an extension to the Company to remit the tax liabilities from April 30, 2006 to December 20, 2006. The Company received another extension from the City Tax Department to extend the tax payment date till April 2007. The Company will not be subject to any penalties and interest if all the outstanding taxes are remitted to the Tax Department prior to the revised due date (December 20, 2006). As of September 30, 2006, the Company has outstanding accrued business taxes of $939,581, income tax payable of $1,535,632 and estimated penalties of $1,105,007.

Deferred income taxes reflect 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. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	2006		2005
Deferred tax assets:
Allowance for doubtful accounts	$	44,380	$	24,098
Total deferred tax assets	$	44,380	$	24,098
Total deferred tax liabilities		-		-
Net deferred assets before valuation
allowance:	$	44,380	$	24,098
Valuation allowance		-		-
Net deferred tax assets	$	44,380	$	24,098

Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain.

51

FUQI INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(8) Proforma Information:

The Company declared and paid dividends to its sole stockholder during the nine months ended September 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003. Beginning the first quarter of 2007, the Company plans to increase the annual compensation through substantially higher salaries in lieu of dividends. In addition, the Company plans to substantially increase the salaries for two other executives beginning the first quarter of 2007. Pro forma operating results for the nine months ended September 30, 2006 and 2005, as if historical compensation was recorded at the levels expected in the future, are as follows:

	2006		2005
Net income - as reported	$	3,693,953	$	3,229,473
Net income - proforma	$	3,446,220	$	3,111,651
Earnings per Share - as reported	$	0.20	$	0.17
Earnings per Share - proforma	$	0.18	$	0.16

(9) Subsequent Events:

On September 16, 2006, the Company entered into a Share Exchange Agreement (“SEA”) with Fuqi International Holdings.. Under the terms of SEA, the Company will issue its common stock to acquire all of the issued and outstanding common stock of Fuqi International Holdings. Upon the completion of this transaction, the current shareholders of Fuqi International Holdings will own 89.37% of the issued and outstanding shares of Fuqi International after the merger. The SEA will be closed subject to certain conditions before October 31, 2006. The Company will apply to SEC for public trading of the common stock and warrants.

The Company made the determination to terminate the SEA since certain conditions have not yet been fulfilled by VTM by October 31, 2006.

On November 20, 2006, the Company entered into a new SEA with Fuqi International Holdings with revised terms. Under the terms of this new SEA, The Company will issue 18,886,666 shares of its common stock in exchange for 100% of Fuqi International Holdings. The existing shareholders of the Fuqi International Holdings own 91.2% of the issued and outstanding shares of the Company upon closing of the merger. The new SEA also included a condition requiring all of the previously issued warrants by the Company be expired on or before December 31, 2006. On November 22, 2006, the transaction was closed and the shares have been exchanged between the two parties. The Company plans to file a Form 10 with the U.S. Securities and Exchange Commission for its common stock to be traded in the U.S. public market.

52

Report of Independent Registered Public Accounting Firm

Board of Directors

Fuqi International, Inc.

Shenzhen, China

We have audited the accompanying balance sheets of Fuqi International, Inc. as of December 31, 2005, and 2004 and the related statements of income and comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2005, 2004, and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance withthe auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years ended December 31, 2005, 2004, and 2003, in conformity with United States generally accepted accounting principles.

/s/ Stonefield Josephson, Inc.

CERTIFIED PUBLIC ACCOUNTANTS

Central, Hong Kong

May 2, 2006, except for Note 9, and the 1^st paragraph of Note 12,

as to which the date is July 5, 2006, and the 2^nd paragraph of Note 12

as to which the date is May 17, 2006

53

Fuqi International, Inc.

Balance Sheets

	December 31,		December 31,
	2005		2004
Assets
Current assets:
Cash and cash equivalents	$	71,479	$	255,676
Restricted cash		2,726,146		-
Accounts receivable, net of $302,000 for 2005
and $287,000 for 2004		7,014,712		4,578,140
Refundable value added taxes		253,749		56,260
Inventories		5,762,053		4,762,687
Inventory loan receivable		687,936		-
Due from stockholder		9,487,562		546,203
Prepaid expenses		115,525		10,617
Deposits		340,768		-
Deferred taxes		22,677		21,566
Other current assets		2,145		-
Total current assets		26,484,752		10,231,149
Property, equipment, and improvements, net		1,545,621		924,270
Deposits		80,545		74,860
Other assets		3,807		-
	$	28,114,725	$	11,230,279
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable	$	12,391,574	$	4,819,277
Accounts payable and accrued liabilities		261,585		412,699
Accrued business tax		741,265		431,130
Accrued penalties		1,082,962		1,052,952
Customer deposits		2,786,776		1,236,649
Loan payable, related party		991,326		-
Income tax payable		1,013,537		582,093
Total current liabilities		19,269,025		8,534,800
Long term debt		1,239,157		-
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding		-		-
Common stock, $0.001 par value, 75,000,000 shares authorized,
shares issued and outstanding - 18,886,666 for 2005 and or 2004.		18,887		18,887
Additional paid in capital		7,210,029		2,390,752
Accumulated foreign currency translation adjustments		143,706		-
Retained earnings		233,921		285,840
Total stockholders' equity		7,606,543		2,695,479
	$	28,114,725	$	11,230,279

The accompanying notes form an integral part of these financial statements

54

Fuqi International, Inc.

Statements of Income and Comprehensive Income

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2005			2004			2003
Net sales	$	72,580,171		$	56,764,822		$	29,501,009
Cost of sales		64,963,978			50,862,013			26,018,586
Gross profit		7,616,193			5,902,809			3,482,423
Operating expenses:
Selling and marketing		624,131			549,047			251,098
General and administrative		671,191			1,006,117			1,006,154
Total operating expenses		1,295,322			1,555,164			1,257,252
Income from operations		6,320,871			4,347,645			2,225,171
Other income (expenses):
Interest expense		(497,901	)		(100,302	)		-
Interest income		-			-			1,297
Loss on disposal of fixed assets		-			(44,831	)		-
Miscellaneous		(664	)		4,249			39,387
Total other income (expenses)		(498,565	)		(140,884	)		40,684
Income before provision for income taxes		5,822,306			4,206,761			2,265,855
Provision for income taxes		452,538			358,396			193,137
Net income		5,369,768			3,848,365			2,072,718
Other comprehensive income - foreign currency
translation adjustments		143,706			-			-
Comprehensive income	$	5,513,474		$	3,848,365		$	2,072,718
Earnings per share - basic and diluted	$	0.28		$	0.20		$	0.11
Weighted average number of common shares -
basic and diluted		18,886,666			18,886,666			18,886,666

The accompanying notes form an integral part of these financial statements

55

Fuqi International, Inc.

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2005, 2004 and 2003

	Common Stock				Additional		Other Comprehensive		Retained			Total Stockholders'
	Shares		Amount		Paid in Capital		Income		Earnings			Equity
Balance, December 31, 2002		18,886,666	$	18,887	$	342,559	$	-	$	75,601		$	437,047
Capital contributions		-		-		2,048,193		-		-			2,048,193
Dividend paid		-		-		-		-		(1,734,940	)		(1,734,940	)
Net income		-		-		-		-		2,072,718			2,072,718
Balance, December 31, 2003		18,886,666		18,887		2,390,752		-		413,379			2,823,018
Dividend paid		-		-		-		-		(3,975,904	)		(3,975,904	)
Net income		-		-		-		-		3,848,365			3,848,365
Balance, December 31, 2004		18,886,666		18,887		2,390,752		-		285,840			2,695,479
Capital contributions		-		-		4,819,277		-		-			4,819,277
Dividend paid		-		-		-		-		(5,421,687	)		(5,421,687	)
Foreign currency translation adjustments		-		-		-		143,706		-			143,706
Net income		-		-		-		-		5,369,768			5,369,768
Balance, December 31, 2005		18,886,666	$	18,887	$	7,210,029	$	143,706	$	233,921		$	7,606,543

The accompanying notes form an integral part of these financial statements

56

Fuqi International, Inc.

Statement of Cash Flows

Increase (Decrease) in Cash

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2005			2004			2003
Cash flows provided by operating activities:
Net income	$	5,369,768		$	3,848,365		$	2,072,718
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization		239,449			184,740			120,599
Loss on disposal of fixed assets		-			44,831			-
Bad debt		7,320			(318,904	)		298,000
Changes in operating assets and liabilities:
Accounts receivable		(2,277,877	)		(2,727,184	)		(717,433	)
Refundable value added taxes		(192,867	)		325,763			562,985
Inventories		(850,319	)		(159,309	)		1,874,080
Inventory loan receivable		(677,335	)		-			-
Prepaid expenses		(102,994	)		(10,617	)		-
Deposits - short term		(335,517	)		-			-
Deferred taxes		(488	)		22,410			(22,289	)
Other current assets		(2,112	)		-			-
Deposits		(3,497	)		51,987			(13,192	)
Other assets		(3,748	)		-			-
Accounts payable, accrued expenses, accrued business
tax and accrued penalties		132,890			1,001,123			433,617
Customer deposits		1,491,538			(291,573	)		1,043,248
Income tax payable		408,461			299,159			196,908
Net cash provided by operating activities		3,202,672			2,270,791			5,849,241
Cash flows used for investing activities:
Purchase of property, equipment and improvements		(838,959	)		(557,065	)		(409,366	)
Advances to stockholder		(14,363,046	)		(546,203	)		-
Increase in restricted cash		(2,726,146	)		-			-
Net cash used for investing activities		(17,928,151	)		(1,103,268	)		(409,366	)
Cash flows provided by (used for) financing activities:
Proceeds from short-term borrowing		7,572,297			4,439,759			379,518
Proceeds from long-term debt		1,239,157			-			-
Net advances (repayments) from (to) affiliate		-			(1,208,533	)		1,204,819
Loan from a non related party		991,326			-			-
Proceeds from capital contribution		4,819,277			-			2,048,193
Repayments from stockholder, net		-			(5,436,586	)		(8,013,659	)
Net cash provided by (used for) financing activities		14,622,057			(2,205,360	)		(4,381,129	)
Effect of exchange rate changes on cash		(80,775	)		-			-
Net increase (decrease) in cash		(184,197	)		(1,037,837	)		1,058,746
Cash, beginning of year		255,676			1,293,513			234,767
Cash, end of year	$	71,479		$	255,676		$	1,293,513
Supplemental disclosure of cash flow information:
Interest paid	$	476,399		$	100,302		$	6,717
Income taxes paid	$	34,103		$	34,103		$	18,519
Non-cash activities:
Decrease in due from stockholder for dividend declared and paid	$	5,421,687		$	3,975,904		$	1,734,940

The accompanying notes form an integral part of these financial statements

57

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1) Summary of Significant Accounting Policies:

Organization, Nature of Business and Basis of Presentation

The Company operates in two divisions, production and sales and marketing. The production division is responsible for all manufacturing of jewelry products, while the sales and marketing division is responsible for all of the selling and marketing functions of the products including customer relationships and customer service. The Company grants credit to the majority of its customers, which are located throughout the PRC, and the Company does not generally require collateral.

On November 20, 2006, the Company entered into a Stock Exchange Agreement (“SEA”) with Fuqi International Holdings Company Ltd. (“Fuqi International Holding”). Under the terms of this new SEA, the Company issued 18,886,666 shares of its common stock in exchange for 100% of Fuqi International Holdings. For financial reporting purposes, the transaction is classified as a recapitalization of Fuqi International Holdings and the historical financial statements of Fuqi International Holdings are reported as the Company’s historical financial statements. The existing shareholders of the Fuqi International Holdings own 91.2% of the issued and outstanding shares of the Company upon closing of the merger. The SEA also included a condition requiring all of the previously issued warrants by VTM be expired on or before December 31, 2006. On November 22, 2006, the transaction was closed and the shares have been exchanged between the two parties. The post-merger Fuqi International plans to file a Form 10 with the U.S. Securities and Exchange Commission for its common stock to be traded in the U.S. public market.

Prior to May 17, 2006, Fuqi International Holdings Company Ltd. has minimal assets and no operations. On May 17, 2006, Shenzhen Fuqi Jewelry Company Limited (“Shenzhen Fuqi”) became a wholly-owned foreign enterprise of Fuqi International Holdings Company Ltd. and this arrangement has been approved by the PRC government. Subsequent to this transaction, Shenzhen Fuqi becomes the wholly owned subsidiary of Fuqi International Holdings and the shareholders of Shenzhen Fuqi become the shareholders of Fuqi International Holdings. For financial reporting purposes, the transaction is classified as a recapitalization of Shenzhen Fuqi and the historical financial statements of Shenzhen Fuqi are reported as Fuqi International Holdings’ historical financial statements. 

Upon the completion of the transactions on May 17 and November 22, 2006, the Company owns 100% of Fuqi International Holdings which owns 100% of Shenzhen Fuqi, the operating entity of the Company. The accompanying financial statements were retroactively adjusted to reflect the effects of the two recapitalizations entered during 2006.

Shenzhen Fuqi Jewelry Company Limited (the “Company” or “Shenzhen Fuqi”) was formed in the People’s Republic of China (the “PRC”) on April 2, 2001 as a limited liability corporation. Prior to formation of the Company, the owner of the Company was not engaged in similar business, therefore the Company is not considered successor business of any other entities. Under the provision of the Company’s By-Laws, the Shenzhen Business Bureau granted to the Company the right to operate for a period of 10 years. The principal activities of the Company are designing, manufacturing, selling, and marketing of jewelry products to department stores throughout the PRC.

58

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1) Summary of Significant Accounting Policies (Continued):

Revenue Recognition

Revenue is recognized upon delivery and acceptance of jewelry products by its customers, provided that the other conditions of sales, as established by the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 104, are satisfied:

· Persuasive evidence of an arrangement exists;

· Delivery has occurred, upon shipment when title passes, or services have been rendered;

· The seller’s price to the buyer is fixed or determinable; and

· Collectibility is reasonably assured.

Currency Reporting

Amounts reported in the accompanying financial statements and disclosures are stated in U.S. Dollars, unless stated otherwise. The functional currency of the Company, which accounted for most of the Company’s operations, is reported in Renminbi (“RMB”). Foreign currency transactions (outside PRC) during the years ended December 31, 2005, 2004 and 2003 are translated into RMB according to the prevailing exchange rate at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet dates are translated into RMB at year-end exchange rates.

The Company’s functional currency is RMB. For the purpose of preparing the financial statements, the balance sheets of the Company have been translated into U.S. dollars at the current rates as of December 31, 2005 and 2004 and the statements of income have been translated into U.S. dollars at the weighted average rates during the years the transactions were recognized.

The resulting translation gain adjustments are recorded as other comprehensive income in the statements of income and comprehensive income and as a separate component of statements of stockholders’ equity.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. The Company had no cash equivalents at December 31, 2005 and 2004.

Restricted Cash

The Company committed to loan a total of $2,726,146 to three related parties. Per the agreements with the bank, the Company is required to maintain $2,726,146 in the bank to cover these loans when they are drawn by these entities. As of December 31, 2005, the cash has not yet been drawn by these entities and the balance of the restricted amount was classified as restricted cash in the balance sheets.

59

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1)Summary of Significant Accounting Policies (Continued):

Comprehensive Income

Statement on Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. For the years ended December 31, 2005, 2004, and 2003, other comprehensive income includes foreign currency translation adjustments.

Fair Value Disclosures of Financial Instruments

The Company has estimated the fair value amounts of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s accounts receivable, refundable value added taxes, inventories, inventory loan receivable, due from stockholder, notes payable, accounts payable and accrued expenses, accrued business tax, accrued penalties, customer deposits, and income tax payable at December 31, 2005 and 2004 approximate fair value.

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade account receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $302,000, and $287,000 at December 31, 2005 and 2004, respectively.

Concentration of Credit Risk

The Company’s product revenues are concentrated in production and sales of fine jewelry products, which are highly competitive with frequent changes in styles and fashion. Significant customer preference changes in the industry or customer requirements, or the emergence of competitive products with better marketing strategies and more well-known brand name, could adversely affect the Company’s operating results.

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. The credit risk in the Company’s accounts receivable is mitigated by the fact that the Company performs ongoing credit evaluations of its customers’ financial condition and that accounts receivable are primarily derived from large credit-worthy companies throughout the PRC. In addition, the Company has a diversified customer base. Historically, the Company has not experienced significant losses related to trade receivables. Generally, no collateral is required.

Major Customer

During the year ended December 31, 2005, 15% of the Company sales were generated from one customer. Accounts receivable from this customer totaled $949,453, which represented 14% of the total accounts receivable as of December 31, 2005.

60

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1)Summary of Significant Accounting Policies (Continued):

Major Supplier

Under the PRC laws, supply of precious metals such as platinum, gold, and silver are highly regulated under certain government agencies. Shanghai Gold Exchange is the Company’s primary source of supply for its raw materials which consist of precious metals. The Company is required to obtain several membership and approval certificates from these government agencies in order to continue to do business involving precious metals. The Company may be required to renew such membership and to obtain approval certificates periodically. If the Company is unable to renew these periodic membership or approval certificates, it could materially affect the Company’s business operations. The Company was in good standing with these agencies as of December 31, 2005.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or fair market value method.

Inventory Loan Receivable

The Company entered into an agreement to loan certain gold raw material to a non-related party in December 2005. The raw material was returned in May 2006. The outstanding balance of inventory loan receivable was carrying at the historical purchase cost as of December 31, 2005.

Property, Equipment and Improvements

Property, equipment and improvements are valued at cost. Depreciation and amortization are computed on the straight-line method based on the estimated useful life of respective assets.

The estimated service lives of property, equipment, and improvements are as follows:

Production	5 years
Office, furniture and fixture	5 years
Computer hardware	5 years
Computer software	5 years
Leasehold improvements	2 years
Buildings	20 years

61

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1)Summary of Significant Accounting Policies (Continued):

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 relates to assets that can be amortized and the life can be determinable. The Company evaluates at each balance sheet dates whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related assets or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less disposal costs. The Company determined that there was no impairment of long-lived assets as of December 31, 2005 and 2004.

Advertising

The Company expenses advertising costs when incurred. The Company incurred approximately $132,000, $60,000, and $49,000 of advertising expense for the years ended December 31, 2005, 2004, and 2003, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates in the PRC expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years.

Segment Reporting

Based on the Company’s integration and management strategies, the Company operated in a single business segment. All of the Company’s sales are generated in the PRC and substantially all of the Company’s assets are located in the PRC.

62

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(1)Summary of Significant Accounting Policies (Continued):

New Accounting Pronouncements

In March 2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”), which provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. It also provides the SEC staff’s views regarding valuation of share-based payment arrangements. In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning of their next fiscal year, instead of the next reporting period beginning after June 15, 2005. Management is currently evaluating the impact SAB 107 will have on the financial statements.

In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASB’s goal to converge its standards with those issued by the IASB. Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. Management believes that changes resulting from adoption of the FASB will not have a material effect on the financial statements taken as a whole.

In June 2005, the EITF reached a consensus on Issue 05-6, “Determining the Amortization Period for Leasehold Improvements,” which requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. EITF 05-6 is effective for periods beginning after June 29, 2005. Earlier application is permitted in periods for which financial statements have not been issued. The adoption of this Issue did not have an impact on the Company’s financial statements.

In February 2006, the Financial Accounting Standards Board issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140." SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the FASB's interim guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, however, early adoption is permitted for instruments acquired or issued after the beginning of an entity's fiscal year in 2006. The Company is evaluating the impact of this new pronouncement to its financial position and results of operations or cash flows.

Reclassifications

Certain reclassifications have been made to the 2004 consolidated financial statements to conform to the 2005 presentation.

63

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(2)Inventories:

	2005		2004
Raw materials	$	4,097,704	$	889,789
Work in process		996,396		1,751,799
Finished goods		667,953		2,121,099
	$	5,762,053.	$	4,762,687

(3)Property, Equipment, and Improvements:

A summary is as follows:

	2005		2004
Production equipment	$	894,479	$	786,379
Computers		12,246		8,361
Office equipment and furniture		94,044		90,369
Automobiles		246,589		81,105
Leasehold improvements		314,801		262,747
Building		527,602		-
		2,089,761		1,228,961
Less accumulated depreciation and amortization		544,140		304,691
	$	1,545,621	$	924,270

Depreciation and amortization expense for property, equipment, and improvements amounted to approximately $239,000, $185,000, and $121,000, for the years ended December 31, 2005, 2004, and 2003, respectively.

(4)Short Term Notes Payable:

In April 2004, the Company entered into a loan agreement with a bank with a loan balance of $1,204,819 (RMB10,000,000) which was outstanding as of December 31, 2004. The loan bore interest at a rate of 4.87% per annum. The outstanding balance was secured by certain real estate properties owned by an affiliate and was personally guaranteed by the stockholder of the Company. This loan matured in January 2005 and was repaid.

In November 2004, the Company entered into four loan agreements with a bank with a total loan balance of $3,614,458 (RMB30,000,000) which was outstanding as of December 31, 2004. The loans bore interest at a rate of 5.22% per annum. The outstanding balance was secured by certain assets of the Company and was personally guaranteed by the shareholder of the Company. These loans matured in April 2005 and was renewed with four new loans totaling $3,717,473 (RMB30,000,000),which was outstanding as of December 31, 2005. These loans bore interest at the rate of 5.22% per annum.. These loans matured in March 2006 and April 2006 and were replaced by other loans. The outstanding balances were secured by the Company’s inventories and certain real properties owned by the affiliated companies and were personally guaranteed by the stockholder of the Company.

64

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(4)Short Term Notes Payable (Continued):

In July 2005, the Company entered into three loan agreements with a bank with a total loan amount of $2,478,314 (RMB20,000,000) which was outstanding as of December 31, 2005. These loans bore interest at a rate of 5.22% per annum. The outstanding balance was secured by the Company’s inventories and was personally guaranteed by the stockholder of the Company. This loan matured in January 2006 and was replaced by other loans.

In August 2005, the Company entered into a loan agreement with a bank with a loan amount of $1,239,157 (RMB10,000,000). The loan bore interest at a rate of 5.22% per annum. The outstanding balance was secured by the Company’s inventories and certain real estate properties owned by the affiliated companies and was personally guaranteed by the stockholder of the Company. This loan matured in November 2005 and was renewed with a loan in the amount of $1,239,157 (RMB10,000,000) which was outstanding as of December 31, 2005. The loan bore interest at a rate of 5.22% per annum which matured in May 2006.

In August 2005, the Company entered into two loan agreements with a bank with a total loan amount of $2,478,315 (RMB20,000,000) which was outstanding as of December 31, 2005. The loans bore interest at a rate of 5.22% per annum. The outstanding balance was secured by the Company’s inventories and certain real estate properties of the affiliated companies and was personally guaranteed by the stockholder of the Company. These loans matured in February 2006 and were replaced by other loans.

In August 2005, the Company entered into two loan agreements with a bank with a total loan amount of $2,478,315 (RMB20,000,000). The loans bear interest at a rate of 5.48% per annum. The outstanding balance is secured by the Company’s inventories and certain real estate properties of the affiliated companies and is personally guaranteed by the stockholder of the Company. These loans matured in December 2005 and were renewed with two loans with a total loan amount of $2,478,315 (RMB20,000,000) which was outstanding as of December 31, 2005. These loans bore interest at a rate of 5.84% per annum, which mature in June 2006.

(5)Loan Payable, Related Party:

In December 2005, the Company received an unsecured non-interest bearing loan from a related party in the amount of $991,326. There was no formal written agreement entered between the Company and this related party. This loan is short-term in nature and is expected to be repaid in 2006.

(6)Long Term Debt:

In December 2004, the Company entered into a loan agreement with a bank with a loan amount of $1,204,819 (RMB10,000,000). The draw took place in January 2005 and therefore it has an outstanding balance of $0 as of December 31, 2004. Outstanding balance of this loan amounted to $1,239,157 as of December 31, 2005. The loan bears interest at a rate of 5.76% per annum. The outstanding balance is secured by certain cash deposits, certain real estate properties owned by an affiliate and is personally guaranteed by the stockholder of the Company. This loan matures in April 2007.

65

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(7)Related-Party Transactions:

The Company earned certain cash revenues from its customers that were subsequently collected by its stockholder. During the years ended December 31, 2005, 2004, and 2003, cash revenues collected by its stockholder totaled $6,100,298, $4,505,023, and $2,434,245 respectively.

The Company’s stockholder made non-interest bearing advances to the Company or borrowed from the Company since the inception of its operations. The Company advanced $14,363,046, $5,982,789, and $8,013,659 to this shareholder during the years ended December 31, 2005 and 2004, and 2003, respectively.

The Company declared dividends to its stockholder totaling $5,421,687, $3,975,904, and $1,734,940, during the years ended December 31, 2005, 2004, and 2003, respectively, which offset the amounts due from this stockholder

Outstanding amounts included in due from stockholder totaled $9,487,562 and $546,203 as of December 31, 2005 and 2004, respectively.

(8)China Contribution Plan:

The Company participates in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate of 14% based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations and the Company has no further commitments beyond its monthly contribution. During the years ended 2005, 2004, and 2003, the Company contributed approximately of $61,000, $45,000, and $38,000, respectively, to this fund.

(9)Income Taxes:

The income tax provision amounted to $452,538, $358,396, and $193,137, respectively, for the years ended December 31, 2005, 2004, and 2003 (an effective rate of 7.8% for 2005, 8.5% for 2004 and 8.5% for 2003). A reconciliation of the provision for income taxes with amounts determined by applying the statutory China federal income tax rate to income before income taxes is as follows:

	2005			2004			2003
Computed tax at federal statutory rate of 15%	$	873,348		$	631,014		$	339,878
Penalties		-			85,821			46,372
Effect of tax holidays for new business		(436,613	)		(358,439	)		(193,113	)
Additional tax liabilities based on tax notice		15,803			-			-
	$	452,538		$	358,396		$	193,137

The components of provision for the income taxes are as follows:

	2005		2004		2003
Current	$	451,427	$	335,986	$	215,426
Deferred		1,111		22,410		(22,289	)
	$	452,538	$	358,396	$	193,137

66

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(9)Income Taxes (Continued):

The regular federal income tax in Shenzhen, China, is 15%. As a new business, the Company is exempted from paying any income taxes for the first two years of its operations (2 years from the inception of the business, years ended December 31, 2001 and 2002), and a discounted income tax rate of 7.5% of pretax income during third, fourth and fifth years of its operations (the three years ended December 31, 2003, 2004 and 2005). Beginning January 1, 2006, the Company is subject to the regular rate of 15% on its pretax income.

The Company did not report certain cash revenues related to fees charged to its customers for product design. Such fee revenues are subject to business tax and service charge of a total of 5.2%. The Company has not reported such revenues since the inception of its operations in 2001. The Company recorded the tax liabilities representing business tax and fees of 5.2% and income tax of 7.5% on the unreported design revenues during the years ended December 31, 2005, 2004 and 2003. During the years ended December 31, 2005, 2004 and 2003, the Company recorded $302,409, $234,261, and $126,581, respectively, for business tax and fees and $393,806, $337,877, and $182,568, respectively, for income tax related to these revenues. In addition, per advice of the registered tax agent in China, the Company accrued 100% of unpaid tax amounts as the maximum penalties which could be assessed by the Tax Department through the periods ended December 31, 2004.

In April 2006, the Shenzhen local tax department has made an assessment of the total tax liabilities related to the cash revenues. Per the tax assessment notice dated April 24, 2006, the Company is obligated to pay a total of $1,754,802 (RMB14,161,249) including business tax, fees and income taxes related to these cash revenues. If the Company did not pay off these tax liabilities by April 30, 2006, the Company is subject to 0.05% per day of interest and penalties of the unpaid tax and fee liability amount from the due date (April 30, 2006). On July 5, 2006, Shenzhen City Tax Department granted an extension to the Company to remit the tax liabilities from April 30, 2006 to December 20, 2006. The Company will not be subject to any penalties and interest if all the outstanding taxes are remitted to the Tax Department prior to the revised due date (December 20, 2006). The Company has accrued $1,754,802 as business and income tax payables as of December 31, 2005. Accrued estimated penalties totaled $1,082,962, and $1,052,952, as of December 31, 2005, and 2004, which were included in accrued expenses in the accompanying balance sheets.

Deferred income taxes reflect 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.Significant components of the Company’s deferred tax assets and liabilities are as follows:

	2005		2004
Deferred tax assets:
Allowance for doubtful accounts	$	22,677	$	21,566
Total deferred tax assets		22,677		21,566
Total deferred tax liabilities		-		-
Net deferred assets before valuation allowance:		22,677		21,566
Valuation allowance		-		-
Net deferred tax assets	$	22,677	$	21,566

67

Fuqi International, Inc.

Notes to Financial Statements

As of December 31, 2005 and 2004 and for the

Years Ended December 31, 2005, 2004 and 2003

(9)Income Taxes (Continued):

Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain.

(10)Commitments:

The Company leases certain facilities under various long-term noncancellable and month-to-month leases. These leases are accounted for as operating leases. Rent expense amounted to $98,715, and $71,323, and $85,438, for the years ended 2005, 2004 and 2003, respectively.

A summary of the future minimum annual rental commitments under the operating leases is as follows:

Year ending December 31,
2006	$	113,656
2007		111,524
2008		111,524
2009		111,524
Thereafter		55,762
	$	503,990

(11)Proforma Information (Unaudited):

The Company declared and paid dividends to its sole stockholder during the years ended December 31, 2005, 2004 and 2003. Beginning the first quarter of 2007, the Company plans to increase his annual compensation through substantially higher salaries in lieu of dividends. In addition, the Company plans to substantially increase the salaries for two other executives during the first quarter of 2007. Pro forma operating results for the years ended December 31, 2005, 2004 and 2003, as if historical compensation was recorded at the levels expected in the future, are as follows: 

	2005		2004		2003
Net income - as reported	$	5,369,768	$	3,848,365	$	2,072,718
Net income - proforma	$	5,059,893	$	3,459,680	$	1,649,808
Earnings per Share - as reported	$	0.28	$	0.20	$	0.11
Earnings per Share - proforma	$	0.27	$	0.18	$	0.09

(12)Subsequent Events (Unaudited):

On April 24, 2006, the Company received a notice from Shenzhen City Tax Department for tax assessment on certain cash revenues from 2001 to 2005. Per the conclusion of the tax notice, the Company is obligated to pay a total of $1,754,802 to the Tax Department by April 30, 2006 to avoid any interest and penalties. On July 5, 2006, Shenzhen City Tax Department granted an extension to the Company to remit the tax liabilities from April 30, 2006 to December 20, 2006. The Company will not be subject to any penalties and interest if all the outstanding taxes are remitted to the Tax Department prior to December 20, 2006.

Effective May 17, 2006, the PRC government issued a certificate of approval for the Company to become a wholly-owned foreign enterprise.

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(b) Exhibits

Exhibit Number Description

2.1 Exchange Agreement dated September 20, 2006 by and between Fuqi International, Inc., a Delaware corporation (f/k/a VT Marketing Services, Inc.) (the “Registrant”) and Fuqi International Holdings Ltd., a British Virgin Islands company.

3.1 Articles of Incorporation of the Registrant.

3.2 Bylaws of the Registrant.

4.1* Specimen common stock certificate.

10.1 Plan Warrant Agreement.

10.2 2006 Equity Incentive Plan.

10.3 Real Property Lease dated May 8, 2005.

21.1 List of Subsidiaries of the Registrant.

23.1 Consent of Stonefield Josephson, Inc.

* To be filed by amendment.

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Signatures

In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	FUQI INTERNATIONAL, INC. (Registrant)
Dated: December 29, 2006		/s/ Yu Kwai Chong
		By: Yu Kwai Chong Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)

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EXHIBIT INDEX

Exhibit Number Description

2.1 Exchange Agreement dated September 20, 2006 by and between Fuqi International, Inc., a Delaware corporation (f/k/a VT Marketing Services, Inc.) (the “Registrant”) and Fuqi International Holdings Ltd., a British Virgin Islands company.

3.1 Articles of Incorporation of the Registrant.

3.2 Bylaws of the Registrant.

4.1* Specimen common stock certificate.

10.1 Plan Warrant Agreement.

10.2 2006 Equity Incentive Plan.

10.3 Real Property Lease dated May 8, 2005.

21.1 List of Subsidiaries of the Registrant.

23.1 Consent of Stonefield Josephson, Inc.

* To be filed by amendment.

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EX-2.1

EXECUTION VERSION

Share Exchange Agreement

This Share Exchange Agreement, dated as of November 20, 2006, is made by and among VT Marketing Services, Inc. a Nevada corporation (prior to the Closing Date, the “Acquiror Company;” and after the Closing Date, “VTM”), the Person listed on Exhibit B hereto (“Shareholder”) and Fuqi International Holdings Co., Ltd., a British Virgin Islands corporation (the “Company”).

BACKGROUND

The Shareholder has agreed to transfer to the Acquiror Company, and the Acquiror Company has agreed to acquire from the Shareholder, all of the Shares, which Shares constitute 100% of the outstanding capital stock of the Company, in exchange for 18,886,666 shares of the Acquiror Company’s Common Stock to be issued on the Closing Date, which Acquiror Company Shares shall constitute 91.13%of the issued and outstanding shares of Acquiror Company’s Common Stock immediately after the closing of the transactions contemplated herein.

SECTION I
DEFINITIONS

Unless the context otherwise requires, the terms defined in this Section 1 will have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined.

1.1“Accredited Investor” has the meaning set forth in Regulation D under the Securities Act and set forth on Exhibit C.

1.2“Acquiror Company Balance Sheet” means the Acquiror Company’s unaudited balance sheet as of October 31, 2006.

1.3“Acquiror Company Board” means the Board of Directors of the Acquiror Company.

1.4“Acquiror Company Common Stock” means the Acquiror Company’s common stock, no par value per share.

1.5“Acquiror Company Shares” means the Acquiror Company Common Stock being issued to the Shareholder pursuant hereto.

1.6“Acquiror Company Subsidiaries” means all of the direct and indirect Subsidiaries of the Acquiror Company.

1.7“Affiliate” means any Person that directly or indirectly controls, is controlled by or is under common control with the indicated Person.

1.8“Agreement” means this Share Exchange Agreement, including all Schedules and Exhibits hereto, as this Share Exchange Agreement may be from time to time amended, modified or supplemented.

1.9“Approved Plans” means a stock option or similar plan for the benefit of employees or others which has been approved by the stockholders of the Acquiror Company.

1.10“Closing Acquiror Company Shares” means the aggregate number of Acquiror Company Shares to be issued to the Shareholder at the Closing Date.

1.11“Closing Date” has the meaning set forth in Section 3.

1.12“Code” means the Internal Revenue Code of 1986, as amended.

1.13“Common Stock” means the Company’s common shares, US $1.00 nominal or par value per share.

1.14“Commission” means the Securities and Exchange Commission or any other federal agency then administering the Securities Act.

1.15“Company Board” means the Board of Directors of the Company.

1.16“Company Subsidiaries” means all of the direct and indirect Subsidiaries of the Company.

1.17“Covered Persons” means all Persons, other than Acquiror Company, who are parties to indemnification and employment agreements with Acquiror Company existing on or before the Closing Date.

1.18“Damages” means any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities, and amounts paid in settlement in connection with any Proceeding.

1.19“Distributor” means any underwriter, dealer or other Person who participates, pursuant to a contractual arrangement, in the distribution of the securities offered or sold in reliance on Regulation S.

1.20“Environmental Laws” means any Law or other requirement relating to the environment, natural resources, or public or employee health and safety.

1.21“Environmental Permit” means all licenses, permits, authorizations, approvals, franchises and rights required under any applicable Environmental Law or Order.

1.22“Equity Security” means any stock or similar security, including, without limitation, securities containing equity features and securities containing profit participation features, or any security convertible into or exchangeable for, with or without consideration, any stock or similar security, or any security carrying any warrant, right or option to subscribe to or purchase any shares of capital stock, or any such warrant or right.

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1.23“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.24“Exchange” has the meaning set forth in Section 2.1.

1.25“Exchange Act” means the Securities Exchange Act of 1934 or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same will then be in effect.

1.26“Exhibits” means the several exhibits referred to and identified in this Agreement.

1.27“GAAP” means, with respect to any Person, United States generally accepted accounting principles applied on a consistent basis with such Person’s past practices.

1.28“Governmental Authority” means any federal or national, state or provincial, municipal or local government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, political subdivision, commission, court, tribunal, official, arbitrator or arbitral body, in each case whether U.S. or non-U.S.

1.29“Indebtedness” means any obligation, contingent or otherwise. Any obligation secured by a Lien on, or payable out of the proceeds of, or production from, property of the relevant party will be deemed to be Indebtedness.

1.30“Indemnified Persons” has the meaning set forth in Section 8.4.1.

1.31“Intellectual Property” means all industrial and intellectual property, including, without limitation, all U.S. and non-U.S. patents, patent applications, patent rights, trademarks, trademark applications, common law trademarks, Internet domain names, trade names, service marks, service mark applications, common law service marks, and the goodwill associated therewith, copyrights, in both published and unpublished works, whether registered or unregistered, copyright applications, franchises, licenses, know-how, trade secrets, technical data, designs, customer lists, confidential and proprietary information, processes and formulae, all computer software programs or applications, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including manuals, memoranda, and records, whether such intellectual property has been created, applied for or obtained anywhere throughout the world.

1.32“Laws” means, with respect to any Person, any U.S. or non-U.S. federal, national, state, provincial, local, municipal, international, multinational or other law (including common law), constitution, statute, code, ordinance, rule, regulation or treaty applicable to such Person.

1.33“Lien” means any mortgage, right of first refusal, pledge, security interest, encumbrance, lien or charge of any kind, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement under the Uniform Commercial Code or similar statute of any jurisdiction and including any lien or charge arising by Law.

3

1.34“Material Acquiror Company Contract” means any and all agreements, contracts, arrangements, leases, commitments or otherwise, of the Acquiror Company, of the type and nature that the Acquiror Company is required to file with the Commission.

1.35“Material Company Contract” means any and all agreements, contracts, arrangements, leases, commitments or otherwise, of the Company, of the type and nature that the Acquiror Company would be required to file with the Commission were it reporting under the Securities Exchange Act of 1934, as amended.

1.36“Material Adverse Effect” means, when used with respect to the Acquiror Company or the Company, as the case may be, any change, effect or circumstance which, individually or in the aggregate, would reasonably be expected to (a) have a material adverse effect on the business, assets, financial condition or results of operations of the Acquiror Company or the Company, as the case may be, in each case taken as a whole or (b) materially impair the ability of the Acquiror Company or the Company, as the case may be, to perform their obligations under this Agreement, excluding any change, effect or circumstance resulting from (i) the announcement, pendency or consummation of the transactions contemplated by this Agreement, (ii) changes in the United States securities markets generally, or (iii) changes in general economic, accounting and tax requirements, currency exchange rate, political or regulatory conditions in industries in which the Acquiror Company or the Company, as the case may be, operate.

1.37“Order” means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any Governmental Authority.

1.38“Organizational Documents” means (a) the articles or certificate of incorporation and the by-laws or code of regulations of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of formation and operating agreement of a limited liability company; (e) any other document performing a similar function to the documents specified in clauses (a), (b), (c) and (d) adopted or filed in connection with the creation, formation or organization of a Person; and (f) any and all amendments to any of the foregoing.

1.39“Permitted Liens” means (a) Liens for Taxes not yet payable or in respect of which the validity thereof is being contested in good faith by appropriate proceedings and for the payment of which the relevant party has made adequate reserves; (b) Liens in respect of pledges or deposits under workmen’s compensation laws or similar legislation, carriers, warehousemen, mechanics, laborers and materialmen and similar Liens, if the obligations secured by such Liens are not then delinquent or are being contested in good faith by appropriate proceedings conducted and for the payment of which the relevant party has made adequate reserves; (c) statutory Liens incidental to the conduct of the business of the relevant party which were not incurred in connection with the borrowing of money or the obtaining of advances or credits and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; and (d) Liens that would not have a Material Adverse Effect.

4

1.40“Person” means all natural persons, corporations, business trusts, associations, companies, partnerships, limited liability companies, joint ventures and other entities, governments, agencies and political subdivisions.

1.41“Plan Warrants” has the meaning given to it in Section 7.2.

1.42“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority.

1.43“Regulation S” means Regulation S under the Securities Act, as the same may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission.

1.44“Rule 144” means Rule 144 under the Securities Act, as the same may be amended from time to time, or any successor statute.

1.45“Schedules” means the several schedules referred to and identified herein, setting forth certain disclosures, exceptions and other information, data and documents referred to at various places throughout this Agreement.

1.46“Section 4(2)” means Section 4(2) under the Securities Act, as the same may be amended from time to time, or any successor statute.

1.47“Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same will be in effect at the time.

1.48“Shareholders’ Agreement” means the existing Shareholder Rights Agreement described in Schedule 7.9 hereto.

1.49“Shares” means the 10,000 issued and outstanding ordinary shares of the Company.

1.50“Subsidiary” means, with respect to any Person, any corporation, limited liability company, joint venture or partnership of which such Person (a) beneficially owns, either directly or indirectly, more than 50% of (i) the total combined voting power of all classes of voting securities of such entity, (ii) the total combined equity interests, or (iii) the capital or profit interests, in the case of a partnership; or (b) otherwise has the power to vote or to direct the voting of sufficient securities to elect a majority of the board of directors or similar governing body.

1.51“Survival Period” has the meaning set forth in Section 11.1.

1.52“Taxes” means all foreign, federal, state or local taxes, charges, fees, levies, imposts, duties and other assessments, as applicable, including, but not limited to, any income, alternative minimum or add-on, estimated, gross income, gross receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-added, franchise, registration, title, license, capital, paid-up capital, profits, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, premium, real property, recording, personal property, federal highway use, commercial rent, environmental (including, but not limited to, taxes under Section 59A of the Code) or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalties or additions to tax with respect to any of the foregoing; and “Tax” means any of the foregoing Taxes.

5

1.53“Tax Group” means any federal, state, local or foreign consolidated, affiliated, combined, unitary or other similar group.

1.54“Tax Return” means any return, declaration, report, claim for refund or credit, information return, statement or other similar document filed with any Governmental Authority with respect to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

1.55“Transaction Documents” means, collectively, all agreements (including the Advisory Services Agreement), instruments and other documents to be executed and delivered in connection with the transactions contemplated by this Agreement.

1.56“U.S.” means the United States of America.

1.57“U.S. Dollars” or “US $” means the currency of the United States of America.

1.58“U.S. Person” has the meaning set forth in Regulation S under the Securities Act and set forth on Exhibit C hereto.

SECTION II

EXCHANGE OF SHARES AND SHARE CONSIDERATION

2.1Share Exchange. At the Closing, the Shareholder shall transfer to the Acquiror Company the number of Shares set forth in Exhibit B, and, in consideration therefor, subject to Section 2.2, the Acquiror Company shall issue to the Shareholder the number of shares of Acquiror Company Common Stock so set forth (the “Exchange”). The total amount of Acquiror Company Common Stock to be issued to the Shareholder at the Closing shall be 18,886,666 shares. The Shares to be transferred by the Shareholder to the Acquiror Company will constitute all issued and outstanding shares of the capital stock of the Company. The Shareholder shall provide the Acquiror Company with such information concerning his or her U. S. federal income tax basis in the Shares as may be reasonably requested by the Acquiror Company.

2.2Withholding. The Acquiror Company shall be entitled to deduct and withhold from the Acquiror Company Shares otherwise payable pursuant to this Agreement to any Shareholder such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local, provincial or foreign tax Law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Shareholder in respect of which such deduction and withholding was made. The Shareholder shall provide to the Acquiror Company such tax forms as may be necessary to claim an applicable exemption or reduction from any such withholding and, upon request by the Acquiror Company, shall pay to or reimburse the Acquiror Company in cash for any such amounts required to be withheld and paid over.

6

2.3Section 368 Reorganization. For U.S. federal income tax purposes, the Exchange is intended to constitute a “reorganization” within the meaning of Section 368(a)(1)(B) of the Code. The parties to this Agreement hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) of the United States Treasury Regulations, and agree to file and retain such information as shall be required under Section 1.368-3T of the United States Treasury Regulations. Notwithstanding the foregoing or anything else to the contrary contained in this Agreement, the parties acknowledge and agree that no party is making any representation or warranty as to the qualification of the Exchange as a reorganization under Section 368 of the Code or as to the effect, if any, that any transaction consummated prior to, on or after the Closing Date has or may have on any such reorganization status. The parties acknowledge and agree that each (i) has had the opportunity to obtain independent legal and tax advice with respect to the transaction contemplated by this Agreement, and (ii) is responsible for paying its own Taxes, including without limitation, any adverse Tax consequences that may result if the transaction contemplated by this Agreement is determined not to qualify as a reorganization under Section 368 of the Code.

2.4Directors of Acquiror Company at Closing Date. By the Closing Date the current directors of the Acquiror Company shall appoint Mr. Yu Kwai Chong, Mr. Ching Wan Wong and Mr. Lie Xi Zhuang as directors of the Acquiror Company. Each current director of the Acquiror Company shall resign as a director of the Acquiror Company Board.

SECTION III
CLOSING DATE

3.1Closing Date. The closing of the Exchange will occur within twenty (20) business days following the date on which all of the closing conditions set forth in Sections 9 and 10 have been satisfied or waived (the “Closing Date”). The Closing Date will be on or before November 22, 2006.

SECTION IV

REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER

4.1Generally. The Shareholder, severally and not jointly, hereby represents and warrants to the Acquiror Company, as of the closing of the Exchange:

4.1.1Authority. The Shareholder has the right, power, authority and capacity to execute and deliver this Agreement and each of the Transaction Documents to which the Shareholder is a party, to consummate the transactions contemplated by this Agreement and each of the Transaction Documents to which the Shareholder is a party, and to perform the Shareholder’s obligations under this Agreement and each of the Transaction Documents to which the Shareholder is a party. This Agreement has been, and each of the Transaction Documents to which the Shareholder is a party will be, duly and validly authorized and approved, executed and delivered by the Shareholder. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered by the parties thereto other than the Shareholder, this Agreement is, and each of the Transaction Documents to which the Shareholder is a party have been, duly authorized, executed and delivered by the Shareholder and constitutes the legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors rights generally.

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4.1.2No Conflict. Neither the execution or delivery by the Shareholder of this Agreement or any Transaction Document to which the Shareholder is a party, nor the consummation or performance by the Shareholder of the transactions contemplated hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Organization Documents of the Shareholder (if the Shareholder is not a natural person); (b) contravene, conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, any agreement or instrument to which the Shareholder is a party or by which the properties or assets of the Shareholder are bound; or (c) contravene, conflict with, or result in a violation of, any Law or Order to which the Shareholder, or any of the properties or assets of the Shareholder, may be subject.

4.1.3Ownership of Shares. The Shareholder owns, of record and beneficially, and has good, valid and indefeasible title to and the right to transfer to the Acquiror Company pursuant to this Agreement, the Shareholder’s Shares free and clear of any and all Liens. There are no options, rights, voting trusts, stockholder agreements or any other contracts or understandings to which the Shareholder is a party or by which the Shareholder or the Shareholder’s Shares are bound with respect to the issuance, sale, transfer, voting or registration of the Shareholder’s Shares. At the Closing Date, the Acquiror Company will acquire good, valid and marketable title to the Shareholder’s Shares free and clear of any and all Liens.

4.1.4Litigation. There is no pending Proceeding against the Shareholder that involves the Shares or that challenges, or may have the effect of preventing, delaying or making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement and, to the knowledge of the Shareholder, no such Proceeding has been threatened, and no event or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.

4.1.5No Brokers or Finders. Except as disclosed in Schedule 4.1.5, no Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Shareholder for any commission, fee or other compensation as a finder or broker, or in any similar capacity, and the Shareholder will indemnify and hold the Acquiror Company harmless against any liability or expense arising out of, or in connection with, any such claim.

4.2Investment Representations. The Shareholder, severally and not jointly, hereby represents and warrants to the Acquiror Company:

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4.2.1Acknowledgment. The Shareholder understands and agrees that the Acquiror Company Shares to be issued pursuant to this Agreement and the Exchange have not been registered under the Securities Act or the securities laws of any state of the U.S. and that the issuance of the Acquiror Company Shares is being effected in reliance upon an exemption from registration afforded either under Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering or Regulation S for offers and sales of securities outside the U.S.

4.2.2Status. By its execution of this Agreement, the Shareholder, severally and not jointly, represents and warrants to the Acquiror Company as indicated on the signature page to this Agreement, that:

(a)the Shareholder is not a U.S. Person.

The Shareholder severally understands that the Acquiror Company Shares are being offered and sold to the Shareholder in reliance upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Shareholder set forth in this Agreement, in order that the Acquiror Company may determine the applicability and availability of the exemptions from registration of the Acquiror Company Shares on which the Acquiror Company is relying.

4.2.3Additional Representations and Warranties of Non-U.S. Persons. The Shareholder indicating that it is not a U.S. person on its signature page to this Agreement, severally and not jointly, further makes the representations and warranties to the Acquiror Company set forth on Exhibit D.

4.2.4Stock Legends. The Shareholder hereby agrees with the Acquiror Company as follows:

(a)Securities Act Legend - Non-U.S. Persons. The certificates evidencing the Acquiror Company Shares issued to the Shareholder who are not U.S. Persons, and each certificate issued in transfer thereof, will bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, AND BASED ON AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE BEEN SATISFIED (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.

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(b)Other Legends. The certificates representing such Acquiror Company Shares, and each certificate issued in transfer thereof, will also bear any other legend required under any applicable Law, including, without limitation, any U.S. state corporate and state securities law, or contract.

(c)Opinion. No Shareholder will transfer any or all of the Acquiror Company Shares pursuant to Regulation S or absent an effective registration statement under the Securities Act and applicable state securities law covering the disposition of such Shareholder’s Acquiror Company Shares, without first providing the Acquiror Company with an opinion of counsel (which counsel and opinion are reasonably satisfactory to the Acquiror Company) to the effect that such transfer will be made in compliance with Regulation S or will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable U.S. state securities laws.

(d)Consent. The Shareholder understands and acknowledges that the Acquiror Company may refuse to transfer the Acquiror Company Shares, unless such Shareholder complies with this Section 4.2.5 and any other restrictions on transferability set forth in Exhibits E and F. The Shareholder consents to the Acquiror Company making a notation on its records or giving instructions to any transfer agent of the Acquiror Company’s Common Stock in order to implement the restrictions on transfer of the Acquiror Company Shares.

SECTION V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Acquiror Company as follows:

5.1Organization and Qualification. The Company is duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands, has all requisite authority and power (corporate and other), governmental licenses, authorizations, consents and approvals to carry on its business as presently conducted and as contemplated to be conducted, to own, hold and operate its properties and assets as now owned, held and operated by it, to enter into this Agreement, to carry out the provisions hereof except where the failure to be so organized, existing and in good standing or to have such authority and power, governmental licenses, authorizations, consents or approvals would not have a Material Adverse Effect. The Company is treated as a foreign corporation for U.S. federal income tax purposes and is duly qualified, licensed or domesticated as a foreign corporation in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing or domestication necessary, except where the failure to be so qualified, licensed or domesticated will not have a Material Adverse Effect. Schedule 5.1 sets forth a true and complete list of the jurisdictions in which the Company presently conducts its business or owns, holds and operates its properties and assets.

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5.2Subsidiaries. Except as set forth on Schedule 5.2, the Company does not own directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise.

5.3Articles of Incorporation and Bylaws. The copies of the Memorandum and Articles of Association of the Company adopted on January 2, 2004, as amended, and the documents which constitute all other Organization Documents of the Company, that have been delivered to the Acquiror Company prior to the execution of this Agreement are true and complete and have not been amended or repealed. The Company is not in violation or breach of any of the provisions of its Organizational Documents, except for such violations or breaches as, in the aggregate, will not have a Material Adverse Effect.

5.4Authorization and Validity of this Agreement. The Company has all requisite authority and power (corporate and other), governmental licenses, authorizations, consents and approvals to enter into this Agreement and each of the Transaction Documents to which the Company is a party, to consummate the transactions contemplated by this Agreement and each of the Transaction Documents to which the Company is a party, to perform its obligations under this Agreement and each of the Transaction Documents to which the Company is a party, and to record the transfer of the Shares and the delivery of the new certificates representing the Shares registered in the name of the Acquiror Company. The execution, delivery and performance by the Company of this Agreement and each of the Transaction Documents to which the Company is a party have been duly authorized by all necessary corporate action and do not require from the Company Board or the Shareholder any consent or approval that has not been validly and lawfully obtained. The execution, delivery and performance by the Company of this Agreement and each of the Transaction Documents to which the Company is a party requires no authorization, consent, approval, license, exemption of or filing or registration with any Governmental Authority or other Person.

5.5No Violation. Neither the execution nor the delivery by the Company of this Agreement or any Transaction Document to which the Company is a party, nor the consummation or performance by the Company of the transactions contemplated hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of the Company; (b) contravene, conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, or result in the imposition or creation of any Lien under, any agreement or instrument to which the Company is a party or by which the properties or assets of the Company are bound; (c) contravene, conflict with, or result in a violation of, any Law or Order to which the Company, or any of the properties or assets owned or used by the Company, may be subject; or (d) contravene, conflict with, or result in a violation of, the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any licenses, permits, authorizations, approvals, franchises or other rights held by the Company or that otherwise relate to the business of, or any of the properties or assets owned or used by, the Company, except, in the case of clause (b), (c), or (d), for any such contraventions, conflicts, violations, or other occurrences as would not have a Material Adverse Effect.

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5.6Binding Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered by the parties thereto other than the Company, this Agreement and each of the Transaction Documents to which the Company is a party are duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors rights generally.

5.7Capitalization and Related Matters.

5.7.1Capitalization. The authorized capital stock of the Company consists of 50,000 shares of Common Stock, of which 10,000 shares of Common Stock are issued and outstanding. Except as set forth in Schedule 5.7.1, there are no outstanding or authorized options, warrants, calls, purchase agreements, participation agreements, subscription rights, conversion rights, exchange rights or other securities or contracts that could require the Company to issue, sell or otherwise cause to become outstanding any of its authorized but unissued shares of capital stock or any securities convertible into, exchangeable for or carrying a right or option to purchase shares of capital stock or to create, authorize, issue, sell or otherwise cause to become outstanding any new class of capital stock. There are no outstanding stockholders’ agreements, voting trusts or arrangements, registration rights agreements, rights of first refusal or other contracts pertaining to the capital stock of the Company. The issuance of all of the shares of Acquiror Company’s Common Stock described in this Section 5.7.1 have been in compliance with the laws of the British Virgin Islands. All issued and outstanding shares of the Company’s capital stock are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive or similar rights.

5.7.2No Redemption Requirements. Except as set forth in Schedule 5.7.2, there are no outstanding contractual obligations (contingent or otherwise) of the Company to retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or other ownership interests in, the Company or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.

5.7.3Duly Authorized. The exchange of the Shares has been duly authorized, and the Shares have been validly issued and are fully paid and nonassessable.

5.8Shareholder. Exhibit A contains a true and complete list of the names of the record and beneficial holder of all of the outstanding capital stock of the Company. Except as expressly provided in this Agreement, no holder of Shares or any other security of the Company or any other Person is entitled to any preemptive right, right of first refusal or similar right as a result of the issuance of the shares or otherwise.

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5.9Compliance with Laws and Other Instruments. Except as would not have a Material Adverse Effect, the business and operations of the Company have been and are being conducted in accordance with all applicable Laws and Orders. Except as would not have a Material Adverse Effect, neither the Company nor any Company Subsidiary has received notice of any violation (or any Proceeding involving an allegation of any violation) of any applicable Law or Order by or affecting the Company or its business and, to the knowledge of the Company and any Company Subsidiary, no Proceeding involving an allegation of violation of any applicable Law or Order is threatened or contemplated. Except as would not have a Material Adverse Effect, neither the Company nor any Company Subsidiary is, or is alleged to be, in violation of, or (with or without notice or lapse of time or both) in default under, or in breach of, any term or provision of its Organizational Documents or of any indenture, loan or credit agreement, note, deed of trust, mortgage, security agreement or other material agreement, lease, license or other instrument, commitment, obligation or arrangement to which the Company or such Company Subsidiary is a party or by which any of the Company or such Company Subsidiary’s properties, assets or rights are bound or affected. To the knowledge of the Company and any Company Subsidiary, no other party to any material contract, agreement, lease, license, commitment, instrument or other obligation to which the Company or any Company Subsidiary is a party is (with or without notice or lapse of time or both) in default thereunder or in breach of any term thereof. Neither the Company nor any Company Subsidiary is subject to any obligation or restriction of any kind or character, nor is there, to the knowledge of the Company or any Company Subsidiary, any event or circumstance relating to the Company or its business that materially and adversely affects in any way its business, properties, assets or prospects or that prohibits the Company from entering into this Agreement or would prevent or make burdensome its performance of or compliance with all or any part of this Agreement or the consummation of the transactions contemplated hereby or thereby.

5.10Certain Proceedings. There is no pending Proceeding that has been commenced against the Company and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated in this Agreement. To the Company’s knowledge, no such Proceeding has been threatened.

5.11No Brokers or Finders. Except as disclosed in Schedule 5.11, no person has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, and the Company will indemnify and hold the Acquiror Company harmless against any liability or expense arising out of, or in connection with, any such claim.

5.12Title to and Condition of Properties. Except as would not have a Material Adverse Effect, the Company or the relevant Company Subsidiary owns (with good and marketable title in the case of real property) or holds under valid leases or other rights to use all real property, plants, machinery and equipment necessary for the conduct of the business of the Company as presently conducted, free and clear of all Liens, except Permitted Liens. The material buildings, plants, machinery and equipment necessary for the conduct of the business of the Company as presently conducted are structurally sound, are in good operating condition and repair and are adequate for the uses to which they are being put, in each case, taken as a whole, and none of such buildings, plants, machinery or equipment is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs that are not material in nature or cost.

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5.13Absence of Undisclosed Liabilities. Except as set forth on Schedule 5.13, the Company does not have any debt, obligation or liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become due, whether or not known to the Company) arising out of any transaction entered into at or prior to the Closing Date or any act or omission at or prior to the Closing Date, except to the extent set forth on or reserved against on the unaudited balance sheet of the Company at December 31, 2005 (subject to audit adjustments). Except as set forth on Schedule 5.15, the Company has not incurred any liabilities or obligations under agreements entered into, in the usual and ordinary course of business since December 31, 2005.

5.14Changes. Except as set forth on Schedule 5.14, the Company has not, since December 31, 2005:

5.14.1Ordinary Course of Business. Conducted its business or entered into any transaction other than in the usual and ordinary course of business, except for this Agreement;

5.14.2Adverse Changes. Suffered or experienced any change in, or affecting, its condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations or prospects other than changes, events or conditions in the usual and ordinary course of its business, none of which would have a Material Adverse Effect;

5.14.3Loans. Made any loans or advances to any Person other than travel advances and reimbursement of expenses made to employees, officers and directors in the ordinary course of business;

5.14.4Liens. Created or permitted to exist any Lien on any material property or asset of the Company, other than Permitted Liens;

5.14.5Capital Stock. Issued, sold, disposed of or encumbered, or authorized the issuance, sale, disposition or encumbrance of, or granted or issued any option to acquire any shares of its capital stock or any other of its securities or any Equity Security, or altered the term of any of its outstanding securities or made any change in its outstanding shares of capital stock or its capitalization, whether by reason of reclassification, recapitalization, stock split, combination, exchange or readjustment of shares, stock dividend or otherwise;

5.14.6Dividends. Declared, set aside, made or paid any dividend or other distribution to any of its stockholders;

5.14.7Material Company Contracts. Terminated or modified any Material Company Contract, except for termination upon expiration in accordance with the terms thereof;

5.14.8Claims. Released, waived or cancelled any claims or rights relating to or affecting the Company in excess of US $10,000 in the aggregate or instituted or settled any Proceeding involving in excess of US $10,000 in the aggregate;

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5.14.9Discharged Liabilities. Paid, discharged or satisfied any claim, obligation or liability in excess of US $10,000 in the aggregate, except for liabilities incurred prior to the date of this Agreement in the ordinary course of business;

5.14.10Indebtedness. Created, incurred, assumed or otherwise become liable for any Indebtedness in excess of US $10,000 in the aggregate, other than professional fees;

5.14.11Guarantees. Guaranteed or endorsed in a material amount any obligation or net worth of any Person;

5.14.12Acquisitions. Acquired the capital stock or other securities or any ownership interest in, or substantially all of the assets of, any other Person;

5.14.13Accounting. Changed its method of accounting or the accounting principles or practices utilized in the preparation of its financial statements, other than as required by GAAP;

5.14.14Agreements. Except as set forth on Schedule 5.14.14, entered into any agreement, or otherwise obligated itself, to do any of the foregoing.

5.15Material Company Contracts. The Company has provided to the Acquiror Company, prior to the date of this Agreement, true, correct and complete copies of each written Material Company Contract that would be required to be filed by the Company with the SEC if it filed reports with the SEC pursuant to sections 13(d) or 15(d) of the Exchange Act, including each amendment, supplement and modification thereto, which contracts, amendments and supplements are listed on Schedule 5.15. The Company has also provided English translations of all such Company Material Contracts when reasonably requested by Acquiror Company.

5.15.1No Defaults. Each Material Company Contract is a valid and binding agreement of each company that is a party thereto, and is in full force and effect. Except as would not have a Material Adverse Effect, the Company is not in breach or default of any Material Company Contract to which it is a party and, to the knowledge of the Company, no other party to any Material Company Contract is in breach or default thereof. Except as would not have a Material Adverse Effect, no event has occurred or circumstance exists that (with or without notice or lapse of time) would (a) contravene, conflict with or result in a violation or breach of, or become a default or event of default under, any provision of any Material Company Contract or (b) permit the Company or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any Material Company Contract. The Company has not received notice of the pending or threatened cancellation, revocation or termination of any Material Company Contract to which it is a party. There are no renegotiations of, or attempts to renegotiate, or outstanding rights to renegotiate any material terms of any Material Company Contract.

5.16Employees.

5.16.1Except as set forth on Schedule 5.16.1, the Company has no employees, independent contractors or other Persons providing research or other services to it. Except as would not have a Material Adverse Effect, the Company is in full compliance with all Laws regarding employment, wages, hours, benefits, equal opportunity, collective bargaining, the payment of social security and other similar taxes, occupational safety and health and plant closing. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties or other amounts, however designated, for failure to comply with any of the foregoing Laws.

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5.16.2No director, officer or employee of the Company is a party to, or is otherwise bound by, any contract (including any confidentiality, noncompetition or proprietary rights agreement) with any other Person that in any way adversely affects or will materially affect (a) the performance of his or her duties as a director, officer or employee of the Company or (b) the ability of the Company to conduct its business. Except as set forth on Schedule 5.16.2, each employee of each Company is employed on an at-will basis and the Company does not have any contract with any of its employees which would interfere with such Company’s ability to discharge its employees.

5.17Tax Returns and Audits.

5.17.1Tax Returns. The Company and each Company Subsidiary has filed all material Tax Returns required to be filed by or on behalf of the Company and each Company Subsidiary, and has paid all material Taxes required to have been paid (whether or not reflected on any Tax Return). The Company and each Company Subsidiary has timely and duly withheld, paid over and reported to the appropriate Governmental Authority all taxes required to have been withheld, paid over and reported by the Company or such Company Subsidiary. Except as set forth on Schedule 5.17.1, (a) no Governmental Authority in any jurisdiction has made a claim, assertion or threat to the Company or such Subsidiary that the Company or such Company Subsidiary is or may be subject to taxation by such jurisdiction; and (b) there are no Liens with respect to Taxes on any of the Company’s or such Company Subsidiary’s property or assets other than Permitted Liens.

5.17.2No Adjustments, Changes. None of the Company, any Company Subsidiary or any other Person on behalf of the Company or such Company Subsidiary has agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law.

5.17.3No Disputes. There is no pending audit, examination, investigation, dispute, proceeding or claim with respect to any Taxes of the Company or any Company Subsidiary, nor is any such claim or dispute pending or contemplated. The Company has delivered to the Acquiror Company true, correct and complete copies of all Tax Returns of the Company or any Company Subsidiary and all examination reports and statements of deficiencies assessed or asserted against or agreed to by the Company or such Subsidiary since its inception and any and all correspondence with respect to the foregoing.

5.17.4No Tax Allocation, Sharing. Neither the Company nor any Company Subsidiary is a party to any Tax allocation or sharing agreement. Neither the Company nor any Company Subsidiary (a) has ever been a member of a Tax Group filing a consolidated income Tax Return under Section 1501 of the Code (or any similar provision of state, local or foreign law), and (b) has any liability for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

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5.17.5No Other Arrangements. Neither the Company or any Company Subsidiary is a party to any agreement, contract or arrangement for services that would result, individually or in the aggregate, in the payment of any amount that would not be deductible by reason of Section 162(m), 280G or 404 of the Code. Neither the Company nor any Company Subsidiary is a “consenting corporation” within the meaning of former Section 341(f) of the Code. The Company or any Company Subsidiary does not have any “tax-exempt bond financed property” or “tax-exempt use property” within the meaning of Section 168(g) or (h), respectively, of the Code. Neither the Company nor any Company Subsidiary has any outstanding closing agreement, ruling request, request for consent to change a method of accounting, subpoena or request for information to or from a Governmental Authority in connection with any Tax matter. During the last two years, neither the Company nor any Company Subsidiary has engaged in any exchange with a related party (within the meaning of Section 1031(f) of the Code) under which gain realized was not recognized by reason of Section 1031 of the Code. Neither the Company nor any Company Subsidiary is a party to any reportable transaction within the meaning of Code Section 6707A or Treasury Regulation Section 1.6011-4.

5.17.6The Company does not have any plan, arrangement or agreement providing for deferred compensation that is subject to Section 409A(a) of the Code, or any asset, plan, arrangement or agreement that is subject to Section 409A(b) of the Code.

5.17.7The Company is not a “distributing corporation” or a “controlled corporation” under Section 355 of the Code in any distribution in the last two years or pursuant to a plan or series of related transactions (within the meaning of Code Section 355(e)) with the transactions contemplated by the Agreement.

5.18Material Assets. The unaudited balance sheet of the Company at December 31, 2005 reflects the material properties and assets (real and personal) owned or leased by the Company (subject to audit adjustments).

5.19Insurance Coverage. The Company has made available to the Acquiror Company, prior to the date of this Agreement, true, correct and complete copies of any insurance policies maintained by the Company on its properties and assets. Except as would not have a Material Adverse Effect, all of such policies (a) taken together, provide adequate insurance coverage for the properties, assets and operations of the Company for all risks normally insured against by a Person carrying on the same business as the Company, and (b) are sufficient for compliance with all applicable Laws and Material Company Contracts. Except as would not have a Material Adverse Effect, all of such policies are valid, outstanding and in full force and effect and, by their express terms, will continue in full force and effect following the consummation of the transactions contemplated by this Agreement. Except as set forth on Schedule 5.19, the Company has not received (a) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (b) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. All premiums due on such insurance policies on or prior to the date hereof have been paid. There are no pending claims with respect to any Company or its properties or assets under any such insurance policies, and there are no claims as to which the insurers have notified the Company that they intend to deny liability. There is no existing default under any such insurance policies.

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5.20Litigation; Orders. Except as set forth on Schedule 5.20, there is no Proceeding (whether federal, state, local or foreign) pending or, to the knowledge of the Company, threatened against or affecting the Company or the Company’s properties, assets, business or employees. To the knowledge of the Company, there is no fact that might result in or form the basis for any such Proceeding. The Company is not subject to any Orders.

5.21Licenses. Except as would not have a Material Adverse Effect, the Company or the relevant Company Subsidiary possesses from the appropriate Governmental Authority all licenses, permits, authorizations, approvals, franchises and rights that are necessary for the Company to engage in its business as currently conducted and to permit the Company or such Company Subsidiary to own and use its properties and assets in the manner in which it currently owns and uses such properties and assets (collectively, “Company Permits”). The Company or the relevant Company Subsidiary has not received notice from any Governmental Authority or other Person that there is lacking any license, permit, authorization, approval, franchise or right necessary for the Company to engage in its business as currently conducted and to permit the Company or such Company Subsidiary to own and use its properties and assets in the manner in which it currently owns and uses such properties and assets. Except as would not have a Material Adverse Effect, the Company Permits are valid and in full force and effect. Except as would not have a Material Adverse Effect, no event has occurred or circumstance exists that may (with or without notice or lapse of time): (a) constitute or result, directly or indirectly, in a violation of or a failure to comply with any Company Permit; or (b) result, directly or indirectly, in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Company Permit. The Company or the relevant Company Subsidiary has not received notice from any Governmental Authority or any other Person regarding: (a) any actual, alleged, possible or potential contravention of any Company Permit; or (b) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to, any Company Permit. All applications required to have been filed for the renewal of such Company Permits have been duly filed on a timely basis with the appropriate Persons, and all other filings required to have been made with respect to such Company Permits have been duly made on a timely basis with the appropriate Persons. All Company Permits are renewable by their terms or in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amounts other than routine fees or similar charges, all of which have, to the extent due, been duly paid.

5.22Interested Party Transactions. Except as disclosed in Schedule 5.22, no officer, director or stockholder of the Company or any Affiliate or “associate” (as such term is defined in Rule 405 of the Commission under the Securities Act) of any such Person, has or has had, either directly or indirectly, (1) an interest in any Person which (a) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (b) purchases from or sells or furnishes to, or proposes to purchase from, sell to or furnish the Company any goods or services; or (2) a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected.

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5.23Governmental Inquiries. The Company has provided to the Acquiror Company a copy of each material written inspection report, questionnaire, inquiry, demand or request for information known to the corporate officers of the Company responsible for corporate compliance or legal affairs to have been received by the Company or any Company Subsidiary from any Governmental Authority relating to such matters, and the Company’s response thereto, and each material written statement, report or other document filed by the Company or any Company Subsidiary with any Governmental Authority.

5.24Intellectual Property. Except as set forth in Schedule 5.24, the Company does not own, use or license any Intellectual Property in its business as presently conducted.

5.25Financial Statements. Included in Schedule 5.25 are the audited balance sheets of Shenzhen Fuqi Jewelry Co. Limited, the Company’s wholly owned subsidiary, as of December 31, 2005, 2004 and 2003 and the related statements of operations, cash flows and stockholders equity for the years ended December 31, 2005 and 2004, together with notes and the report of the independent auditor with respect thereto, which notes include certain unaudited pro forma financial information with respect to the Company. All such financial statements comply in all material respects with applicable accounting requirements, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or, in the case of unaudited statements as would be permitted by the Commission if the Company were required to file periodic reports with the Commission), and fairly present in all material respects (subject in the case of unaudited statements, to normal, recurring audit adjustments) the financial position of the Company as at the dates thereof and the results of its operations and cash flows for the periods then ended. The Company did not have, as of the date of any such balance sheets, except as and to the extent reflected or reserved against therein, any liabilities or obligations (absolute or contingent) which should be reflected in any financial statements or the notes thereto prepared in accordance with generally accepted accounting principles, and all assets reflected therein present fairly the assets of the Company, in accordance with generally accepted accounting principles. The statements of revenue and expenses and cash flows present fairly the financial position and result of operations of the Company as of their respective dates and for the respective periods covered thereby.

5.26Stock Option Plans; Employee Benefits.

5.26.1Set forth on Schedule 5.26.1 is a complete list of all stock option plans providing for the grant by the Company of stock options to directors, officers, employees, consultants or other Persons. Except as disclosed on Schedule 5.26.1, all such stock option plans are Approved Plans.

5.26.2Except as set forth on Schedule 5.26.2, the Company does not have any employee benefit plans or arrangements covering its present and former employees or providing benefits to such persons in respect of services provided the Company.

5.26.3Neither the consummation of the transactions contemplated hereby alone, nor in combination with another event, with respect to each director, officer, employee and consultant of the Company, will result in (a) any payment (including, without limitation, severance, unemployment compensation or bonus payments) becoming due from the Company, (b) any increase in the amount of compensation or benefits payable to any such individual or (c) any acceleration of the vesting or timing of payment of compensation payable to any such individual. No agreement, arrangement or other contract of the Company provides benefits or payments contingent upon, triggered by, or increased as a result of a change in the ownership or effective control of the Company.

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5.27Environmental and Safety Matters. Except as set forth on Schedule 5.27 and except as would not have a Material Adverse Effect:

5.27.1The Company has at all times been and is in compliance with all Environmental Laws applicable to the Company.

5.27.2There are no Proceedings pending or threatened against the Company alleging the violation of any Environmental Law or Environmental Permit applicable to the Company or alleging that the Company is a potentially responsible party for any environmental site contamination.

5.27.3Neither this Agreement nor the consummation of the transactions contemplated by this Agreement shall impose any obligations to notify or obtain the consent of any Governmental Authority or third Persons under any Environmental Laws applicable to the Company.

5.28Board Recommendation. The Company’s Board has, by unanimous written consent, or by other action valid under the laws of the jurisdiction in which the Company is organized, determined that this Agreement and the transactions contemplated by this Agreement, are advisable and in the best interests of the Shareholder and has duly authorized this Agreement and the transactions contemplated by this Agreement.

SECTION VI

COVENANTS OF THE COMPANY

6.1Condition of Properties; Insurance. The Company will maintain or cause to be maintained in good repair, working order and condition any properties (whether owned in fee or a leasehold interest) used or useful in the business of the Company and, if appropriate maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against.

SECTION VII

REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR COMPANY

The Acquiror Company represents and warrants to the Shareholder and the Company as follows:

7.1Organization and Qualification. The Acquiror Company is duly organized, validly existing and in good standing under the laws of Nevada, has all requisite authority and power (corporate and other), governmental licenses, authorizations, consents and approvals to carry on its business as presently conducted and to own, hold and operate its properties and assets as now owned, held and operated by it, except where the failure to be so organized, existing and in good standing, or to have such authority and power, governmental licenses, authorizations, consents or approvals would not have a Material Adverse Effect. The Acquiror Company is duly qualified, licensed or domesticated as a foreign corporation in good standing in each jurisdiction wherein the nature of its activities or its properties owned, held or operated makes such qualification, licensing or domestication necessary, except where the failure to be so duly qualified, licensed or domesticated and in good standing would not have a Material Adverse Effect. Schedule 7.1 sets forth a true, correct and complete list of the Acquiror Company’s jurisdiction of organization and each other jurisdiction in which the Acquiror Company presently conducts its business or owns, holds and operates its properties and assets.

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7.2Formation related to a finalized Bankruptcy Plan. The Acquiror Company was formed as part of the implementation of a Chapter 11 reorganization plan (the “Visitalk Plan”) of visitalk.com, Inc. (“Visitalk.com”). The Acquiror Company was incorporated in Arizona on September 3, 2004 as a wholly owned subsidiary of Visitalk Capital Corporation (“VCC”) which in turn was a wholly owned subsidiary of Visitalk.com. VCC was authorized by the Visitalk Plan as the reorganized debtor. On September 22, 2004, Visitalk.com was merged into VCC. The Visitalk Plan, attached hereto as Schedule 7.2(a), was deemed effective by the Bankruptcy Court on September 17, 2004 (the “Effective Date”). The Final Decree closing the Visitalk.com Chapter 11 case was entered by the Bankruptcy Court on July 28, 2006. The Bankruptcy Court Order granting the Final Decree is attached as Schedule 7.2(b). The Visitalk Plan further authorized VCC to distribute 846,147 of the Company’s shares held by VCC to 211 creditors of Visitalk.com and all six series of common stock purchase warrants, in accordance with the Visitalk Plan (“Plan Warrants”), to 477 creditors and claimants of Visitalk.com, in various ratios in accordance with the Visitalk Plan. After the distribution of the 846,147 shares of common stock and the Plan Warrants, VCC owned approximately 83.3% of the Company’s outstanding common stock. With the entry of the Final Decree, the Acquiror Company has no liabilities of any kind related to any Visitalk.com claimants or shareholders. Subsequently, the Acquiror Company changed its domicile to Nevada and restructured its capital by reverse splitting its common shares but not any Plan Warrants then outstanding, on a one for 15.43 basis.

7.3Subsidiaries. The Acquiror Company does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise.

7.4Organizational Documents. True, correct and complete copies of the Organizational Documents of the Acquiror Company have been delivered to the Company prior to the execution of this Agreement, and no action has been taken to amend or repeal such Organizational Documents. The Acquiror Company is not in violation or breach of any of the provisions of its Organizational Documents, except for such violations or breaches as would not have a Material Adverse Effect.

7.5Authorization and Validity of Agreement. Subject to its receipt of stockholder approval in the manner required by law, the Acquiror Company has all requisite authority and power (corporate and other), governmental licenses, authorizations, consents and approvals to enter into this Agreement and each of the Transaction Documents to which the Acquiror Company is a party, to consummate the transactions contemplated by this Agreement and each of the Transaction Documents to which the Acquiror Company is a party and to perform its obligations under this Agreement and each of the Transaction Documents to which the Acquiror Company is a party. The execution, delivery and performance by the Acquiror Company of this Agreement and each of the Transaction Documents to which the Acquiror Company is a party have been duly authorized by the Board and do not require from the Acquiror Company Board any consent or approval that has not been validly and lawfully obtained except for approval by the Acquiror Company stockholders. The execution, delivery and performance by the Acquiror Company of this Agreement and each of the Transaction Documents to which the Acquiror Company is a party requires no authorization, consent, approval, license, exemption of or filing or registration with any Governmental Authority or other Person.

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7.6No Violation. Neither the execution nor the delivery by the Acquiror Company of this Agreement or any Transaction Document to which the Acquiror Company is a party, nor the consummation or performance by the Acquiror Company of the transactions contemplated hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of the Acquiror Company; (b) contravene, conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, or result in the imposition or creation of any Lien under, any agreement (including the Shareholders’ Agreement) or instrument to which the Acquiror Company is a party or by which the properties or assets of the Acquiror Company is bound; (c) contravene, conflict with, or result in a violation of, any Law or Order to which the Acquiror Company, or any of the properties or assets owned or used by the Acquiror Company, may be subject; or (d) contravene, conflict with, or result in a violation of, the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any licenses, permits, authorizations, approvals, franchises or other rights held by the Acquiror Company or that otherwise relate to the business of, or any of the properties or assets owned or used by, the Acquiror Company, except, in the case of clause (b)(other than with respect to the Shareholders’ Agreement), (c), or (d), for any such contraventions, conflicts, violations, or other occurrences as would not have a Material Adverse Effect.

7.7Binding Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered by the parties thereto other than the Acquiror Company, this Agreement and each of the Transaction Documents to which the Acquiror Company is a party are duly authorized, executed and delivered by the Acquiror Company and constitutes the legal, valid and binding obligations of the Acquiror Company, enforceable against the Acquiror Company in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors rights generally.

7.8Securities Laws. Assuming the accuracy of the representations and warranties of the Shareholder contained in Section 4 and Exhibits E and F, the issuance of the Acquiror Company Shares pursuant to this Agreement will be when issued and paid for in accordance with the terms of this Agreement issued in accordance with exemptions from the registration and prospectus delivery requirements of the Securities Act and the registration permit or qualification requirements of all applicable state securities laws.

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7.9Financial Statements. Included in Schedule 7.9 are the audited balance sheets of the Acquiror Company as of December 31, 2005 and the related statements of operations, cash flows and stockholders equity for the period ended December 31, 2005, together with notes with respect thereto. All such financial statements comply in all material respects with applicable accounting requirements, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto, or, in the case of unaudited statements as would be permitted by the Commission if the Acquiror Company were required to file periodic reports with the Commission), and fairly present in all material respects the financial position of the Acquiror Company as at the dates thereof and the results of its operations and cash flows for the periods then ended. The Acquiror Company did not have, as of the date of any such balance sheets, except as and to the extent reflected or reserved against therein, any liabilities or obligations (absolute or contingent) which should be reflected in any financial statements or the notes thereto prepared in accordance with GAAP, and all assets reflected therein present fairly the assets of the Acquiror Company in accordance with GAAP.

7.10Capitalization and Related Matters.

7.10.1Capitalization. The authorized capital stock of the Acquiror Company consists of 200 million shares, consisting of 190 million shares of Acquiror Company Common Stock, par value $0.0001, and 10 million shares of preferred stock, $0.001 par value. There are 214 shareholders of record holding all issued and outstanding shares Acquiror Company Common Stock. These shareholders are shown in the attached Common Stock Share Register attached hereto as Schedule 7.10.1(a). All issued and outstanding shares of the Acquiror Company’s Common Stock are duly authorized, validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive or similar rights. At the Closing Date, the Acquiror Company will have sufficient authorized and unissued Acquiror Company’s Common Stock to consummate the transactions contemplated hereby. Of its authorized and unissued capital, the Board of Directors has reserved a total of 16,846,980 shares of its common stock for potential issuance under an Equity Incentive Plan and maximum potential exercise of the Plan Warrants.There are no outstanding options, warrants, purchase agreements, participation agreements, subscription rights, conversion rights, exchange rights or other securities or contracts that could require the Acquiror Company to issue, sell or otherwise cause to become outstanding any of its authorized but unissued shares of capital stock or any securities convertible into, exchangeable for or carrying a right or option to purchase shares of capital stock or to create, authorize, issue, sell or otherwise cause to become outstanding any new class of capital stock other than the Plan Warrants.

7.10.2Plan Warrants. The Plan Warrants have all been issued as “book entry” on the books of the Acquiror Company. The Holders have the right to request a certificate at any time for any warrant. No such requests have been received. Each Plan Warrant provides for the purchase of one share of common stock and may be called by the Acquiror Company for a price of $.0001 per warrant at any time. The Plan Warrants are governed by a Warrant Agreement attached hereto as Schedule 7.10.2(a). Currently, the Acquiror Company is acting as the Warrant Agent and the Warrant Transfer Agent but has the right to appoint an alternative Warrant Agent or Warrant Transfer Agent in accordance with the Visitalk Plan. Also in accordance with the Visitalk Plan, the Acquiror Company can extend the expiration date of the Plan Warrants or reduce their exercise price on a temporary or permanent basis. A summary of the Plan Warrants outstanding is as follows: (i) 8,423,490 Series C Warrants to purchase Acquiror Company Common Stock at an exercise price of $3.00 per share (“Series C Warrants”); and (ii) 8,423,490 Series E Warrants to purchase Acquiror Company Common Stock at an exercise price of $4.00 per share (“Series E Warrants”). Except as set forth in Schedule 7.10, there are no outstanding stockholders’ agreements, voting trusts or arrangements, registration rights agreements, rights of first refusal or other contracts pertaining to the capital stock of the Acquiror Company. To the best knowledge of the Acquiror Company, the issuance of all of the shares of Acquiror Company’s Common Stock described in this Section 7.10 have been or will be issued in compliance with U.S. federal and state securities laws. The Common Stock of the Acquiror Company to be issued upon the exercise of the Plan Warrants of the Acquiror Company that are held by persons other than the Acquiror Company or other persons deemed issuers, underwriters (as defined in either Section 1145(b) of the Bankruptcy Code or Section 2(a)(11) of the Securities Act), dealers or affiliates of such issuers or underwriters are not “restricted securities” with respect to such persons and may be resold by such persons in reliance upon Section 4(1) of the Securities Act free of restrictions on further transfer.

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7.10.3Stock Option Plan. Under the Visitalk Plan, the Acquiror Company’s shareholders were deemed to have approved an Equity Incentive Plan for the Acquiror Company’s employees, non-employee directors and other service providers covering 3,000,000 shares of Company common stock (the “2005 EIP”). No options have been granted under the 2005 EIP. Any options to be granted under the 2005 EIP may be either “incentive stock options,” as defined in Section 422 of the Code, or “nonqualified stock options,” subject to Section 83 of the Code, at the discretion of the board of directors and as reflected in the terms of the written option agreement. The option price shall not be less than 100% of the fair market value of the optioned common stock on the date the option is granted. The option price shall not be less than 110% of the fair market value of the optioned common stock for an optionee holding (or deemed to hold) at the time of grant, more than 10% of the total combined voting power of all classes of stock of the Acquiror Company. Options become exercisable based on the discretion of the board of directors and must be exercised within ten years of the date of grant. Prior to the merger to change its domicile, a majority of the shareholders of the Nevada corporation approved a stock option plan identical to the 2005 EIP.

7.10.4No Redemption Requirements. Except as set forth in Schedule 7.10.4, there are no outstanding contractual obligations (contingent or otherwise) of the Acquiror Company to retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or other ownership interests in, the Acquiror Company or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.

7.10.5Duly Authorized. The issuance of the Acquiror Company Shares has been duly authorized and, upon delivery to the Shareholders of certificates therefor in accordance with the terms of this Agreement, the Acquiror Company Shares will have been validly issued and fully paid, and will be nonassessable, have the rights, preferences and privileges specified, will be free of preemptive rights and will be free and clear of all Liens and restrictions, other than Liens created by the Shareholders and restrictions on transfer imposed by this Agreement and the Securities Act.

7.10.6Subsidiaries. There are no Acquiror Company Subsidiaries.

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7.11Compliance with Laws. Except as would not have a Material Adverse Effect, the business and operations of the Acquiror Company have been and are being conducted in accordance with all applicable Laws and Orders. Except as would have a Material Adverse Effect, the Acquiror Company has not received notice of any violation (or any Proceeding involving an allegation of any violation) of any applicable Law or Order by or affecting the Acquiror Company and, to the knowledge of the Acquiror Company, no Proceeding involving an allegation of violation of any applicable Law or Order is threatened or contemplated. Except as would not have a Material Adverse Effect, the Acquiror Company is not subject to any obligation or restriction of any kind or character, nor is there, to the knowledge of the Acquiror Company, any event or circumstance relating to the Acquiror Company that materially and adversely affects in any way its business, properties, assets or prospects or that prohibits the Acquiror Company from entering into this Agreement or would prevent or make burdensome its performance of or compliance with all or any part of this Agreement or the consummation of the transactions contemplated hereby.

7.12Certain Proceedings. There is no pending Proceeding that has been commenced against the Acquiror Company and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. To the knowledge of the Acquiror Company, no such Proceeding has been threatened.

7.13No Brokers or Finders. Except as disclosed in Schedule 7.13, no Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against the Acquiror Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, and the Acquiror Company will indemnify and hold the Company harmless against any liability or expense arising out of, or in connection with, any such claim.

7.14Absence of Undisclosed Liabilities. Except as set forth on Schedule 7.14, the Acquiror Company does not have any debt, obligation or liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become due, whether or not known to the Acquiror Company) arising out of any transaction entered into at or prior to the Closing Date or any act or omission at or prior to the Closing Date, except to the extent set forth on or reserved against on the Acquiror Company Balance Sheet. Except as set forth on Schedule 7.14, the Acquiror Company has not incurred any liabilities or obligations under agreements entered into, in the usual and ordinary course of business since the date of the financial statements last delivered to the Company.

7.15Changes. Except as set forth on Schedule 7.15,or in the Acquiror Company audit report for the period ending December 31,2005, the Acquiror Company has not, since December 31, 2005:

7.15.1Ordinary Course of Business. Conducted its business or entered into any transaction other than in the usual and ordinary course of business, except for this Agreement;

7.15.2Adverse Changes. Suffered or experienced any change in, or affecting, its condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations or prospects other than changes, events or conditions in the usual and ordinary course of its business, none of which would have a Material Adverse Effect;

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7.15.3Loans. Made any loans or advances to any Person other than travel advances and reimbursement of expenses made to employees, officers and directors in the ordinary course of business;

7.15.4Liens. Created or permitted to exist any Lien on any material property or asset of the Acquiror Company, other than Permitted Liens;

7.15.5Capital Stock. Issued, sold, disposed of or encumbered, or authorized the issuance, sale, disposition or encumbrance of, or granted or issued any option to acquire any shares of its capital stock or any other of its securities or any Equity Security, or altered the term of any of its outstanding securities or made any change in its outstanding shares of capital stock or its capitalization, whether by reason of reclassification, recapitalization, stock split, combination, exchange or readjustment of shares, stock dividend or otherwise;

7.15.6Dividends. Declared, set aside, made or paid any dividend or other distribution to any of its stockholders;

7.15.7Material Acquiror Company Contracts. Terminated or modified any Material Acquiror Company Contract, except for termination upon expiration in accordance with the terms thereof;

7.15.8Claims. Released, waived or cancelled any claims or rights relating to or affecting the Acquiror Company in excess of US $10,000 in the aggregate or instituted or settled any Proceeding involving in excess of US $10,000 in the aggregate;

7.15.9Discharged Liabilities. Paid, discharged or satisfied any claim, obligation or liability in excess of US $10,000 in the aggregate, except for liabilities incurred prior to the date of this Agreement in the ordinary course of business;

7.15.10Indebtedness. Created, incurred, assumed or otherwise become liable for any Indebtedness in excess of US $10,000 in the aggregate, other than professional fees;

7.15.11Guarantees. Guaranteed or endorsed in a material amount any obligation or net worth of any Person;

7.15.12Acquisitions. Acquired the capital stock or other securities or any ownership interest in, or substantially all of the assets of, any other Person;

7.15.13Accounting. Changed its method of accounting or the accounting principles or practices utilized in the preparation of its financial statements, other than as required by GAAP;

7.15.14Agreements. Except as set forth on Schedule 7.15.14, entered into any agreement, or otherwise obligated itself, to do any of the foregoing.

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7.16Material Acquiror Company Contracts. The Acquiror Company has provided to the Company, prior to the date of this Agreement, true, correct and complete copies of each written Material Acquiror Company Contract, including each amendment, supplement and modification thereto.

7.16.1No Defaults. Each Material Acquiror Company Contract is a valid and binding agreement of the Acquiror Company that is party thereto, and is in full force and effect. Except as would not have a Material Adverse Effect, the Acquiror Company is not in breach or default of any Material Acquiror Company Contract to which it is a party and, to the knowledge of the Acquiror Company, no other party to any Material Acquiror Company Contract is in breach or default thereof. Except as would not have a Material Adverse Effect, no event has occurred or circumstance exists that (with or without notice or lapse of time) would (a) contravene, conflict with or result in a violation or breach of, or become a default or event of default under, any provision of any Material Acquiror Company Contract or (b) permit the Acquiror Company or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any Material Acquiror Company Contract. The Acquiror Company has not received notice of the pending or threatened cancellation, revocation or termination of any Material Acquiror Company Contract to which it is a party. There are no renegotiations of, or attempts to renegotiate, or outstanding rights to renegotiate any material terms of any Material Acquiror Company Contract.

7.17Employees.

7.17.1Except as set forth on Schedule 7.17.1, the Acquiror Company has no employees, independent contractors or other Persons providing research or other services to them. Except as would not have a Material Adverse Effect, the Acquiror Company is in full compliance with all Laws regarding employment, wages, hours, benefits, equal opportunity, collective bargaining, the payment of Social Security and other taxes, occupational safety and health and plant closing. The Acquiror Company is not liable for the payment of any compensation, damages, taxes, fines, penalties or other amounts, however designated, for failure to comply with any of the foregoing Laws.

7.17.2No director, officer or employee of the Acquiror Company is a party to, or is otherwise bound by, any contract (including any confidentiality, noncompetition or proprietary rights agreement) with any other Person that in any way adversely affects or will materially affect (a) the performance of his or her duties as a director, officer or employee of the Acquiror Company or (b) the ability of the Acquiror Company to conduct its business. Except as set forth on Schedule 7.17.2, each employee of the Acquiror Company is employed on an at-will basis and the Acquiror Company does not have any contract with any of its employees which would interfere with its ability to discharge its employees.

7.18Tax Returns and Audits.

7.18.1Tax Returns. The Acquiror Company has filed all material Tax Returns required to be filed by or on behalf of the Acquiror Company and has paid all material Taxes of the Acquiror Company required to have been paid (whether or not reflected on any Tax Return). Except as set forth on Schedule 7.18.1, (a) no Governmental Authority in any jurisdiction has made a claim, assertion or threat to the Acquiror Company that the Acquiror Company is or may be subject to taxation by such jurisdiction; (b) there are no Liens with respect to Taxes on the Acquiror Company’s property or assets other than Permitted Liens; and (c) there are no Tax rulings, requests for rulings, or closing agreements relating to the Acquiror Company for any period (or portion of a period) that would affect any period after the date hereof.

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7.18.2No Disputes. There is no pending audit, examination, investigation, dispute, proceeding or claim with respect to any Taxes of the Acquiror Company, nor is any such claim or dispute pending or contemplated. The Acquiror Company has delivered or made available to the Company true, correct and complete copies of all Tax Returns of the Acquiror Company, and all examination reports and statements of deficiencies assessed or asserted against or agreed to by the Acquiror Company since its inception and any and all correspondence with respect to the foregoing.

7.19Insurance Coverage. The Acquiror Company does not maintain any insurance policies.

7.20Litigation; Orders. There is no Proceeding (whether federal, state, local or foreign) pending or, to the knowledge of the Acquiror Company, threatened against or affecting the Acquiror Company or any of Acquiror Company’s properties, assets, business or employees. To the knowledge of the Acquiror Company, there is no fact that might result in or form the basis for any such Proceeding. The Acquiror Company is not subject to any Orders.

7.21Licenses. Except as would not have a Material Adverse Effect, the Acquiror Company possesses from the appropriate Governmental Authority all licenses, permits, authorizations, approvals, franchises and rights that are necessary for the Acquiror Company to engage in its business as currently conducted and to permit the Acquiror Company to own and use its properties and assets in the manner in which it currently owns and uses such properties and assets (collectively, “Acquiror Company Permits”). The Acquiror Company has not received notice from any Governmental Authority or other Person that there is lacking any license, permit, authorization, approval, franchise or right necessary for such Acquiror Company to engage in its business as currently conducted and to permit such Acquiror Company to own and use its properties and assets in the manner in which it currently owns and uses such properties and assets. Except as would not have a Material Adverse Effect, the Acquiror Company Permits are valid and in full force and effect. Except as would not have a Material Adverse Effect, no event has occurred or circumstance exists that may (with or without notice or lapse of time): (a) constitute or result, directly or indirectly, in a violation of or a failure to comply with any Acquiror Company Permit; or (b) result, directly or indirectly, in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Acquiror Company Permit. The Acquiror Company has not received notice from any Governmental Authority or any other Person regarding: (a) any actual, alleged, possible or potential contravention of any Acquiror Company Permit; or (b) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to, any Acquiror Company Permit. All applications required to have been filed for the renewal of such Acquiror Company Permits have been duly filed on a timely basis with the appropriate Persons, and all other filings required to have been made with respect to such Acquiror Company Permits have been duly made on a timely basis with the appropriate Persons. All Acquiror Company Permits are renewable by their terms or in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amounts other than routine fees or similar charges, all of which have, to the extent due, been duly paid.

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7.22Interested Party Transactions. Except as disclosed in Schedule 7.22, no officer, director or stockholder of the Acquiror Company or any Affiliate or “associate” (as such term is defined in Rule 405 of the Commission under the Securities Act) of any such Person, has or has had, either directly or indirectly, (1) an interest in any Person which (a) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Acquiror Company, or (b) purchases from or sells or furnishes to, or proposes to purchase from, sell to or furnish the Acquiror Company any goods or services; or (2) a beneficial interest in any contract or agreement to which the Acquiror Company is a party or by which it may be bound or affected.

7.23Title to and Condition of Properties. The Acquiror Company does not own any real property, plants, machinery, equipment or other personal property, including without limitation, any contract rights or other intangible rights. The Acquiror Company is not in violation of any intellectual property rights.

7.24Environmental and Safety Matters. Except as set forth on Schedule 7.24 and except as would not have a Material Adverse Effect:

7.24.1The Acquiror Company has at all time been and is in compliance with all Environmental Laws applicable to the Acquiror Company.

7.24.2There are no Proceedings pending or threatened against the Acquiror Company alleging the violation of any Environmental Law or Environmental Permit applicable to the Acquiror Company or alleging that the Acquiror Company is a potentially responsible party for any environmental site contamination.

7.24.3Neither this Agreement nor the consummation of the transactions contemplated by this Agreement shall impose any obligations to notify or obtain the consent of any Governmental Authority or third Persons under any Environmental Laws applicable to the Acquiror Company.

7.25Board Recommendation. The Acquiror Company Board has, by unanimous written consent or other action valid under the laws of the jurisdiction in which the Acquiror Company is organized, determined that this Agreement and the transactions contemplated by this Agreement are advisable and in the best interests of the Acquiror Company’s stockholders and has duly authorized this Agreement and the transactions contemplated by this Agreement, subject to approval by the Acquiror Company stockholders.

SECTION VIII

COVENANTS OF THE ACQUIROR COMPANY

8.1Registration under the Exchange Act; Listing. VTM will use its best efforts to file a Form 10 or Form 10-SB within 120 days after the Closing Date to register the VTM Common Stock pursuant to the Exchange Act and qualify VTM Common Stock for trading on a recognized U.S. stock exchange.

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8.2Condition of Properties; Insurance. VTM will maintain or cause to be maintained in good repair, working order and condition any properties (whether owned in fee or a leasehold interest) used or useful in the business of VTM and, if appropriate maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against.

8.3Ongoing Reporting. VTM is required to file quarterly financial reports and annual financial reports prepared in accordance with US GAAP under the requirements of the Exchange Act.

8.4Indemnification and Insurance.

8.4.1The Acquiror Company shall to the fullest extent permitted under applicable Law or its Organizational Documents, indemnify and hold harmless, each present and former director, officer or employee of the Acquiror Company (collectively, the “Indemnified Parties”) against any Damages (x) arising out of or pertaining to the transactions contemplated by this Agreement or (y) otherwise with respect to any acts or omissions occurring at or prior to the Closing Date, to the same extent as provided in the Acquiror Company’s Organizational Documents or any applicable contract or agreement as in effect on the date hereof, in each case for a period of five years after the Closing Date. In the event of any such Proceeding (whether arising before or after the Closing Date), (i) any counsel retained by the Indemnified Parties for any period after the Closing Date shall be reasonably satisfactory to the Acquiror Company, (ii) after the Closing Date, the Acquiror Company shall pay the reasonable fees and expenses of such counsel, promptly after statements therefor are received, provided that the Indemnified Parties shall be required to reimburse the Acquiror Company for such payments in the circumstances and to the extent required by the Acquiror Company’s Organizational Documents, any applicable contract or agreement or applicable Law, and (iii) the Acquiror Company will cooperate in the defense of any such matter; provided, however, that the Acquiror Company shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld. The Indemnified Parties as a group may retain only one law firm to represent them in each applicable jurisdiction with respect to any single action unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which case each Indemnified Person with respect to whom such a conflict exists (or group of such Indemnified Persons who among them have no such conflict) may retain one separate law firm in each applicable jurisdiction.

8.4.2This Section 8.4 shall survive the consummation of the transactions contemplated by this Agreement and upon the execution hereof, is intended to benefit the Indemnified Parties and the Covered Persons, shall be binding on all successors and assigns of the Acquiror Company and shall be enforceable by the Indemnified Parties.

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SECTION IX

CONDITIONS PRECEDENT OF THE ACQUIROR COMPANY

The Acquiror Company’s obligation to acquire the Shares and to take the other actions required to be taken by the Acquiror Company at the Closing Date is subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions (any of which may be waived by the Acquiror Company, in whole or in part):

9.1Accuracy of Representations. The representations and warranties of the Company and the Shareholder set forth in this Agreement or in any Schedule or certificate delivered pursuant hereto that are not qualified as to materiality shall be true and correct in all material respects as of the date of this Agreement except to the extent a representation or warranty is expressly limited by its terms to another date and without giving effect to any supplemental Schedule. The representations and warranties of the Company and the Shareholder set forth in this Agreement or in any Schedule or certificate delivered pursuant hereto that are qualified as to materiality shall be true and correct in all respects as of the date of this Agreement, except to the extent a representation or warranty is expressly limited by its terms to another date and without giving effect to any supplemental Schedule.

9.2Performance by the Company and Shareholder.

9.2.1All of the covenants and obligations that the Company and Shareholder is required to perform or to comply with pursuant to this Agreement (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects.

9.2.2Each document required to be delivered by the Company and the Shareholder pursuant to this Agreement must have been delivered.

9.3No Force Majeure Event. There shall not have been any delay, error, failure or interruption in the conduct of the business of the Company, or any loss, injury, delay, damage, distress, or other casualty, due to force majeure including but not limited to (a) acts of God; (b) fire or explosion; (c) war, acts of terrorism or other civil unrest; or (d) national emergency.

9.4Certificate of Officer. The Company will have delivered to the Acquiror Company a certificate executed by an officer of the Company, certifying the satisfaction of the conditions specified in Sections 9.1, 9.2, 9.3 and 9.6.

9.5Certificate of Shareholders. The Shareholder will have delivered to the Acquiror Company a certificate executed by the Shareholder, if a natural person, or an authorized officer of the Shareholder, if an entity, certifying the satisfaction of the conditions specified in Sections 9.1, 9.2 and 9.6.

9.6Consents.

9.6.1All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by the Company and/or the Shareholder for the authorization, execution and delivery of this Agreement and the consummation by them of the transactions contemplated by this Agreement, shall have been obtained and made by the Company or the Shareholder, as the case may be, except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not have a Material Adverse Effect on the Company or the Acquiror Company.

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9.7Documents. The Company and the Shareholder must have caused the following documents to be delivered to the Acquiror Company:

9.7.1share certificates evidencing the number of Shares held by the Shareholder (as set forth in Exhibit A), along with executed stock powers transferring such Shares to the Acquiror Company;

9.7.2a Secretary’s Certificate of the Company, dated the Closing Date, certifying attached copies of (A) the Organizational Documents of the Company and each Company Subsidiary, (B) the resolutions of the Company Board and the Shareholder approving this Agreement and the transactions contemplated hereby; and (C) the incumbency of each authorized officer of the Company signing this Agreement and any other agreement or instrument contemplated hereby to which the Company is a party;

9.7.3a certified certificate of good standing, or equivalent thereof, of the Company;

9.7.4each of the Transaction Documents to which the Company and/or the Shareholder is a party, duly executed; and

9.7.5such other documents as the Acquiror Company may reasonably request for the purpose of (i) evidencing the accuracy of any of the representations and warranties of the Company and the Shareholder pursuant to Section 9.1, (ii) evidencing the performance of, or compliance by the Company and the Shareholder with, any covenant or obligation required to be performed or complied with by the Company or the Shareholder, as the case may be, (iii) evidencing the satisfaction of any condition referred to in this Section 9, or (iv) otherwise facilitating the consummation or performance of any of the transactions contemplated by this Agreement.

9.8No Proceedings. There must not have been commenced or threatened against the Acquiror Company, the Company or any Shareholder, or against any Affiliate thereof, any Proceeding (which Proceeding remains unresolved as of the Closing Date) (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated by this Agreement, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the transactions contemplated by this Agreement.

9.9No Claim Regarding Stock Ownership or Consideration. There must not have been made or threatened by any Person any claim asserting that such Person (a) is the holder of, or has the right to acquire or to obtain beneficial ownership of the Shares or any other stock, voting, equity, or ownership interest in, the Company, or (b) is entitled to all or any portion of the Acquiror Company Shares.

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9.10Reverse Stock Split. The Acquiror Company shall have effected a reverse split of the Acquiror Company Common Stock on a 15.43 for 1 basis, with the result that the number of outstanding shares of the Acquiror Company Common Stock shall decrease from 28,159,965 to 1,837,479.

9.11Common Stock Cancellation. The Acquiror Company shall, and Bay Peak llc. agreed to, have cancelled 8,761 shares issued and owned by Bay Peak llc.

9.12Warrants. Acquiror Company shall have allowed all Series A, B, D and E Warrants to expire on August 31, 2006.

SECTION X

CONDITIONS PRECEDENT OF THE COMPANY

AND THE SHAREHOLDER

The Shareholder’s obligation to transfer the Shares and the obligations of the Company to take the other actions required to be taken by the Company in advance of or at the Closing Date are subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions (any of which may be waived by the Company and the Shareholder, in whole or in part):

10.1Accuracy of Representations. The representations and warranties of the Acquiror Company set forth in this Agreement or in any Schedule or certificate delivered pursuant hereto that are not qualified as to materiality shall be true and correct in all material respects as of the date of this Agreement except to the extent a representation or warranty is expressly limited by its terms to another date and without giving effect to any supplemental Schedule. The representations and warranties of the Acquiror Company set forth in this Agreement or in any Schedule or certificate delivered pursuant hereto that are qualified as to materiality shall be true and correct in all respects as of the date of this Agreement, except to the extent a representation or warranty is expressly limited by its terms to another date and without giving effect to any supplemental Schedule.

10.2Performance by the Acquiror Company.

10.2.1All of the covenants and obligations that the Acquiror Company is required to perform or to comply with pursuant to this Agreement (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all respects.

10.2.2Each document required to be delivered by the Acquiror Company pursuant to this Agreement must have been delivered.

10.3No Force Majeure Event. There shall not have been any delay, error, failure or interruption in the conduct of the business of the Acquiror Company, or any loss, injury, delay, damage, distress, or other casualty, due to force majeure including but not limited to (a) acts of God; (b) fire or explosion; (c) war, acts of terrorism or other civil unrest; or (d) national emergency.

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10.4Certificate of Officer. The Acquiror Company will have delivered to the Company a certificate, dated the Closing Date, executed by an officer of the Acquiror Company, certifying the satisfaction of the conditions specified in Sections 10.1, 10.2, 10.3 and 10.5.

10.5Consents.

10.5.1All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by the Acquiror Company for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated by this Agreement, shall have been obtained and made by the Acquiror Company except where the failure to receive such consents, waivers, approvals, authorizations or orders or to make such filings would not have a Material Adverse Effect on the Company or the Acquiror Company.

10.6Documents. The Acquiror Company must have caused the following documents to be delivered to the Company and/or the Shareholder:

10.6.1share certificates evidencing the Shareholder’s pro rata share of the Closing Acquiror Company Shares (as set forth in Exhibit B);

10.6.2a Secretary’s Certificate, dated the Closing Date certifying attached copies of (A) the Organizational Documents of the Acquiror Company , (B) the resolutions of the Acquiror Company Board approving this Agreement and the transactions contemplated hereby; and (C) the incumbency of each authorized officer of the Acquiror Company signing this Agreement and any other agreement or instrument contemplated hereby to which the Acquiror Company is a party;

10.6.3a Certificate of Good Standing of the Acquiror Company;

10.6.4each of the Transaction Documents to which the Acquiror Company is a party, duly executed; and

10.6.5an Acknowledgement substantially in the form of Annex A hereto, signed by all parties to the Shareholders Agreement;

10.6.6such other documents as the Company may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of the Acquiror Company pursuant to Section 10.1, (ii) evidencing the performance by the Acquiror Company of, or the compliance by the Acquiror Company with, any covenant or obligation required to be performed or complied with by the Acquiror Company, (iii) evidencing the satisfaction of any condition referred to in this Section 10, or (iv) otherwise facilitating the consummation of any of the transactions contemplated by this Agreement.

10.7No Proceedings. Since the date of this Agreement, there must not have been commenced or threatened against the Acquiror Company, the Company or any Shareholder, or against any Affiliate thereof, any Proceeding (which Proceeding remains unresolved as of the date of this Agreement) (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated hereby, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the transactions contemplated hereby.

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10.8The Company shall, after the closing of this share exchange agreement, redeem all Series C and F Warrants for $0.0001 per warrant, on or before December 31, 2006.

SECTION XI

INDEMNIFICATION; REMEDIES

11.1Survival. All representations, warranties, covenants, and obligations in this Agreement shall expire eighteen (18) months after the date this Agreement is executed, provided however, that any representation, warranties, covenants or obligations relating to Taxes shall survive until three months after the expiration of the applicable statute of limitations period, including any extensions and waivers thereof (the “Survival Period”). The right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages, or other remedy based on such representations, warranties, covenants, and obligations.

11.2Limitations on Amount. No party hereto shall be entitled to indemnification pursuant to this Section 11, except in respect of Taxes, unless and until the aggregate amount of Damages with respect to such matters under Section 11.1 exceeds US $50,000, at which time, the such indemnified party shall be entitled to indemnification for the total amount of such Damages in excess of US $50,000.

11.3Determining Damages. Materiality qualifications to the representations and warranties of the Company and the Acquiror Company shall not be taken into account in determining the amount of Damages occasioned by a breach of any such representation and warranty for purposes of determining whether the baskets set forth in Section 11.2 has been met.

11.4Breach by Shareholder. Nothing in this Section 11 shall limit the Acquiror Company’s right to pursue any appropriate legal or equitable remedy against any Shareholder with respect to any Damages arising, directly or indirectly, from or in connection with: (a) any breach by such Shareholder of any representation or warranty made by such Shareholder in this Agreement or in any certificate delivered by such Shareholder pursuant to this Agreement or (b) any breach by such Shareholder of its covenants or obligations in this Agreement. All claims of the Acquiror Company pursuant to this Section 11 shall be brought on behalf of the Acquiror Company by those Persons who were stockholders of the Acquiror Company immediately prior to the Closing Date.

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SECTION XII

GENERAL PROVISIONS

12.1Expenses. Except as otherwise expressly provided in this Agreement or the Transaction Documents, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by this Agreement, including all fees and expenses of agents, representatives, counsel, and accountants. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party.

12.2Public Announcements. The Acquiror Company shall promptly, but no later than seven (7) days following the effective date of this Agreement, issue a press release disclosing the transactions contemplated hereby. Prior to the Closing Date, the Company and the Acquiror Company shall consult with each other in issuing any other press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or stock market or trading facility with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement, filings or other communications without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which case the disclosing party shall provide the other party with prior notice of such public statement, filing or other communication and shall incorporate into such public statement, filing or other communication the reasonable comments of the other party.

12.3Confidentiality.

12.3.1Acquiror Company, the Shareholder and the Company will maintain in confidence, and will cause their respective directors, officers, employees, agents, and advisors to maintain in confidence, any written, oral, or other information obtained in confidence from another party in connection with this Agreement or the transactions contemplated by this Agreement, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any required filing with the Commission, or obtaining any consent or approval required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings.

12.3.2In the event that any party is required to disclose any information of another party pursuant to clause (b) or (c) of Section 12.3.1, the party requested or required to make the disclosure (the “disclosing party”) shall provide the party that provided such information (the “providing party”) with prompt notice of any such requirement so that the providing party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 12.3. If, in the absence of a protective order or other remedy or the receipt of a waiver by the providing party, the disclosing party is nonetheless, in the opinion of counsel, legally compelled to disclose the information of the providing party, the disclosing party may, without liability hereunder, disclose only that portion of the providing party’s information which such counsel advises is legally required to be disclosed, provided that the disclosing party exercises its reasonable efforts to preserve the confidentiality of the providing party’s information, including, without limitation, by cooperating with the providing party to obtain an appropriate protective order or other relief assurance that confidential treatment will be accorded the providing party’s information.

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12.3.3If the transactions contemplated by this Agreement are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request.

12.4Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by written notice to the other parties):

If to Acquiror Company: VT Marketing Services Inc. 14647 S. 50th Street, Suite 130 Phoenix, AZ 85044	with a copy to Loeb & Loeb, LLP 345 Park Avenue New York, New York 10154
Attention: Michael S. Williams Telephone No.: 480-759-9400 ext 100 Facsimile No.: 480-759-9401	Attention: Mitchell S. Nussbaum, Esq. Telephone No.: 212-407-4159 Facsimile No.: 212-407-4990
If to Company: Fuqi International Holdings Company Ltd. Room 1307, 13/F., Hang Seng Tsimshatsui Building, 18 Carnarvon Road, Tsimshatsui, Kowloom, HKSAR.
Attention: : Ching Wan Wong Telephone No.: +852-9099-0664 Facsimile No.: +852-3166-1666

12.5Arbitration. Any dispute or controversy under this Agreement shall be settled exclusively by arbitration in the City of New York, County of New York in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitration award in any court having jurisdiction.

12.6Further Assurances. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

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12.7Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of the party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

12.8Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party against whom the enforcement of such amendment is sought.

12.9Assignments, Successors, and No Third-Party Rights. No party may assign any of its rights under this Agreement without the prior consent of the other parties. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties. Except as set forth in Section 8.4 and Section 11.1, nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

12.10Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

12.11Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

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12.12Governing Law. This Agreement will be governed by the laws of the State of Nevada without regard to conflicts of laws principles.

12.13Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

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COUNTERPART SIGNATURE PAGE

IN WITNESS WHEREOF, the parties have executed and delivered this Share Exchange Agreement as of the date first written above.

Acquiror Company:

VT MARKETING SERVICES, INC.

Signed: /s/ Michael S. Williams

Printed name: Michael S. Williams

Title: Director

Company:

FUQI INTERNATIONAL HOLDINGS COMPANY LTD.

Signed: /s/ Yu Kwai Chong

Printed name: Yu Kwai Chong

Title: Chief Executive Officer

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COUNTERPART SIGNATURE PAGE

(FOR ISSUANCES PURSUANT TO REGULATION S)

IN WITNESS WHEREOF, the parties have executed and delivered this Share Exchange Agreement as of the date first written above.

ENTITY NAME:
By:
	Name: Title:

OFFSHORE DELIVERY INSTRUCTIONS:

PRINT EXACT NAME IN WHICH YOU WANT

THE SECURITIES TO BE REGISTERED

Attn:

Address:

Phone No.

Facsimile No.

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COUNTERPART SIGNATURE PAGE

(FOR ISSUANCES PURSUANT TO SECTION 4(2))

IN WITNESS WHEREOF, the parties have executed and delivered this Share Exchange Agreement as of the date first written above.

ENTITY NAME:
By:
	Name: Title:

Circle the category under which you are an “accredited investor” pursuant to Exhibit C:

1 2 3 4 5 6 7 8

PRINT EXACT NAME IN WHICH YOU WANT

THE SECURITIES TO BE REGISTERED

Attn:

Address:

Phone No.

Facsimile No.

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ANNEX A

ACKNOWLEDGEMENT

Reference is made to that certain Share Exchange Agreement dated as of November 13th, 2006 between and among VT Marketing Services, Inc., a Nevada corporation, each of the persons listed on Exhibit B thereto and Fuqi International Holdings Co., Ltd. (the “Agreement”). Terms used but not defined herein shall have the meanings given them in the Agreement. Each of the undersigned is a party to the Shareholders’ Agreement and hereby confirms in connection with the consummation of the transactions contemplated thereby that neither the execution nor the delivery by the Acquiror Company of the Agreement or any Transaction Document to which the Acquiror Company is a party, nor the consummation of or performance by the Acquiror Company of the transactions contemplated thereby will, directly or indirectly, contravene, conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, or result in the imposition or creation of any lien under, the Shareholders’ Agreement.

The undersigned, as party to the Shareholder Agreement, hereby acknowledges that the Shareholder of the post-merger Acquiror Company who was not previously party to the Shareholders Agreement will not become party to the Shareholders Agreement by virtue of the Agreement and SHALL NOT BE LIABLE FOR ANY RIGHTS OR OBLIGATIONS UNDER THE SHAREHOLDER AGREEMENT OR ANY CLAIMS OR LIABILITIES ARISING THEREUNDER.

VISITALK CAPITAL CORPORATION
By:
	Name: Title:

OTHER PARTIES TO THE SHAREHOLDER AGREEMENT
By:
	Name: Title:

By:
	Name: Title:

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EXHIBIT A

COMPANY SHAREHOLDER

Name and Address of Shareholder	Shares		Certificate #
Chong, Yu Kwai		10,000		1
Total		10,000

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EXHIBIT B

SHARES AND ACQUIROR COMPANY SHARES TO BE EXCHANGED

Name of Shareholder	Percentage			Number of Acquiror Company Shares to issued to Shareholder at Closing
Chong, Yu Kwai		100.00	%		18,886,666
Total		100.00	%		18,886,666

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EXHIBIT C

Definition of “U.S. Person”

(1)   “U.S. person” (as defined in Regulation S) means:

(i)   Any natural person resident in the United States;

(ii)   Any partnership or corporation organized or incorporated under the laws of the United States;

(iii)   Any estate of which any executor or administrator is a U.S. person;

(iv)   Any trust of which any trustee is a U.S. person;

(v)   Any agency or branch of a foreign entity located in the United States;

(vi)   Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;

(vii)   Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and

(viii)   Any partnership or corporation if: (A) organized or incorporated under the laws of any foreign jurisdiction; and (B) formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts.

(2)   Notwithstanding paragraph (1) above, any discretionary account or similar account (other than an estate or trust) held for the benefit or account of a non-U.S. person by a dealer or other professional fiduciary organized, incorporated, or (if an individual) resident in the United States shall not be deemed a “U.S. person.”

(3)   Notwithstanding paragraph (1), any estate of which any professional fiduciary acting as executor or administrator is a U.S. person shall not be deemed a U.S. person if:

(i)   An executor or administrator of the estate who is not a U.S. person has sole or shared investment discretion with respect to the assets of the estate; and

(ii)   The estate is governed by foreign law.

(4)   Notwithstanding paragraph (1), any trust of which any professional fiduciary acting as trustee is a U.S. person shall not be deemed a U.S. person if a trustee who is not a U.S. person has sole or shared investment discretion with respect to the trust assets, and no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person.

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(5)   Notwithstanding paragraph (1), an employee benefit plan established and administered in accordance with the law of a country other than the United States and customary practices and documentation of such country shall not be deemed a U.S. person.

(6)   Notwithstanding paragraph (1), any agency or branch of a U.S. person located outside the United States shall not be deemed a “U.S. person” if:

(i)   The agency or branch operates for valid business reasons; and

(ii)   The agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or banking regulation, respectively, in the jurisdiction where located.

(7)   The International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the United Nations, and their agencies, affiliates and pension plans, and any other similar international organizations, their agencies, affiliates and pension plans shall not be deemed “U.S. persons.”

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EXHIBIT D

NON U.S. PERSON REPRESENTATIONS

The Shareholder indicating that it is not a U.S. person, severally and not jointly, further represents and warrants to the Acquiror Company as follows:

1.   At the time of (a) the offer by the Acquiror Company and (b) the acceptance of the offer by the Shareholder, of the Acquiror Company Shares, the Shareholder was outside the United States.

2.   No offer to acquire the Acquiror Company Shares or otherwise to participate in the transactions contemplated by this Agreement was made to the Shareholder or its representatives inside the United States.

3.   The Shareholder is not purchasing the Acquiror Company Shares for the account or benefit of any U.S. person, or with a view towards distribution to any U.S. person, in violation of the registration requirements of the Securities Act.

4.   The Shareholder will make all subsequent offers and sales of the Acquiror Company Shares either (x) outside of the United States in compliance with Regulation S; (y) pursuant to a registration under the Securities Act; or (z) pursuant to an available exemption from registration under the Securities Act. Specifically, the Shareholder will not resell the Acquiror Company Shares to any U.S. person or within the United States prior to the expiration of a period commencing on the Closing Date and ending on the date that is one year thereafter (the “Distribution Compliance Period”), except pursuant to registration under the Securities Act or an exemption from registration under the Securities Act.

5.   The Shareholder is acquiring the Acquiror Company Shares for the Shareholder’s own account, for investment and not for distribution or resale to others.

6.   The Shareholder has no present plan or intention to sell the Acquiror Company Shares in the United States or to a U.S. person at any predetermined time, has made no predetermined arrangements to sell the Acquiror Company Shares and is not acting as a Distributor of the securities.

7.   Neither the Shareholder, its Affiliates nor any Person acting on the Shareholder’s behalf, has entered into, has the intention of entering into, or will enter into any put option, short position or other similar instrument or position in the U.S. with respect to the Acquiror Company Shares at any time after the Closing Date through the Distribution Compliance Period except in compliance with the Securities Act.

8.   The Shareholder consents to the placement of a legend on any certificate or other document evidencing the Acquiror Company Shares substantially in the form set forth in Section 4.2.5(b).

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9.   The Shareholder is not acquiring the Acquiror Company Shares in a transaction (or an element of a series of transactions) that is part of any plan or scheme to evade the registration provisions of the Securities Act.

10.   The Shareholder has sufficient knowledge and experience in finance, securities, investments and other business matters to be able to protect the Shareholder’s interests in connection with the transactions contemplated by this Agreement.

11.   The Shareholder has consulted, to the extent that it has deemed necessary, with its tax, legal, accounting and financial advisors concerning its investment in the Acquiror Company Shares.

12.   The Shareholder understands the various risks of an investment in the Acquiror Company Shares and can afford to bear the risks for an indefinite period of time, including, without limitation, the risk of losing its entire investment in the Acquiror Company Shares.

13.   The Shareholder has had access to the Acquiror Company’s publicly filed reports with the SEC.

14.   The Shareholder has been furnished during the course of the transactions contemplated by this Agreement with all other public information regarding the Acquiror Company that the Shareholder has requested and all such public information is sufficient for the Shareholder to evaluate the risks of investing in the Acquiror Company Shares.

15.   The Shareholder has been afforded the opportunity to ask questions of and receive answers concerning the Acquiror Company and the terms and conditions of the issuance of the Acquiror Company Shares.

16.   The Shareholder is not relying on any representations and warranties concerning the Acquiror Company made by the Acquiror Company or any officer, employee or agent of the Acquiror Company, other than those contained in this Agreement.

17.   The Shareholder will not sell or otherwise transfer the Acquiror Company Shares, unless either (A) the transfer of such securities is registered under the Securities Act or (B) an exemption from registration of such securities is available.

18.   The Shareholder understands and acknowledges that the Acquiror Company is under no obligation to register the Acquiror Company Shares for sale under the Securities Act.

19.   The Shareholder represents that the address furnished by the Shareholder on its signature page to this Agreement and in Exhibit A is the Shareholder’s principal residence if he is an individual or its principal business address if it is a corporation or other entity.

20.   The Shareholder understands and acknowledges that the Acquiror Company Shares have not been recommended by any federal or state securities commission or regulatory authority, that the foregoing authorities have not confirmed the accuracy or determined the adequacy of any information concerning the Acquiror Company that has been supplied to the Shareholder and that any representation to the contrary is a criminal offense.

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21.   The Shareholder acknowledges that the representations, warranties and agreements made by the Shareholder herein shall survive the execution and delivery of this Agreement and the purchase of the Acquiror Company Shares.

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EX-3.1

CERTIFICATE OF INCORPORATION

OF

FUQI INTERNATIONAL, INC.

a Delaware Corporation

ARTICLE I

The name of this corporation is Fuqi International, Inc.

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400 in the City of Wilmington, County of New Castle. The name of its registered agent at that address is Corporation Service Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE IV

The name and mailing address of the incorporator is Kasey Hannah, 10100 Santa Monica Blvd., 7^th Floor, Los Angeles, California 90067.

ARTICLE V

Section 1. Number of Authorized Shares. The total number of shares of stock which the Corporation shall have the authority to issue shall be Eighty Million (80,000,000) shares. The Corporation shall be authorized to issue two classes of shares of stock, designated, “Common Stock” and “Preferred Stock.” The Corporation shall be authorized to issue Seventy Five Million (75,000,000) shares of Common Stock, each share to have a par value of $.001 per share, and Five Million (5,000,000) shares of Preferred Stock, each share to have a par value of $.001 per share.

Section 2. Common Stock. The Board of Directors of the Corporation may authorize the issuance of shares of Common Stock from time to time. The Corporation may reissue shares of Common Stock that are redeemed, purchased, or otherwise acquired by the Corporation unless otherwise provided by law.

Section 3. Preferred Stock. The Board of Directors of the Corporation may by resolution authorize the issuance of shares of Preferred Stock from time to time in one or more series. The Corporation may reissue shares of Preferred Stock that are redeemed, purchased, or otherwise acquired by the Corporation unless otherwise provided by law. The Board of Directors is hereby authorized to fix or alter the designations, powers and preferences, and relative, participating, optional or other rights, if any, and qualifications, limitations or restrictions thereof, including, without limitation, dividend rights (and whether dividends are cumulative), conversion rights, if any, voting rights (including the number of votes, if any, per share, as well as the number of members, if any, of the Board of Directors or the percentage of members, if any, of the Board of Directors each class or series of Preferred Stock may be entitled to elect), rights and terms of redemption (including sinking fund provisions, if any), redemption price and liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, and to increase or decrease the number of shares of any such series subsequent to the issuance of shares of such series, but not below the number of shares of such series then outstanding.

Section 4. Dividends and Distributions. Subject to the preferences applicable to Preferred Stock outstanding at any time, the holders of shares of Common Stock shall be entitled to receive such dividends, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefore.

Section 5. Voting Rights. Each share of Common Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation.

ARTICLE VI

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in Delaware General Corporation Law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of directors or in the Bylaws of the Corporation.

ARTICLE VII

The number of directors of the Corporation shall be fixed from time to time by or in the manner provided in the Bylaws of the Corporation or amendment thereof duly adopted by the Board of Directors or by the stockholders of the Corporation. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

ARTICLE VIII

No action, which has not been previously approved by the Board of Directors, shall be taken by the stockholders except at an annual meeting or a special meeting of the stockholders. Any action required to be taken at any annual or special meeting of the stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.

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ARTICLE IV

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.

ARTICLE X

To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (provided that the effect of any such amendment shall be prospective only) the “Delaware Law”), a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director. The Corporation shall indemnify, in the manner and to the fullest extent permitted by the Delaware Law (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. The Corporation to the fullest extent permitted by the Delaware Law, may purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person. The Corporation may create a trust fund, grant a security interest or use other means (including without limitation a letter of credit) to ensure the payment of such sums as may become necessary or desirable to effect the indemnification as provided herein. To the fullest extent permitted by the Delaware Law, the indemnification provided herein shall include expenses as incurred (including attorneys’ fees), judgments, finds and amounts paid in settlement and any such expenses shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified. Notwithstanding the foregoing or any other provision of this Article, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board by a majority vote of a quorum of disinterested Directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs) by independent legal counsel to the Corporation, that, based upon the facts known to the Board or such counsel at the time such determination is made, (a) the party seeking an advance acted in bad faith or deliberately breached his or her duty to the Corporation or its stockholders, and (b) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the provisions of this Article X. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware Law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation’s Bylaws, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article X as it applies to the indemnification and advancement of expenses of directors and officers of the Corporation.

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The undersigned incorporator hereby acknowledges that the foregoing certificate of incorporation is her act and deed and that the facts stated therein are true.

/s/ Kasey Hannah

Kasey Hannah, Incorporator

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EX-3.2

BYLAWS

OF

FUQI INTERNATIONAL, INC.

A Delaware Corporation

ARTICLE I: OFFICES

SECTION 1.1 Registered Office.

The registered office of Fuqi International, Inc. (the “Corporation”) shall be at and the name of its registered agent at that address is 2711 Centerville Road, Suite 400 in the City of Wilmington, County of New Castle and the name of its registered agent at that address is Corporation Service Company.

SECTION 1.2 Principal Office.

The principal office for the transaction of the business of the Corporation shall be as set forth in a resolution adopted by the Board.

SECTION 1.3 Other Offices.

The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.

ARTICLE II: MEETINGS OF STOCKHOLDERS

SECTION 2.1 Place of Meetings.

All annual meetings of stockholders and all other meetings of stockholders shall be held either at the principal office of the Corporation or at any other place within or without the State of Delaware that may be designated by the Board pursuant to authority hereinafter granted to the Board.

SECTION 2.2 Annual Meetings.

Annual meetings of stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may properly come before such meetings may be held at such time and place and on such date as the Board shall determine by resolution.

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SECTION 2.3 Special Meetings.

A special meeting of the stockholders for the transaction of any proper business may be called at any time exclusively by the Board or the Chairman.

SECTION 2.4 Notice of Meetings.

Except as otherwise required by law, notice of each meeting of stockholders, whether annual or special, shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to such stockholder personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to such stockholder at such stockholder's post office address furnished by such stockholder to the Secretary of the Corporation for such purpose, or, if such stockholder shall not have furnished an address to the Secretary for such purpose, then at such stockholder's post office address last known to the Secretary, or by transmitting a notice thereof to such stockholder at such address by telegraph, cable, wireless or facsimile. Except as otherwise expressly required by law, no publication of any notice of a meeting of stockholders shall be required. Every notice of a meeting of stockholders shall state the place, date and hour of the meeting and, in the case of a special meeting, shall also state the purpose for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice, and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.

SECTION 2.5 Fixing Date for Determination of Stockholders of Record.

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action other than to consent to corporate action in writing without a meeting, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any such other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders the Board shall not fix such a record date, then the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

SECTION 2.6 Quorum.

Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders of the Corporation or any adjournment thereof. Subject to the requirement of a larger percentage vote, if any, contained in the Certificate of Incorporation, these Bylaws or by statute, the stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding any withdrawal of stockholders that may leave less than a quorum remaining, if any action taken (other than adjournment) is approved by the vote of at least a majority in voting interest of the shares required to constitute a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

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SECTION 2.7 Voting.

(A) Each stockholder shall, at each meeting of stockholders, be entitled to vote, in the manner prescribed by the Corporation's Certificate of Incorporation, in person or by proxy each share of the stock of the Corporation that has voting rights on the matter in question and that shall have been held by such stockholder and registered in such stockholder's name on the books of the Corporation:

(i) on the date fixed pursuant to Section 2.5 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or

(ii) if no such record date shall have been so fixed, then (a) at the close of business on the business day next preceding the day upon which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the business day next preceding the day upon which the meeting shall be held.

(B) Shares of the Corporation's own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation the pledgor shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or the pledgee's proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the Delaware General Corporation Law, as the same exists or may hereafter be amended (the “DGCL”).

(C) Subject to the provisions of the Corporation's Certificate of Incorporation, any such voting rights may be exercised by the stockholder entitled thereto in person or by such stockholder's proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder's attorney thereunto authorized and delivered to the secretary of the meeting. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of stockholders at which a quorum is present, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The vote at any meeting of stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy, if there be such proxy, and it shall state the number of shares voted.

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SECTION 2.8 Inspectors of Election.

Prior to each meeting of stockholders, the Chairman of such meeting shall appoint an inspector(s) of election to act with respect to any vote. Each inspector of election so appointed shall first subscribe an oath faithfully to execute the duties of an inspector of election at such meeting with strict impartiality and according to the best of such inspector of election's ability. Such inspector(s) of election shall decide upon the qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on any question, determine the number of votes entitled to be cast by each share, shall conduct the vote and, when the voting is completed, accept the votes and ascertain and report the number of shares voted respectively for and against each question, and determine, and retain for a reasonable period a record of the disposition of, any challenge made to any determination made by such inspector(s) of election. Reports of inspector(s) of election shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The inspector(s) of election need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector(s) of election on any question other than a vote for or against a proposal in which such officer shall have a material interest. The inspector(s) of election may appoint or retain other persons or entities to assist the inspector(s) of election in the performance of the duties of the inspector(s) of election.

SECTION 2.9 Advance Notice of Stockholder Proposals and Stockholder Nominations.

Nominations of persons for election to the board of directors of the Corporation and the proposal of business to be considered by the stockholders may be made at any meeting of stockholders only (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board, or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in these bylaws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.9.

To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the sixtieth (60^th)day nor earlier than the close of business on the ninetieth (90^th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date or if the Corporation has not previously held an annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90^th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60^th) day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of a postponement or adjournment of an annual meeting to a later date or time commence a new time period for the giving of a stockholder's notice as described above.

Such stockholder's notice shall set forth (I) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder (or any successor thereto) (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (b) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated, (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (d) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; and (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the United States Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board, (II) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (III) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, and (b) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.9(A). The Chairman of any such meeting shall direct that any nomination or business not properly brought before the meeting shall not be considered.

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SECTION 2.10 Action Without Meeting.

Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may, if such action has been earlier approved by the Board, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III: BOARD OF DIRECTORS

SECTION 3.1 General Powers.

Subject to any requirements in the Certificate of Incorporation, these Bylaws, or of the DGCL as to action which must be authorized or approved by the stockholders, any and all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be under the direction of, the Board to the fullest extent permitted by law. Without limiting the generality of the foregoing, it is hereby expressly declared that the Board shall have the following powers:

(A) to select and remove all the officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, the Certificate of Incorporation or these Bylaws, fix their compensation, and require from them security for faithful service;

(B) to conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, the Certificate of Incorporation or these Bylaws, as it may deem best;

(C) to change the location of the registered office of the Corporation in Section 1.1 hereof; to change the principal office and the principal office for the transaction of the business of the Corporation from one location to another as provided in Section 1.2 hereof; to fix and locate from time to time one or more offices of the Corporation within or without the State of Delaware as provided in Section 1.3 hereof; to designate any place within or without the State of Delaware for the holding of any meeting or meetings of stockholders; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, and in its judgment as it may deem best, provided such seal and such certificate shall at all times comply with the provisions of law;

(D) to authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such considerations as may be lawful;

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(E) to borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust and securities therefor; and

(F) by resolution adopted by a majority of the whole Board to designate an executive and other committees of the Board, each consisting of one or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee or committees shall be conducted.

SECTION 3.2 Number and Term of Office.

(A) Until this Section 3.2 is amended by a resolution duly adopted by the Board or by the stockholders of the Corporation, the number of directors constituting the entire Board shall be not less than two (2) members nor more than ten (10) members. Directors need not be stockholders. Each of the directors of the Corporation shall serve for a term ending on the date of the annual meeting and shall hold office until his successor shall have been duly elected or until he shall resign or shall have been removed in the manner hereinafter provided.

SECTION 3.3 Chairman of the Board.

The Chairman of the Board, when present, shall preside at all meetings of the Board and all meetings of stockholders. The Chairman of the Board shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

SECTION 3.4 Election of Directors.

The directors shall be elected by the stockholders of the Corporation, and at each election, the persons receiving the greater number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provision contained in the Certificate of Incorporation relating thereto, including any provision regarding the rights of holders of preferred stock to elect directors.

SECTION 3.5 Resignations.

Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 3.6 Vacancies.

Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, removal, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. Increases in the number of directors shall be filled in accordance with the rule that each class of directors shall be as nearly equal in number of directors as possible. Notwithstanding such rule, in the event of any change in the authorized number of directors each director then continuing to serve as such will nevertheless continue as a director of the class of which he is a member, until the expiration of his current term or his earlier death, resignation or removal. If any newly created directorship or vacancy on the Board, consistent with the rule that the three classes shall be as nearly equal in number of directors as possible, may be allocated to one (1) or two (2) or more classes, the Board shall allocate it to that of the available class whose term of office is due to expire at the earliest date following such allocation. When the Board fills a vacancy, the director chosen to fill that vacancy shall be of the same class as the director he succeeds and shall hold office until such director's successor shall have been elected and shall qualify or until such director shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.

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SECTION 3.7 Place of Meeting.

The Board or any committee thereof may hold any of its meetings at such place or places within or without the State of Delaware as the Board or such committee may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board or such committee can hear each other, and such participation shall constitute presence in person at such meeting.

SECTION 3.8 Regular Meetings.

Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine.

SECTION 3.9 Special Meetings.

Special meetings of the Board for any purpose or purposes shall be called at any time by the Chairman of the Board or, if the Chairman of the Board is absent or unable or refuses to act, by the Chief Executive Officer or the President, and may also be called by any two members of the Board. Except as otherwise provided by law or by these Bylaws, written notice of the time and place of special meetings shall be delivered personally or by facsimile to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to such director at such director's address as it is shown upon the records of the Corporation, or, if it is not so shown on such records and is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the County in which the principal office for the transaction of the business of the Corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered personally or by facsimile as above provided, it shall be delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing, delivery or facsimile transmission as above provided shall be due, legal and personal notice to such director. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 3.10 Quorum and Manner of Acting.

Except as otherwise provided in these Bylaws, the Certificate of Incorporation or by applicable law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided any action taken is approved by at least a majority of the required quorum for such meeting. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.

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SECTION 3.11 Action by Unanimous Written Consent.

Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if consent in writing is given thereto by all members of the Board or of such committee, as the case may be, and such consent is filed with the minutes of proceedings of the Board or of such committee.

SECTION 3.12 Compensation.

Directors, whether or not employees of the Corporation or any of its subsidiaries, may receive an annual fee for their services as directors in an amount fixed by resolution of the Board plus other compensation, including options to acquire capital stock of the Corporation, in an amount and of a type fixed by resolution of the Board, and, in addition, a fixed fee, with or without expenses of attendance, may be allowed by resolution of the Board for attendance at each meeting, including each meeting of a committee of the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.

SECTION 3.13 Committees.

The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one (1) or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and subject to any restrictions or limitations on the delegation of power and authority imposed by applicable law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. Unless the Board or these Bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or by any two (2) members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of meetings of the Board shall govern.

SECTION 3.14 Affiliated Transactions.

Notwithstanding any other provision of these Bylaws, each transaction, or, if an individual transaction constitutes a part of a series of transactions, each series of transactions, proposed to be entered into between the Corporation, on the one hand, and any affiliate of the Corporation, on the other hand, must be approved by the Board. For the purposes of this Section 3.14, (a) “affiliate” shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with the Corporation, (ii) any other person that owns, beneficially, directly or indirectly, twenty percent (20%) or more of the outstanding capital shares, shares or equity interests of the Corporation, or (iii) any officer or director of the Corporation; (b) “person” shall mean and include individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other entities and governments and agencies and political subdivisions thereof; and (c) “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests.

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ARTICLE IV: OFFICERS

SECTION 4.1 Officers.

The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary, a Chief Financial Officer, and such other officers as may be appointed at the discretion of the Board in accordance with the provisions of Section 4.3 hereof.

SECTION 4.2 Election.

The officers of the Corporation, except such officers as may be appointed or elected in accordance with the provisions of Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first meeting thereof after the annual meeting of stockholders, and each officer shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer's successor shall be elected and qualified.

SECTION 4.3 Other Officers.

In addition to the officers chosen annually by the Board at its first meeting, the Board also may appoint or elect such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer's successor shall be elected and qualified.

SECTION 4.4 Removal and Resignation.

Except as provided by DGCL Section 141(k), any officer may be removed, either with or without cause, by resolution of the Board, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer or assistant may resign at any time by giving written notice of his resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, upon receipt thereof by the Board or the Secretary, as the case may be; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.5 Vacancies.

A vacancy in any office because of death, resignation, removal, disqualification or any other cause may be filled by the vote of the majority of the directors present at any meeting in which a quorum is present, or pursuant to Section 3.11 of these Bylaws.

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SECTION 4.6 Chief Executive Officer.

The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board has been appointed and is present. The Chief Executive Officer shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. The Chief Executive Officer shall also perform such other duties and have such other powers as the Board of Directors may designate from time to time.

SECTION 4.7 President.

The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board has been appointed and is present or, in the absence of the Chairman of the Board, the Chief Executive Officer has been appointed and is present. Subject to the provisions of these Bylaws and to the direction of the Board of Directors and Chief Executive Officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of President or which are delegated to him by the Board of Directors. The President shall have the power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all the other officers, employees and agents of the corporation.

SECTION 4.8 Vice President.

Each Vice President shall have such powers and perform such duties with respect to the administration of the business and affairs of the Corporation as are commonly incident to their office or as may from time to time be assigned to such Vice President by the Chairman of the Board, or the Board, or the Chief Executive Officer, or the President, or as may be prescribed by these Bylaws. In the absence or disability of the Chairman of the Board, the Chief Executive Officer and the President, the Vice Presidents in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the Chairman of the Board, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board.

SECTION 4.9 Secretary.

(A) The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board shall designate from time to time.

(B) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation or such other place as the Board may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at meetings of directors, the number of shares present or represented at meetings of stockholders, and the proceedings thereof.

(C) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the name of each stockholder, the number of shares of each class held by such stockholder, the number and date of certificates issued for such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

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SECTION 4.10 Chief Financial Officer.

The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer shall designate from time to time.

ARTICLE V: CORPORATE INSTRUMENTS, CHECKS,

DRAFTS, BANK ACCOUNTS, ETC.

SECTION 5.1 Execution of Corporate Instruments.

The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation the corporate name without limitation, or enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. Such authority may be general or confined to specific instances, and unless so authorized by the Board or by these Bylaws, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.

SECTION 5.2 Checks, Drafts, Etc.

All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require.

SECTION 5.3 Deposits.

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.

SECTION 5.4 General and Special Bank Accounts.

The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

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ARTICLE VI: SHARES AND THEIR TRANSFER

SECTION 6.1 Certificates for Stock.

Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class or series of shares of the stock of the Corporation owned by such owner. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, and by the Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such an officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class or series of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.4 hereof.

SECTION 6.2 Transfers of Stock.

Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by such holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

SECTION 6.3 Regulations.

The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.

SECTION 6.4 Lost, Stolen, Destroyed, and Mutilated Certificates.

In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof satisfactory to the Board of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.

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ARTICLE VII: INDEMNIFICATION

SECTION 7.1 Indemnification of Directors and Officers.

To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (provided that the effect of any such amendment shall be prospective only) (the “Delaware Law”), a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director. The Corporation shall indemnify, in the manner and to the fullest extent permitted by the Delaware Law (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. The Corporation may, to the fullest extent permitted by the Delaware Law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person. The Corporation may create a trust fund, grant a security interest or use other means (including without limitation a letter of credit) to ensure the payment of such sums as may become necessary or desirable to effect the indemnification as provided herein. To the fullest extent permitted by the Delaware Law, the indemnification provided herein shall include expenses as incurred (including attorneys' fees), judgments, fines and amounts paid in settlement and any such expenses shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified. Notwithstanding the foregoing or any other provision of this Section 7.1, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board by a majority vote of a quorum of disinterested Directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs) by independent legal counsel to the Corporation, that, based upon the facts known to the Board or such counsel at the time such determination is made, (a) the party seeking an advance acted in bad faith or deliberately breached his or her duty to the Corporation or its stockholders, and (b) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the provisions of this Section 7.1. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware Law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation's Bylaws, vote of stockholders or disinterested directors, or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Section 7.1 as it applies to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 7.2 Indemnification of Employees and Agents.

Subject to Section 7.1, the Corporation may, but only to the extent that the Board may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation.

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SECTION 7.3 Enforcement of Indemnification.

The rights to indemnification and the advancement of expenses conferred above shall be contract rights. If a claim under this Article VII is not paid in full by the Corporation within 60 days after written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of such claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expenses of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board, independent legal counsel or stockholders) that the indemnitee has not met such applicable standard of conduct, shall either create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.

ARTICLE VIII: MISCELLANEOUS

SECTION 8.1 Seal.

The Board shall adopt a corporate seal, which shall be in the form set forth in a resolution approved by the Board.

SECTION 8.2 Waiver of Notices.

Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.3 Amendments.

Except as otherwise provided herein, by law, or in the Certificate of Incorporation, these Bylaws or any of them may be altered, amended, repealed or rescinded and new Bylaws may be adopted by the Board or by the stockholders at any annual or special meeting of stockholders, provided that notice of such proposed alteration, amendment, repeal, recession or adoption is given in the notice of such meeting of stockholders.

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CERTIFICATE OF INCORPORATOR OF ADOPTION OF BYLAWS

I, the undersigned, do hereby certify:

That I am the Sole Incorporator of Fuqi International, Inc., a Delaware corporation, that the foregoing By-Laws, comprising fourteen pages, constitute the By-Laws of said corporation as duly adopted on December 8, 2006.

IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation on this December 8, 2006.

By:	/s/ Kasey Hannah
	Kasey Hannah

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EX-10.1

visitalk.com, Inc. Bankruptcy Plan Distribution

WARRANTSIN VISITALK CAPITAL CORPORATION

AND ITS

OPERATING SUBSIDIARIES

CLASSES 1 THROUGH 7

Master Warrant Agreement and related information Booklet

PLAN WARRANT AGREEMENT

ACCEPTANCE AND EFFECTIVE DELIVERY REQUIRED

This Plan Warrant Agreement is effective as of the Effective Date of the Second Joint Plan of Reorganization of visitalk.com, Inc. and other Co-Proponents dated June 22, 2004. This Plan Warrant Agreement and the Plan Warrants are only valid if a Warrant Holder executes a Warrant Acceptance and Effective Delivery Agreement before March 31, 2006; and such Warrant Acceptance and Effective Delivery Agreement is received by Visitalk Capital Corporation before April 15, 2006.

TABLE OF CONTENTS

	Page
PLAN WARRANT AGREEMENT
BACKGROUND AND DEFINITIONS	1
ARTICLE I - THE PLAN WARRANTS	2
ARTICLE II - EXERCISE PERIOD; REDEMPTION	3
ARTICLE III - ISSUANCE AND TRANSFER OF OWNERSHIP	4
ARTICLE IV - EXERCISE OF PLAN WARRANTS	6
ARTICLE V - LIMITATIONS ON EXERCISE	7
ARTICLE VI - RIGHTS AND DUTIES OF WARRANT AGENT	8
ARTICLE VII - CONTINGENT WARRANT HOLDER AGENT	10
ARTICLE VIII - RIGHTS AND DUTIES OF WARRANT HOLDERS	11
ARTICLE IX - NOTICES	11
ARTICLE X - MISCELLANEOUS	13
EXHIBITS TO THE PLAN WARRANT AGREEMENT
A - ISSUERS COVERED BY THE PLAN WARRANT AGREEMENT	16
B - FORM OF WARRANT ACCEPTANCE AND EFFECTIVE DELIVERY AGREEMENT	17
C - FORM OF CLAIM HOLDER OWNERSHIP SCHEDULE	19
D - FORM OF WARRANT CERTIFICATE OR WARRANT UNIT CERTIFICATE	20
E - FORM OF SUBSCRIPTION AND EXERCISE NOTICE	23
F - FORM OF ELECTION TO CERTIFICATE AGREEMENT	25
G - FORM OF CONTINGENT AGENT AGREEMENT	27

PLAN WARRANT AGREEMENT

This Plan Warrant Agreement (the “Agreement”) is effective as of the Effective Date of the Second Joint Plan of Reorganization of visitalk.com, Inc. and other Co-Proponents dated June 22, 2004 (the “Plan”). The Warrant Holders, as defined below, are a party to this Agreement pursuant to the operation of the Plan. However, this Agreement and the Plan Warrants, which are the subject of this Agreement, are only valid if a Warrant Holder executes a “Warrant Acceptance and Effective Delivery Agreement” before March 31, 2006 and such Warrant Acceptance and Effective Delivery Agreement is received by Visitalk Capital Corporation (“VCC”) before April 15, 2006. VCC is executing this Agreement and other related agreements necessary to implement this Agreement as an Issuer, as defined below, and as an agent for the other Issuers (the “Implementation Agent”), all of which are controlled by VCC.

BACKGROUND AND DEFINITIONS 

A.The subject matter of this Agreement is the Series A through F Plan Warrants issued in accordance with the Plan (the “Plan Warrants”) for each of the companies on the listing attached hereto as Exhibit A and their successors (each such entity hereinafter an “Issuer” or jointly “Issuers”).

B.Capitalized terms used but not otherwise defined in this Agreement have the same meaning as defined in the Plan.

C.The Issuers are entities formed or authorized under the Plan, were Co-Proponents of the Plan, and, pursuant to certain exemptions provided in the Bankruptcy Code, are authorized to issue the Plan Warrants and, upon the exercise of the Plan Warrants, Shares, without registration of the Plan Warrants or Shares under applicable securities laws.

D.The term “Share” refers to one share of common stock of an applicable Issuer.

E.The term “Claim” refers to an allowed claim under the Plan and the term “Claim Holder” is the owner of such Claim.

F.The maximum numbers of Plan Warrants to be issued for each Claim are specified in the Plan

G.The registered holder of any Plan Warrant is hereinafter referred to as a “Warrant Holder.”

H.The Issuers and the Warrant Holders desire to specify certain matters regarding the Plan Warrants. In accordance with the Plan, each Issuer will issue six series of Plan Warrants (each, a “Series”), designated as A Warrants, B Warrants, C Warrants, D Warrants, E Warrants and F Warrants, as further described in Article I. The term “Plan Warrants” refers to all of the Series of Plan Warrants as a group.

I.Each “Plan Warrant” entitles the Warrant Holder to purchase, subject to the terms and conditions set forth in this Plan Warrant Agreement, at any time on or after September 17, 2004, and prior to the close of business on the Expiration Date, but not thereafter (unless the Plan Warrant is earlier the subject of a Call or the Plan Warrant Expiration Date is extended by the Issuer), one fully paid and non-assessable share of an Issuer’s common stock (“Common Stock”), or equivalent security of any successor thereto, at a purchase price equal to the “Exercise Price”, as adjusted, unless lowered by the Issuer as set forth in Article I.

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Plan Warrant Agreement 

J.Pursuant to the Plan, each Issuer will initially act as its own agent and perform the duties enumerated in this Agreement (the “Warrant Agent”) but each Issuer may determine, in their sole discretion, to engage another qualified person to act as its Warrant Agent to perform the duties and activities hereunder. Any reference to Warrant Agent refers to an individual Issuer, acting as its own Warrant Agent, or the appointed Warrant Agent of the Issuer, as the case may apply.

AGREEMENTS

NOW, THEREFORE, in consideration of the above recitals, the following representations, warranties, covenants and conditions, and other good and valuable consideration, the receipt of which is acknowledged, the Warrant Holders, by executing the “Warrant Acceptance and Effective Delivery Agreement,” a form of which is attached hereto as Exhibit B, agree with each Issuer as follows:

ARTICLE I

THE PLAN WARRANTS

1.1Each Plan Warrant has a specified “Exercise Price,” which is the amount, as adjusted from time to time as provided in Section 1.4 below, at which a Warrant Holder is entitled to purchase one Share from an Issuer. A Warrant Holder may exercise all or any number of a Series of Plan Warrants resulting in the purchase of a whole number of Shares.

1.2Initial Exercise prices. Each Series of Plan Warrants has an initial Exercise Price as set forth below.

a)Each Series A Warrant (an “A Warrant”) has an initial Exercise Price of $2.00.

b)Each Series B Warrant (a “B Warrant”) has an initial Exercise Price of $2.00.

c)Each Series C Warrant (a “C Warrant”) has an initial Exercise Price of $3.00.

d)Each Series D Warrant (a “D Warrant”) has an initial Exercise Price of $3.00.

e)Each Series E Warrant (an “E Warrant”) has an initial Exercise Price of $4.00.

f)Each Series F Warrant (an “F Warrant”) has an initial Exercise Price of $4.00.

1.3     Number of Plan Warrants. The “Claim Holder Ownership Schedule”, attached hereto as Exhibit C, specifies, by Issuer, the number of each Series of Plan Warrants to be delivered to any Warrant Holder for a specified Claim under the Plan. Pursuant to the Plan, an Issuer, in their sole discretion, has the option of issuing the Plan Warrants as “Plan Warrant Unit.” The Plan Warrants on Exhibit C are presented as Plan Warrant Units with each unit consisting of one Series A Warrant, one Series B Warrant, one Series C Warrant, one Series D Warrant, one Series E Warrant and one Series F Warrant. Pursuant to the Plan, in the future, a Plan Warrant Unit may consist of any combination of the Plan Warrants as determined by each Issuer in their sole discretion.

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Plan Warrant Agreement 

1.4     Adjustments in Number of Plan Warrants and Exercise Price. If, prior to the exercise of any Plan Warrant, an Issuer shall have effected one or more stock splits-ups, stock dividends or other increases or reductions of the number of Shares into which the Plan Warrants are exercisable without receiving compensation in money, services or property, then the number of Shares subject to a Plan Warrant may, at the sole discretion of the Issuer, (i) if a net increase shall have been effected in the number of outstanding Shares, be proportionately increased, and the cash consideration payable per share for the Exercise Price be proportionately reduced, or, (ii) if a net reduction shall have been effected in the number outstanding Shares, be proportionately reduced, and the cash consideration payable per Share for the Exercise Price be proportionately increased. Pursuant to the Plan, an Issuer may, in its sole discretion and without further shareholder approval, upon any increase or decrease in the number of shares of its common stock outstanding, elect to (i) keep the terms of any of its Plan Warrants outstanding unchanged, (ii) proportionately increase or decrease the Exercise Price and keep the number of Plan Warrants unchanged or (iii) proportionately increase or decrease the number of Shares issuable upon exercise of the Plan Warrants and keep the Exercise Price unchanged.

1.5Discretionary Reduction in the Plan Warrant Exercise Price. An Issuer may, in its sole discretion and in accordance with the Plan, from time to time and, at any time, reduce the Exercise Price of any Plan Warrant subject to this Agreement, including a temporary reduction in the Exercise Price.

ARTICLE II

EXERCISE PERIOD; REDEMPTION

2.1Plan Warrant Exercises. Unless individually extended as provided herein, the Plan Warrants will expire at 5:00 p.m., MST on March 17, 2006 (the “Warrant Expiration Date”).

a)All Plan Warrants hereunder may be exercised at any time after the Effective Date of this Agreement and prior to the Warrant Expiration Date.

b)After any Warrant Expiration Date, unless such date is extended by an Issuer and except as provided in Article VII, any unexercised Plan Warrants will be void and all rights of the Warrant Holders shall cease.

2.2Redemption. At any time prior to any Expiration Date, each Issuer, in its sole discretion and in accordance with the Plan, may redeem some or all of any then outstanding Plan Warrants for $.0001 per Plan Warrant (“Redemption Price”). In accordance with the Plan, an Issuer may choose to redeem all or any portion of a Series of Plan Warrants, which may be selected on a pro rata basis, by random lot or as otherwise fairly determined, all in the Issuer’s sole discretion. Upon an Issuer’s determination to redeem any Plan Warrants, such Issuer shall give notice (“Redemption Notice”) of its determination to all affected Warrant Holders and the Warrant Holders shall have the time specified in the Redemption Notice (the “Redemption Date”), which shall not be less than twenty (20) days from the date of such Redemption Notice, to exercise any Plan Warrant as provided herein. Upon expiration of the Redemption Date, and after expiration of the period during which limited rights may be granted to an agent under Article VII (the “Contingent Agent”), but only if one has been appointed by an Issuer as provided in Article VII, the Issuer shall pay the Redemption Price to the Warrant Holders. An Issuer shall not be required to pay any amount less than $1.00 to any Warrant Holder and any amounts less than $1.00 due to any Warrant Holder shall be retained by an Issuer.

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Plan Warrant Agreement 

2.3Extension of the Warrant Expiration Date. An Issuer may, in its sole discretion and in accordance with the Plan, from time to time and, at any time, extend the Warrant Expiration Date of any Plan Warrant for any period of time. Notice to the Warrant Holders of Plan Warrant changes shall be provided in accordance with Article IX.

ARTICLE III

ISSUANCE AND TRANSFER OF OWNERSHIP

3.1     Form of Plan Warrant. The Plan Warrants may be issued in either uncertificated form (i.e., “Book Entry”) or in registered and certificated form, as determined pursuant to Section 3.2 below.

a)Book Entry Form. If Plan Warrants are issued in uncertificated form (“Book Entry”), the Warrant Agent shall maintain records of the number of Plan Warrants owned by each registered Warrant Holder. The Warrant Agent shall report ownership positions to the Warrant Holders no more than sixty (60) days after the end of each calendar year or, if requested in writing by a Warrant Holder, each calendar quarter. The report shall indicate any transactions regarding the Plan Warrants such as exercises or transfers. The report shall be delivered by regular mail to the address appearing on a Warrant Agent’s records for any Warrant Holder. A Warrant Holder may elect delivery by e-mail or other similar delivery option as an alternative to regular mail. At any time an Issuer determines not to maintain Book Entry for the Plan Warrants, the Issuer it may certificate and deliver the warrants to the Warrant Holders at no cost to the Warrant Holders for the certification.

b)Certificated Form. If in certificated form, the warrant certificates (the “Warrant Certificates”) shall be substantially in the form attached hereto as Exhibit D. Warrant Certificates shall be signed by, or shall bear the facsimile signature of an Executive Officer of each Issuer and shall bear the Issuer’s corporate seal or a facsimile of the Issuer’s corporate seal. If any person, whose facsimile signature has been placed on any Warrant Certificate as the signature of an officer of an Issuer, shall have ceased to be an officer before the Warrant Certificate is countersigned, issued and delivered, the Warrant Certificate shall be countersigned, issued and delivered with the same effect as if the officer had not ceased to be an officer. Any Warrant Certificate may be signed by, or made to bear the facsimile signature of, any person who at the actual date of the preparation of the Warrant Certificate shall be a proper officer of an Issuer to sign the Warrant Certificate even though such person was not an officer upon the date of this Agreement. If a Warrant Agent other than the Issuer is appointed, and Warrant Certificates are issued after the appointment, Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purposes unless so countersigned. The Warrant Agent hereby is authorized to countersign any Warrant Certificate that is properly issued and deliver the same to, or in accordance with the properly documented and verified instruction of, any registered Warrant Holder.

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Plan Warrant Agreement 

3.2Delivery of Plan Warrant. The Warrant Holder shall select the method of delivery of the Plan Warrant, as set forth in Section 3.1b) above.

a)Book Entry Form. The Warrant Holder, by executing and delivering the “Warrant Acceptance and Effective Delivery Agreement,” a form of which is attached hereto as Exhibit B, hereby elects to have all the Plan Warrants issued in Book Entry form. By executing only the Warrant Acceptance and Effective Delivery Agreement and thereby electing Book Entry for the Plan Warrants, the Warrant Holders also elect to have a Contingent Agent act for them under certain limited circumstances as set forth in Article VII.

b)Certificated Form. If the Warrant holder desires to receive physical delivery of the Plan Warrants (i.e. certificated form), such Warrant Holder must, in addition to executing the Warrant Acceptance and Effective Delivery Agreement as set forth in Section 3.2a) above, also execute and deliver the “Election to Certificate Agreement” as attached hereto as Exhibit F. The Plan Warrants requested in certificated form will be issued in Units consisting of one A Warrant, one B Warrant, one C Warrant, one D Warrant, one E Warrant and one F Warrant for each Issuer. To receive certificates for the Plan Warrants, such Warrant Holder shall remit an issuance fee set forth in the Election to Certificate Agreement. Warrant Holders electing Plan Warrants in certificated form also waive any of the rights and benefits to having the Contingent Agent act for them under certain limited circumstances as set forth in Article VII.

3.3Transfer of Ownership. The Warrant Agent may register the transfer of any outstanding Warrant Certificate or any Book Entry ownership change upon the receipt of appropriate instruments of transfer, in a form satisfactory to both the Issuer and the Warrant Agent, duly executed by the Warrant Holder or a duly authorized attorney, including, if requested by the Warrant Agent, legal opinions and signature verification as required, in the Issuer’s sole discretion. An Assignment Form appears on the back of the “Form of Plan Warrant Certificate” attached hereto as Exhibit D. Upon any registration of transfer, either (i) a new Warrant Certificate shall be issued in the name of and delivered to the transferee and the surrendered Warrant Certificate shall be canceled or (ii) a new Book Entry shall be made reflecting the transfer and notice shall be given to the new Warrant Holder. In the event a certificated warrant is submitted for transfer, a customary cash fee for the transfer must accompany such Plan Warrant prior to the execution of the transfer.

3.4Mutilated or Missing Warrant Certificates. If any Warrant Certificate is mutilated, lost, stolen, or destroyed, an Issuer and the Warrant Agent may, on such terms as to fully indemnify them or otherwise as they may in their sole discretion impose (which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof), and upon the receipt of evidence satisfactory to an Issuer and the Warrant Agent of such mutilation, loss, theft or destruction, issue a substitute Warrant Certificate of like denomination and tenor as the Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for substitute Warrant Certificates shall comply with such other reasonable regulations and pay any reasonable charges as an Issuer or the Warrant Agent may prescribe including costs of an indemnity bond, if required by an Issuer in its sole discretion.

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Plan Warrant Agreement 

3.5No Fractional Plan Warrants or Shares. An Issuer shall not be required to issue fractions of Plan Warrants upon the reissue of Plan Warrants due to any adjustments as described in Section 1.4 or otherwise. In lieu of issuing any fractional interest, an Issuer shall round up to the nearest full Plan Warrant. If the total Plan Warrants surrendered by exercise would result in the issuance of a fractional Share, an Issuer shall not be required to issue a fractional Share but rather the aggregate number of Shares issuable will be rounded up to the nearest full share. At an Issuer’s sole option, an Issuer may pay the cash value of any such fractional interest in lieu of issuing additional Shares or Plan Warrants.

ARTICLE IV

EXERCISE OF PLAN WARRANTS

4.1Method of Exercise. Subject to Article V, any Plan Warrant or any multiple of Plan Warrants evidenced by any Warrant Certificate or in Book Entry form may be exercised on or before the Expiration Date. Plan Warrants shall be exercised by the Warrant Holder by either (i) surrendering to the Warrant Agent the Warrant Certificate evidencing the Plan Warrants with a “Subscription and Exercise Notice,” a form of which is attached hereto as Exhibit E, duly completed and executed showing the number of Plan Warrants being exercised, or (ii) if in Book Entry form, by delivering to the Warrant Agent a Subscription and Exercise Notice, duly completed and executed showing the number of Book Entry Plan Warrants being exercised. In addition, the Warrant Holder must deliver to the Warrant Agent, by certified check, or other immediately available funds or wire transfer, in U. S. dollars (“Good Funds”), as the Warrant Agent may elect, payable to the order of the Issuer of such Plan Warrant, the Exercise Price for each Share to be purchased. Both the Subscription and Exercise Notice relating to a certificated Plan Warrant and a Book Entry Plan Warrants are hereinafter referred to as an “Exercise Notice.” The form of Exercise Notice may be changed from time to time and, at any time, in the discretion of the Issuer.

4.2Delivery of Shares. Upon receipt of the Exercise Notice and payment in Good Funds of the full Exercise Price for the Plan Warrants that are the subject to the Exercise Notice, the Warrant Agent shall requisition the issuance of the required Shares, and deliver such Shares in accordance with the properly documented instructions of the Warrant Holder. The certificate for the Shares shall be deemed to be issued, and the person to whom the Shares are issued of record shall be deemed to have become a holder of record of the Shares, as of the date of the surrender of such properly executed Exercise Notice and payment of the Exercise Price in Good Funds, whichever shall last occur. If however, the books of an Issuer with respect to the Shares shall be deemed to be closed, the person to whom such Shares are issued shall be deemed to have become a record holder of such Shares as of the date on which such books of the Issuer shall next be open (whether before, on or after the Expiration Date). All Warrant Certificates surrendered upon exercise of Plan Warrants shall be canceled.

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Plan Warrant Agreement 

4.3Unexercised Warrants. If less than all the Plan Warrants evidenced by a Warrant Certificate or Book Entry are exercised upon a single occasion, until the Expiration Date, a new Warrant Certificate or Book Entry for the balance of the Plan Warrants not so exercised shall be issued and delivered to or recorded in the Warrant Holder’s name, or in accordance with transfer instructions properly given by the Warrant Holder.

4.4Escrow. Upon the exercise, or conversion of any Plan Warrant, the Warrant Agent, if not the Issuer, shall promptly deposit the payment of the Exercise Price into an escrow account established by mutual agreement of an Issuer and their Warrant Agent at a federally insured commercial bank. All funds deposited in the escrow account will be disbursed on a weekly basis to an Issuer once such funds have been determined by the Warrant Agent to be collected funds. Once the funds are determined to be collected funds, the Warrant Agent shall take actions to cause the certificate(s) representing the Shares issued pursuant to the exercise of the Plan Warrants to be issued.

4.5Expenses. Except for Section 4.6, expenses incurred by the Warrant Agent while acting in the capacity as Warrant Agent will be paid by each Issuer. These expenses, including delivery of Share certificates to the shareholder, will be deducted from the Exercise Price submitted prior to distribution of funds to the Issuer. The Warrant Agent will supply a detailed account statement relating to the number of Shares exercised, names of the registered Warrant Holder(s) and the net amount of funds remitted will be given to the applicable Issuer with each payment.

4.6Fees. At the time of exercise of any Plan Warrant, any cost for Share issuance and transfer fee is to be paid by the Warrant Holder. In the event the Warrant Holder must pay such fees and fails to remit same, the Warrant Agent, if agreed to by the Issuer, may elect to have such fee deducted from the proceeds prior to distribution to an Issuer.

ARTICLE V

LIMITATIONS ON EXERCISE

5.1Limit of Exercise. The Warrant Holder, together with the Warrant Holder’s “affiliates,” as such term is defined in the Securities and Exchange Commission’s rules and regulations, shall not be entitled to exercise any Plan Warrant if, after giving effect to such exercise, the Warrant Holder and its Affiliates would beneficially own in excess of 4.99% of the outstanding Shares of an Issuer. For purposes of the foregoing calculation, the Shares beneficially owned by a Warrant Holder and its Affiliates or acquired by the Warrant Holder and its Affiliates, shall include the number of Shares issuable upon exercise of such Plan Warrant with respect to which the determination is being made, but shall exclude the number of Shares that would be issuable upon (i) exercise of the remaining, non-exercised portion of any Plan Warrants issued by the Issuer and beneficially owned by such Warrant Holder and its Affiliates and subject to a limitation on conversion or exercise and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of an Issuer subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Plan Warrant Agreement 

5.2Warrant holder Representation. Each Exercise Notice executed by a Warrant Holder shall constitute a representation by such Warrant Holder that, after giving effect to such Exercise Notice, (i) such Warrant Holder will not beneficially own (as determined in accordance with this Article V) in excess of 4.99% of the outstanding Shares of an Issuer and (ii) the Warrant Holder will not have acquired, through exercise of such Plan Warrant or otherwise, a number of Shares that, when added to the number of Shares beneficially owned by the Warrant Holder at the beginning of the sixty (60) day period ending on and including the applicable date of exercise of such Plan Warrant, is in excess of 4.99% of the outstanding Shares of the Issuer following the exercise during the sixty (60) day period ending on and including the date of exercise.

5.3Shares Outstanding. For purposes of this Article V, in determining the number of the outstanding Shares of an Issuer, the Warrant Holder may rely on the number of outstanding Shares (i) as reflected on an Issuer’s web site or, (ii) at such time as an Issuer is a reporting Issuer under the Exchange Act, as reflected in an Issuer’s most recent annual, quarterly or current report filed pursuant to the Exchange Act, or (iii) as reflected in its most recent public announcement or other notice by an Issuer setting forth the number of Shares outstanding. The number of outstanding Shares shall be determined after giving effect to exercises of such Plan Warrant (including the exercise with respect to which this determination is being made) by the Warrant Holder.

5.4Waiver. An Issuer, in their sole discretion, may waive the ownership and exercise limitations imposed by this Article V in whole or in part upon receipt by the Warrant Holder of its undertaking, in form acceptable to an Issuer in its sole discretion, including if necessary legal opinions, to fully comply with all applicable securities law reporting requirements.

ARTICLE VI

RIGHTS AND DUTIES OF WARRANT AGENT

6.1Third Party Warrant Agent. If an Issuer appoints a third party Warrant Agent, which it may do in its sole discretion, and such Warrant Agent accepts the appointment, such Warrant Agent will only accept upon the following terms and conditions, by all of which an Issuer and every Warrant Holder by acceptance of this Plan Warrant Agreement shall be bound:

a) Statements contained in this Agreement and in the Warrant Certificates, if such Warrant Certificates are issued, shall be taken as statements of the Issuer. The Warrant Agent assumes no responsibility for the correctness of any of these statements except those that describe the Warrant Agent or any action taken or to be taken by the Warrant Agent.

b) The Warrant Agent shall not be responsible for any failures of an Issuer to comply with any of an Issuer’s covenants contained in this Agreement or in the Warrant Certificates.

c) The Warrant Agent may consult at any time with counsel satisfactory to it (who may also be counsel for its applicable Issuer) and the Warrant Agent shall incur no liability or responsibility to an Issuer or to any Warrant Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Warrant Agent shall have exercised reasonable care in the selection and continued employment of such counsel.

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Plan Warrant Agreement 

d) The Warrant Agent shall incur no liability or responsibility to an Issuer or to any Warrant Holder for any action taken in reliance upon any notice, resolution, waiver, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.

e) An Issuer agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and all other charges of any kind in nature incurred by the Warrant Agent in the execution of this Agreement and to, except as a result of a Warrant Agent’s negligence or bad faith, indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for this Agreement.

f) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless an Issuer or one or more Warrant Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expense that may be incurred in connection with such action, suit or legal proceeding. However, this proceeding provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Plan Warrants may be enforced by the Warrant Agent without the possession of any of the Warrant Certificates or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Warrant Holders as their respective rights or interest may appear.

g) The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Plan Warrants or other securities of an Issuer or become pecuniary interested in any transaction in which an Issuer may be interested, or contract with or lend money to an Issuer or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for an Issuer or for any other legal entity.

6.2Successor Warrant Agent. Any corporation into which the Warrant Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act of a party or the parties hereto. In any such event or if the name of the Warrant Agent is changed, the Warrant Agent or its successor may adopt the countersignature of the original Warrant Agent and may countersign the Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent.

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Plan Warrant Agreement 

6.3Appointment of a New Warrant Agent. A Warrant Agent may resign or be discharged by the applicable Issuer from its duties under this Agreement, with or without cause, by one party giving notice in writing to the other, and by giving a date when such resignation or discharge shall take effect, which, unless for cause, such notice shall be sent at least thirty (30) days prior to the date so specified.

a)If a Warrant Agent shall resign, be discharged or shall otherwise become incapable of acting, an Issuer may elect to act as its own Warrant Agent or shall appoint a successor to the Warrant Agent.

b)If an Issuer fails to make such election or appointment within a period of thirty (30) days after it has been notified in writing of the resignation or incapacity of its Warrant Agent, then any Warrant Holder may apply to the Bankruptcy Court in Phoenix, Arizona, for the appointment of a successor to the Warrant Agent.

c)Pending appointment of a successor to the Warrant Agent, either by the Issuer or by the Bankruptcy Court, each Issuer shall carry out the duties of the Warrant Agent. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as the Warrant Agent without further act or deed and the Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it as the Warrant Agent, and execute and deliver any further assurance, conveyance, act or deed necessary for effecting the delivery or transfer.

d)Failure to give any notice provided for in this Section 6.3, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent.

ARTICLE VII

CONTINGENT WARRANT HOLDER AGENT

7.1Contingent Warrant Holder Agent. By the execution of the Warrant Acceptance and Effective Delivery Agreement and electing Book Entry for the Plan Warrants, the accepting Warrant Holders elect also to have an additional agent act for them only under the limited circumstances and in the manner specified in the “Contingent Agent Agreement” attached hereto as Exhibit G (the “Contingent Agent”). If a Warrant Holder executing the Warrant Acceptance and Effective Delivery Agreement, however, elects to receive physical delivery of the Plan Warrants in accordance with the terms of the “Election to Certificate Agreement” as attached hereto as Exhibit F, the electing Warrant Holder waives any of its rights and benefits to having the Contingent Agent act for them pursuant to the Contingent Agent Agreement.

7.2General Duties of the Contingent Agent. In the event a Warrant Holder fails to exercise a Plan Warrant before an Expiration Date or lapse of date specified in a Redemption Notice, the Contingent Agent shall have the rights specified in the Contingent Agent Agreement to act for the Warrant Holder with limitations and with a duty to the Warrant Holder to remit any benefits pro rata to the Warrant Holders of all similarly affected Plan Warrants.

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Plan Warrant Agreement 

7.3Subsequent Termination of Contingent Agent. Subsequent to the execution of the Warrant Acceptance and Effective Delivery Agreement, any Warrant Holder may elect to terminate the Contingent Agent Agreement by notifying an Issuer in writing. Any such notice must be received before the Expiration Date of the applicable Plan Warrant.

7.4No Duty to Appoint a Contingent Agent. An Issuer may elect to appoint a Contingent Agent but has no duty to do so. The terms of the Contingent Agent Agreement are controlling regarding all issues pertaining to the Contingent Agent.

ARTICLE VIII

RIGHTS AND DUTIES OF WARRANT HOLDERS

8.1Rights of Warrant Holders.

a)No Warrant Holder, as such, shall have any rights as a shareholder of any Issuer, either at law or equity, and the rights of the Warrant Holders are limited to those rights expressly provided in this Agreement or in the Warrant Certificates, if issued. Notwithstanding any notice to the contrary, an Issuer and their Warrant Agent may treat the registered Warrant Holder in respect to any Warrant Certificate or Book Entry or otherwise as the absolute owner thereof for all purposes.

b)Except as otherwise specifically provided herein, no Warrant Holder shall be entitled to vote or receive dividends or be deemed the holder of Shares of the applicable Issuer for any purpose, nor shall anything contained in any Plan Warrant or this Agreement be construed to confer upon the Warrant Holder including but not limited to (i) any of the rights of a stockholder of an Issuer, (ii) any right to vote, (iii) any right to give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), and (iv) any right to receive notice of meetings or receive dividends or subscription rights prior to the issuance of the Shares that the Warrant Holder is then entitled to receive upon the due exercise of any Plan Warrant.

c)No Plan Warrant shall be construed as imposing any liabilities on any Warrant Holder to purchase any securities of an Issuer, whether such liabilities are asserted by an Issuer or by creditors of an Issuer.

8.2Taxes. The Warrant Holder will pay all taxes attributable to the Plan Warrants or the initial issuance of Shares upon exercise of the Plan Warrants, including any tax that may be payable with respect to any transfer involved in any issue of Warrant Certificates or in the issue of any certificates of Shares upon the exercise of any Plan Warrant in a name other than that of the Warrant Holder.

ARTICLE IX

NOTICES

9.1Notices to Warrant Holders. Any distribution, notice or demand required or authorized by this Agreement to be given or made by an Issuer or by a Warrant Agent to or on the Warrant Holder shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to the Warrant Holder at their last known address as it appears on the Plan Warrant registration books of the Issuer or the official Warrant Holder listing maintained by the Warrant Agent.

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Plan Warrant Agreement 

a.Notice of Plan Warrant Changes. Except for an extension of the Expiration Date, which shall be effective when such information is a matter of public record (or upon mailing or other means of notification agreed to by a Warrant Holder, upon any adjustment pursuant to Sections 1.4 and 1.5, an Issuer within twenty (20) days thereafter will (i) file with the Warrant Agent a certificate signed by an officer of the Issuer setting forth the details of the adjustment, the method of calculation and the facts upon which the calculation is based, and (ii) provide written notice of the adjustments to each Warrant Holder as of the record date.

b.Notice of Reorganization. If an Issuer proposes to enter into any reorganization, reclassification, sale of substantially all of its assets, consolidation, merger, dissolution, liquidation or winding up, an Issuer will give notice of the fact at least twenty (20) days prior to the action to all Warrant Holders. This notice shall set forth the facts to indicate the effect of the action (to the extent the effect may be known at the date of the notice) on the Exercise Price and the kind and amount of the Shares or other property deliverable upon exercise of the Plan Warrants.

c.Failure to Give Notice. Without limiting the obligation of an Issuer to provide notice to each Warrant Holder, failure of an Issuer to give notice shall not invalidate corporate action taken by an Issuer.

d.Unclaimed Notices and Bad Addresses. All notices, mailings and distributions under the Plan which are returned by the Post Office undelivered or which cannot be delivered due to the failure of the Warrant Holder to provide the Issuers with a current address will be retained by the Issuer pursuant to Section 5.13 of the Plan, incorporated herein by reference. The Warrant Agent or the Issuer is under no obligation to continue notices, mailings and distributions to known undeliverable or bad addresses.

9.2Notices to Warrant Agent and Issuers. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on an Issuer shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by an Issuer with its Warrant Agent), to an Issuer’s official headquarters address. Any notice or demand authorized by this Agreement to be given or made by any Warrant Holder or by an Issuer to or on the Warrant Agent shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with an Issuer), to the Warrant Agent’s official headquarters address.

12

Plan Warrant Agreement 

ARTICLE X

MISCELLANEOUS

10.1Reservation of Shares. For the purpose of enabling an Issuer to satisfy its obligations to issue Shares upon exercise of their Plan Warrants, Issuers will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares, the full number of Shares that may be issued upon the exercise of Plan Warrants. The Shares will, upon issue, be fully paid and non-assessable by an Issuer and free from all liens, charges and security interest with respect to the issue thereof.

10.2Governmental Restrictions. If any Shares issuable upon the exercise of a Plan Warrant require approval of any governmental authority, the applicable Issuer will endeavor to secure such approval; provided that in no event shall such Shares be issued, and an Issuer shall have the authority to suspend the exercise of all Plan Warrants, until such approval has been obtained. If any such period of suspension continues past an Expiration Date, all affected Plan Warrants, the exercise of which have been requested on or prior to the Expiration Date and which were accompanied with Good Funds, shall be exercisable upon the removal of such suspension until the close of business on the business day immediately following the expiration of such suspension. The Issuer or the Warrant Agent shall hold any funds received during such suspension in escrow in a segregated and specified account. In the event a governmental authority requires the modification of this Agreement, any effected Issuer may make such modification without further agreement of any Warrant Holder. If such modification materially impacts the rights of the Warrant Holders, such Issuer will mail a notification of such change to the affected Warrant Holders.

10.3Supplements and Amendments. An Issuer and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Warrant Holders in order to cure any ambiguity or to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that an Issuer and the Warrant Agent may deem necessary or desirable.

10.4Assignment. A Warrant Holder may transfer and assign their rights to any Plan Warrant provided, however, that any such assignment shall not release the Warrant Holder from their commitments and obligations hereunder unless the obligations are formally assumed by such assignee. A Warrant Holder shall not transfer the Plan Warrants unless the transfer is registered or exempt from registration under applicable securities laws. The Warrant Agent may require that such Warrant Holder first obtain an opinion of counsel satisfactory to the Warrant Agent and the Issuer that the proposed disposition or transfer does not violate securities laws. Any transfer must specifically acknowledge that this Agreement will continue to control the Plan Warrants so transferred.

10.5Termination. This Agreement shall terminate at the close of business on the Expiration Date or such earlier date upon which all Plan Warrants of all Issuers have been exercised or redeemed; provided, however, that if exercise of any Plan Warrants are suspended pursuant to Section 10.2 and such suspension continues past the Expiration Date, this Agreement shall terminate at the close of the business on the business day immediately following the expiration of the suspension. The provisions of Article VI shall survive this termination.

13

Plan Warrant Agreement 

10.6Governing Law. This Agreement and each Plan Warrant Certificate or other evidence of ownership issued hereunder shall be deemed to be a contract made under the laws of the state in which an Issuer is incorporated at such time as a dispute arises and, for all purposes except as superseded by the jurisdiction of the Bankruptcy Court, shall be construed in accordance with the laws of such State. Any disputes shall be governed by the Plan, the Bankruptcy Court, the orders of the Bankruptcy Court pertaining to the Plan and the Bankruptcy Code. Venue, if in state or federal court shall be the most convenient state or federal court in relationship to the applicable Issuer’s headquarters.

10.7Successors. All the covenants and provision of this Agreement by or for the benefit of an Issuer, a Warrant Holder or a Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

10.8Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision will not affect the validity or unenforceability of any remaining portion, which remaining portion will remain in force and effect as if this Agreement had been executed with the invalid portion eliminated and it is hereby declared the intention of the parties hereto that the parties would have executed the remaining portion of this Agreement without including therein any such part or portion which may, for any reason, be hereafter declared invalid or unenforceable.

10.9Reliance. The Warrant Agent may rely on the facsimile or similar transmissions from a Warrant Holder as original signatures and representations of the Issuer as to the names, addresses and number of Plan Warrants of the Issuer’s Warrant Holders and their ownership positions.

10.10Construction. The parties hereto hereby acknowledge and agree that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be applied to the interpretation of this Agreement. No inference in favor of, or against, any party will be drawn from the fact that one party has drafted any portion hereof.

10.11Advice of Counsel. Each party hereby acknowledges that they are entitled to and have been afforded the opportunity to consult legal counsel of their choice regarding the terms and conditions and legal effects of this Agreement, as well as the advisability and propriety thereof. Each party hereby further acknowledges that having so consulted with legal counsel of their choosing or having chosen not to consult, hereby waives any right to the legal representation or effective representation and any right to raise or rely upon the lack of representation or effective representation in any future proceedings or in connection with any future claim.

10.12Complete Agreement; Amendment. Except as determined by the Plan, the Bankruptcy Court, the orders of the Bankruptcy Court and the Bankruptcy Code, this Agreement sets forth the entire understanding between the parties hereto and supersedes all prior agreements, arrangements and communications, whether oral or written, with respect to the subject matter hereof. No other agreements, representations, warranties or other matters, whether oral or written, shall be deemed to bind the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended except by the mutual written agreement of the parties.

14

Plan Warrant Agreement 

10.13Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof.

10.14Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signature of all of the parties reflected hereon as the signatories.

IN WITNESS WHEREOF, this Agreement has been executed as of the Effective Date written above.

“WARRANT HOLDER” deemed executed in accordance with the terms of the Plan and the Warrant Acceptance and Effective Delivery Agreement, attached hereto as Exhibit B and specifically made part hereto.	“ISSUERS” VISITALK CAPITAL CORPORATON As an Issuer and as Implementation Agent for the other Issuers
/s/
Signature (all record holders should sign)	By: Its:

15

EXHIBIT A

ISSUERS COVERED BY THE PLAN WARRANT AGREEMENT

Visitalk Capital Corporation

VT Billing Services, Inc.

VT Business Products, Inc.

VT Consumer Services, Inc.

VT Financial Services, Inc.

VT Gaming Services, Inc.

VT International Corp.

VT Marketing Services, Inc.

VT Video Services, Inc.

VT Arabic Services, Inc.

VT Chinese Services, Inc.

VT Dutch Services, Inc.

VT French Services, Inc.

VT German Services, Inc.

VT Hispanos Services, Inc.

VT Italian Services, Inc.

VT Japanese Services, Inc.

VT Korean Services, Inc.

VT Portuguese Services, Inc.

16

EXHIBIT B

FORM OF WARRANT ACCEPTANCE AND EFFECTIVE DELIVERY AGREEMENT

Visitalk Capital Corporation

14647 S. 50th St., Suite 130

Phoenix, AZ 85044

Dear Sir or Madam:

A.Capitalized terms, unless defined herein, have the same meaning as defined in the warrant agreement effective September 17, 2004 (the “Plan Warrant Agreement”) or in the Second Joint Plan of Reorganization dated June 22, 2004, confirmed by the United States Bankruptcy Court for the District of Arizona related to Case No. 00-13035-PHX-RTB (the “Plan”) of visitalk.com, Inc. (“Visitalk”). The Undersigned represents that they have reviewed the Plan Warrant Agreement and the Plan and have had the opportunity to ask questions regarding their terms and restrictions.

B.Each Issuer is required under the Plan to issue certain warrants to various claimants categorized under the Plan (the “Plan Warrants”). Such Plan Warrants are defined in the Plan and governed in accordance with the Plan Warrant Agreement.

C.The Undersigned, _______________________________________, hereby tenders this Warrant Acceptance and Effective Delivery Agreement (the “Acceptance Agreement”) to Visitalk Capital Corporation, as an Issuer and as the Implementation Agent for the other Issuers, and unless an executed “Election to Certificate Agreement” is attached, hereby elects to have all of their Plan Warrants issued in Book Entry form.

D.This Acceptance Agreement has been duly authorized by all necessary action on the part of the Undersigned and, if necessary, this Acceptance Agreement has been duly executed by an authorized officer or representative of the Undersigned and such person is a legal officer or representative of the Undersigned and this Acceptance Agreement is enforceable in accordance with its terms.

E.If physical delivery of the Plan Warrant certificates is desired, please and return sign BOTH this Acceptance Agreement and also sign and return the “Election to Certificate Agreement, “ attached to the Plan Warrant Agreement as Exhibit F, along with a check for the certificate issue fee as set forth therein.

BY EXECUTION BELOW, THE UNDERSIGNED ACKNOWLEDGES THAT THEY HAVE RECEIVED EFFECTIVE DELIVERY OF THE PLAN WARRANTS. VISITALK CAPITAL CORPORATION AND EACH ISSUER IS RELYING UPON THE ACCURACY AND COMPLETENESS OF THE REPRESENTATIONS CONTAINED HEREIN IN COMPLYING WITH ITS OBLIGATIONS.

Warrant Holder Accepted and Agreed: WARRANT HOLDER **	Issuer Acceptance VISITALK CAPITAL CORPORATON, as an Issuer and as Implementation Agent for the other Issuers
Signatures (all record holders should sign)	By: Its:

** NOTE - If the Plan Warrants are being accepted by an “Entity”,

Warrant Holder must sign the Certificate of Authority on Exhibit B-2

17

EXHIBIT B-2

CERTIFICATE OF AUTHORIZATION

(to be completed if the Plan Warrants are being accepted by an “ Entity”)

I hereby certify that _________________________________________________________(“Entity”)

 (name of company, trust, partnership or other form of entity)

is a_______________organized and existing under and by virtue of the laws of the State of______________

(entity type)                 (state)

and its tax ID number is__________________________and it is currently in good standing and its charter

(federal tax ID or SS #)

in full force and effect. I further certify that the______________________and/or the___________________

(title)              (title)

are fully authorized and empowered to make , execute and deliver any and all written instruments necessary or

proper to effectuate the authority hereby conferred. I further certify that________________________now is

(name)

the______________________and __________________________is now the______________________.

(title)(name)(title)

I further certify that the officers set forth herein, or any one of them, are duly authorized by the Entity to execute and carry out the terms of the Warrant Acceptance and Effective Delivery Agreement and certify further that the Warrant Acceptance and Effective Delivery Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

Dated this____day of___________, 200__.
	Signature of certifying officer (Must not be signed by officer authorized to act)
	Title of certifying officer

18

EXHIBIT C

FORM OF CLAIM HOLDER OWNERSHIP SCHEDULE

The Plan Warrants specified below are only valid if the specific named Claim Holder named herein, or a proper assignee, has executed a Warrant Acceptance and Effective Delivery Agreement (“Acceptance Agreement”) prior to March 31, 2006 and such agreement has been received by Visitalk Capital Corporation as the agent of the Issuers no later than April 15, 2006.

Claim Holder:

______________________________________	Investment in Series A:	$________________
______________________________________	Investment in Series B:	$________________
______________________________________	Investment in Series C:	$________________
______________________________________	Investment in Series_____	$________________

Plan Allowed Claim:	$____________
Plan Class:	_____________

Issuers	Unit #	Warrant Units**
	___________	_____________________
Visitalk Capital Corporation	___________	_____________________
VT Billing Services, Inc.	___________	_____________________
VT Business Products, Inc.	___________	_____________________
VT Consumer Services, Inc.	___________	_____________________
VT Financial Services, Inc.	___________	_____________________
Dynamic Biometric Systems, Inc.	___________	_____________________
VT International Corp.	___________	_____________________
VT Marketing Services, Inc.	___________	_____________________
VT Video Services, Inc.	___________	_____________________
VT Arabic Services, Inc.	___________	_____________________
VT Chinese Services, Inc.	___________	_____________________
VT Dutch Services, Inc.	___________	_____________________
VT French Services, Inc.	___________	_____________________
VT German Services, Inc.	___________	_____________________
VT Hispanos Services, Inc.	___________	_____________________
VT Italian Services, Inc.	___________	_____________________
VT Japanese Services, Inc.	___________	______________________
VT Korean Services, Inc.	___________	_____________________
VT Portuguese Services, Inc.	___________	_____________________

** A Warrant Unit consists of consist of one A Warrant, one B Warrant, one C Warrant, one D Warrant, one E Warrant and one F Warrant.

19

EXHIBIT D

FORM OF WARRANT CERTIFICATE OR WARRANT UNIT CERTIFICATE

NAME OF ISSUER

Plan Warrants to Purchase __________ Shares	Warrant Series ___ - Number ____
Plan Warrant Expiration Date ______________	Per Warrant Exercise Price $_____.00

THIS IS TO CERTIFY that,________________________________________or registered assigns, is the registered holder (“Warrant Holder”) of the number of warrants (“Plan Warrants”) set forth above. Each Plan Warrant entitles the Warrant Holder to purchase, subject to the terms and conditions in this certificate and set forth in a warrant agreement effective September 17, 2004, (the “Plan Warrant Agreement”) which is hereby incorporated herein and made a part hereof, at any time on or after September 17, 2004, and at or prior to the close of business on the Expiration Date, but not thereafter, unless the Plan Warrant is earlier Called or the Plan Warrant Expiration Date is extended by the Issuer, one fully paid and non-assessable share of the Issuer’s common stock (“Share”), or equivalent security of any successor thereto, at a purchase price equal to the Exercise Price set forth above, as adjusted, in accordance with the Plan Warrant Agreement. Capitalized terms herein have the same meaning as in the Plan Warrant Agreement, which is controlling.

Upon (i) exercise and satisfaction of one or more conditions precedent set forth herein and in the Plan Warrant Agreement, (ii) presentation and surrender to the Issuer or the Warrant Agent, or its successor, a Warrant Certificate with a Subscription and Exercise Notice duly executed, and (iii) accompanied by payment of the purchase price in Good Funds payable to the order of the Issuer, the Warrant Holder will receive one or more certificates of Shares or equivalent securities so purchased. Issuance of fractional shares is governed by the Plan Warrant Agreement.

The Issuer covenants and agrees that all Shares delivered upon the exercise of these Plan Warrants will, upon delivery, be fully paid and non-assessable. The Plan Warrants shall not be exercisable in any jurisdiction where exercise would be unlawful. The Issuer shall not be required to honor the exercise of the Plan Warrants if, in the opinion of its Board of Directors, upon advice of counsel, the issuance of Shares upon exercise of the Plan Warrants would be unlawful. The number of Shares, or other equivalent equity security, issuable upon the exercise of these Plan Warrants and the Exercise Price shall be subject to adjustment from time to time, in certain events, as set forth in the Plan Warrant Agreement.

The Issuer agrees at all times to reserve or hold available, or cause to reserve or hold available, a sufficient number or Shares, or other equivalent equity security, to cover the number of Shares, or other equivalent equity security, issuable upon the exercise of these and all other Plan Warrants of like tenor then outstanding.

This Warrant Certificate does not entitle the Warrant Holder hereof, either at law or in equity, to any voting rights or other rights as a shareholder of the Issuer, or to any other rights whatsoever except the rights expressly herein set forth, and no dividend shall be payable or accrue in respect of these Plan Warrants or the interest represented hereby, or the Shares that may be purchased upon exercise hereof until or unless, and except to the extent that, these Plan Warrants shall be duly exercised.

20

This Warrant Certificate is exchangeable at any time prior to expiration upon the surrender hereof by the Warrant Holder to the Warrant Agent for one or more new Warrant Certificates of like tenor and date representing in the aggregate the right to purchase the number of Shares that may be purchased upon exercise hereof, each of the new Warrant Certificates to represent the right to purchase the number of Shares as may be designated by the Warrant Holder at the time of the surrender. Any issuance or transfer costs related to this Warrant Certificate shall be paid by the Warrant Holder.

The Issuer may deem and treat the Warrant Holder of this Warrant Certificate at any time as the absolute owner hereof and of the Plan Warrants covered hereby for all purposes and shall not be affected by any notice to the contrary.

The Plan Warrants evidenced by this Warrant Certificate are subject to the terms of the Plan Warrant Agreement which is available at the principal corporate office of the Warrant Agent or the Issuer. The Plan Warrant Agreement is incorporated herein by reference and made a part hereof and reference is hereby made to the Plan Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Warrant Agent, the Issuers and the Warrant Holders of the Plan Warrants.

If a Third Party Warrant Agent has been appointed, this Warrant Certificate shall not be valid or obligatory for any purpose unless countersigned by the Warrant Agent.

In Witness Whereof, the Issuer has caused this Warrant Certificate to be executed by its duly authorized officer, and the corporate seal hereunto affixed.

	ISSUER
Dated:____________________________________	By:
		President

By:
	Secretary

21

Exhibit D-1

ASSIGNMENT FORM

To assign this Plan Warrant or a Book Entry Plan Warrant, fill in the form below:

I or we assign and transfer___________________of my Plan Warrant rights under Warrant Series________(indicate A through F or U for unit) - Certificate or Book Entry No.________to: (must include Assignee’s Social Security or EIN No. below)

(“Assignee”) 

(Print or type assignee’s name

 (Print or type assignee’s address and zip code)

Federal Tax ID or Social Security Number(s):__________________________________

and irrevocably appoint____________________________________as agent to transfer this Plan Warrant on the books of the Issuers. The agent may substitute another to act for him.

I represent that the Assignee received and has agreed to be bound by all the terms of the Plan Warrant Agreement dated September 17, 2004 governing this Plan Warrant.

Date:_______________________	Signature:
		(Sign exactly as your name appears on the other side of this Warrant Certificate)

Signature Guarantee **: ________________________________________

By______________________________________________

** - The signature must be guaranteed by an eligible guarantor institution

(a bank, stockbroker, savings and loan association or credit union with

Membership in an approved signature guarantee medallion program)

pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934.

22

EXHIBIT E

FORM OF SUBSCRIPTION AND EXERCISE NOTICE

(To be completed and signed only upon an exercise of a Plan Warrant(s) in whole or in part)

ISSUER:

___________________________

___________________________

___________________________

Dear Sir or Madam:

A.Capitalized terms, unless defined herein, have the same meaning as defined in the warrant agreement effective September 17, 2004 (the “Plan Warrant Agreement”) or in the Second Joint Plan of Reorganization dated June 22, 2004, confirmed by the United States Bankruptcy Court for the District of Arizona related to Case No. 00-13035-PHX-RTB (the “Plan”) of visitalk.com, Inc. (“Visitalk”). The Undersigned represents that they have reviewed the Plan Warrant Agreement and the Plan and have had the opportunity to ask questions regarding their terms and restrictions.

B.The Undersigned,_______________________________________, the Warrant Holder of the attached Plan Warrant or Book Entry Plan Warrant designated as______________________, hereby irrevocably elects to exercise the purchase right represented by such Plan Warrants for, and to purchase from the Issuer,__________________ Shares, and herewith makes a payment of $_____________in Good Funds, as such terms are defined in the Plan Warrant Agreement,. (Payment = Plan Warrants exercised x Exercise Price).

C.Important Notice regarding Ownership Limitations. This Subscription and Exercise Notice is governed by Article V of the Plan Warrant Agreement and is a specific representation by the Undersigned that, after giving effect to this Exercise Notice, (i) the Warrant Holder and its Affiliates will not beneficially own in excess of 4.99% of the outstanding Shares of the Issuer and (ii) the Warrant Holder will not have acquired, through exercise of this Plan Warrant or otherwise, a number of Shares that, when added to the number of Shares beneficially owned by the Warrant Holder at the beginning of the 60-day period ending on and including the applicable date of exercise of these Plan Warrants, is in excess of 4.99% of the outstanding Shares of an Issuer.

D.The Undersigned hereby requests that the Certificate for the Shares be issued in the following name and delivered to the following address:_______________________________________ (Print or type name, address and zip code)

E.If this Subscription and Exercise Notice is for an exercise of the Plan Warrants to purchase fewer the maximum Shares to which the Undersigned is entitled under the Plan Warrants tendered, the Undersigned hereby requests that new Plan Warrants for the remaining Plan Warrants be issued in the following name and delivered to the following address:____________________________________(Print or type name, address and zip code)

F.This Subscription and Exercise Notice has been duly authorized by all necessary action on the part of the Undersigned and, if necessary, this Subscription and Exercise Notice has been duly executed by an authorized officer or representative of the Undersigned and such person is a legal officer or representative of the Undersigned and this Subscription and Exercise Notice is enforceable in accordance with its terms.

BY EXECUTION BELOW, THE UNDERSIGNED ACKNOWLEDGES THAT THE ISSUER IS RELYING UPON THE ACCURACY AND COMPLETENESS OF THE REPRESENTATIONS CONTAINED HEREIN IN COMPLYING WITH ITS OBLIGATIONS.

Warrant Holder Accepted and Agreed:	Issuer Acceptance
WARRANT HOLDER **
Signatures (all record holders should sign)	By:
	Its:

** NOTE - If the Plan Warrants are being accepted by an “Entity”,

Warrant Holder must sign the Certificate of Authorization on Exhibit E-2

23

EXHIBIT E-2

CERTIFICATE OF AUTHORIZATION

(to be completed if the Plan Warrants are being accepted by an “Entity”)

I hereby certify that _________________________________________________________(“Entity”)

 (name of company, trust, partnership or other form of entity)

is a_______________organized and existing under and by virtue of the laws of the State of______________

(entity type)                 (state)

and its tax ID number is__________________________and it is currently in good standing and its charter

(federal tax ID or SS #)

in full force and effect. I further certify that the______________________and/or the___________________

(title)              (title)

are fully authorized and empowered to make , execute and deliver any and all written instruments necessary or

proper to effectuate the authority hereby conferred. I further certify that________________________now is

(name)

the______________________and __________________________is now the______________________.

(title)(name)(title)

I further certify that the officers set forth herein, or any one of them, are duly authorized by the Entity to execute and carry out the terms of the Subscription and Exercise Notice and certify further that the Subscription and Exercise Notice has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

Dated this____day of___________, 200__.
	Signature of certifying officer (Must not be signed by officer authorized to act)
	Title of certifying officer

24

EXHIBIT F

FORM OF ELECTION TO CERTIFICATE AGREEMENT

Visitalk Capital Corporation

14647 S. 50th St., Suite 130

Phoenix, AZ 85044

Dear Sir or Madam:

A.Capitalized terms, unless defined herein, have the same meaning as defined in the warrant agreement effective September 17, 2004 (the “Plan Warrant Agreement”) or in the Second Joint Plan of Reorganization dated June 22, 2004, confirmed by the United States Bankruptcy Court for the District of Arizona related to Case No. 00-13035-PHX-RTB (the “Plan”) of visitalk.com, Inc. (“Visitalk”). The Undersigned represents that they have reviewed the Plan Warrant Agreement and the Plan and have had the opportunity to ask questions regarding their terms and restrictions.

B.The Undersigned, ____________________________________________, by executing this Election to Certificate Agreement, hereby elects to have all its Plan Warrants issued in certificated form. The Plan Warrants requested will be issued in Units consisting of one A Warrant, one B Warrant, one C Warrant, one D Warrant, one E Warrant and one F Warrant for each Issuer, in accordance with the Plan Warrant Agreement and as authorized under the Plan.

C.The Undersigned is enclosing a check for $285.00 (19 certificates x $15.00 per certificate issuance fee) payable to Visitalk Capital Corporation as the Implementation Agent for the Issuers.

D.The Undersigned understands and acknowledges that, by electing to receive physical delivery of the Plan Warrants:

a.the Undersigned waives any of the rights and benefits to having the Contingent Agent act for them pursuant to the Contingent Agent Agreement, and

b.transfer fees will be imposed upon any future transfers or changes in the Units. For example, if the Undersigned desires to exercise only the A Warrants, the Undersigned will have to submit the Unit certificate and pay a fee to issue a new Unit certificate.

E.This Election to Certificate Agreement has been duly authorized by all necessary action on the part of the Undersigned and, if necessary, this Election to Certificate Agreement has been duly executed by an authorized officer or representative of the Undersigned and such person is a legal officer or representative of the Undersigned and this Election to Certificate Agreement is enforceable in accordance with its terms.

BY EXECUTION BELOW, THE UNDERSIGNED ACKNOWLEDGES THAT VISITALK CAPITAL CORPORATION AND EACH ISSUER IS RELYING UPON THE ACCURACY AND COMPLETENESS OF THE REPRESENTATIONS CONTAINED HEREIN IN COMPLYING WITH ITS OBLIGATIONS.

Warrant Holder Accepted and Agreed:	Issuer Acceptance
WARRANT HOLDER **	VISITALK CAPITAL CORPORATON, as an Issuer and as Implementation Agent for the other Issuers
Signatures (all record holders should sign)	By:
	Its:

** NOTE - If the Plan Warrants are being accepted by an “Entity”,

Warrant Holder must sign the Certificate of Authorization on Exhibit F-2

25

EXHIBIT F-2

CERTIFICATE OF AUTHORIZATION

(to be completed if the Plan Warrants are being accepted by an “Entity”)

I hereby certify that _________________________________________________________(“Entity”)

 (name of company, trust, partnership or other form of entity)

is a_______________organized and existing under and by virtue of the laws of the State of______________

(entity type)                 (state)

and its tax ID number is__________________________and it is currently in good standing and its charter

(federal tax ID or SS #)

in full force and effect. I further certify that the______________________and/or the___________________

(title)              (title)

are fully authorized and empowered to make , execute and deliver any and all written instruments necessary or

proper to effectuate the authority hereby conferred. I further certify that________________________now is

(name)

the______________________and __________________________is now the______________________.

(title)(name)(title)

I further certify that the officers set forth herein, or any one of them, are duly authorized by the Entity to execute and carry out the terms of the Election to Certificate Agreement and certify further that the Election to Certificate Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

Dated this____day of___________, 200__.
	Signature of certifying officer (Must not be signed by officer authorized to act)
	Title of certifying officer

26

EXHIBIT G

FORM OF CONTINGENT AGENT AGREEMENT

This Contingent Agent Agreement (the “Agreement”) is made effective as of the day last executed by and among the Issuer (the “Issuer”) and an agent, (the “Contingent Agent”), whose name and address appear on the signature page hereto.

RECITALS

A.The Issuer, pursuant to the confirmed and effective Second Joint Plan of Reorganization dated June 22, 2004 filed with the United States Bankruptcy Court for the District of Arizona related to Case No. 00-13035-PHX-RTB (the “Plan”) of visitalk.com, Inc. and other Co-Proponents (jointly “Visitalk”), has issued certain warrants to various claimants under the Plan (the “Plan Warrants”) in accordance with the Plan and a warrant agreement effective September 17, 2004 (the “Plan Warrant Agreement”).

B.Capitalized terms, unless defined herein, have the same meaning as defined in the Plan Warrant Agreement or the Plan.

C.The Plan Warrants are all subject to redemption by the Issuer in its sole discretion and have a fixed Expiration Date that may be extended by the Issuer in its sole discretion.

D.The Plan Warrant Agreement authorizes the Issuer to, in its sole discretion; provide the registered warrant holders of the certain Plan Warrants (the “Warrant Holders”) with a Contingent Agent to act for such Warrant Holders to attempt to maximize the value of the Plan Warrants for such Warrant Holders under certain limited circumstances.

E.The Plan Warrant Agreement allows any Holder to elect in writing not to be bound by this Agreement so that any references to Warrant Holders herein only pertain to the Warrant Holders who have not elected out of this Agreement. The Plan Warrants of any Warrant Holder covered by this Agreement must have been exempt from registration under Section 1145 of the Bankruptcy Code by meeting such requirements.

AGREEMENTS

NOW, THEREFORE, in consideration of the above recitals, the following representations, warranties, covenants and conditions, and other good and valuable consideration, the receipt of which is acknowledged, the Parties agree as follows:

ARTICLE I

APPOINTMENT OF WARRANT HOLDER CONTINGENT AGENT

1.1Appointment. Subject to the limitations in this Agreement, the Issuer hereby appoints the Contingent Agent to perform limited services for the Warrant Holders.

27

Contingent Agent Agreement

1.2Qualifications. The Contingent Agent agrees to be bound by the terms of this Agreement, and this Agreement may be modified to clarify its intent and the duties and responsibilities of the Contingent Agent. The Contingent Agent must be a licensed broker-dealer.

1.3Resignation or Removal of the Contingent Agent. The Contingent Agent may resign its duties and be discharged from all further duties and liabilities hereunder after giving thirty (30) days notice in writing to the Issuer; provided that such shorter notice may be given, as such Issuer shall accept as sufficient. At any time, the Issuer, upon notice and with or without cause, may remove the Contingent Agent. In the event the office of the Contingent Agent shall become vacant by resignation or incapacity to act or otherwise, the Issuer may, but is not required to, appoint in writing a new Contingent Agent in place of the Contingent Agent vacating the office.

1.4Successor Contingent Agent. Upon appointment, which requires the execution of a form of this Agreement, any successor Contingent Agent shall be vested with the same powers, rights, duties, responsibilities and immunities as if such agent had been originally named as Contingent Agent. If for any reason it becomes necessary or expedient to execute any further assurance, conveyance, act or deed, the same shall be done at the expense of the Issuer. Subject to the foregoing provisions, any corporation into which any Contingent Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which any Contingent Agent is a party shall be the successor Contingent Agent under this Agreement without any further act. Hereinafter, any reference to the Contingent Agent shall apply to any properly elected successor Contingent Agent.

ARTICLE II

RIGHTS AND DUTIES OF THE CONTINGENT AGENT IN THE EVENT OF NON-EXERCISE

2.1General Duties. The Contingent Agent will act for the Warrant Holders to sell the Plan Warrants or the shares of common stock issued through the exercise of the Plan Warrants (the “Shares”) to attempt to maximize the value of the Expired Warrants, as defined in paragraph 2.2. The Contingent Agent’s decisions regarding negotiation of Share prices or Plan Warrant prices, in public or private sales, unless grossly negligent, are deemed to be reasonable. The Contingent Agent has the right but not the obligation to exercise the rights in this Article and the Contingent Agent’s good faith exercise of these rights shall be in its sole discretion.

2.2Contingent on the Expiration of Time to Exercise. In the event Plan Warrants expire due to either a redemption Call of any specific Series of Plan Warrants as provided in the Plan Warrant Agreement or upon occurrence of any Expiration Date (the “Expired Warrants”), the Warrant Holder and Issuer of each such Plan Warrant hereby grant the Contingent Agent special rights as provided in this Agreement to maximize the potential value of any such Expired Warrants but only after the date specified in the Redemption Notice or after the Expiration Date.

2.3Limited Extension of Exercise Date. Only if there is a Contingent Agent and only if the Expired Warrants are in Book Entry form, the Issuer will extend the period any Expired Warrants may be exercised for an additional thirty (30) days after the Redemption Date specified in the Redemption Notice or after the Expiration Date (the “Special Exercise Period”). Only during this Special Exercise Period, may the Contingent Agent exercise any amount of Expired Warrants as allowed under this Agreement, subject to the limitation in Article 3.2 below, and only for the benefit of all the Warrant Holders of all the Expired Warrants (the “Covered Holders”). The Contingent Agent may also sell any amount of the Expired Warrants for the benefit of all the Covered Holders and may assign the Special Exercise Period right to the buyer of any such Expired Warrants, subject to the limitation in Article 3.2 below. This grant of a Special Exercise Period to the Contingent Agent in no way grants any Warrant Holder additional time to exercise.

28

Contingent Agent Agreement

2.4Distribution of Proceeds from Sale or Exercise. In the event that the Contingent Agent exercises its rights under this Article, the Contingent Agent will accumulate the proceeds received from the sale of Expired Warrants or Shares in a specifically established trust account (the “Trust Account”) and will deduct the Fees and Expenses (as defined below) to derive the net proceeds (“Net Proceeds”). The beneficiaries of such Trust Account are the Warrant Holders of all the Expired Warrants. Within ten (10) business days of the expiration of the Special Exercise Period, the Contingent Agent shall distribute the Net Proceeds pro rata to all the Covered Holders. Payment of the Net Proceeds will be accompanied by a summary accounting of the receipts, expenses and fees. The distribution to any Covered Holder will equal the Net Proceeds multiplied by a fraction that equals the Expired Warrants the Covered Holder could have exercised prior to the Expiration Date divided by all Expired Warrants that could have been exercised by all Covered Holders prior to the Expiration Date.

2.5Contingent Agent’s Fees and Expenses. The Contingent Agent’s Fees and Expenses shall include (i) all reasonable expenses incident to the performance of or compliance with its obligations under this Agreement; (ii) all costs and expenses incurred by the Contingent Agent (including all transfer taxes, brokerage and other discounts and commissions and finders’ and similar fees payable in respect to the sales of the Expired Warrants or Shares issued upon the exercise of the Expired Warrants, and (iii) a Contingent Agent commission equal to a percentage of the gross sale proceeds as negotiated by the Issuer from time to time.

ARTICLE III

LIMITATION AND METHOD OF EXERCISE

3.1Method of Exercise. In the event the Contingent Agent elects to exercise Plan Warrants and sell the Shares so received, the Issuer and the Contingent Agent agree that the Contingent Agent can instruct the selling broker to remit the Exercise Price directly to the Issuer with the remaining proceeds being delivered to the Contingent Agent for deposit to the Trust Account. The Issuer agrees that in its sole discretion, upon the sale confirmation and upon coordination with any broker, the Issuer may cause the Shares to be delivered simultaneously with the receipt of the Exercise Price.

3.2Limitation on Ownership.

(a)Notwithstanding anything to the contrary contained herein, unless specifically waived and approved by the Issuer in writing, the number of Expired Warrants subject to this Agreement shall not be in excess of 4.99% of the outstanding shares of common stock of the Issuer. For purposes of this paragraph, the number of outstanding shares of common stock will be ascertained from the Issuer’s transfer agent as of the close of business of the Expiration Date of the subject Plan Warrants. The number of outstanding shares of common stock shall be determined after giving effect to the Shares not yet issued as a result of the exercise of Plan Warrants on or prior to the Expiration Date, including the exercise with respect to this determination.

29

Contingent Agent Agreement

(b)The Contingent Agent may transfer and assign its rights to any Expiring Warrants of the Issuer provided, however, that any such assignment shall require that all such obligations in the Plan Warrant Agreement regarding limitation of ownership are formally assumed by the assignee.

3.3Grant by the Warrant Holder of Limited power of attorney. The Contingent Agent shall be the sole attorney in fact of the Warrant Holders to exercise or sell any Expired Warrants held in the name of the Warrant Holder throughout the Special Exercise Period.

3.4Special accounts. The Contingent Agent has the right and authority to open a special brokerage account or other financial institution account to maintain the securities or proceeds and to facilitate transactions. Such accounts will be a fiduciary account for the Covered Holders.

ARTICLE IV

CONCERNING THE CONTINGENT AGENT

4.1     Actions by Contingent Agent. The Contingent Agent may, for the execution of the duties and in the execution of the powers conferred upon it, appoint or employ as agents or representatives or otherwise any solicitors, counsel, bankers, brokers, accountants, clerks or inspectors or other agents, and all reasonable expenses and disbursements made and incurred by the Contingent Agent in connection with the execution of its duties hereunder will be included as Fees and Expenses as provided in Section 2.5 above.

4.2     Exculpatory Provisions. In order to induce the Contingent Agent to act hereunder, the Issuer and each Warrant Holder, by not electing out of this Agreement, agree that:

(a)The Contingent Agent shall be entitled to take legal or other advice and employ such assistance as it may deem necessary to the proper discharge of its duties hereunder and to pay proper and reasonable compensation therefore and may in connection with any matter relating to this Agreement, act on the opinion or advice or information obtained from any attorney, auditor or other expert, whether obtained by the Contingent Agent, the Issuer or otherwise and shall not be responsible for any loss occasioned by acting thereon;

(b)Whenever in the administration of its duties under this Agreement, the Contingent Agent shall deem it necessary or desirable that any matter be provided or established by the Issuer prior to taking or suffering any action hereunder, such matter (unless other evidence is specifically prescribed) may be deemed to be conclusively proved and established by a certificate of an executive officer of the Issuer delivered to the Contingent Agent and such certificate shall be full justification and cause to the Contingent Agent for any action taken or suffered in good faith by it under the provisions of this Agreement; but in its discretion, the Contingent Agent may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as the Contingent Agent may deem reasonable;

30

Contingent Agent Agreement

(c)The Contingent Agent shall be liable hereunder only for its own negligence or willful misconduct;

(d)The Contingent Agent shall not be liable for or by reason of any of the statements of facts or recitals contained in this Agreement or in the Plan Warrant Agreement or be required to verify the same and all such statements and recitals are and shall be deemed to have been made by the Issuer only;

(e)The Contingent Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof or in respect of the validity of the execution or exercise of any Plan Warrant covered hereunder; nor shall the Contingent Agent be responsible for any breach by the Issuer of any covenant or condition contained in this Agreement or in any such Plan Warrant; nor shall the Contingent Agent by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares to be issued upon the right of purchase provided for in the Plan Warrant Agreement or in any Warrant or as to whether any shares will, when issued, be duly authorized or be validly issued and fully paid and non-assessable, it being hereby agreed and declared that as to all the matters and things referred to in this subparagraph the duty and responsibility shall rest upon the Issuer and not upon the Contingent Agent and the failure of the Issuer to discharge any such duty and responsibility shall not in any way render the Contingent Agent liable or place upon it any duty or responsibility for breach of which it would be liable;

(f)Except as in this Agreement expressly provided, the Contingent Agent acts hereunder solely for the benefit of the Warrant Holders and does not assume any fiduciary or other relationship or agency or trust for or with the Issuer. The duties and obligations of the Contingent Agent under this Agreement shall be determined solely by the provisions hereof, and no implied covenants or obligations shall be read into this Agreement against the Contingent Agent.

4.3     Indemnification. Provided the Contingent Agent carries out its duties, within its discretion as provided under this Agreement, the Issuer will indemnify and hold harmless the Contingent Agent from and against any claim, action or loss resulting from the performance of its duties hereunder.

4.4Modification of Agreement. The Contingent Agent may, without the consent or concurrence of the Warrant Holders by supplemental agreement or otherwise, concur with the Issuer in making any modifications or corrections to this Agreement as to which it shall have been advised by counsel (who may but need not also be counsel for the Issuer) that the same are not prejudicial to the rights of the Warrant Holders as indicated by the general sense or intent of the original language and are required for the purpose of curing or correcting the inconsistent provision or clerical omission or mistake or manifest error herein. The Issuer or the Contingent Agent may request a modification of the Agreement by a majority of the Warrant Holders, voting in person or by proxy.

31

Contingent Agent Agreement

ARTICLE V

MISCELLANEOUS

5.1Successors and Assigns. This Agreement shall be binding upon the heirs, successors and assigns of the Warrant Holders and the Issuers.

5.2Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision will not affect the validity or unenforceability of any remaining portion, which remaining portion will remain in force and effect as if this Agreement had been executed with the invalid portion eliminated and it is hereby declared the intention of the parties hereto that the parties would have executed the remaining portion of this Agreement without including therein any such part or portion which may, for any reason, be hereafter declared invalid or unenforceable.

5.3Reliance. The Contingent Agent may rely on facsimile or similar transmissions from the Warrant Holders as original signatures and representations of the Issuer as to the names, addresses and number of Plan Warrants of the Warrant Holders.

5.4Governing Law. This Agreement and shall be deemed to be a contract made under the laws of the state in which an Issuer is incorporated at such time as a dispute arises and, for all purposes except as superseded by the jurisdiction of the Bankruptcy Court, shall be construed in accordance with the laws of such State. Any disputes shall be governed by the Plan, the Bankruptcy Court, the orders of the Bankruptcy Court pertaining to the Plan and the Bankruptcy Code. Venue, if in state or federal court, shall be the most convenient state or federal court in relationship to the applicable Issuer’s head quarters.

5.5Construction. The parties hereto hereby acknowledge and agree that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be applied to the interpretation of this Agreement. No inference in favor of, or against, any party will be drawn from the fact that one party has drafted any portion hereof.

5.6Advice of Counsel. Each party hereby acknowledges that they are entitled to and have been afforded the opportunity to consult legal counsel of their choice regarding the terms and conditions and legal effects of this Agreement, as well as the advisability and propriety thereof. Each party hereby further acknowledges that having so consulted with legal counsel of their choosing or having chosen not to consult, hereby waives any right to such legal representation or effective representation and any right to raise or rely upon the lack of representation or effective representation in any future proceedings or in connection with any future claim.

5.7Complete Agreement; Amendment. This Agreement sets forth the entire understanding between the parties hereto and supersedes all prior agreements, arrangements and communications, whether oral or written, with respect to the subject matter hereof. No other agreements, representations, warranties or other matters, whether oral or written, shall be deemed to bind the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended except by the mutual written agreement of the parties.

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Contingent Agent Agreement

5.8Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof.

IN WITNESS WHEREOF, this Agreement has been executed as of the date last executed below.

ISSUER	CONTINGENT AGENT
By:	By:
Name: Its: Date:	Name: Its: Date: Address:

33

14647 South 50th Street, Suite 130

Phoenix, AZ 85044

Phone: 480-759-9400 ▪ Fax: 480-759-9401

www.visitalkcapital.com

Michael S. Williams President & Chief Portfolio Officer 480-759-9400 x100 mike.williams@visitalkcapital.com Lanny R. Lang Chief Financial Officer 480-759-9400 x101 Lanny.lang@visitalkcapital.com Ivan Teodorovic Investor Relations 480-759-9400 x1 Ivan.teodorovic@visitalkcapital.com

EX-10.2

FUQI INTERNATIONAL HOLDINGS COMPANY, LTD.

2006 EQUITY INCENTIVE PLAN

ARTICLE 1

PURPOSE

The purpose of this Plan is to promote the interests of Fuqi International Holdings Company, Ltd., a Nevada corporation (the “Company”) and to motivate, attract, and retain the services of persons upon whose judgment, efforts, and contributions the success of the Company’s business depends. The plan is further intended to align the personal interests of such persons with the interests of the shareholders of the Company through equity participation in the Company’s growth and success. Capitalized terms not otherwise defined in the text are defined in Article 2.

ARTICLE 2

DEFINITIONS

The following words and phrases shall have the following meanings for purposes of this Plan:

(a)“Award” means any Option, or any Restricted Stock Award or any other right or interest relating to Stock, cash or property, granted to a Participant under the Plan.

(b)“Award Agreement” means any written agreement, contract, or other instrument or document evidencing an Award.

(c)“Board of Directors” means the Board of Directors of the Company or, if the context so requires, a Committee thereof appointed pursuant to Article 6.

(d)“Cause” means (i) conviction of any crime involving fraud or gross misconduct, (ii) noncompliance with reasonable directives of the Board of Directors or its designees, (iii) violation of Company rules, policies or procedures or of the Plan or any applicable Award Agreement.

(e)“Code” means the Internal Revenue Code of 1986, as amended from time to time.

(f)“Committee” means the committee of the Board of Directors described in Article 6.

(g)“Disability” means the following: a Participant shall be disabled if he or she is unable to perform the duties of his customary position of employment by reason of any medically determinable physical or mental impairment which can be expected to result in death or which can be expected to last for a continuous period of not less than 12 months. The Board of Directors may require such medical or other evidence, as it deems necessary to judge the nature and permanency of the Participant’s condition.

SOP-1

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(h)“Effective Date” shall mean October __, 2006.

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

(j)“Fair Market Value” means with respect to Stock or any other property, the fair market value of such Stock or other property determined by the Board of Directors in good faith using such methods or procedures as may be established from time to time by the Board of Directors. Unless otherwise determined by the Board of Directors, the Fair Market Value of Stock as of any date shall be the mean between the bid and asked quotations for the Stock on that date as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or, if there are no bid or asked quotations on such date, the mean between the bid and asked quotations on the next preceding date for which quotations are available. If the Stock is subsequently listed and traded upon a recognized securities exchange or shall be quoted on a recognized national market system, the Fair Market Value shall be the closing price on such date or, if no closing price is so reported for that date, the closing price on the next preceding date for which a closing price was reported.

(k)“Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

(l)“Non-Qualified Stock Option” means an Option that is not intended to be an Incentive Stock Option.

(m)“Option” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

(n)“Participant” means a person who, as an employee, officer, director, consultant, independent contractor, or adviser of the Company or any Subsidiary, has been granted an Award under the Plan.

(o)“Plan” means Fuqi International Holdings Company, Ltd. 2006 Equity Incentive Plan, as amended from time to time.

(p)“Restricted Stock Award” means Stock granted to a Participant or offered for sale to a Participant under Article 8.

(q)“Retirement” means a Participant’s termination of employment with the Company after attaining any normal or early retirement age specified in any pension, profit sharing, or other retirement program sponsored by the Company, if any.

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

SOP-2

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(s)“Stock” means Common Stock of Fuqi International Holdings Company, Ltd., a Nevada corporation.

(t)“Subsidiary” means any corporation of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company.

(u)“Ten Percent Owner” means any individual who, at the date of grant of an Incentive Stock Option, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company or a Subsidiary. For purposes of determining such percentage, the individual with respect to whom such percentage is being determined shall be considered as owning the Stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries.

(v)“Termination Date” means the date on which the employment (or other service or relationship in the case of a Participant who is not an employee of the Company) of a Participant terminates for any reason or no reason.

(w)“Transfer Agent” means the Transfer Agent appointed by the Board of Directors which could include the Company acting as its own Transfer Agent.

ARTICLE 3

EFFECTIVE DATE AND TERM

3.1 Effective Date. The Plan was approved by the Board of Directors and stockholders of the Company as of the Effective Date.

3.2 Term. This Plan shall terminate on the tenth anniversary of the Effective Date, subject to Article 12.

ARTICLE 4

SHARES SUBJECT TO THE PLAN

4.1 Number of Shares. The aggregate number of shares of Stock reserved and available for Awards shall initially be three million (3,000,000) shares of Stock.

4.2 Lapsed Awards. To the extent that an Award terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan provided the Participant has not received any benefits of ownership of the Shares subject to the terminated expired or lapsed Award, in each case to the full extent available pursuant to the applicable rules and interpretations of the Exchange Act and Code.

SOP-3

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

4.3 Payments in Stock. Any shares of Stock tendered to or withheld by the Company in connection with payment for Stock purchased pursuant to the Plan or withholding taxes thereon shall be added back to the aggregate number of shares reserved and available for Awards under the Plan in each case to the fullest extent permitted under the applicable rules and interpretations of the Exchange Act and Code.

4.4 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock, or Stock purchased on the open market subject to applicable rules and interpretation of the Exchange Act.

ARTICLE 5

ELIGIBILITY

Awards may be granted only to an individual who is an employee (including an employee who also is a director or officer), officer, director, consultant, independent contractor, or adviser of the Company or a Subsidiary, as determined by the Board of Directors.

ARTICLE 6

ADMINISTRATION AND AUTHORITY

6.1 Administration. The Plan shall be administered by the Board of Directors or a Committee appointed by the Board of Directors to administer the Plan at any time or from time to time. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time, the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), appoint new members in substitution therefor, and fill vacancies however caused.

6.2 Authority. The Committee (or if authorized as Committee, the Board of Directors) has the exclusive power, authority, and discretion to:

(a)designate Participants;

(b)determine the type or types of Awards to be granted to each Participant;

(c)determine the number of Awards to be granted and the number of shares of Stock subject to an Award;

(d)prescribe the form of each Award Agreement, which need not be identical for each Participant;

(e)determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award and accelerations or waivers thereof, and any modification or amendment of any Award previously granted, based in each case on such considerations as the Board of Directors in its sole discretion determines;

SOP-4

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(f)determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(g)determine whether, to what extent, and under what circumstances cash, Stock, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Board of Directors;

(h)decide all other matters that must be determined in connection with an Award;

(i)establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(j)interpret the Plan, any Award, and any Award Agreement in its discretion; and

(k)make all other decisions and determinations that may be required under the Plan or as the Board of Directors deems necessary or advisable to administer the Plan.

6.3 Decisions Binding. All decisions, interpretations, and determinations by the Board of Directors with respect to the Plan, any Award, and any Award Agreement are final, binding, and conclusive on all parties.

ARTICLE 7

STOCK OPTIONS

7.1 Terms and Conditions. The Board of Directors is authorized to grant Options to Participants on the following terms and conditions:

(a)Exercise Price. The exercise price per share of Stock under an Option shall be determined by the Board of Directors.

(b)Payment. Payment for Stock issued upon exercise of an Option shall be made in accordance with Article 9 of the Plan.

(c)Time and Conditions of Exercise. The Board of Directors shall determine the time or times at which an Option may be exercised in whole or in part, provided that no Option may be exercisable prior to six months following the date of the grant of such Option if and to the extent such limitation is necessary or required under Rule 16b-3, or successor authority, under the Exchange Act.

SOP-5

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(d)Evidence of Option. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such provisions as may be specified by the Board of Directors.

7.2 Incentive Stock Options. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules:

(a)Employees Only. Incentive Stock Options may only be granted to employees (including officers and directors who are also employees) of the Company or a Subsidiary.

(b)Exercise Price. The exercise price per share of Stock shall be set by the Board of Directors, provided that the exercise price for any Incentive Stock Option may not be less than the Fair Market Value as of the date of the grant.

(c)Exercise. In no event may any Incentive Stock Option be exercisable for more than ten years from the date of its grant.

(d)Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by any one Participant in any calendar year may not exceed $100,000. Options granted in excess of this limitation shall be deemed to be Non-Qualified Stock Options.

(e)Ten Percent Owners. An Incentive Stock Option may be granted to a Ten Percent Owner, provided that at the time such option is granted the exercise price per share of Stock shall not be less than 110% of the Fair Market Value and such option by its terms is not exercisable after the expiration of five years from the date of its grant.

(f)Expiration of Incentive Stock Options. No Award of an Incentive Stock Option may be made pursuant to this Plan after the expiration of ten years from the Effective Date.

(g)Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.

(h)Tax-Qualified ISOP Options. All provisions of the Plan relating to Incentive Stock Options shall be administered and interpreted in accordance, and so as to comply, with the provisions of Section 422 of the Code.

7.3 Termination of Participant. Notwithstanding the exercise periods set forth in any Award Agreement, Options shall be subject to the following:

(a)An Option shall lapse ten years after it is granted, unless an earlier time is set in the Award Agreement.

(b)If a Participant’s employment is terminated due to Disability, Retirement, or for any other reason other than for Cause, such Participant may exercise his or her Incentive Stock Options only to the extent that such Incentive Stock Options would have been exercisable on the Termination Date; provided, that such exercise is made prior to the earlier of (i) the expiration of three months (one year in the case of Disability) after the Termination Date or (ii) the expiration date of the Option set forth in the Award Agreement. If a Participant’s employment is terminated due to Cause, the Participant’s Incentive Stock Options shall automatically lapse and not be exercisable by the Participant, whether or not such Options were vested.

SOP-6

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(c)Except as otherwise provided in the Award Agreement or thereafter determined by the Board of Directors in writing, if a Participant’s employment, contractual or other relationship with the Company is terminated due to Disability, Retirement, or for any other reason other than for Cause, such Participant may exercise his or her Non-Qualified Stock Options, only to the extent that such Options would have been exercisable on the Termination Date; provided, that such exercise is made within six months after the Termination Date, or such other time period as set forth in the Award Agreement. If a Participant’s employment, contractual or other relationship is terminated due to Cause, the Participant’s Non-Qualified Stock Options shall automatically lapse and not be exercisable by the Participant, whether or not such Options were vested.

(d)If a Participant dies before his or her Options lapse pursuant to this Section, then the Participant’s Options may be exercised, only to the extent that such Options would have been exercisable on the date of the Participant’s death; provided, that such exercise is made prior to the earlier of (i) the first anniversary of such Participant’s death or (ii) the expiration date of the Option set forth in the Award Agreement. Upon the Participant’s death, any exercisable Options may be exercised by the Participant’s legal representative or representatives.

ARTICLE 8

RESTRICTED STOCK AWARDS

8.1 Restricted Stock Awards. The Board of Directors is authorized to make Awards of Restricted Stock to Participants either in the form of a grant of Stock or an offer to sell Stock to a Participant, in such amounts and subject to such terms, conditions and restrictions as may be selected by the Board of Directors. All Awards of Restricted Stock shall be evidenced by an Award Agreement. An Award Agreement may specify whether, and to what extent, holders of Restricted Stock Awards shall have voting, dividend and other rights of holders of Stock.

8.2 Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions, including without limitation “vesting” or forfeiture restrictions, as the Board of Directors may impose. These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Board of Directors determines at the time of the grant of the Award or thereafter.

8.3 Forfeiture. Except as otherwise determined by the Board of Directors at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided, however, that the Board of Directors may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in specified circumstances, and the Board of Directors may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.

SOP-7

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

8.4 Payment and Certificates for Restricted Stock. If a Restricted Stock Award provides for the purchase of Stock by a Participant, payment shall be made pursuant to Article 9 of the Plan. Restricted Stock granted under the Plan may be evidenced in such manner as the Board of Directors shall determine. To the extent that an Award is granted in the form of newly issued Restricted Stock, the Award recipient, as a condition to the grant of such an Award, shall be required to pay to the Company in cash, cash equivalents or other legal consideration an amount equal to the par value of such Restricted Stock. To the extent that an Award is granted in the form of Restricted Stock from the Company’s treasury, no such cash consideration shall be required of the Award recipients. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate until such time as all applicable restrictions lapse.

ARTICLE 9

PAYMENT FOR STOCK PURCHASES;

WITHHOLDING TAXES; RELOAD OPTIONS

9.1 Payment. Payment for Stock purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Board of Directors in an Award Agreement or otherwise in writing and where permitted by law:

(a)by cancellation of indebtedness of the Company to the Participant;

(b)by surrender of (or attestation to the ownership of) Stock valued at Fair Market Value on the date new Stock is purchased under the Plan; provided, however, that such surrender or attestation shall not be permitted if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Award for financial reporting purposes;

(c)by waiver of compensation due or accrued to Participant for services rendered;

(d)by tender of property acceptable to the Board of Directors;

(e)with respect only to purchases upon exercise of an Option, and provided that a public market for the Stock then exists:

(i)through a “same day sale” commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (a “NASD Dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Stock so purchased to pay for the exercise price (and any applicable withholding taxes), and whereby the NASD Dealer irrevocably commits upon receipt of such Stock to forward the exercise price and any such withholding taxes directly to the Company’s Transfer Agent;

SOP-8

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

(ii)through a “margin” commitment from Participant and a NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Stock so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price (and any applicable withholding taxes), and whereby the NASD Dealer irrevocably commits upon receipt of such Stock to forward the exercise price and any such withholding taxes directly to the Company’s Transfer Agent; or

(iii)through any other “cashless exercise” procedure approved by the Board of Directors; or

(iv)by any combination of the foregoing, or any other method of payment acceptable to the Board of Directors in its sole discretion.

9.2 Loan Guarantees. The Board of Directors may, in its discretion, help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant.

9.3 Tax Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of this Plan. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. With respect to withholding required upon any taxable event relating to the issuance of Stock under the Plan, Participants may elect (the “Election”), on or prior to the date of such taxable event, to satisfy the withholding requirement, in whole or in part, by having the Company or any Subsidiary withhold shares of Stock having a Fair Market Value on the date of withholding equal to the amount to be withheld for tax purposes. The Board of Directors may disapprove any Election or may suspend or terminate the right to make Elections. An Election is irrevocable. The Board of Directors may, at the time any Award is granted, require that any and all applicable tax withholding requirements be satisfied by the withholding of shares of Stock as set forth above.

9.4 Reload Options. Award Agreements may contain a provision pursuant to which a Participant who pays all or a portion of the exercise price of an Option or the tax required to be withheld pursuant to an exercise of an Option by surrendering shares of Stock pursuant to Sections 9.1 or 9.3, respectively, shall be automatically granted an Option for the purchase of Stock equal to the number of shares surrendered (a “Reload Option”). The grant of the Reload Option shall be effective on the date the Participant surrenders the shares of Stock in respect of which the Reload Option is granted (the “Reload Date”). The Reload Option shall have an exercise price equal to the Fair Market Value of the Stock on the Reload Date, and shall have a term which is no longer, and which shall lapse no later, than the original term of the underlying option. If Stock otherwise available under an Incentive Stock Option is withheld pursuant to Section 9.3, any Reload Option granted in connection with the withholding shall be treated as a new Incentive Stock Option, subject to the rules set forth in Section 7.2.

SOP-9

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

ARTICLE 10

PROVISIONS APPLICABLE TO AWARDS

10.1 Stand Alone, Tandem, and Substitute Awards. Awards granted under the Plan may, in the discretion of the Board of Directors, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

10.2 Modification or Assumption of Awards. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Awards or may accept the cancellation of outstanding Awards (whether granted by the Company or by another issuer) in return for the grant of new Awards for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Award shall, without the consent of the Participant, alter or impair his or her rights or obligations under such Award.

10.3 Exchange Provisions. The Board of Directors may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award, based on the terms and conditions the Board of Directors determines and communicates to the Participant at the time the offer is made.

10.4 Term of Award. The term of each Award shall be for the period as determined by the Board of Directors, provided that in no event shall the term of any Incentive Stock Option exceed a period of ten years from the date of its grant.

10.5 Form of Payment for Awards. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Company or a Subsidiary on the grant or exercise of an Award may be made in such forms as the Board of Directors determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Board of Directors.

10.6 Limits on Transfer. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided below, no Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a “domestic relations order” as defined in the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. In the Award Agreement for any Award other than an Award that includes an Incentive Stock Option, the Board of Directors may allow a Participant to assign or otherwise transfer all or a portion of the rights represented by the Award to specified individuals or classes of individuals, or to a trust benefiting such individuals or classes of individuals, subject to such restrictions, limitations, or conditions as the Board of Directors deems appropriate. At the discretion of the Board of Directors, the Company may reserve to itself or its assignees in any Award a right of first refusal to purchase any Stock which a Participant may propose to transfer to a third party and/or a right to repurchase any and all Stock held by a Participant upon the Participant’s termination of employment or other relationship with the Company or its Parent or Subsidiary for any reason, including Death or Disability, at a price for such Stock as determined by the Board of Directors.

SOP-10

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

10.7 Lock-up Agreement. In addition to any other restrictions on transfer, a Participant shall not, without the prior written consent of the Board of Directors in its discretion, offer or sell any Stock acquired pursuant to the Plan for at least 180 days after the closing of the initial public offering of securities of the Company registered under the Securities Act, or in the event that subsequent to such initial public offering the Stock is not listed and traded upon a recognized securities exchange or quoted on a recognized national market system, the closing of each offering of securities of the Company registered under the Securities Act subsequent to such initial public offering through and including the offering after which the Stock is listed and traded upon such exchange or system.

10.8 Stock Certificates. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Board of Directors deems necessary or advisable to comply with federal or state securities laws, rules, and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Board of Directors may place legends on any Stock certificate to reference restrictions applicable to the Stock.

ARTICLE 11

CHANGES IN CAPITAL STRUCTURE

11.1 General; Adjustments. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Stock, a declaration of a dividend payable in a form other than Stock in an amount that has a material effect on the price of the Stock, a combination or consolidation of the outstanding Stock (by classification or otherwise) into a lesser number of shares of Stock, a recapitalization, a spin-off or a similar occurrence, the Board of Directors shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of (a) the number of shares of Stock available for future Awards under Article 4, (b) the limitations set forth in Article 4, (c) the number and kind of shares of Stock covered by each outstanding Award or (d) the exercise price under each outstanding Option and other Award in the nature of rights that may be exercised. Except as provided in this Article 11, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.

SOP-11

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

11.2 Dissolution or Liquidation. To the extent not previously exercised, Awards shall terminate immediately prior to the dissolution or liquidation of the Company.

11.3 Reorganizations. In the event that the Company is a party to a merger, consolidation or other reorganization, outstanding Awards shall be subject to the agreement of merger, consolidation or reorganization. The Board of Directors may cause such agreement to provide, without limitation, (a) for the continuation of outstanding Awards by the Company (if the Company is a surviving corporation), (b) for their assumption by the surviving corporation or its parent or subsidiary, (c) for the substitution by the surviving corporation or its parent or subsidiary of its own awards for such Awards, (d) for accelerated vesting, accelerated expiration and/or lapse of restrictions, or (e) for settlement in cash or cash equivalents. If the Board of Directors does not cause such agreement to provide for one of the alternatives in (a), (b), (c), (d) or (e) above, then all outstanding Options and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on other Awards shall lapse, upon the effectiveness of the transactions contemplated by such agreement.

ARTICLE 12

AMENDMENT, MODIFICATION, AND TERMINATION

12.1 General. With the approval of the Board of Directors, at any time and from time to time, the Board of Directors may terminate, amend, or modify the Plan. An amendment or modification of the Plan shall be subject to the approval of the shareholders of the Company only to the extent required by applicable laws, regulations and rules.

12.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant.

ARTICLE 13

GENERAL PROVISIONS

13.1 No Rights to Awards. No Participant or employee shall have any claim to be granted any Award under the Plan, and neither the Company nor the Board of Directors is obligated to treat Participants and employees uniformly.

13.2 No Stockholder Rights. No Award gives the Participant any of the rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award.

13.3 No Right to Employment. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the “at will” nature of any Participant’s employment or other relationship with the Company or any Subsidiary, nor confer upon any Participant any right to continue in the employment or any other relationship of the Company or any Subsidiary, and the Company and each Subsidiary reserve the right to terminate any Participant’s employment or other relationship at any time.

SOP-12

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

13.4 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.

13.5 Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary.

13.6 Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.

13.7 Titles and Headings. The titles and headings of the Articles and Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

13.8 Fractional Shares. No fractional shares of stock shall be issued and the Board of Directors shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up to the next whole number of shares.

13.9 Securities Law Compliance. With respect to any person who is, on the relevant date, obligated to file reports under Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Section 16 or its successors under the Exchange Act. To the extent any provision of the Plan or any Award Agreement or any action by the Board of Directors fails to so comply, it shall be void to the extent required by law and voidable as deemed advisable by the Board of Directors.

13.10 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the Securities Act, any of the shares of Stock paid under the Plan. If the shares of Stock paid under the Plan may in certain circumstances be exempt from registration under the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.

13.11 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Arizona.

SOP-13

Fuqi International Holdings Company, Ltd.

2006 EQUITY INCENTIVE PLAN 

13.12Nonexclusivity of the Plan. Neither the adoption of the Plan nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board of Directors to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or individuals) as the Board of Directors in its discretion determines desirable, including, without limitation, the granting of stock options or other rights otherwise than under the Plan.

DATED: October 31, 2006

BY:

Lanny R. Lang, Secretary

SOP-14

EX-10.3

Property Lease Agreement

Landlord (Party A): Shenzhen Jin Tong Hai Enterprises Ltd.

Address:

Postal Code:

Authorized Agent: Chen Xue Feng

Address:

Postal Code:

Tenant (Party B): Shenzhen Fuqi Jewelry Co., Ltd.

Address:

Postal Code:

Business License No.:

Authorized Agent:

Address:

Postal Code:

Governing by the “Contract Laws of Peoples’ Republic of China” ,“Municipal Property Management Regulation of Peoples’ Republic of China”, “Lease Property Rules of Shenzhen Special Economic Zone” and other relevant executive rulings, Party A and Party B have mutually negotiated and entered into this agreement:

1.   Party A leases the property located at 4/F., Block One, Shi Hua Industrial Park, Luo Hu District (the “Property”) to Party B. Area of Property is 3,000 squared meters in a six storey building.

Beneficiary of Property: Shenzhen Jin Tong Hai Enterprises Ltd.;

Property Ownership Certificate number or other title documents reference: (2003) [Chinese character] 177;

2.   Property lease rental is calculated on a monthly unit rate of the RMB Yuan 25 per squared meter (said Twenty-Five Yuan) at a total of RMB Yuan 75,000 per month (said Seventy-Five Thousand Yuan).

3.   Party B should pay the rental for the first month of RMB Yuan 75,000 (said Seventy-Five Thousand Yuan) on or before May 12, 2005.

4.   Party should pay the lease rental to Party A on or before the 3^rd day each month. And Party A should issue a tax receipt for the rental received.

5.   Lease term: From July 1, 2005 to June 30, 2010.

The term could not exceed the term of Land Use Right and any period beyond the Right is void. Both parties could mutually agree on the possible damage and loss for the void term. If there is not a mutual agreement, Party A is liable for all damages and losses arising from the void term.

6.   The legislated scope of property usage of the Property is Plant and Office. If Party B needs to change the property usage, Party B must notify Party A in written form and must seek the approval of the change from relevant regulatory bodies.

7.   Party A must make the Property available for Party B on or before May 25, 2005 with proper handover procedures.

If Party A could not make the Property available to Party B on the abovementioned date, Party B is entitled to deferred the term of this Agreement accordingly and both parties must duly signed and registered with relevant regulatory bodies the deferral.

8.   At the time of handover, both parties must confirm the conditions and fixtures of the Property and attach such a confirmation as the supplement of this Agreement.

9.   At the time of handover, Party A would receive a rental deposit not exceeding the amount of rental for three months, which is amounting to RMB Yuan 150,000 (said One Hundred and Fifty Thousand Yuan).

Party A should issue a receipt upon the payment of the deposit.

The conditions for returning the deposit:

a.   The Property is in a good condition without any damage.

b.   The Property is not sub-leased to a third party.

c.   No breach of any terms in this Agreement.

If the following conditions may appear, Party A has the right to hold the deposit for damages:

a.   Major damage to the Property.

b.   Sub-leased the Property to a third party without the consent of Party A.

c.   Modify the structure of the Property without the consent of Party A.

10.   During the period of lease term, Party should pay all taxes, levies arising from the lease and lease management fees; Party B should pay all utilities, cleaning, property management fees and relevant expenditures arising from the use of the Property.

11.   Party A guarantee the Property and its facilities can serve the purpose of this Agreement and guarantee the safety of Property structure is in compliance with all relevant laws, regulations and rulings.

Party B could claim for damages arising from the breach of this provision by Party A.

12.   Party B must properly use the Property and must not conduct any criminal activities in the Property. Party A should not interfere the activities in the Property if Party B makes use of the Property in proper and legal manner.

13.   If, during the lease term and not by the fault of Party B, the Property may exist any damage which may affect the safety of the structure, Party B should notify Party A; and Party A must repair or authorize Party B to repair such damage without 5 (Five) days. If Party B has difficulty to notify Party A or Party A does not respond the notification of Party B, Party B may repair such damage on behalf of Party A by notifying relevant regulatory bodies.

In case of emergency, Party B may repair such damage immediately and notify Party A in reasonable time.

All reasonable costs related to the repairs by Party B should be reimbursed by Party A. In Party B does not repair such damage under emergency conditions and does notify Party A in time to repair such damage, Party B must be responsible for all extra repairing costs.

14.   If the cause of a structural damage is identified as the misuse of the Property by Party B, Party B must notify Party A in time and Party B is responsible for all repairing costs.

15.   If, during the term of the lease, either party may need to alter the structure of the Property, a separate agreement must be signed by both parties. And the modification is subject to the approval of relevant regulatory bodies.

16.   During the term of this lease, Party B may sublease all or part of the Property to a third party with written consent of Party A and proper registration to relevant regulatory bodies. The sublease term could not exceed the term of this lease.

17.   During the term of this lease, if Party A will transfer the whole or partial title of the Property, Party A should notify Party B in writing before one month of the transfer. With the same consideration, Party B has the first right to purchase the whole or partial of the Property.

If the Property is sold to a third party, Party A must notify the purchaser this lease must be continuously executed until the end of the lease term.

18.   During the term of this Agreement, this Agreement can be terminated under the following conditions:

a.   Force Majeure Events.

b.   Acts of governments

c.   Mutual agreement.

19.   Under the following conditions, Part A may claim damages, hold the rental deposit and receive a penalty of RMB Yuan 75,000 (said Seventy-Five Thousand Yuan) from Party B:

a. Monthly rental payment is overdue over 10 (Ten) days.

b. Party B conduct illegal acts in the Property.

c. Party B alters the structure and usage of the Property.

d. Party B breaches the provision under clause 14 of this Agreement.

e. Party B renovates the Property without the consent of Party A and approval from relevant regulatory bodies.

f. Party B subleases the Property to a third party without the consent of Party A.

Party A reserves the right to terminate or amend the conditions and provision of this Agreement if Party B violates any one of the above provision.

20.   Under the following conditions, Part B may claim damages, receive a penalty of RMB Yuan 75,000 (said Seventy-Five Thousand Yuan) from Party A:

a.   Party A delay the handover of the Property more than 10 (Ten) days.

b.   Party A breaches the provision in clause 13 of this Agreement.

c.   Without the consent of Party B and approval from relevant regulatory bodies, Party A alter the structure of the Property.

Party B reserves the right to terminate or amend the conditions and provision of this Agreement if Party A violates any one of the above provision.

During the period starting from Party B is notified for a compensation of damage to the time of receipt of such compensation, Party B do not need to pay any rental under this Agreement.

21.   Upon the expiry of this Agreement, Party B should remove from the Property within 5 (Five) days and resume the Property to the condition at the time handover. Party B should execute proper procedure to handover the Property to Party A.

22.   If Party B will extend this Agreement, Party B should notify Party A the request 3 (Three) months before the end of lease term. With the same terms from a third party, Party B has the first right to extend the lease. The new agreement should be registered with relevant regulatory bodies.

23.   Both parties agree to comply with provisions and conditions in this Agreement and agree to compensate the other party in case of breach.

24.   Both parties agree to supplement if there are provisions and conditions not covered in this Agreement.

25.   If a dispute or claim shall arise with respect to any of the terms or provisions of this Agreement, or with respect to the performance by any of the parties under this Agreement, then the parties agree to submit the dispute to binding and non-appealable arbitration in a venue located in Shenzhen, China in accordance with the rules of the American Arbitration Association (“AAA”). Any award rendered in arbitration may be enforced in any court of competent jurisdiction

26.   This Agreement is effective immediately upon signature by both parties. Each party shall register this Agreement with 10 (Ten) days to relevant governing regulatory bodies.

27.   The final interpretation of provisions and conditions of this Agreement is based on Chinese version.

28.   There are four copies of this Agreement. Party A and Party B will each hold 1 (One) copy and register 1 (One) to each governing regulatory bodies.

29.   Others:

1.   Party A cannot off set any of the rental deposit against any outstanding rental payments. Party B will wire the first month rental to Party A’s account on July 1, 2005.

2.   If Party B agrees to extend the lease upon expiry, Party A agrees to increase the rental for 5% per annum only.

3.   Party A has the responsibility to handle all property affairs with the property management office.

Signatures:

Party A:

(by authorized agent)

Party B:

(authorized signature)

Government Registry:

Date this: May 8, 2005

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

Subsidiary Name	Place of Incorporation
Fuqi International Holdings Co., Ltd.	British Virgin Islands
Shenzhen Fuqi Jewelry Co., Ltd.	People's Republic of China.

EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this Form 10 of Fuqi International, Inc. of our report dated May 2, 2006, except for Note 9 and the 1^st paragraph of Note 12, as to which the date is July 5, 2006, and the 2^nd paragraph of Note 12 as to which the date is May 17, 2006, on the consolidated financial statements of Fuqi International, Inc. contained in the Form 10.

/s/ Stonefield Josephson, Inc.

CERTIFIED PUBLIC ACCOUNTANTS

Central, Hong Kong

December 29, 2006