| x | ANNUAL REPORT      UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF      1934 |
|---|----------------------------------------------------------------------------------------------|

| o | TRANSITION REPORT UNDER SECTION 13      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934 |
|---|------------------------------------------------------------------------------------------|

| American Dairy,      Inc.                                      |
|----------------------------------------------------------------|
| (Exact      name of registrant as specified in its    charter) |

| Utah                                                                          | 90-0208758                                          |
|-------------------------------------------------------------------------------|-----------------------------------------------------|
| (State      or other jurisdiction of Incorporation      or organization) | (I.R.S.      Employer Identification      No.) |

| Star      City International Building, 10 Jiuqianxiao Road, C-16th Floor |
|-------------------------------------------------------------------------------|
| Chaoyang      District, Beijing, China 100016                                 |
| (Address      of principal executiveoffices)                                  |

|   | Title      of each class | Name      of each exchange on which registered |
|--------|--------------------------|------------------------------------------------|
|   | Common      Stock        | NYSE      Arca                                 |

| Large accelerated filer o  | Accelerated filer      x  | Non-accelerated filer o    | Smaller Reporting Company o |
|--------------------------------------|--------------------------------|-------------------------------------------|-----------------------------|

----

| PART      I   |                                                                                                                                             |   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item      1.  | Business                                                                                                                                         | 1      |
| Item      1A. | Risk      Factors                                                                                                                                | 11     |
| Item      1B. | Unresolved      Staff Comments                                                                                                                   | 23     |
| Item      2.  | Properties                                                                                                                                       | 23     |
| Item      3.  | Legal      Proceedings                                                                                                                           | 23     |
| Item      4.  | Submission of      Matters to a Vote of Security Holders                                                                                         | 23     |
|          |                                                                                                                                             |   |
| PART      II  |                                                                                                                                             |   |
| Item      5.  | Market      for the Registrant’s Common Stock, Related      Stockholder      Matters and      Issuer Repurchases of Equity Securities | 24     |
| Item      6.  | Selected      Financial Data                                                                                                                     | 28     |
| Item      7.  | Management’s Discussion and Analysis of      Financial Condition and Results of Operations                                                 | 29     |
| Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                                                                                  | 44     |
| Item      8.  | Financial      Statements and Supplementary Data                                                                                                 | 44     |
| Item      9.  | Changes in and      Disagreements with Accountants on Accounting and Financial      Disclosure                                                   | 47     |
| Item      9A. | Controls and      Procedures                                                                                                                     | 47     |
| Item      9B  | Other      Information                                                                                                                           | 49     |
|          |                                                                                                                                             |   |
| PART      III |                                                                                                                                             |   |
| Item      10. | Directors,      Executive Officers and Corporate Governance                                                                                      | 50     |
| Item      11. | Executive      Compensation                                                                                                                      | 52     |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                                         | 58     |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                                                              | 59     |
| Item      14. | Principal      Accountant Fees and Services                                                                                                      | 60     |
|          |                                                                                                                                             |   |
| PART IV       |                                                                                                                                             |   |
| Item      15. | Exhibits and      Financial Statement Schedules                                                                                                  | 61     |

----

----

|  ·         | Heilongjiang Feihe Dairy Co.,      Limited, or Feihe Dairy, which produces, packages and distributes milk      powder and other dairy products;   |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                                                   |
|        ·   | Gannan Flying Crane Dairy Products      Co., Limited, or Gannan Feihe, which produces milk      products;                                         |
|                           |                                                                                                                                                   |
|        ·   | Langfang Flying Crane Dairy      Products Co., Limited, or Langfang Feihe, which packages and distributes      finished products;                 |
|                           |                                                                                                                                                   |
| ·               | Shanxi      Feihesantai Biotechnology Scientific and Commercial Co., Limited, or      Shanxi Feihe, which produces walnut and soybean  products;  |
|                           |                                                                                                                                                   |
| ·               | Baiquan Feihe Dairy Co., Limited,      or Baiquan Dairy, which produces milk  products;                                                                |

| ·   | Heilongjiang Feihe Kedong Feedlots      Co., Limited, or Kedong Farms, which operates dairy farms the construction      of which is partially complete;  and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Heilongjiang Feihe Gannan Feedlots      Co., Limited, or Gannan Farms, which operates dairy farms the construction of which is      partially complete. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|               |   | 2007                   |   |   | 2006                |   |    | 2007 over    2006 |   |
|--------------------|--------|------------------------|--------|--------|---------------------|--------|---------|-------------------|--------|
| Productname        |   | Quantity(Kg’000) |   |   | Amount($’000) |   |    | % of Sales        |   |   | Quantity(Kg’000) |   |   | Amount($’000) |   |   | % of Sales |   |   | Quantity(Kg’000) |   |   | Amount($’000) |   |   | % of Sales |   |
|               |   |                   |   |   |                |   |    |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Milk powder        |   |                   | 17,438 |   |                |   | 120,418 |              |   |   | 72.6 |   |   |   | 22,135 |   |   |   | 101,502 |   |   |   | 88.2 |   |   |   | (4,697 | ) |   |   | 18,916 |   |   |   | 18.6 |   |
| Raw milk powder    |   |                   | 12,899 |   |                |   | 35,566  |              |   |   | 21.4 |   |   |   | 2,286 |   |   |   | 5,187 |   |   |   | 4.5 |   |   |   | 10,613 |   |   |   | 30,379 |   |   |   | 585.7 |   |
| Soybean    powder  |   |                   | 1,785  |   |                |   | 3,253   |              |   |   | 2.0 |   |   |   | 2,094 |   |   |   | 3,529 |   |   |   | 3.1 |   |   |   | (309 | ) |   |   | (276 | ) |   |   | (7.8 | ) |
| Rice cereal        |   |                   | 1,292  |   |                |   | 5,332   |              |   |   | 3.2 |   |   |   | 914 |   |   |   | 3,159 |   |   |   | 2.7 |   |   |   | 378 |   |   |   | 2,173 |   |   |   | 68.8 |   |
| Walnut    products |   |                   | 241    |   |                |   | 1,212   |              |   |   | 0.7 |   |   |   | 312 |   |   |   | 1,509 |   |   |   | 1.3 |   |   |   | (71 | ) |   |   | (297 | ) |   |   | (19.7 | ) |
| Other              |   |                   | 97     |   |                |   | 187     |              |   |   | 0.1 |   |   |   | 225 |   |   |   | 196 |   |   |   | 0.2 |   |   |   | (128 | ) |   |   | (9 | ) |   |   | (4.6 | ) |
| Total         |   |                   | 33,752 |   |                |   | 165,968 |              |   |   | 100 |   |   |   | 27,966 |   |   |   | 115,082 |   |   |   | 100 |   |   |   | 5,786 |   |   |   | 50,886 |   |   |   | 44.2 |   |

----

----

----

| Facility          |   |   | Province/ Region |   |   | Products                                              |   |   | Production Capacity                |   |   | Packaging Capacity      (tons/year) |   |
|-------------------|--------|--------|------------------|--------|--------|-------------------------------------------------------|--------|--------|------------------------------------|--------|--------|-------------------------------------|--------|
| Feihe Dairy       |   |   | Heilongjiang     |   |   | Infant milk      formula                              |   |   | 550    (tons/day)                  |   |   |                                | 22,000 |   |
| GannanFeihe       |   |   | Heilongjiang     |   |   | Infant milk      formula                              |   |   | 300    (tons/day)                  |   |   |                                | N/A    |   |
| Langfang    Feihe |   |   | Hebei            |   |   | N/A                                                   |   |   | N/A                                |   |   |                                | 50,000 |   |
| ShanxiFeihe       |   |   | Shanxi           |   |   | Walnut powder;Walnut oil;Soybean    powder            |   |   | 5,000 (tons/year)1,000 (tons/year) |   |   |                                | N/A    |   |
| Baiquan    Dairy  |   |   | Heilongjiang     |   |   | Infant milk      formula                              |   |   | 100    (tons/day)                  |   |   |                                | N/A    |   |
| Qiqihaer    Feihe |   |   | Heilongjiang     |   |   | Infant milk formula and Adult milk      powder;Butter |   |   | 270 (tons/day)15    (tons/day)     |   |   |                                | N/A    |   |

----

|  | ·   | Expand      production capabilities by investing in world-class production      processes.       We believe we can significantly increase our production of high      quality dairy products by continuing to enter exclusive contracts with      dairy farmers who can deliver quality milk, constructing company-owned      large-scale dairy farms, expanding our company-owned collection stations      and production facilities, and      employing comprehensive testing and quality control    measures. |
|--|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·   | Enhance distribution      capabilities in first-tier PRC markets.  We plan to      expand our distribution network in first-tier markets in the PRC,      including Beijing, Shanghai, Guangzhou, Shenzhen and other major cities in      the Pearl River Delta.  In addition, we plan to further increase our      sales points across China, focusing on southern and western China.       Our currently extensive distribution network, which reaches many      provincial capital and sub-provincial cities, has special channels into      first-tier markets that we plan to expand.  We believe that      positioning our brand as a high-quality line of products in these markets      will facilitate our expansion. |
|--|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·   | Strengthen our premium quality      brand awareness.  We believe that our products enjoy a      reputation for high quality among those familiar with them, and our      products routinely pass government and internal quality inspections.       We intend toincrease our advertising expenses and continue advertising      on China Central Television, or CCTV, and other provincial stations in      order to market our products as premium and super-premium products.       We also intend to adopt a corresponding pricing model.  We believe      many consumers tend to regard higher prices as indicative of higher      quality and higher nutritional value, and as a result consumers with      higher disposable incomes are increasingly inclined to purchase higher      priced products, particularly in the areas of infant formula and      nutritional products. |
|--|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·   | Align sourcing, production and      distribution by region.  We believe that we can      increase our efficiency and decrease our costs if our products are      produced from local sources and sold in local markets.  We plan to      select strategic locations for our company-owned collection stations and      production facilities that will enhance this  efficiency. |
|--|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | the      PRC Product Quality Law; |
|--------------------|-----------------------------------|

| ·   | the      PRC Food Hygiene Law; |
|--------------------|--------------------------------|

| ·   | Access      Conditions for Dairy Products Processing  Industry; |
|--------------------|-----------------------------------------------------------------|

| ·   | the      Implementation Rules on the Administration and Supervision of Quality and      Safety in Food Producing and Processing  enterprises; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      Regulation on the Administration of Production Licenses for Industrial      Products; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | the      General Measure on Food Quality Safety Market Access      Examination; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | the      General Standards for the Labeling of Prepackaged  foods; |
|--------------------|--------------------------------------------------------------------|

| ·   | the      Implementation Measures on Examination of Dairy Product Production      Permits; |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | the      Standardization Law; |
|--------------------|-------------------------------|

| ·   | the      Raw Milk Collection Standard; |
|--------------------|----------------------------------------|

| ·   | the      Whole Milk Powder, Skimmed Milk Powder, Sweetened Whole Milk Powder and      Flavored Milk Powder Standards; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | the      General Technical Requirements for Infant Formula Powder and Supplementary      Cereal for Infants and Children. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| ·   | increasing market      demand; |
|--------------------|--------------------------------|

| ·   | inflation; |
|--------------------|------------|

| ·   | severe climatic and environmental      conditions; |
|--------------------|----------------------------------------------------|

| ·   | seasonal      factors, with dairy cows generally producing more milk in temperate      weather as opposed to cold or hot weather and extended unseasonably cold      or hot weather potentially leading to lower than expected      production; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | commodity price      fluctuations; |
|--------------------|------------------------------------|

| ·   | currency fluctuations;      and |
|--------------------|---------------------------------|

| ·   | changes in governmental and      agricultural regulations andprograms. |
|--------------------|------------------------------------------------------------------------|

----

internal control over financial reporting such that there is areasonable possibility that a material misstatement of the registrant’s annualor interim financial statements will not be prevented or detected on a timelybasis by the company’s internal controls.  A “significant deficiency”is a deficiency, or a combination of deficiencies, in 
internal control over financial reporting that is less severe thana material weakness, yet important enough to merit attention by thoseresponsible for oversight of the registrant’s financial reporting.  A“deficiency” in internal control over financial reporting exists when the designor operation of a control does not allow management or employees, in the normalcourse of performing their assigned functions, to prevent or detectmisstatements on a timely basis.  We are devoting significantresources to remediating and improving our internal controls, including hiringadditional accounting, internal audit and finance staff, engaging consultants toassist with these functions, upgrading our systems, and implementing additionalfinancial and management controls, reporting systems andprocedures.  These measures may not ensure the adequacy of ourinternal controls over our financial processes and reporting in thefuture.  If we are unable to remediate successfully these materialweaknesses and significant deficiencies in a timely manner, investors may loseconfidence in our reported financial information, which could lead to a declinein our stock price, limit our ability to access the capital markets in thefuture, and require us to incur additional costs to improve our internal controlsystems and procedures.

----

| ·   | the higher level of government      involvement and regulation; |
|--------------------|-----------------------------------------------------------------|

| ·   | the early stage of development of      the market-oriented sector of the  economy; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | the rapid growth      rate; |
|--------------------|-----------------------------|

| ·   | the higher level of control over      foreign exchange; and |
|--------------------|-------------------------------------------------------------|

| ·   | government control over the      allocation of manyresources. |
|--------------------|---------------------------------------------------------------|

----

----

----

----

----

| ·   | it      may be difficult for us to satisfy our obligations with respect to our      indebtedness; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | our      ability to obtain additional financing for working capital, capital      expenditures, or general corporate or other purposes may be      impaired; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a      substantial portion of our cash flow from operations must be dedicated to      the payment of principal and interest on our indebtedness, reducing the      funds available to us for otherpurposes; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | it      may cause our trade creditors to change their terms for payment on goods      and services provided to us, thereby negatively impacting our ability to      receive products and services on acceptable  terms; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | it      may place us at a competitive disadvantage compared to our competitors      that have less debt or are less leveraged;and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

| ·   | we      may be more vulnerable to economic downturns, may be limited in our      ability to respond to competitive pressures and may have reduced      flexibility in responding to changing business, regulatory and economic      conditions. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our      use and maintenance of ourproperties; |
|--------------------|------------------------------------------------|

| ·   | incurrence      of indebtedness; |
|--------------------|----------------------------------|

| ·   | declaring      or paying dividends or otherdistributions; |
|--------------------|-----------------------------------------------------------|

| ·   | repurchasing      our capital stock or subordinatedobligations; |
|--------------------|-----------------------------------------------------------------|

| ·   | making      investments; |
|--------------------|--------------------------|

| ·   | incurring      liens; |
|--------------------|-----------------------|

| ·   | selling      assets; |
|--------------------|----------------------|

| ·   | our      use of the proceeds from the sale of the 2012 Notes;  and |
|--------------------|--------------------------------------------------------------------|

| ·   | our      engaging in business unrelated to dairy and related food      products. |
|--------------------|----------------------------------------------------------------------------------|

----

| ·   | we      fail to file a registration statement by January 3,  2007, |
|--------------------|--------------------------------------------------------------------|

| ·   | we      fail to file a registration statement by the three month anniversary of      any demand registration notice, |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | sales      of all registrable securities cannot be made pursuant to the registration      statement, |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | our      common stock ceases to be listed or traded in qualifying exchanges or      markets, |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | a      qualifying initial public offering has not occurred on or before June 30,      2009, |
|--------------------|---------------------------------------------------------------------------------------------|

| ·   | we      fail to keep public informationavailable, |
|--------------------|---------------------------------------------------|

| ·   | we      fail to file in a timely manner all reports and other documents we are      required to file with the SEC, or |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | we      fail to maintain our Exchange Actregistration. |
|--------------------|--------------------------------------------------------|

----

| ·   | an      additional amount equal to 3.0% of the principal amount of the outstanding      2012 Notes if a      qualifying initial public offering has not occurred by December 1, 2008,      and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | additional      interest accruing at an annual rate of 0.25% for the first 90 days, and      thereafter at an annual rate of 0.5%, if, within 90 days of our      eligibility to do so, we fail to file a shelf registration statement for      the 2012 Notes, the      guarantees of the 2012      Notes, and any shares of our common stock issuable upon conversion      of the 2012 Notes, or if      such a shelf registration statements does not become effective within 180      days our eligibility to make such a  filing. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                               |   | Closing      Price Range of Common Stock |   |
|------------------------------------|--------|------------------------------------------|--------|
|                               |   | High                                     |   |   | Low |   |
| Year Ended December 31,      2006: |   |                                     |   |   |   |   |
| 1st Quarter                        |   | $                                        | 14.75  |   |   | $ | 6.65 |   |
| 2nd Quarter                        |   | $                                        | 18.10  |   |   | $ | 12.03 |   |
| 3rd Quarter                        |   | $                                        | 14.05  |   |   | $ | 11.98 |   |
| 4th Quarter                        |   | $                                        | 20.90  |   |   | $ | 13.55 |   |
|                               |   |                                     |   |   |   |   |   |   |
| Year Ended December 31,      2007: |   |                                     |   |   |   |   |   |   |
| 1st Quarter                        |   | $                                        | 25.20  |   |   | $ | 18.76 |   |
| 2nd Quarter                        |   | $                                        | 22.01  |   |   | $ | 16.80 |   |
| 3rd Quarter                        |   | $                                        | 21.69  |   |   | $ | 16.80 |   |
| 4th Quarter                        |   | $                                        | 23.94  |   |   | $ | 11.15 |   |
|                               |   |                                     |   |   |   |   |   |   |
| Year Ended December 31,      2008: |   |                                     |   |   |   |   |   |   |
| 1st Quarter                        |   | $                                        | 12.91  |   |   | $ | 7.00 |   |
| 2nd Quarter                        |   | $                                        | 13.91  |   |   | $ | 7.88 |   |
| 3rd Quarter                        |   | $                                        | 11.34  |   |   | $ | 6.74 |   |
| 4th Quarter                        |   | $                                        | 17.02  |   |   | $ | 8.32 |   |

----

----

----

----

|                                                    | Years Ended December      31                 |
|---------------------------------------------------------|----------------------------------------------|
|                                                    | 2007                                         |   | 2006(restated) |   | 2005(restated) | 2004(unaudited) | 2003(unaudited) |
|                                                    | ($      in thousands, except per share data) |
| Statements of Operations      Data                      |                                         |   |   |   |   |   |   |
| Sales                                                   | 165,968                                      |   | 115,082 |   | 68,197 | 36,742 | 26,636 |
| Cost of goods      sold                                 | 92,937                                       |   | 65,170 |   | 37,882 | 18,434 | 15,118 |
| Grossprofit                                             | 73,031                                       |   | 49,912 |   | 30,315 | 18,308 | 11,518 |
| Operating and administrative      expenses              |                                         |   |   |   |   |   |   |
|     Sales and      marketing        | 40,740                                       |   | 28,066 |   | 17,637 | 13,517 | 7,899 |
|     General      and administrative | 13,840                                       |   | 5,591 |   | 2,722 | 1,573 | 1,769 |
| Total operating      expenses                           | 54,580                                       |   | 33,657 |   | 20,359 | 15,090 | 9,668 |
| Income from      operations                             | 18,451                                       |   | 16,256 |   | 9,956 | 3,218 | 1,850 |
| Other income (expenses)                                 | (4,285)                                      |   | 5,024 |   | 4,076 | 1,569 | 1,172 |
| Income tax      expenses                                | 5,880                                        |   | 4,858 |   | 2,762 | 63 | 339 |
| Net income attributable to      ordinary shareholders   | 8,284                                        |   | 16,433 |   | 11,312 | 4,850 | 2,683 |
| Other comprehensive      income:                        |                                         |   |   |   |   |   |   |
| Cumulative currency translation      adjustments        | 9,315                                        |   | 1,993 |   | 774 | - | - |
| Total comprehensive      income                         | 17,599                                       |   | 18,426 |   | 12,086 | 4,850 | 2,683 |
| Earnings per      share                                 |                                         |   |   |   |   |   |   |
|     Basic                           | 0.51                                         |   | 1.11 |   | 0.82 | 0.40 | 0.25 |
|     Diluted                         | 0.48                                         |   | 0.98 |   | 0.72 | 0.36 | 0.25 |
| Weighted average ordinary shares      outstanding       |                                         |   |   |   |   |   |   |
|     Basic                           | 16,327,616                                   |   | 14,745,930 |   | 13,836,573 | 12,077,085 | 10,535,964 |
|     Diluted                         | 17,696,997                                   |   | 17,651,712 |   | 15,664,772 | 13,455,700 | 10,535,964 |
|                                                    |                                         |   |   |   |   |   |   |
| Balance Sheet      Data                                 |                                         |   |   |   |   |   |   |
| Cash and cash      equivalents                          | 11,181                                       |   | 39,521 |   | 13,188 | 6,645 | 3,041 |
| Other current      assets                               | 81,663                                       |   | 25,338 |   | 20,207 | 7,853 | 10,251 |
| Working    capital                                      | 49,356                                       |   | 23,794 |   | (452) | (6,721) | 17 |
| Property and equipment,      net                        | 52,280                                       |   | 36,192 |   | 30,176 | 7,675 | 4,056 |
| Construction in      progress                           | 33,010                                       |   | 8,508 |   | 5,608 | 14,035 | 2,035 |
| Totalassets                                             | 234,629                                      |   | 117,625 |   | 70,811 | 37,656 | 19,832 |
| Accounts payable and accrued      expenses              | 15,801                                       |   | 11,352 |   | 6,929 | 6,091 | 6,198 |
| Long-term debt, net of current      portion             | 382                                          |   | 1,486 |   | 1,546 | 749 | 72 |
| Convertible debt,      net                              | 55,238                                       |   | 16,484 |   | 5,000 | - | - |
| Derivatives                                             | 50,019                                       |   | - |   | - | - | - |
| Total      liabilities                                  | 152,423                                      |   | 61,466 |   | 41,195 | 22,066 | 13,565 |
| Minority      interest                                  | 537                                          |   | - |   | 220 | 145 | - |
| Total shareholders’ equity                        | 81,669                                       |   | 56,159 |   | 29,396 | 15,445 | 6,267 |

----

----

| ·   | Dairy      Industry Growth.  We believe the market for dairy      products in China is growing rapidly, driven by China’s economic growth,      increased penetration of infant formula, and a growing female working      population.  We expect these factors to continue to drive      industry growth. We believe that the increasing affordability of infant      formula in our primary markets has become an increasingly important driver      of growth. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Production      capacity. We      believe much of the dairy market in China is still underserved,      particularly with respect to infant formula.  In addition,      since the melamine crisis in      2008, which did not involve any of our products, we have been able to      operate our milk      production facilities at maximum capacity.  Accordingly,      we believe that the ability to increase production of high      quality dairy products will allow well positioned companies to      significantly increase revenues and market  share. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Perceptions      of Product Quality and Safety.  We believe that rising      consumer wealth in China has contributed to a greater demand for      higher-priced products with perceived quality advantages.  We      believe many consumers tend to regard higher prices as indicative of      higher quality and higher nutritional value, particularly in the areas of      infant formula and nutritional products.  Accordingly, we      believe our reputation for quality and safety allows us to command higher      average selling prices and generate higher gross margins than competitors      who do not possess the same reputation.  Conversely, any      decrease in consumer perceptions of quality and safety could adversely      impact us. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Raw      Material Supply and Prices.  The per unit costs of      producing our infant formula are subject to the supply and price      volatility of raw milk and other raw materials, which are affected by the      PRC and global markets. For example, raw milk prices are affected by      factors such as geographic location, fluctuations in production and      competition. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                    |   | Years Ended December      31 |    |
|---------------------------------------------------------|--------|------------------------------|---------|
|                                                    |   | 2007                         |    |   | 2006(restated) |   |   | 2005(restated) |   |
|                                                    |   | ($      in thousands)        |    |
| Sales                                                   |   |                         | 165,968 |   |   |   | 115,082 |   |   |   | 68,197 |   |
| Cost of goods      sold                                 |   |                         | 92,937  |   |   |   | 65,170 |   |   |   | 37,882 |   |
| Grossprofit                                             |   |                         | 73,031  |   |   |   | 49,912 |   |   |   | 30,315 |   |
| Operating and administrative      expenses              |   |                         |    |   |   |   |   |   |   |   |   |   |
|     Sales and      marketing        |   |                         | 40,740  |   |   |   | 28,066 |   |   |   | 17,637 |   |
|     General      and administrative |   |                         | 13,840  |   |   |   | 5,591 |   |   |   | 2,722 |   |
| Total operating      expenses                           |   |                         | 54,580  |   |   |   | 33,657 |   |   |   | 20,359 |   |
| Income from      operations                             |   |                         | 18,451  |   |   |   | 16,256 |   |   |   | 9,956 |   |
| Other income (expenses)                                 |   |                         | (4,285  | ) |   |   | 5,024 |   |   |   | 4,076 |   |
| Income tax      expenses                                |   |                         | 5,880   |   |   |   | 4,858 |   |   |   | 2,762 |   |
| Net income attributable to      ordinary shareholders   |   |                         | 8,284   |   |   |   | 16,433 |   |   |   | 11,312 |   |
| Other comprehensive      income:                        |   |                         |    |   |   |   |   |   |   |   |   |   |
| Cumulative currency translation      adjustments        |   |                         | 9,315   |   |   |   | 1,993 |   |   |   | 774 |   |
| Total comprehensive      income                         |   |                         | 17,559  |   |   |   | 18,426 |   |   |   | 12,086 |   |

----

|               |   | 2007                   |   |   | 2006                |   |    | 2007 over    2006 |   |
|--------------------|--------|------------------------|--------|--------|---------------------|--------|---------|-------------------|--------|
| Productname        |   | Quantity(Kg’000) |   |   | Amount($’000) |   |    | % of Sales        |   |   | Quantity(Kg’000) |   |   | Amount($’000) |   |   | % of Sales |   |   | Quantity(Kg’000) |   |   | Amount($,000) |   |   | % of Sales |   |
|               |   |                   |   |   |                |   |    |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Milk powder        |   |                   | 17,438 |   |                |   | 120,418 |              |   |   | 72.6 |   |   |   | 22,135 |   |   |   | 101,502 |   |   |   | 88.2 |   |   |   | (4,697 | ) |   |   | 18,916 |   |   |   | 18.6 |   |
| Raw milk powder    |   |                   | 12,899 |   |                |   | 35,566  |              |   |   | 21.4 |   |   |   | 2,286 |   |   |   | 5,187 |   |   |   | 4.5 |   |   |   | 10,613 |   |   |   | 30,379 |   |   |   | 585.7 |   |
| Soybean    powder  |   |                   | 1,785  |   |                |   | 3,253   |              |   |   | 2.0 |   |   |   | 2,094 |   |   |   | 3,529 |   |   |   | 3.1 |   |   |   | (309 | ) |   |   | (276 | ) |   |   | (7.8 | ) |
| Rice cereal        |   |                   | 1,292  |   |                |   | 5,332   |              |   |   | 3.2 |   |   |   | 914 |   |   |   | 3,159 |   |   |   | 2.7 |   |   |   | 378 |   |   |   | 2,173 |   |   |   | 68.8 |   |
| Walnut    products |   |                   | 241    |   |                |   | 1,212   |              |   |   | 0.7 |   |   |   | 312 |   |   |   | 1,509 |   |   |   | 1.3 |   |   |   | 71 |   |   |   | (297 | ) |   |   | (19.7 | ) |
| Other              |   |                   | 97     |   |                |   | 187     |              |   |   | 0.1 |   |   |   | 225 |   |   |   | 196 |   |   |   | 0.2 |   |   |   | (128 | ) |   |   | (9 | ) |   |   | (4.6 | ) |
| Total         |   |                   | 33,752 |   |                |   | 165,968 |              |   |   | 100 |   |   |   | 27,966 |   |   |   | 115,082 |   |   |   | 100 |   |   |   | 5,786 |   |   |   | 50,886 |   |   |   | 44.2 |   |

|                                                |   | 2007   |    |   | 2006   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Sales revenues (in      thousands)                  |   | $      | 165,968 |   |   | $      | 115,082 |   |
| Total sales volume (kilograms in      thousands)    |   |   | 33,752  |   |   |   | 27,966 |   |
| Average selling prices/kilogram      (in thousands) |   | $      | 4.92    |   |   | $      | 4.12 |   |

----

|               |   | Average Price Per      Kilogram |   |   |   |   |
|--------------------|--------|---------------------------------|--------|--------|--------|--------|
| Product            |   | 2007                            |   |   | 2006   |   |   | Percentage      Change |   |
| Milk powder        |   | $                               | 6.91   |   |   | $      | 4.59 |   |   |   | 50.5 | % |
| Raw milk    powder |   |                            | 2.76   |   |   |   | 2.27 |   |   |   | 21.6 | % |
| Soybean    powder  |   |                            | 1.82   |   |   |   | 1.68 |   |   |   | 8.3 | % |
| Rice cereal        |   |                            | 4.13   |   |   |   | 3.46 |   |   |   | 19.4 | % |
| Walnut    products |   |                            | 5.03   |   |   |   | 4.84 |   |   |   | 3.9 | % |
| Other              |   |                            | 1.93   |   |   |   | 0.87 |   |   |   | 121.8 | % |
| Total         |   | $                               | 4.92   |   |   | $      | 4.12 |   |   |   | 19.4 | % |

----

|               |   | 2006                   |   |   | 2005                |   |    | 2006 over    2005 |   |   |
|--------------------|--------|------------------------|--------|--------|---------------------|--------|---------|-------------------|--------|--------|
| Productname        |   | Quantity(Kg’000) |   |   | Amount($’000) |   |    | % of Sales        |   |   | Quantity(Kg’000) |   |   | Amount($’000) |   |   | % of Sales |   |   | Quantity(Kg’000) |   |   | Amount($’000) |   |   | % of  Sales |
|               |   |                   |   |   |                |   |    |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Milk powder        |   |                   | 22,135 |   |                |   | 101,502 |              |   |   | 88.2 |   |   |   | 11,658 |   |   |   | 54,855 |   |   |   | 80.4 |   |   |   | 10,477 |   |   |   | 46,647 |   |   |   | 85.0 |   |
| Raw milk    powder |   |                   | 2,286  |   |                |   | 5,187   |              |   |   | 4.5 |   |   |   | 227 |   |   |   | 462 |   |   |   | 0.7 |   |   |   | 2,059 |   |   |   | 4,725 |   |   |   | 1,022.7 |   |
| Soybean    powder  |   |                   | 2,094  |   |                |   | 3,529   |              |   |   | 3.1 |   |   |   | 1,802 |   |   |   | 3,169 |   |   |   | 4.6 |   |   |   | 292 |   |   |   | 360 |   |   |   | 11.4 |   |
| Rice cereal        |   |                   | 914    |   |                |   | 3,159   |              |   |   | 2.7 |   |   |   | 2,699 |   |   |   | 7,438 |   |   |   | 10.9 |   |   |   | (1,785 | ) |   |   | (4,279 | ) |   |   | (57.5 | ) |
| Walnut    products |   |                   | 312    |   |                |   | 1,509   |              |   |   | 1.3 |   |   |   | 532 |   |   |   | 1,610 |   |   |   | 2.4 |   |   |   | (220 | ) |   |   | (101 | ) |   |   | (6.3 | ) |
| Other              |   |                   | 225    |   |                |   | 196     |              |   |   | 0.2 |   |   |   | 294 |   |   |   | 663 |   |   |   | 1.0 |   |   |   | (69 | ) |   |   | (467 | ) |   |   | (70.4 | ) |
| Total         |   |                   | 27,966 |   |                |   | 115,082 |              |   |   | 100 | % |   |   | 17,212 |   |   |   | 68,197 |   |   |   | 100 | % |   |   | 10,754 |   |   |   | 46,885 |   |   |   | 68.7 |   |

----

|                                             |   | 2006   |    |   | 2005   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Sales revenues (in      thousands)               |   | $      | 115,082 |   |   | $      | 68,197 |   |
| Total sales volume (kilograms in      thousands) |   |   | 27,966  |   |   |   | 17,212 |   |
| Average selling      prices/kilogram             |   | $      | 4.12    |   |   | $      | 3.96 |   |

|               |   | Average Price Per      Kilogram |   |   |   |   |
|--------------------|--------|---------------------------------|--------|--------|--------|--------|
| Product            |   | 2006                            |   |   | 2005   |   |   | Percentage      Change |
| Milk powder        |   | $                               | 4.59   |   |   | $      | 4.71 |   |   |   | (3 | %) |
| Raw milk    powder |   | $                               | 2.27   |   |   | $      | 2.03 |   |   |   | 12 | % |
| Soybean    powder  |   | $                               | 1.68   |   |   | $      | 1.76 |   |   |   | (5 | %) |
| Rice cereal        |   | $                               | 3.46   |   |   | $      | 2.76 |   |   |   | 25 | % |
| Walnut    products |   | $                               | 4.84   |   |   | $      | 3.03 |   |   |   | 60 | % |
| Other              |   | $                               | 0.87   |   |   | $      | 2.26 |   |   |   | (62 | %) |
| Total         |   | $                               | 4.12   |   |   | $      | 3.96 |   |   |   | 4 | % |

----

|                                              |   | Year ended December      31 |     |
|---------------------------------------------------|--------|-----------------------------|----------|
| Net cash (used in) provided      by:              |   | 2007                        |     |   | 2006 |   |   | 2005 |   |
|                                              |   | ($ in      thousands)       |     |
|     Operating      activities |   |                        | (4,274   | ) |   |   | 11,105 |   |   |   | 4,904 |   |
|     Investing      activities |   |                        | (101,661 | ) |   |   | (11,699 | ) |   |   | (12,941 | ) |
|     Financing      activities |   |                        | 73,931   |   |   |   | 25,795 |   |   |   | 14,358 |   |

----

----

----

----

----

----

----

|                                              |   |   |       |   | Payments due by      period |   |
|---------------------------------------------------|--------|--------|------------|--------|-----------------------------|--------|
| Contractual      obligations                      |   | Total  |       |   | Less than 1year        |   |   | 1-3 years |   |   | 3-5 years |   |   | More than 5    years |   |
| Long-term debt      obligations                   |   | $      | 1,846,610  |   |                        | $      | 1,464,145 |   |   | $ | 305,973 |   |   | $ | 76,492 |   |   | $ | - |   |
| Purchase obligation for building      acquisition |   |   | 24,472,253 |   |                        |   | 24,472,253 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Purchase obligations for land use      rights     |   |   | 1,945,519  |   |                        |   | 1,795,085 |   |   |   | 73,750 |   |   |   | 49,167 |   |   |   | 27,517 |   |
| Total                                             |   |   | 28,264,382 |   |                        |   | 27,731,483 |   |   |   | 379,723 |   |   |   | 125,659 |   |   |   | 27,517 |   |

----

In December 2007, the Financial Accounting StandardsBoard, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No.160, “Noncontrolling Interestsin Consolidated Financial Statements – An Amendment of ARB No. 51,” or SFAS 160. SFAS 160 establishesnew accounting and reporting standards for the noncontrolling interest in asubsidiary and for the deconsolidation of a subsidiary.  Specifically,SFAS 160 requires the recognition of a noncontrolling interest (minorityinterest) as equity in the consolidated financial statements that is presentedseparate from the parent’s equity.  The amount of net incomeattributable to the noncontrolling interest will be included in consolidated netincome on the face of the income statement.  SFAS 160 clarifies thatchanges in a parent’s ownership interest in a subsidiary that do not result indeconsolidation are equity transactions if the parent retains its controllingfinancial interest.  In addition, SFAS 160 requires that a parentrecognize a gain or loss in net income when a subsidiary isdeconsolidated.  Such gain or loss will be measured using the fairvalue of the noncontrolling equity investment on the deconsolidation date. SFAS160 also includes expanded disclosure requirements regarding the interests ofthe parent and its noncontrolling interest.  SFAS 160 is effective forfiscal years, and interim periods within those fiscal years, beginning on orafter December 15, 2008.  Earlier adoption isprohibited.  The adoption of SFAS 160 is not expected to have asignificant impact on our financial statements.

----

----

|                                                                     |   | 2007                                     |       |
|--------------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                                     |   | Quarter EndedMarch      31               |       |   | Quarter EndedJune      30 |   |   | Quarter Ended September      30 |   |   | Quarter Ended December      31 |   |   | Year Ended December      31 |   |
|                                                                     |   | (unaudited)                              |       |   | (unaudited) |   |   | (unaudited) |   |   | (unaudited) |   |   |   |   |
|                                                                     |   | ($      in thousands, except share data) |       |
| Statements of Operations      Data                                       |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                    |   |                                     | 36,372     |   |   |   | 39,746 |   |   |   | 44,113 |   |   |   | 45,737 |   |   |   | 165,968 |   |
| Cost of goods      sold                                                  |   |                                     | 16,901     |   |   |   | 21,168 |   |   |   | 25,207 |   |   |   | 29,661 |   |   |   | 92,937 |   |
| Grossprofit                                                              |   |                                     | 19,471     |   |   |   | 18,578 |   |   |   | 18,906 |   |   |   | 16,076 |   |   |   | 73,031 |   |
| Operating and administrative      expenses                               |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Sales and      marketing                         |   |                                     | 9,660      |   |   |   | 11,547 |   |   |   | 10,186 |   |   |   | 9,347 |   |   |   | 40,740 |   |
|     General      and administrative                  |   |                                     | 2,727      |   |   |   | 1,671 |   |   |   | 6,311 |   |   |   | 3,131 |   |   |   | 13,840 |   |
| Total operating      expenses                                            |   |                                     | 12,387     |   |   |   | 13,218 |   |   |   | 16,497 |   |   |   | 12,478 |   |   |   | 54,580 |   |
| Income from      operations                                              |   |                                     | 7,084      |   |   |   | 5,360 |   |   |   | 2,409 |   |   |   | 3,598 |   |   |   | 18,451 |   |
| Other income (expenses)                                                  |   |                                     | 889        |   |   |   | 2,915 |   |   |   | (7,734 | ) |   |   | (355 | ) |   |   | (4,285 | ) |
| Income tax      expenses                                                 |   |                                     | 1,463      |   |   |   | 1,426 |   |   |   | 1,550 |   |   |   | 1,441 |   |   |   | 5,880 |   |
| Net income attributable to      ordinary shareholders                    |   |                                     | 6,509      |   |   |   | 6,850 |   |   |   | (6,875 | ) |   |   | 1,800 |   |   |   | 8,284 |   |
| Other comprehensive      income:                                         |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Cumulative      currency translation adjustments |   |                                     | 818        |   |   |   | 799 |   |   |   | 2,600 |   |   |   | 5,098 |   |   |   | 9,315 |   |
| Total comprehensive      income                                          |   |                                     | 7,327      |   |   |   | 7,649 |   |   |   | (4,275 | ) |   |   | 6,898 |   |   |   | 17,599 |   |
| Earnings per      share                                                  |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic                                            |   |                                     | 0.41       |   |   |   | 0.43 |   |   |   | (0.42 | ) |   |   | 0.11 |   |   |   | 0.51 |   |
|     Diluted                                          |   |                                     | 0.39       |   |   |   | 0.40 |   |   |   | (0.42 | ) |   |   | 0.10 |   |   |   | 0.48 |   |
| Weighted average ordinary shares      outstanding                        |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic                                            |   |                                     | 15,858,906 |   |   |   | 15,951,949 |   |   |   | 16,554,132 |   |   |   | 16,931,204 |   |   |   | 16,327,616 |   |
|     Diluted                                          |   |                                     | 18,412,851 |   |   |   | 18,431,013 |   |   |   | 16,554,132 |   |   |   | 17,718,318 |   |   |   | 17,696,997 |   |
|                                                                     |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet      Data                                                  |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash      equivalents                                           |   |                                     | 36,643     |   |   |   | 93,197 |   |   |   | 57,565 |   |   |   | 11,181 |   |   |   | 11,181 |   |
| Working    capital                                                       |   |                                     | 32,513     |   |   |   | 99,138 |   |   |   | 77,680 |   |   |   | 49,356 |   |   |   | 49,356 |   |
| Property and equipment,      net                                         |   |                                     | 36,081     |   |   |   | 41,895 |   |   |   | 48,295 |   |   |   | 52,280 |   |   |   | 52,280 |   |
| Construction in      progress                                            |   |                                     | 11,259     |   |   |   | 10,954 |   |   |   | 28,574 |   |   |   | 33,010 |   |   |   | 33,010 |   |
| Totalassets                                                              |   |                                     | 125,945    |   |   |   | 212,258 |   |   |   | 211,822 |   |   |   | 234,629 |   |   |   | 234,629 |   |
| Accounts payable and accrued      expenses                               |   |                                     | 12,127     |   |   |   | 17,784 |   |   |   | 13,207 |   |   |   | 15,801 |   |   |   | 15,801 |   |
| Long-term debt, net of current      portion                              |   |                                     | 449        |   |   |   | 463 |   |   |   | 470 |   |   |   | 382 |   |   |   | 382 |   |
| Convertible debt,      net                                               |   |                                     | 21,640     |   |   |   | 48,840 |   |   |   | 49,983 |   |   |   | 55,238 |   |   |   | 55,238 |   |
| Derivatives                                                              |   |                                     | -          |   |   |   | 50,465 |   |   |   | 52,915 |   |   |   | 50,019 |   |   |   | 50,019 |   |
| Total      liabilities                                                   |   |                                     | 61,487     |   |   |   | 139,490 |   |   |   | 136,917 |   |   |   | 152,423 |   |   |   | 152,423 |   |

----

|                                                                     |   | 2006                       |       |
|--------------------------------------------------------------------------|--------|----------------------------|------------|
|                                                                     |   | Quarter EndedMarch      31 |       |   | Quarter EndedJune      30 |   |   | Quarter Ended September      30 |   |   | Quarter Ended December      31 |   |   | Year EndedDecember      31 |   |
|                                                                     |   | (unaudited)                |       |   | (unaudited) |   |   | (unaudited) |   |   | (unaudited) |   |   | (restated) |   |
|                                                                     |   | ($      in thousands)      |       |
| Statements of Operations      Data                                       |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                    |   |                       | 24,961     |   |   |   | 24,872 |   |   |   | 32,249 |   |   |   | 33,000 |   |   |   | 115,082 |   |
| Cost of goods      sold                                                  |   |                       | 11,875     |   |   |   | 16,123 |   |   |   | 16,640 |   |   |   | 20,532 |   |   |   | 65,170 |   |
| Grossprofit                                                              |   |                       | 13,086     |   |   |   | 8,749 |   |   |   | 15,609 |   |   |   | 12,468 |   |   |   | 49,912 |   |
| Operating and administrative      expenses                               |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Sales and      marketing                         |   |                       | 6,456      |   |   |   | 3,939 |   |   |   | 9,260 |   |   |   | 8,411 |   |   |   | 28,066 |   |
|     General      and administrative                  |   |                       | 1,274      |   |   |   | 1,227 |   |   |   | 1,183 |   |   |   | 1,907 |   |   |   | 5,591 |   |
| Total operating      expenses                                            |   |                       | 7,730      |   |   |   | 5,166 |   |   |   | 10,443 |   |   |   | 10,318 |   |   |   | 33,657 |   |
| Income from      operations                                              |   |                       | 5,356      |   |   |   | 3,583 |   |   |   | 5,166 |   |   |   | 2,150 |   |   |   | 16,255 |   |
| Other income (expenses)                                                  |   |                       | 290        |   |   |   | 2,058 |   |   |   | 1,454 |   |   |   | 1,222 |   |   |   | 5,024 |   |
| Income tax      expenses                                                 |   |                       | 1,177      |   |   |   | 1,209 |   |   |   | 1,255 |   |   |   | 1,217 |   |   |   | 4,858 |   |
| Net income attributable to      ordinary shareholders                    |   |                       | 4,474      |   |   |   | 4,433 |   |   |   | 5,365 |   |   |   | 2,161 |   |   |   | 16,433 |   |
| Other comprehensive      income:                                         |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Cumulative      currency translation adjustments |   |                       | 190        |   |   |   | 181 |   |   |   | 715 |   |   |   | 907 |   |   |   | 1,993 |   |
| Total comprehensive      income                                          |   |                       | 4,664      |   |   |   | 4,613 |   |   |   | 6,080 |   |   |   | 3,069 |   |   |   | 18,426 |   |
| Earnings per      share                                                  |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic                                            |   |                       | 0.32       |   |   |   | 0.30 |   |   |   | 0.36 |   |   |   | 0.14 |   |   |   | 1.11 |   |
|     Diluted                                          |   |                       | 0.27       |   |   |   | 0.26 |   |   |   | 0.32 |   |   |   | 0.13 |   |   |   | 0.98 |   |
| Weighted average ordinary shares      outstanding                        |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Basic                                            |   |                       | 14,164,280 |   |   |   | 14,578,565 |   |   |   | 14,893,213 |   |   |   | 15,333,200 |   |   |   | 14,745,930 |   |
|     Diluted                                          |   |                       | 17,141,495 |   |   |   | 17,316,544 |   |   |   | 17,321,582 |   |   |   | 17,467,714 |   |   |   | 17,651,712 |   |
|                                                                     |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet      Data                                                  |   |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash      equivalents                                           |   |                       | 11,431     |   |   |   | 16,070 |   |   |   | 23,517 |   |   |   | 39,521 |   |   |   | 39,521 |   |
| Working    capital                                                       |   |                       | 7,089      |   |   |   | 8,472 |   |   |   | 8,987 |   |   |   | 23,794 |   |   |   | 23,794 |   |
| Property and equipment,      net                                         |   |                       | 34,256     |   |   |   | 34,756 |   |   |   | 34,877 |   |   |   | 36,192 |   |   |   | 36,192 |   |
| Construction in      progress                                            |   |                       | 1,363      |   |   |   | 2,636 |   |   |   | 5,648 |   |   |   | 8,508 |   |   |   | 8,508 |   |
| Totalassets                                                              |   |                       | 68,606     |   |   |   | 76,805 |   |   |   | 96,848 |   |   |   | 117,625 |   |   |   | 117,625 |   |
| Accounts payable and accrued      expenses                               |   |                       | 8,733      |   |   |   | 10,728 |   |   |   | 13,466 |   |   |   | 11,352 |   |   |   | 11,352 |   |
| Long-term debt, net of current      portion                              |   |                       | 1,514      |   |   |   | 1,518 |   |   |   | 1,520 |   |   |   | 1,486 |   |   |   | 1,486 |   |
| Convertible debt,      net                                               |   |                       | 8,000      |   |   |   | 5,000 |   |   |   | 5,000 |   |   |   | 16,484 |   |   |   | 16,484 |   |
| Total      liabilities                                                   |   |                       | 33,725     |   |   |   | 33,536 |   |   |   | 47,288 |   |   |   | 61,466 |   |   |   | 61,466 |   |

----

Item 9. Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure

----

| ·   | Material weaknesses in our      internal controls over financial  reporting: |
|--------------------|------------------------------------------------------------------------------|

| o   | Financial      statement review procedures – We did not establish review procedures and      retain qualified personnel to ensure the financial statements were      prepared in compliance with GAAP and SEC disclosure      requirements.  In addition, we did not adequately review GAAP      adjustment procedures, our disclosure reporting process and our      consolidated financial statements preparation  processes. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Accounting      treatment for routine and non-routine transactions – We did not      effectively and timely assess the accounting treatment for transactions,      including sales, purchases, inventory, taxation, acquisition of assets,      asset valuations and capitalassets. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Internal      audit function – We did not maintain effective oversight of our internal      control over financial reporting, including ineffective communication and      understanding of our Code of Business Conduct and Ethics, lack of an      appointed chief officer of internal audit functions, lack of selection      criteria for a chief officer of internal audit functions, lack of an      established reporting channel between our internal audit function and our      Audit Committee, a lack of documented review or approval by our Audit      Committee of our risk assessment, lack of effective and documented      procedures that ensured relevant and sufficient financial-related      information was provided to the Audit Committee in the course of its      review of financial statements, and lack of documented evidence that the      Audit Committee accomplished its tasks under its  charter. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Timing      of management’s assessment – we did not timely perform and document our      management assessment of our internal controls over financial      reporting as of December 31,2007. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Significant deficiencies in      our internal controls over financial  reporting: |
|--------------------|-----------------------------------------------------------------------------------|

| o   | Period-end      closing procedures – We did not have formal period-end closing procedures      in place, which did not allow effective identification, approval and      detection of routine and non-routine accounting journal      entries. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Access      to administrative and accounting systems – We did not adequately control      the accountants and financial controllers who were assigned system      administrator rights on our accounting systems while also preparing or      reviewing journal entries. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Documentation      of accounts receivable transfers and promoters expenses – We did not have      adequate documentation of approval by our management or confirmation from      our customers for transfers of certain accounts receivable      amounts.  In addition, we did not have adequate documentation of      the incurrence, authorization or recordation of promoters      expenses. |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Division      of treasury and accounting duties – We did not adequately assess the      compatibility of treasury and accounting duties, including the use of      payment authorization stamps by accounting personnel who also acted as      preparers or reviewers of journal entries or as accounting system      administrators and the performance or review of bank      reconciliations. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Name                      |   | Age    |   | Position                                                              |   | Director    Since |
|---------------------------|--------|--------|--------|-----------------------------------------------------------------------|--------|-------------------|
|                      |   |   |   |                                                                  |   |              |
| LengYou-Bin               |   | 44     |   | Chairman, Chief Executive Officer,      President and General Manager |   | 2003              |
| Liu Hua                   |   | 36     |   | Vice Chairman, Secretary,      Treasurer and Director                 |   | 2003              |
| Liu    Sheng-Hui          |   | 38     |   | Vice President of Finance, Feihe      Dairy, and Director             |   | 2003              |
| Hui-Lan Lee               |   | 59     |   | Director                                                              |   | 2003              |
| Kirk G. Downing, Esq.     |   | 56     |   | Director                                                              |   | 2005              |
| James C. Lewis,      Esq. |   | 56     |   | Director                                                              |   | 2006              |

----

BoardCommittees

----

| Name               |   | Age    |   | Position | Officer    Since                                                       |
|--------------------|--------|--------|--------|----------|------------------------------------------------------------------------|
|               |   |   |   |     |                                                                   |
| Leng You-Bin  |   |   | 44     |     | Chairman,      Chief Executive Officer, President, and General Manager | 2003 |
| Liu Hua            |   |   | 36     |     | Vice Chairman, Secretary,      Treasurer and Director                  | 2000 |
| Jonathan H. Chou   |   |   | 44     |     | Chief Financial      Officer                                           | 2008 |
| Liu    Sheng-Hui   |   |   | 39     |     | Vice President of Finance, Feihe      Dairy, and Director              | 2001 |
| Nie Bo             |   |   | 37     |     | Head of Sales and      Marketing                                       | 2007 |

----

----

| Name and Principal      Position(1)                                                  | Fiscal Year |   | Salary  |   |   | Stock Awards(2) |   |   | Total  |   |
|--------------------------------------------------------------------------------------|-------------|--------|---------|--------|--------|-----------------|--------|--------|--------|--------|
| Leng You-Bin, Chairman,      Chief Executive Officer, President, and General Manager | 2005        |   | $       | 9,000  |   |            | $      | 72,811 |   |   | $ | 81,811 |   |
| 2006                                                                                 |        |   | 9,000   |   |   |            | 92,620 |   |   |   | 101,620 |   |
| 2007                                                                                 |        |   | 200,000 |   |   |            | 68,250 |   |   |   | 268,250 |   |
|                                                                                 |        |   |    |   |   |            |   |   |   |   |   |   |   |
| Liu Hua, Vice Chairman, Secretary,      Treasurer, and Director                      | 2005        |   | $       | 0      |   |            | $      | 80,611 |   |   | $ | 80,611 |   |
| 2006                                                                                 |        |   | 0       |   |   |            | 92,620 |   |   |   | 92,620 |   |
| 2007                                                                                 |        |   | 200,000 |   |   |            | 68,250 |   |   |   | 268,250 |   |
|                                                                                 |        |   |    |   |   |            |   |   |   |   |   |   |   |
| Liu Sheng-Hui, Vice President of      Finance of Feihe Dairy, and Director           | 2005        |   | $       | 4,401  |   |            | $      | 72,811 |   |   | $ | 77,212 |   |
| 2006                                                                                 |        |   | 6,023   |   |   |            | 92,620 |   |   |   | 98,643 |   |
| 2007                                                                                 |        |   | 15,775  |   |   |            | 68,250 |   |   |   | 84,025 |   |
|                                                                                 |        |   |    |   |   |            |   |   |   |   |   |   |   |
| Nie Bo, Head of Sales and      Marketing                                             | 2005        |   | $       | 0      |   |            | $      | 0      |   |   | $ | 0 |   |
| 2006                                                                                 |        |   | 0       |   |   |            | 0      |   |   |   | 0 |   |
| 2007                                                                                 |        |   | 157,747 |   |   |            | 0      |   |   |   | 157,747 |   |

| (1) | Identifies our principal executive      and principal financial officers during the specified      periods.  No other executive officer received compensation in      excess of $100,000 during the specified  periods. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) |  Represents the dollar amount      of expense recognized for financial statement reporting purposes with      respect to awards of common stock under the 2003 Stock Incentive Plan, in      accordance to SFAS 123(R).  See the notes to our      financial statements contained herein for an explanation of all      assumptions made by us in determining the SFAS 123(R) values of our stock      awards. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|             |   | Stock      Awards (1)          |   |
|------------------|--------|--------------------------------|--------|
| Name             |   | Number      of Shares Acquired |   |   | Value      Realized (2) |   |
| LengYou-Bin      |   |                           | 3,250  |   |   | $ | 68,250 |   |
| Liu Hua          |   |                           | 3,250  |   |   | $ | 68,250 |   |
| Liu    Sheng-Hui |   |                           | 3,250  |   |   | $ | 68,250 |   |

| (1) | Reflected      in the Summary Compensation Table under the caption “Stock      Awards.” |
|-----|-----------------------------------------------------------------------------------------------------|

| (2) | Based      on the closing market price of the shares of our common stock on February      16, 2007, which was $21.00 pershare. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

----

| Name               |   | Stock Awards (1) |   |   | Total  |   |
|--------------------|--------|------------------|--------|--------|--------|--------|
| LengYou-Bin        |   | $                | 68,250 | (2)    |   | $      | 68,250 | (3) |
| Liu Hua            |   | $                | 68,250 | (2)    |   | $      | 68,250 | (3) |
| Liu    Sheng-Hui   |   | $                | 68,250 | (2)    |   | $      | 68,250 | (3) |
| Hui-Lan Lee        |   | $                | 68,250 |   |   | $      | 68,250 |   |
| Kirk G.    Downing |   | $                | 68,250 |   |   | $      | 68,250 |   |
| James C.    Lewis  |   | $                | 68,250 |   |   | $      | 68,250 |   |

| (1) | Represents the dollar amount of      expense recognized for financial statement reporting purposes with respect      to awards of common stock under the 2003 Stock Incentive Plan, in      accordance to SFAS 123(R).  See the notes to our      financial statements contained herein for an explanation of all      assumptions made by us in determining the SFAS 123(R) values of our stock      awards. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Reflected      in the Summary Compensation Table under the caption “Stock      Awards.” |
|-----|-----------------------------------------------------------------------------------------------------|

| (3) | Excludes      compensation received for service as executive officers, set forth      above. |
|-----|----------------------------------------------------------------------------------------------|

----

|   | Compensation      Committee |                               |
|--------|-----------------------------|------------------------------------|
|   |                        |                               |   |
|   |                        | Leng You-Bin                       |   |
|   |                        |                               |   |
|   |                        | James C. Lewis                     |   |
|   |                        |                               |   |
|   |                        | Hui-Lan      Lee    |   |

----

Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters

|                                                             |   | Common      Stock Beneficially Owned |      |
|------------------------------------------------------------------|--------|--------------------------------------|-----------|
| Name      and Address of Beneficial Owner                        |   | Total      Outstanding               |      |   | Shares      Underlying Convertible Securities (1) |   |   | Total |   |   | Percent      (2) |   |
| Directors      and Named Executive Officers                      |   |                                 |      |   |   |   |   |   |   |   |   |   |
| Leng      You-Bin (3)                                            |   |                                 | 8,900,135 |   |   |   | 0 |   |   |   | 8,900,135 |   |   |   | 51.6 | % |
| Liu      Hua (3)                                                 |   |                                 | 27,200    |   |   |   | 0 |   |   |   | 27,200 |   |   |   | * |   |
| Liu      Sheng-Hui (3)                                           |   |                                 | 287,774   |   |   |   | 0 |   |   |   | 287,774 |   |   |   | 1.7 | % |
| Hui-Lan      Lee (3)                                             |   |                                 | 39,500    |   |   |   | 0 |   |   |   | 39,500 |   |   |   | * |   |
| Kirk      Downing (3)                                            |   |                                 | 14,500    |   |   |   | 0 |   |   |   | 14,500 |   |   |   | * |   |
| James      C. Lewis (3)(4)                                       |   |                                 | 35,000    |   |   |   | 0 |   |   |   | 35,000 |   |   |   | * |   |
| Jonathan      H. Chou (3)                                        |   |                                 | 0         |   |   |   | 80,000 |   |   |   | 80,000 |   |   |   | * |   |
| Nie      Bo (3)                                                  |   |                                 | 0         |   |   |   | 0 |   |   |   | 0 |   |   |   | 0 | % |
| Directors      and executive officers as a group(8      persons) |   |                                 | 9,304,109 |   |   |   | 80,000 |   |   |   | 9,384,109 |   |   |   | 54.3 | % |
|                                                             |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 5%      Beneficial Owners                                        |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Entities      associated Pike Capital Partners (5)               |   |                                 | 1,881,519 |   |   |   | 250,000 |   |   |   | 2,131,519 |   |   |   | 12.4 | % |
| 275      Madison Avenue, Suite 418                               |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| New      York, NY 10016                                          |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| River      Road Asset Management (6)                             |   |                                 | 1,092,294 |   |   |   | 0 |   |   |   | 1,092,294 |   |   |   | 6.3 | % |
| 462      S. 4th Street, Suite 1600                               |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Louisville,      KY 40202                                        |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *Less      than 1%                                               |   |                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Includes      shares of our common stock issuable upon exercise of options or upon      conversion of warrants or convertiblenotes. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Based      on 17,253,907 shares of our common stock outstanding as of March 15,      2009. |
|-----|--------------------------------------------------------------------------------------------|

| (3) | The      address for this beneficial owner is c/o American Dairy, Star City International Building,      10 Jiuqianxiao Road, C-16th Floor, Chaoyang District,      Beijing, China 100016. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | James      C. Lewis holds such shares jointly with his  spouse. |
|-----|-----------------------------------------------------------------|

| (5) | Consists      of 1,686,196 shares of our common and warrants to purchase 219,514 shares      of our common stock held by Pike Capital Partners (QP) LP (“PCPQP”), and      195,323 shares of our common stock and warrants to purchase 30,486 shares      of our common stock held by Pike Capital Partners LP      (“PCP”).  Pike Capital Management LLC (“PCM”) is the general      partner of PCPQP and of PCP.  Daniel W. Pike is the managing      member of PCM and, in such capacity, has voting and dispositive power over      such shares. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Thomas      D. Mueller is the Chief Operating officer and Chief Compliance Officer of      River Road Asset Management, LLC, and, in such capacity, has voting and      dispositive power over such shares. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Plan    Category                                            |   | Number of securities issued and 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 |   |
|-------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|---------|--------|----------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
| Equity compensation plans approved      by security holders |   |                                                                                                             | 454,020 |   |                                                                             | $      | 20.30  |                                                              |   |   | 2,545,980 |   |
| Total                                                       |   |                                                                                                             | 454,020 |   |                                                                             | $      | 20.30  |                                                              |   |   | 2,545,980 |   |

----

|        Name                                                    |   | Audit Fees      (1)  |   |   | Audit Related Fees      (2)  |   | Tax Fees      (3)  |
|---------------------------------------------------------------------|--------|---------------------------|--------|--------|-----------------------------------|--------|-------------------------|
| Murrell, Hall, McIntosh & Co.,      PLLP for fiscal year ended: |   |                      |   |   |                              |   |                    |
| December 31,      2006                                              | $      | 167,466                   |   |   | 60,000                            |   | 12,824                  |
| December 31,      2007                                              |   | 0                         |   |   | 0                                 |   | 0                       |
| December 31,      2008                                              |   | 0                         |   |   | 0                                 |   | 0                       |
|                                                                |   |                      |   |   |                              |   |                    |
| Grant Thornton, for fiscal year      ended:                         |   |                      |   |   |                              |   |                    |
| December 31,      2006                                              | $      | 695,049                   |   |   | 0                                 |   | 0                       |
| December 31,      2007                                              |   | 1,109,448                 |   |   | 0                                 |   | 0                       |
| December 31,      2008                                              |   | 100,000                   | (4)    |   | 0                                 |   | 0                       |

| (1) | This      category includes the audit of our annual financial statements, the audit      of our internal control over financial reporting, review of unaudited      quarterly financial statements included in our Form 10-Q quarterly      reports, and services that are normally provided by the independent      registered public accounting firm in connection with regulatory filings or      engagements, for those fiscal years.  This category also      includes advice on accounting matters that arose during, or as a result      of, the audit or the review of interim financial    statements. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Fees      associated with the filing of our Registration Statement on Form      S-1.                          |
|-----|---------------------------------------------------------------------------------------------------------------|
| (3) | Tax      fees consisted of consultations on various tax matters and compliance with      filing requirements. |

| (4) | Represents      initialamounts billed      to date for 2008 audit fees; additional amounts      expected. |
|-----|-----------------------------------------------------------------------------------------------------------|

----

|             |                                                                                                                                                                          |                | Incorporated      by Reference |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------------------------------|
| Exhibit      No. | Exhibit      Title                                                                                                                                                            | Filed      Herewith | Form                           | Exhibit      No. | File      No. | Filing      Date |
| 2                | Stock      Exchange Agreement, dated as of January 15, 2003, by and among the      registrant, the registrant’s shareholders and Lazarus Industries,      Inc.          |                | 8-K                            | 2.1 | 000-27351 | 1/21/03 |
| 2.1              | Amendment      to Stock Exchange Agreement, dated as of March 5, 2003, by and among the      registrant, the registrant’s shareholders and Lazarus Industries,      Inc |                | 8-K/A                          | 2.2 | 000-27351 | 3/5/03 |
| 3.1              | Articles      of Incorporation                                                                                                                                                |                | 10-SB                          | 1 | 000-27351 | 9/16/99 |
| 3.2              | Amendment      to Articles of Incorporation                                                                                                                                   |                | 10-KSB/A                       | 3.2 | 000-27351 | 5/25/04 |
| 3.3              | Bylaws                                                                                                                                                                        |                | 10-SB                          | 2 | 000-27351 | 9/16/99 |
| 4.1              | Private      Placement Memorandum, together with subscription documents, dated as of      June 30, 2003                                                                       |                | S-1/A                          | 4.1 | 333-128075 | 10/6/06 |
| 4.2              | Private      Placement Memorandum, together with subscription documents, dated as of      April 26, 2004                                                                      |                | S-1/A                          | 4.2 | 333-128075 | 10/6/06 |
| 4.3              | Private      Placement Memorandum, together with subscription documents, dated as of      June 30, 2004                                                                       |                | S-1/A                          | 4.3 | 333-128075 | 10/6/06 |
| 4.4              | Series      A Convertible Note, maturity date April 26, 2006                                                                                                                  |                | 10-QSB                         | 10.1 | 001-32473 | 8/15/05 |
| 4.5              | Series      B Convertible Note, maturity date June 30, 2007                                                                                                                   |                | 10-QSB                         | 10.2 | 001-32473 | 8/15/05 |
| 4.6              | Series      B Convertible Note, maturity date August 13, 2007                                                                                                                 |                | 10-Q                           | 10.5 | 001-32473 | 11/14/05 |
| 4.7              | Form      of 7.75% Convertible Note                                                                                                                                           |                | 8-K/A                          | 4.1 | 001-32473 | 10/6/06 |
| 4.8              | Form      of Common Stock Purchase Warrant                                                                                                                                    |                | 8-K/A                          | 4.2 | 001-32473 | 10/6/06 |
| 10.1             | Consulting Agreement, dated as of      March 28, 2003, by and between the registrant and Danbury Properties,      L.L.C.                                                      |                | 10-KSB                         | 10.3 | 000-27351 | 4/05/04 |
| 10.2             | Stock Purchase Agreement, dated as      of March 28, 2003, by and among the registrant, the registrant’s      shareholders and Lazarus Industries, Inc                  |                | 10-KSB                         | 10.4 | 000-27351 | 4/15/04 |
| 10.3             | Joint Venture Agreement to      organize Beijing Feihe                                                                                                                        |                | 10-QSB                         | 10.1 | 000-27351 | 5/17/04 |
| 10.4             | 2003 Stock Incentive      Plan                                                                                                                                                |                | S-8                            | 10 | 333-123932 | 4/7/05 |
| 10.5             | Asset Purchase Agreement, dated as      of May 20, 2005, by and between the registrant and Nutricia Nutritionals      Col, Ltd.                                               |                | 8-K                            | 10.1 | 001-32473 | 5/26/05 |

----

|                  |                                                                                                                                                                                          |                | Incorporated      by Reference |
|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------------------------------|
| Exhibit      No  |        Exhibit      Title                                                                                                                                                                | Filed      Herewith |        Form               | Exhibit      No. |        File      No. | Filing      Date |
| 10.6                  | RMB Loan Contract, dated as of      June 24th, 2005, by and between Feihe Dairy and Qiqihaer Branch of China      Construction Bank Co., Ltd.                                                 |                | S-1/A                          | 10.9 | 333-128075 | 7/19/06 |
| 10.7                  | Construction Contract by and      between Shanxi Feihe and Changzhi subsidiary company of Henan Construction      Project Company                                                             |                | S-1/A                          | 10.10 | 333-128075 | 7/19/06 |
| 10.8                  | Form      of Subscription Agreement, dated as of October 3, 2006, by and between the      registrant and investors listed therein                                                             |                | 8-K/A                          | 10.1 | 333-128075 | 10/6/06 |
| 10.9                  | Form of Registration Rights      Agreement, dated as of October 3, 2006, by and between the registrant and      investors listed therein                                                      |                | 8-K/A                          | 10.2 | 333-128075 | 10/6/06 |
| 10.10                 | Loan Contract of Current Capital,      by and between Heilong Jiang Flying Crane Dairy Co., Ltd and Kedong County      branch of Agricultural Development Bank of China                       |                | S-1/A                          | 10.13 | 333-128075 | 12/6/06 |
| 10.11                 | RMB Loan Contract, by and between      Feihe Dairy and Qiqihaer Branch of China Construction Bank Co.,      Ltd.                                                                              |                | S-1/A                          | 10.11 | 333-128075 | 12/6/06 |
| 10.12                 | RMB Loan Contract, by and between      Feihe Dairy and Qiqihaer Branch of China Construction Bank Co.,      Ltd.                                                                              |                | S-1/A                          | 10.12 | 333-128075 | 12/6/06 |
| 10.13                 | Form of Dairy      Contract                                                                                                                                                                   |                | S-1/A                          | 10.14 | 333-128075 | 12/6/06 |
| 10.14                 | Product Purchase and Sale      Contract, dated as of December 26, 2005, by and between Feihe Dairy and      Changxing Dairy                                                                   |                | S-1/A                          | 10.14 | 333-128075 | 3/19/07 |
| 10.15                 | Product Purchase and Sale      Contract, dated as of April 26, 2004, by and between Feihe Dairy and      Changxing Dairy                                                                      |                | S-1/A                          | 10.15 | 333-128075 | 3/19/07 |
| 10.16                 | Share Transference Agreement,      dated as of July 1, 2006, by and between the registrant and Shanxi Li      Santai Science and Technology Co., Ltd.                                         |                | S-1/A                          | 10.16 | 333-128075 | 4/17/07 |
| 10.17                 | Amended and Restated Notes      Purchase Agreement, dated as of June 1, 2007, by and among the registrant,      Leng You-Bin, Liu Hua and Citadel Equity Fund                                 |                | 8-K                            | 10.1 | 001-32473 | 6/4/07 |
| 10.18                 | Indenture, dated as of June 1,      2007, by and between the registrant and The Bank of New      York.                                                                                        |                | 8-K                            | 10.2 | 001-32473 | 6/4/07 |
| 10.19                 | Form of Note (attached as exhibit      to the Indenture filed as Exhibit 10.19)                                                                                                               |                | 8-K                            | 10.2 | 001-32473 | 6/4/07 |
| 10.20                 | Registration Rights      Agreement                                                                                                                                                            |                | 8-K                            | 10.3 | 001-32473 | 6/4/07 |
| 10.21                 | Investor Rights      Agreement                                                                                                                                                                |                | 8-K                            | 10.4 | 001-32473 | 6/4/07 |
| 10.22                 | Share Pledge      Agreement                                                                                                                                                                   |                | 8-K                            | 10.5 | 001-32473 | 6/4/07 |
| 10.23                 | Indenture, dated as of June 27,      2007, by and among the registrant, the holders listed therein and The Bank      of New York                                                              |                | S-1/A                          | 10.25 | 333-128075 | 6/28/07 |
| 10.24                 | Form of 1% Guaranteed Senior      Secured Convertible Note (attached as an exhibit to the Indenture filed as      exhibit 10.25)                                                              |                | S-1/A                          | 10.25 | 333-128075 | 6/28/07 |
| 10.25                 | Form of Accession      Letter                                                                                                                                                                 |                | S-1/A                          | 10.26 | 333-128075 | 6/28/07 |
| 10.26                 | Form of Non-Competition Agreement,      by and between the registrant and each of Mr. Leng You-Bin and Roger      Liu                                                                         |                | S-1/A                          | 10.27 | 333-128075 | 6/28/07 |
| 10.27                 | Joinder      Agreement                                                                                                                                                                        |                | S-1/A                          | 10.28 | 333-128075 | 6/28/07 |
| 10.28                 | Loan Agreement, dated as of June      27, 2007, by and between the registrant and Moveup                                                                                                      |                | 10-Q/A                         | 10.1 | 001-32473 | 8/22/07 |
| 10.29                 | Equity Purchase Agreement, dated      as of August 2, 2007, by and among Moveup, Hunan Mulin Modern Food      Company, Ltd., Australia Ausnutria Dairy Pty., Chen Yuanrong and      Ausnutria |                | 10-Q/A                         | 10.2 | 001-32473 | 8/22/07 |

----

|                   |                                                                                                                                                                                                     |                | Incorporated      by Reference  |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------------------------------------|
| Exhibit No.  | Exhibit      Title                                                                                                                                                                                       | Filed      Herewith | Form                                 | Exhibit      No. |        File      No. | Filing      Date |
| 10.30                  | Share Subscription Agreement,      dated as of August 12, 2007, by and between Moveup and      Ausnutria                                                                                                 |                | 10-Q/A                               | 10.3 | 001-32473 | 8/22/07 |
| 10.31                  | Share Subscription Agreement, by      and between the registrant and Ausnutria                                                                                                                           |                | 10-Q/A                               | 10.4 | 001-32473 | 8/22/07 |
| 10.32                  | Equity Purchase Agreement, dated      as of October 25, 2007, by and among Moveup, Hunan Mulin Modern Food      Company, Ltd Chen Yuanrong and Ausnutria                                                 |                | 8-K                                  | 10.1 | 001-32473 | 10/31/07 |
| 10.33                  | Employment Agreement, dated as of      April 15, 2008 by and between the registrant and Jonathan H. Chou                                                                                                 |                | 8-K                                  | 10.1 | 001-32473 | 4/18/08 |
| 10.34                  | Supplemental Indenture, dated as      of November 12, 2008, by and between the registrant and The Bank of New      York Mellon, as Trustee, as amended                                                   |                | 8-K/A                                | 10.1 | 001-32473 | 11/21/08 |
| 10.35                  | Agreement Regarding 2009 Notes,      dated as of November 12, 2008, by and among the registrant, Leng You-Bin      and the investors named therein                                                       |                | 8-K/A                                | 10.2 | 001-32473 | 11/21/08 |
| 10.36                  | Share Pledge Agreement, dated as      of November 12, 2008, by and among the registrant, Leng You-Bin and The      Bank of New York, Mellon, as collateral agent                                         |                | 8-K/A                                | 10.3 | 001-32473 | 11/21/08 |
| 10.37                  | First Amendment to Registration      Rights Agreement, dated as of November 12, 2008, by and between the      registrant and the investors named therein.                                                |                | 8-K/A                                | 10.4 | 001-32473 | 11/21/08 |
| 10.38                  | Waiver Letter to Registration      Rights Agreement, dated as of November 12, 2008, by and between the      registrant and the investors named therein                                                   |                | 8-K/A                                | 10.5 | 001-32473 | 11/21/08 |
| 10.39                  | Form of Amended and Restated 7.75%      Convertible Note due October 2, 2009                                                                                                                             |                | 8-K/A                                | 10.6 | 001-32473 | 11/21/08 |
| 10.40                  | Form of Amended and Restated      Common Stock Purchase Warrant                                                                                                                                          |                | 8-K/A                                | 10.7 | 001-32473 | 11/21/08 |
| 14.1                   | Code of Business Conduct and      Ethics                                                                                                                                                                 |                | 10-KSB                               | 14 | 000-27351 | 3/31/05 |
| 14.2                   | Amended and Restated Code of      Business Conduct and Ethics                                                                                                                                            |                | 8-K                                  | 14 | 001-32473 | 5/12/08 |
| 16.1                   | Letter of HJ & Associates,      L.L.C. regarding change in certifying accountant                                                                                                                     |                | 8-K                                  | 16 | 000-27351 | 8/6/03 |
| 16.2                   | Letter of Weinberg & Company,      regarding change in certifying accountant                                                                                                                         |                | 8-K                                  | 16 | 000-27351 | 11/17/03 |
| 16.3                   | Letter of Murrell, Hall, McIntosh      & Co., PLLP, regarding change in certifying      accountant                                                                                                   |                | 8-K                                  | 16.1 | 001-32473 | 12/13/07 |
| 21.1                   | Subsidiaries of the      registrant                                                                                                                                                                      |                | 10-K                                 | 21.1 | 001-32473 | 3/31/09 |
| 23.1                   | Consent of Grant      Thornton                                                                                                                                                                           | X                   |                                 |   |   |   |
| 31.1                   | Certification of Principal      Executive Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted      pursuant to Section 302 of the Sarbanes-Oxley Act of      2002                                 | X                   |                                 |   |   |   |
| 31.2                   | Certification of Principal      Financial Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted      pursuant to Section 302 of the Sarbanes-Oxley Act of      2002                                 | X                   |                                 |   |   |   |
| 32                     | Certification of Principal      Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.      § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act      of 2002 | X                   |                                 |   |   |   |

----

| April 14,    2009 | AMERICAN DAIRY,      INC. |                                                     |
|-------------------|---------------------------|----------------------------------------------------------|
|              |                      |                                                     |
|              | By:                       | /s/ Leng      You-Bin                                    |   |
|              |                      | Leng You-Bin, Chief      Executive                       |   |
|              |                      | Officer and President (Principal      Executive Officer) |   |
|              |                      |                                                     |   |
|              | By:                       | /s/ Jonathan H. Chou                                     |   |
|              |                      | Jonathan H. Chou, Chief Financial      Officer           |   |
|              |                      | (Principal Accounting and      Financial Officer)        |   |

|                                                           |                |
|----------------------------------------------------------------|---------------------|
| /s/ Leng      You-Bin                                          | April 14,    2009   |
| Leng You-Bin, Director, Chief      Executive                   |                |
| Officer and President (Principal      Executive Officer)       |                |
|                                                           |                |
| /s/ Liu Hua                                                    | April 14,      2009 |
| Liu Hua, Director, Vice Chairman,      Secretary and Treasurer |                |
|                                                           |                |
| /s/ Liu      Sheng-Hui                                         | April 14,    2009   |
| Liu Sheng-Hui,      Director                                   |                |
|                                                           |                |
| /s/ Hui-Lan    Lee                                             | April 14,    2009   |
| Hui-Lan Lee,      Director                                     |                |
|                                                           |                |
| /s/ Kirk      Downing                                          | April 14,    2009   |
| Kirk Downing,      Director                                    |                |
|                                                           |                |
| /s/ James    Lewis                                             | April 14,    2009   |
| James Lewis,      Director                                     |                |

----

----

| •   | Management      inadequately documented and untimely performed its assessment of internal      controls over financial reporting as of December 31,  2007. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      Company did not establish review procedures and retain qualified personnel      to ensure the financial statements were prepared in compliance with United      States Generally Accepted Accounting Principles (US GAAP) and      Securities and Exchange Commission disclosure requirements. In addition,      the Company did not adequately review US GAAP adjustment procedures, the      disclosure reporting process and the consolidated financial statement      preparation process. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| •   | The      Company did not effectively and timely identify errors in the accounting      treatments of both routine and non-routine transactions. A number of      transactions, including sales, purchases, inventory, taxation, acquisition      of assets, asset valuation and capital assets required material auditing      adjustments caused by incorrect accounting treatments applied by the      Company. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      Company did not maintain an effective oversight function of internal      control over financial reporting as required by the Sarbanes-Oxley Act      (“SOX”). We observed the following in2007: |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                      a. | The      English version Code of Conduct and the embedded whistle blowing policy      (the “Code”) were not effectively communicated to facilitate the      understanding of management and staff in local  language; |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 b. | The      audit committee did not select or appoint the chief officer of internal      audit functions. There was no written selection criteria of the chief      officer of internal auditfunctions; |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                      c. | There      was no reporting channel between the internal audit function and the audit      committee; |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|

|                                      d. | There      was no documented review or approval of the Company’s risk assessment by      the audit committee; |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|

|                                 e. | There      was no documented procedure that ensured relevant and sufficient      financial-related information was provided to the audit committee in the      course of their review of financialstatements; |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 f. | There      was no document that supported the accomplishment of the audit committee      charter. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                            |   | Note   |   |   | December      31,2007 |       |        | December      31,2006 |   |       | December      31,2005 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|-----------------------|------------|-------------|-----------------------|--------|------------|-----------------------|--------|
|                                                                                                                                                                                                            |   |   |   |   | US$                   |       |        | US$                   |   |       | US$                   |   |
| ASSETS                                                                                                                                                                                                          |   |   |   |   |                  |       |        | (Restated)            |   |       | (Restated)            |   |
| Current      assets:                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |
| Cash      and cash equivalents                                                                                                                                                                                  |   |   |   |   |                  | 11,181,484 |        |                  |   | 39,521,448 |                  |   |   | 13,187,638 |   |
| Time      deposit                                                                                                                                                                                               |   |   |   |   |                  | 8,214,002  |        |                  |   | -          |                  |   |   | - |   |
| Notes      and loans receivable                                                                                                                                                                                 |   |   | 8      |   |                  |       | 1,285,382   |                  |   |       | 230,474               |   |   |   | - |   |
| Trade      receivables, net                                                                                                                                                                                     |   |   | 9      |   |                  |       | 4,518,647   |                  |   |       | 5,566,465             |   |   |   | 5,356,235 |   |
| Due      from related parties                                                                                                                                                                                   |   |   | 18     |   |                  |       | 115,477     |                  |   |       | 103,416               |   |   |   | 250,414 |   |
| Employee      receivable                                                                                                                                                                                        |   |   |   |   |                  |       | 105,662     |                  |   |       | 214,150               |   |   |   | 299,849 |   |
| Advances      to suppliers                                                                                                                                                                                      |   |   |   |   |                  |       | 29,166,883  |                  |   |       | 1,183,088             |   |   |   | 1,726,487 |   |
| Inventories,      net                                                                                                                                                                                           |   |   | 10     |   |                  |       | 24,696,034  |                  |   |       | 14,656,562            |   |   |   | 9,516,142 |   |
| Prepayments      and other current assets                                                                                                                                                                       |   |   |   |   |                  |       | 2,567,262   |                  |   |       | 293,103               |   |   |   | 843,087 |   |
| Refundable      taxes                                                                                                                                                                                           |   |   |   |   |                  |       | 143,703     |                  |   |       | 876,344               |   |   |   | 631,122 |   |
| Deposit      for land use right                                                                                                                                                                                 |   |   |   |   |                  |       | 6,889,251   |                  |   |       | -                     |   |   |   | - |   |
| Other      receivables                                                                                                                                                                                          |   |   |   |   |                  |       | 3,960,921   |                  |   |       | 2,213,997             |   |   |   | 1,583,745 |   |
| Total      current assets                                                                                                                                                                                       |   |   |   |   |                  |       | 92,844,708  |                  |   |       | 64,859,047            |   |   |   | 33,394,719 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Investments:                                                                                                                                                                                                    |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Investment      in mutual funds – available for sale                                                                                                                                                      |   |   | 11     |   |                  |       | 171,125     |                  |   |       | -                     |   |   |   | - |   |
| Investment      at cost                                                                                                                                                                                         |   |   |   |   |                  |       | 246,420     |                  |   |       | -                     |   |   |   | - |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       | 417,545     |                  |   |       | -                     |   |   |   | - |   |
| Property      and equipment:                                                                                                                                                                                    |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Property      and equipment, net                                                                                                                                                                                |   |   | 13     |   |                  |       | 52,279,811  |                  |   |       | 36,191,534            |   |   |   | 30,175,511 |   |
| Construction      in progress                                                                                                                                                                                   |   |   | 14     |   |                  |       | 33,009,992  |                  |   |       | 8,507,864             |   |   |   | 5,608,244 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       | 85,289,803  |                  |   |       | 44,699,398            |   |   |   | 35,783,755 |   |
| Other      assets:                                                                                                                                                                                              |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Deposit      for equity investment                                                                                                                                                                              |   |   | 12     |   |                  |       | 28,269,857  |                  |   |       | -                     |   |   |   | - |   |
| Long      term notes and loans receivable                                                                                                                                                                       |   |   | 8      |   |                  |       | 1,368,999   |                  |   |       | -                     |   |   |   | - |   |
| Prepaid      leases                                                                                                                                                                                             |   |   |   |   |                  |       | 20,967,898  |                  |   |       | 6,063,250             |   |   |   | 1,632,880 |   |
| Goodwill                                                                                                                                                                                                        |   |   | 15     |   |                  |       | 2,142,079   |                  |   |       | 2,003,461             |   |   |   | - |   |
| Deferred      charges, net                                                                                                                                                                                      |   |   | 16     |   |                  |       | 3,328,140   |                  |   |       | -                     |   |   |   | - |   |
| Total      assets                                                                                                                                                                                               |   |   |   |   |                  |       | 234,629,029 |                  |   |       | 117,625,156           |   |   |   | 70,811,354 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’      EQUITY                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Liabilities                                                                                                                                                                                                |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                                                       |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Current      maturities of long-term debt                                                                                                                                                                       |   |   | 21     |   |                  |       | 1,464,145   |                  |   |       | 95,391                |   |   |   | 92,317 |   |
| Convertible      debt redeemable within one year                                                                                                                                                                |   |   | 22     |   |                  |       | -           |                  |   |       | 5,000,000             |   |   |   | 3,000,000 |   |
| Notes      and loans payable                                                                                                                                                                                    |   |   | 17     |   |                  |       | 8,512,446   |                  |   |       | 11,394,622            |   |   |   | 3,356,382 |   |
| Accounts      payable and accrued expenses                                                                                                                                                                      |   |   |   |   |                  |       | 15,801,346  |                  |   |       | 11,351,968            |   |   |   | 6,929,078 |   |
| Other      taxes payable                                                                                                                                                                                        |   |   |   |   |                  |       | 238,745     |                  |   |       | 805,214               |   |   |   | 399,608 |   |
| Advances      from customers                                                                                                                                                                                    |   |   |   |   |                  |       | 4,970,342   |                  |   |       | 2,141,550             |   |   |   | 11,868,683 |   |
| Due      to related parties                                                                                                                                                                                     |   |   | 18     |   |                  |       | 401,560     |                  |   |       | 528,310               |   |   |   | 1,543,536 |   |
| Advances      from employees                                                                                                                                                                                    |   |   | 19     |   |                  |       | 574,579     |                  |   |       | 738,553               |   |   |   | 1,254,033 |   |
| Accrued      employee benefits                                                                                                                                                                                  |   |   | 20     |   |                  |       | 1,088,600   |                  |   |       | 589,042               |   |   |   | 317,779 |   |
| Payable      for property and equipment                                                                                                                                                                         |   |   |   |   |                  |       | 4,883,238   |                  |   |       | 1,701,715             |   |   |   | 2,670,838 |   |
| Payable      for leases                                                                                                                                                                                         |   |   |   |   |                  |       | 1,945,519   |                  |   |       | 3,984,322             |   |   |   | 1,065,957 |   |
| Other      payable                                                                                                                                                                                              |   |   |   |   |                  |       | 3,608,172   |                  |   |       | 2,734,701             |   |   |   | 1,348,725 |   |
| Total      current liabilities                                                                                                                                                                                  |   |   |   |   |                  |       | 43,488,692  |                  |   |       | 41,065,388            |   |   |   | 33,846,936 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Long      term debt, net of current portion                                                                                                                                                                     |   |   | 21     |   |                  |       | 382,465     |                  |   |       | 1,485,887             |   |   |   | 1,545,718 |   |
| Long      term tax payable                                                                                                                                                                                      |   |   | 6      |   |                  |       | 1,714,429   |                  |   |       | 1,005,567             |   |   |   | 452,234 |   |
| Derivatives                                                                                                                                                                                                     |   |   | 22     |   |                  |       | 50,019,300  |                  |   |       | -                     |   |   |   | - |   |
| Convertible      debt, net                                                                                                                                                                                      |   |   | 22     |   |                  |       | 55,237,771  |                  |   |       | 16,484,129            |   |   |   | 5,000,000 |   |
| Deferred      income                                                                                                                                                                                            |   |   |   |   |                  |       | 1,580,508   |                  |   |       | 1,425,178             |   |   |   | 350,037 |   |
| Total      liabilities                                                                                                                                                                                          |   |   |   |   |                  |       | 152,423,165 |                  |   |       | 61,466,149            |   |   |   | 41,194,925 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Minority      interests                                                                                                                                                                                         |   |   | 5      |   |                  |       | 536,977     |                  |   |       | -                     |   |   |   | 220,250 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Shareholders’      equity                                                                                                                                                                                 |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Ordinary      shares (US$0.001 par value, 50,000,000 shares authorized; 16,961,768,      15,831,820 and 14,132,824 issued and outstanding as of  December      31, 2007, 2006 and 2005, respectively) |   |   | 23     |   |                  |       | 16,961      |                  |   |       | 15,831                |   |   |   | 14,133 |   |
| Additional      paid-in capital                                                                                                                                                                                 |   |   | 23     |   |                  |       | 22,629,333  |                  |   |       | 14,120,275            |   |   |   | 5,871,152 |   |
| Ordinary      share warrants                                                                                                                                                                                    |   |   | 24     |   |                  |       | 3,011,444   |                  |   |       | 3,610,835             |   |   |   | 3,525,317 |   |
| Statutory      reserves                                                                                                                                                                                         |   |   | 25     |   |                  |       | 6,040,382   |                  |   |       | 3,053,906             |   |   |   | 1,588,966 |   |
| Accumulated      other comprehensive income                                                                                                                                                                     |   |   |   |   |                  |       | 12,081,467  |                  |   |       | 2,766,777             |   |   |   | 773,660 |   |
| Retained      earnings                                                                                                                                                                                          |   |   |   |   |                  |       | 37,889,300  |                  |   |       | 32,591,383            |   |   |   | 17,622,951 |   |
| Total      shareholders’ equity                                                                                                                                                                           |   |   |   |   |                  |       | 81,668,887  |                  |   |       | 56,159,007            |   |   |   | 29,396,179 |   |
|                                                                                                                                                                                                            |   |   |   |   |                  |       |        |                  |   |       |                  |   |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                           |   |   |   |   |                  |       | 234,629,029 |                  |   |       | 117,625,156           |   |   |   | 70,811,354 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |  For      the years ended December 31 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Note                                       |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   | (US$,      except share data) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   | (Restated) |   |   | (Restated) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                       |   |   |   | 165,968,149 |   |   |   | 115,082,067 |   |   |   | 68,197,308 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of goods sold                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                       |   |   |   | 92,937,418 |   |   |   | 65,169,853 |   |   |   | 37,881,579 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   | 73,030,731 |   |   |   | 49,912,214 |   |   |   | 30,315,729 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      and administrative expenses:                                                                                                                                                                                                                                                                                                                                                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales      and      marketing                                                                                       |   |                                       |   |   |   | 40,739,403 |   |   |   | 28,066,399 |   |   |   | 17,637,327 |   |
| General      and      administrative                                                                                |   |                                       |   |   |   | 13,840,318 |   |   |   | 5,590,246 |   |   |   | 2,721,989 |   |
| Total      operating expenses                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                       |   |   |   | 54,579,721 |   |   |   | 33,656,645 |   |   |   | 20,359,316 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      from operations                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                       |   |   |   | 18,451,010 |   |   |   | 16,255,569 |   |   |   | 9,956,413 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expenses):                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                                                                                |   |                                       |   |   |   | 374,386 |   |   |   | 175,986 |   |   |   | 31,463 |   |
| Interest      and finance      costs                                                                                |   |                                       |   |   |   | (13,404,171 | ) |   |   | (1,520,856 | ) |   |   | (452,730 | ) |
| Amortization      of deferred      charges                                                                          |   |                                       | 16     |   |   |   | (369,794 | ) |   |   | - |   |   |   | - |   |
| Registration      rights      penalty                                                                               |   |                                       | 22     |   |   |   | (2,540,000 | ) |   |   | - |   |   |   | - |   |
| Loss      on extinguishment of      debt                                                                            |   |                                       |   |   |   |   | - |   |   |   | (687,578 | ) |   |   | - |   |
| Gain      on      derivatives                                                                                                                          |   |                                       |   |   |   |   | 3,279,031 |   |   |   | - |   |   |   | - |   |
| Government      subsidy-tax      refund                                                                             |   |                                       | 6      |   |   |   | 8,140,145 |   |   |   | 7,491,808 |   |   |   | 4,520,802 |   |
| Other      income (expenses),      net                                                                              |   |                                       |   |   |   |   | 236,387 |   |   |   | (435,318 | ) |   |   | (23,797 | ) |
| Income      before income tax expenses and minority interests                                                                                                                                                                                                                                                                                                                                                                             |   |                                       |   |   |   |   | 14,166,994 |   |   |   | 21,279,611 |   |   |   | 14,032,151 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      tax expenses                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                       | 6      |   |   |   | 5,879,535 |   |   |   | 4,857,561 |   |   |   | 2,762,432 |   |
| Net      income before minority interests                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       |   |   |   |   | 8,287,459 |   |   |   | 16,422,050 |   |   |   | 11,269,719 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority      interests                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                       | 5      |   |   |   | (3,066 | ) |   |   | 11,322 |   |   |   | 42,519 |   |
| Net      income attributable to ordinary shareholders                                                                                                                                                                                                                                                                                                                                                                                     |   |                                       |   |   |   |   | 8,284,393 |   |   |   | 16,433,372 |   |   |   | 11,312,238 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income:                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      currency translation      adjustments                                                               |   |                                       |   |   |   |   | 9,314,690 |   |   |   | 1,993,117 |   |   |   | 773,660 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                       |   |   |   |   | 17,599,083 |   |   |   | 18,426,489 |   |   |   | 12,085,898 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per ordinary share                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                               |   |                                       |   |   |   | $ | 0.51 |   |   | $ | 1.11 |   |   | $ | 0.82 |   |
| Diluted                                                                                                             |   |                                       |   |   |   | $ | 0.48 |   |   | $ | 0.98 |   |   | $ | 0.72 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average ordinary shares outstanding                                                                                                                                                                                                                                                                                                                                                                                         |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                               |   |                                       |   |   |   |   | 16,327,616 |   |   |   | 14,745,930 |   |   |   | 13,836,573 |   |
| Diluted                                                                                                             |   |                                       |   |   |   |   | 17,696,997 |   |   |   | 17,651,712 |   |   |   | 15,664,772 |   |

----

|                                            |   |   | Ordinary      shares(US$0.001      par value)  |   |   |   |           |   |   |   |                           |   |   |   |                        |   |   |   |                    |   |   |   |                                |   |   |   |                   |    |
|-------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|--------|----------------|--------|--------|--------|--------------------------------|--------|--------|--------|-----------------------------|--------|--------|--------|-------------------------|--------|--------|--------|-------------------------------------|--------|--------|--------|------------------------|---------|
|                                            |   |   | Number      ofShares                           |   |   |   | ParValue  |   |   |   | AdditionalPaid-inCapital  |   |   |   | OrdinaryShareWarrants  |   |   |   | StatutoryReserves  |   |   |   | AccumulatedOtherComprehensiveIncome |   |   |   | RetainedEarnings  |    |   |   |        TotalShareholders’Equity |   |
|                                            |   |   |                                                |   |   |   | US$       |   |   |   | US$                       |   |   |   | US$                    |   |   |   | US$                |   |   |   | US$                            |   |   |   | US$               |    |   |   | US$  |   |
|                                            |   |   |                                                |   |   |   |           |   |   |   |                           |   |   |   |                        |   |   |   |                    |   |   |   |                                |   |   |   |                   |    |   |   |   |   |
| Balance      as of January 1, 2005 (Restated)   |   |   | 13,556,354                                          |   |   |   | 13,556         |   |   |   | 3,412,007                      |   |   |   | 4,119,485                   |   |   |   | 812,549                 |   |   |   | -                                   |   |   |   | 7,087,130              |    |   |   | 15,444,727 |   |
| Warrant      exercise                           |   |   | 428,570                                             |   |   |   | 429            |   |   |   | 1,343,739                      |   |   |   | (594,168                    | )      |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 750,000 |   |
| Shares      issued for services                 |   |   | 147,900                                             |   |   |   | 148            |   |   |   | 940,092                        |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 940,240 |   |
| Asset      contributions                        |   |   | -                                                   |   |   |   | -              |   |   |   | 175,314                        |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 175,314 |   |
| Net      income                                 |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | 11,312,238             |    |   |   | 11,312,238 |   |
| Appropriation      to statutory reserves        |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | 776,417                 |   |   |   | -                                   |   |   |   | (776,417               | )  |   |   | - |   |
| Currency      translation adjustments           |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | 773,660                             |   |   |   | -                      |    |   |   | 773,660 |   |
| Balance      as of December 31, 2005 (Restated) |   |   | 14,132,824                                          |   |   |   | 14,133         |   |   |   | 5,871,152                      |   |   |   | 3,525,317                   |   |   |   | 1,588,966               |   |   |   | 773,660                             |   |   |   | 17,622,951             |    |   |   | 29,396,179 |   |
| Warrant      exercise                           |   |   | 1,196,251                                           |   |   |   | 1,196          |   |   |   | 3,792,001                      |   |   |   | (1,786,341                  | )      |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 2,006,856 |   |
| Shares      issued for services                 |   |   | 103,370                                             |   |   |   | 103            |   |   |   | 1,262,521                      |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 1,262,624 |   |
| Shares      issued for notes conversion         |   |   | 399,375                                             |   |   |   | 399            |   |   |   | 3,194,601                      |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 3,195,000 |   |
| Warrant      issued with convertible notes      |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | 1,871,859                   |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 1,871,859 |   |
| Net      income                                 |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | 16,433,372             |    |   |   | 16,433,372 |   |
| Appropriation      to statutory reserves        |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | 1,464,940               |   |   |   | -                                   |   |   |   | (1,464,940             | )  |   |   | - |   |
| Currency      translation adjustments           |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | 1,993,117                           |   |   |   | -                      |    |   |   | 1,993,117 |   |
| Balance      as of December 31, 2006 (Restated) |   |   | 15,831,820                                          |   |   |   | 15,831         |   |   |   | 14,120,275                     |   |   |   | 3,610,835                   |   |   |   | 3,053,906               |   |   |   | 2,766,777                           |   |   |   | 32,591,383             |    |   |   | 56,159,007 |   |
| Warrant      exercise                           |   |   | 505,698                                             |   |   |   | 506            |   |   |   | 1,698,932                      |   |   |   | (599,391                    | )      |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 1,100,047 |   |
| Shares      issued for services                 |   |   | 49,250                                              |   |   |   | 49             |   |   |   | 1,060,701                      |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 1,060,750 |   |
| Shares      issued for notes conversion         |   |   | 575,000                                             |   |   |   | 575            |   |   |   | 5,749,425                      |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | -                      |    |   |   | 5,750,000 |   |
| Net      income                                 |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | -                                   |   |   |   | 8,284,393              |    |   |   | 8,284,393 |   |
| Appropriation      to statutory reserves        |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | 2,986,476               |   |   |   | -                                   |   |   |   | (2,986,476             | )  |   |   | - |   |
| Currency      translation adjustments           |   |   | -                                                   |   |   |   | -              |   |   |   | -                              |   |   |   | -                           |   |   |   | -                       |   |   |   | 9,314,690                           |   |   |   | -                      |    |   |   | 9,314,690 |   |
| Balance      as of December 31, 2007            |   |   | 16,961,768                                          |   |   |   | 16,961         |   |   |   | 22,629,333                     |   |   |   | 3,011,444                   |   |   |   | 6,040,382               |   |   |   | 12,081,467                          |   |   |   | 37,889,300             |    |   |   | 81,668,887 |   |

----

|                                                                         |   | For      the years ended December 31 |         |
|------------------------------------------------------------------------------|--------|--------------------------------------|--------------|
|                                                                         |   | 2007                                 |         |   | 2006 |   |   | 2005 |   |
|                                                                         |   | US$                                  |         |   | US$ |   |   | US$ |   |
|                                                                         |   |                                 |         |   | (Restated) |   |   | (Restated) |   |
| Cash      flows from operating activities:                                   |   |                                 |         |   |   |   |   |   |   |
| Net      income before minority interests                                    |   |                                 | 8,287,459    |   |   |   | 16,422,050 |   |   |   | 11,269,719 |   |
| Adjustments      to reconcile net income to operating activities:            |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Depreciation      of property and equipment                                  |   |                                 | 2,941,122    |   |   |   | 2,264,222 |   |   |   | 944,019 |   |
| Amortization      of prepaid leases                                          |   |                                 | 180,496      |   |   |   | 77,112 |   |   |   | 37,024 |   |
| Amortization      of deferred income                                         |   |                                 | (24,756      | ) |   |   | (11,814 | ) |   |   | - |   |
| Loss      on disposal of property and equipment                              |   |                                 | 6,574        |   |   |   | 39,821 |   |   |   | 4,757 |   |
| Provision      for losses on receivables                                     |   |                                 | 4,377,606    |   |   |   | 182,763 |   |   |   | 71,646 |   |
| Provision      for losses on inventories                                     |   |                                 | 586,162      |   |   |   | (261,372 | ) |   |   | 339,320 |   |
| Compensation      expenses for stock issued                                  |   |                                 | 1,060,750    |   |   |   | 1,262,623 |   |   |   | 940,240 |   |
| Interest      expense from accrual of guaranteed redemption value            |   |                                 | 8,151,867    |   |   |   | - |   |   |   | - |   |
| Interest      expense from amortization of note discounts                    |   |                                 | 3,900,106    |   |   |   | 155,988 |   |   |   | - |   |
| Gain      on derivatives                                                     |   |                                 | (3,279,031   | ) |   |   | - |   |   |   | - |   |
| Amortization      of deferred charges                                        |   |                                 | 369,794      |   |   |   | - |   |   |   | - |   |
| Changes      in assets and liabilities:                                      |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Decrease      (increase) in trade receivables, net                           |   |                                 | 670,212      |   |   |   | (392,993 | ) |   |   | (4,896,487 | ) |
| (Increase)      decrease in due from related parties                         |   |                                 | (12,061      | ) |   |   | 146,999 |   |   |   | (248,343 | ) |
| Decrease      (Increase) in employee receivable                              |   |                                 | 108,488      |   |   |   | 85,700 |   |   |   | (32,630 | ) |
| (Increase)      decrease in advances to suppliers                            |   |                                 | (27,983,795  | ) |   |   | 543,399 |   |   |   | (1,418,820 | ) |
| Increase      in inventories, net                                            |   |                                 | (10,543,305  | ) |   |   | (4,879,049 | ) |   |   | (6,348,486 | ) |
| (Increase)      decrease in prepayments and other assets                     |   |                                 | (2,274,160   | ) |   |   | 549,985 |   |   |   | (294,919 | ) |
| Decrease      (increase) in refundable taxes                                 |   |                                 | 732,641      |   |   |   | (245,221 | ) |   |   | (625,252 | ) |
| Increase      in other receivables                                           |   |                                 | (1,746,921   | ) |   |   | (630,254 | ) |   |   | (559,060 | ) |
| Increase      in accounts payable and accrued expenses                       |   |                                 | 4,449,377    |   |   |   | 4,422,890 |   |   |   | 838,161 |   |
| (Decrease)      increase in other taxes payable                              |   |                                 | (566,468     | ) |   |   | 405,606 |   |   |   | 550,058 |   |
| Increase      (decrease) in advances from customers                          |   |                                 | 2,828,792    |   |   |   | (9,727,133 | ) |   |   | 3,253,246 |   |
| (Decrease)      increase in due to related parties                           |   |                                 | (126,750     | ) |   |   | (1,015,226 | ) |   |   | 386,095 |   |
| (Decrease)      increase in advances from employees                          |   |                                 | (163,974     | ) |   |   | (515,480 | ) |   |   | 600,168 |   |
| Increase      in accrued employee benefits                                   |   |                                 | 499,559      |   |   |   | 271,263 |   |   |   | 271,083 |   |
| Increase      (decrease) in other payable                                    |   |                                 | 2,586,911    |   |   |   | 1,399,688 |   |   |   | (532,359 | ) |
| Increase      in long term tax payable                                       |   |                                 | 708,861      |   |   |   | 553,334 |   |   |   | 355,152 |   |
| Net      cash (used in) provided by operating activities                     |   |                                 | (4,274,444   | ) |   |   | 11,104,901 |   |   |   | 4,904,332 |   |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                   |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Purchase      of property and equipment                                      |   |                                 | (36,155,613  | ) |   |   | (10,806,249 | ) |   |   | (13,158,262 | ) |
| Purchase      of leases                                                      |   |                                 | (16,454,106  | ) |   |   | (670,308 | ) |   |   | - |   |
| Prepayment      for land use right                                           |   |                                 | (6,840,823   | ) |   |   | - |   |   |   | - |   |
| Increase      in short term notes and loans receivable                       |   |                                 | (1,054,908   | ) |   |   | (230,474 | ) |   |   | - |   |
| Decrease      in long term notes and loans receivable                        |   |                                 | -            |   |   |   | - |   |   |   | 217,483 |   |
| Increase      in long term notes receivable                                  |   |                                 | (5,321,860   | ) |   |   | - |   |   |   | - |   |
| Increase      in time deposit                                                |   |                                 | (7,988,497   | ) |   |   | - |   |   |   | - |   |
| Purchase      of mutual funds                                                |   |                                 | (167,296     | ) |   |   | - |   |   |   | - |   |
| Purchase      of equity investment                                           |   |                                 | (243,253     | ) |   |   | - |   |   |   | - |   |
| Deposits      paid for equity investment                                     |   |                                 | (27,459,981  | ) |   |   | - |   |   |   | - |   |
| Proceeds      from disposal of fixed assets                                  |   |                                 | 25,053       |   |   |   | 7,797 |   |   |   | - |   |
| Net      cash used in investing activities                                   |   |                                 | (101,661,284 | ) |   |   | (11,699,234 | ) |   |   | (12,940,779 | ) |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                   |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Proceeds      from short term notes and loans payable                        |   |                                 | 12,036,970   |   |   |   | 15,971,561 |   |   |   | 3,020,600 |   |
| Repayment      of short term notes and loans payable                         |   |                                 | (15,299,909  | ) |   |   | (8,201,820 | ) |   |   | (20,866 | ) |
| Proceeds      from long term debt                                            |   |                                 | 1,344,648    |   |   |   | - |   |   |   | 2,416,480 |   |
| Repayment      of long term debt                                             |   |                                 | (1,141,317   | ) |   |   | (109,402 | ) |   |   | (92,568 | ) |
| Proceeds      from convertible debt, net of issuance costs                   |   |                                 | 76,302,066   |   |   |   | 18,200,000 |   |   |   | 8,000,000 |   |
| Contribution      from prospective investors                                 |   |                                 | -            |   |   |   | - |   |   |   | 284,045 |   |
| Contribution      from minority shareholders                                 |   |                                 | 533,910      |   |   |   | - |   |   |   | - |   |
| Minority      interest acquisition                                           |   |                                 | (945,295     | ) |   |   | (2,071,808 | ) |   |   | - |   |
| Warrant      exercise                                                        |   |                                 | 1,100,047    |   |   |   | 2,006,856 |   |   |   | 750,000 |   |
| Net      cash provided by financing activities                               |   |                                 | 73,931,120   |   |   |   | 25,795,387 |   |   |   | 14,357,691 |   |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Effect      of exchange rate changes on cash                                 |   |                                 | 3,664,644    |   |   |   | 1,132,756 |   |   |   | 221,197 |   |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Net      (decrease) increase in cash and cash equivalents                    |   |                                 | (28,339,964  | ) |   |   | 26,333,810 |   |   |   | 6,542,441 |   |
| Cash      and cash equivalents, beginning of year                            |   |                                 | 39,521,448   |   |   |   | 13,187,638 |   |   |   | 6,645,197 |   |
| Cash      and cash equivalents, end of year                                  |   |                                 | 11,181,484   |   |   |   | 39,521,448 |   |   |   | 13,187,638 |   |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of cash flow information:                       |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Cash      paid during the year for income tax                                |   |                                 | 4,578,511    |   |   |   | 3,819,013 |   |   |   | 2,123,797 |   |
| Cash      received during the year for tax refund                            |   |                                 | 3,179,204    |   |   |   | 3,438,525 |   |   |   | 1,533,294 |   |
| Cash      paid during the year for liquidating damages                       |   |                                 | (1,820,000   | ) |   |   | - |   |   |   | - |   |
| Interest      paid during the year                                           |   |                                 | (701,216     | ) |   |   | (549,558 | ) |   |   | (140,467 | ) |
|                                                                         |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of non-cash investing and financing activities: |   |                                 |         |   |   |   |   |   |   |   |   |   |
| Conversion      of convertible debt to ordinary shares                       |   |                                 | 5,750,000    |   |   |   | 3,195,000 |   |   |   | - |   |
| Cashless      warrant exercise - 478,454 shares                              |   |                                 | -            |   |   |   | 478 |   |   |   | - |   |
| Non-cash      asset contribution                                             |   |                                 | -            |   |   |   | - |   |   |   | 8,647 |   |

----

| 1.  | ORGANIZATION      AND NATURE OF OPERATION |
|----------|-------------------------------------------|

| ·   | American      Flying Crane Corporation – Investmentholding |
|--------------------|------------------------------------------------------------------|

| ·   | Langfang      Flying Crane Dairy Products Co., Limited – Packaging and distribution of      Flying Crane branded products |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | GanNan      Flying Crane Dairy Products Co., Limited – Manufacturing and distribution      of Flying Crane branded products |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

| ·   | Heilongjiang      Feihe Dairy Co., Limited – Manufacturing and distribution of dairy      products under Feihe Trademarks |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | BaiQuan      Feihe Dairy Co., Limited – Manufacturing and distribution of dairy      products under Feihe Trademarks |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| ·   | Beijing      Feihe Biotechnology Scientific and Commercial Co., Limited – Marketing and      distribution of products under Feihe Trademarks and the Flying Crane      brand |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Shanxi      Feihesantai Biotechnology Scientific and Commercial Co., Limited –      Manufacturing and distribution of walnut  products |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Heilongjiang      Feihe Kedong Feedlots Co., Limited – The intended activities are breeding      and rearing of dairy cows, and distribution of fresh  milk |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Heilongjiang      Feihe Gannan Feedlots Co., Limited - The intended activities are breeding      and rearing of dairy cows, and distribution of fresh  milk |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Qiqihaer      Feihe Soybean Co., Limited – The intended activities are manufacturing and      distribution of soybean products |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Heilongjiang      Moveup Co., Limited – Marketing and distribution of third party dairy      products |
|--------------------|-------------------------------------------------------------------------------------------------------------|

| 2.  | PRINCIPAL ACCOUNTINGPOLICIES |
|----------|------------------------------|

| (1) | Basis      of presentation |
|-----|----------------------------|

| (2) | Principles      of consolidation |
|-----|----------------------------------|

----

| (3)  | Acquisitions |
|-----------|--------------|

| (4) | Foreign      currency translation |
|-----|-----------------------------------|

| (5) | Cash      and cash equivalents |
|-----|--------------------------------|

| (6) | Time      deposits |
|-----|--------------------|

| (7) | Investments |
|-----|-------------|

| (8) | Trade      receivables |
|-----|------------------------|

| (9) | Inventories |
|-----|-------------|

----

| (10) | Construction      in progress |
|------|-------------------------------|

| (11) | Property      and equipment |
|------|-----------------------------|

| Buildings      and plant     | 20-33      years |   |
|------------------------------|------------------|--------|
| Machinery      and equipment | 10-14      years |   |
| Office      equipment        | 5      years     |   |
| Motor      vehicles          | 5-8      years   |   |

| (12) | Prepaid      leases |
|------|---------------------|

| (13) | Goodwill |
|------|----------|

| (14) | Deferred      charges, net |
|------|----------------------------|

| (15) | Convertible      debt and embedded derivatives |
|------|------------------------------------------------|

----

| (16) | Deferred      income |
|------|----------------------|

| (17) | Financial      instruments |
|------|----------------------------|

| (18) | Revenue      recognition |
|------|--------------------------|

| (19) | Advances      from customers |
|------|------------------------------|

| (20) | Cost      of goods sold |
|------|-------------------------|

| (21) | Sales      and marketing |
|------|--------------------------|

----

| (22) | Product      display fees |
|------|---------------------------|

| (23) | Employee      benefit costs |
|------|-----------------------------|

| (24) | Share-based      compensation |
|------|-------------------------------|

| (25) | Leases |
|------|--------|

| (26) | Taxation |
|------|----------|

| (27) | Earnings      per ordinary share |
|------|----------------------------------|

| (28)  | Segment      reporting |
|------------|------------------------|

| (29) | Use      of estimates |
|------|-----------------------|

----

| 3. | ACCOUNTINGPRONOUNCEMENTS |
|----|--------------------------|

the restriction on the passive derivative instruments that a qualifyingspecial-purpose entity (SPE) may hold.  SFAS 155 was effective forhybrid financial instruments occurring after the beginning of an entity’s firstfiscal year that begins after September 15, 2006.  The adoption ofSFAS 155 had no impact on the Company’s financial statements.

----

| 4.  | CONCENTRATIONS      OF BUSINESS AND CREDIT RISK |
|----------|-------------------------------------------------|

----

| 5.   | MINORITY      INTERESTS |
|----------------|-------------------------|

|                                                       |   | US$                |                                                      |
|------------------------------------------------------------|--------|--------------------|-----------------------------------------------------------|
|                                                       |   |               |                                                      |
| Total      purchase price                                  |   |               | 2,885,780                                                 |   |
| Less      Fair value of identifiable assets acquired:      |   |               |                                                      |   |
|   Cash      and cash equivalents                 |   |               | 23,904                                                    |   |
|   Trade      receivables, net                    |   |               | 3,771                                                     |   |
|   Advances      to suppliers                     |   |               | 262,490                                                   |   |
|   Inventories,      net                          |   |               | 584,106                                                   |   |
|   Refundable      taxes                          |   |               | 74,949                                                    |   |
|   Other      receivables                         |   |               | 750                                                       |   |
|   Property      and equipment, net               |   |               | 2,159,994                                                 |   |
|   Prepaid      leases                            |   |               | 329,237                                                   |   |
|                                                       |   |               | 3,439,201                                                 |   |
| Plus      Fair value of liabilities assumed:               |   |               |                                                      |   |
|   Accounts      payable and accrued expenses     |   |               | 270,104                                                   |   |
|   Advances      from customers                   |   |               | 94                                                        |   |
|   Accrued      employee benefits                 |   |               | 5,356                                                     |   |
|   Other      payable                             |   |               | 2,223,178                                                 |   |
|   Long      term debt, net of current portion    |   |               | 8,979                                                     |   |
|                                                       |   |               | 2,507,711                                                 |   |
| Excess      of cost over fair value of net assets acquired |   |     |              1,954,290 |   |

----

|                                    |   | 2006   |        |
|-----------------------------------------|--------|--------|-------------|
|                                    |   | US$    |        |
| Sales                                   |   |   | 115,082,067 |   |
| Net      income                         |   |   | 16,422,050  |   |
| Earnings      per share – Basic   |   | $      | 1.11        |   |
| Earnings      per share – Diluted |   | $      | 0.98        |   |

| 6.  | TAXATION |
|----------|----------|

|                                                     |   | 2007   |        |   | 2006   |   |       | 2005   |   |
|----------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
|                                                     |   | US$    |        |   | US$    |   |       | US$    |   |
| Income      (loss) subject to domestic income taxes only |   |   | (21,479,394 | )      |   |   | (3,352,134 | )      |   |   | (1,804,145 | ) |
| Income      (loss) subject to foreign income taxes only  |   |   | 33,911,528  |   |   |   | 25,968,517 |   |   |   | 15,836,296 |   |
| Intercompany      elimination                            |   |   | 1,734,860   |   |   |   | (1,336,772 | )      |   |   | - |   |
|                                                     |   |   | 14,166,994  |   |   |   | 21,279,611 |   |   |   | 14,032,151 |   |

|                |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|---------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                |   | US$    |      |   | US$    |   |      | US$    |   |
| Current:            |   |   |      |   |   |   |      |   |   |
|   Federal |   |   | -         |   |   |   | -         |   |   |   | - |   |
|   State   |   |   | 12,505    |   |   |   | 100       |   |   |   | 100 |   |
|   PRC     |   |   | 5,867,030 |   |   |   | 4,857,461 |   |   |   | 2,762,332 |   |
|                |   |   | 5,879,535 |   |   |   | 4,857,561 |   |   |   | 2,762,432 |   |
| Deferred:           |   |   |      |   |   |   |      |   |   |   |   |   |
|   Federal |   |   | -         |   |   |   | -         |   |   |   | - |   |
|   State   |   |   | -         |   |   |   | -         |   |   |   | - |   |
|   PRC     |   |   | -         |   |   |   | -         |   |   |   | - |   |
|                |   |   | 5,879,535 |   |   |   | 4,857,561 |   |   |   | 2,762,432 |   |

|                                  |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|---------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                  |   | US$    |       |   | US$    |   |       | US$    |   |
| Tax      at Federal statutory rate    |   |   | 4,816,778  |   |   |   | 7,235,068  |   |   |   | 4,770,931 |   |
| U.S.      Permanent differences       |   |   | 4,745,468  |   |   |   | 395,762    |   |   |   | 552,712 |   |
| State      tax expenses               |   |   | 12,505     |   |   |   | 100        |   |   |   | 100 |   |
| Current      year State tax deduction |   |   | (34        | )      |   |   | (34        | )      |   |   | (34 | ) |
| Change      in valuation allowance    |   |   | 2,728,994  |   |   |   | 969,986    |   |   |   | 151,581 |   |
| Foreign      permanent differences    |   |   | (1,984,778 | )      |   |   | (26,420    | )      |   |   | (593,203 | ) |
| Foreign      rate differential        |   |   | (293,894   | )      |   |   | (242,016   | )      |   |   | (138,833 | ) |
| Foreign      tax holiday              |   |   | (5,232,905 | )      |   |   | (4,392,831 | )      |   |   | (2,548,557 | ) |
| Foreign      tax reserve              |   |   | 1,285,128  |   |   |   | 1,037,768  |   |   |   | 638,533 |   |
| Others                                |   |   | (197,727   | )      |   |   | (119,822   | )      |   |   | (70,798 | ) |
|                                  |   |   | 5,879,535  |   |   |   | 4,857,561  |   |   |   | 2,762,432 |   |

----

|                                    |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-----------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                    |   | US$    |       |   | US$    |   |       | US$    |   |
| Net      operating loss carryforward    |   |   | 1,819,767  |   |   |   | 1,245,878  |   |   |   | 385,117 |   |
| Accrued      liabilities and allowances |   |   | 1,612,898  |   |   |   | 5,782      |   |   |   | 5,782 |   |
| Debt      restructuring costs           |   |   | 279,220    |   |   |   | -          |   |   |   | - |   |
| Others                                  |   |   | (7,877     | )      |   |   | (7,553     | )      |   |   | 37,002 |   |
| PRC      deferred tax assets            |   |   | 418,794    |   |   |   | 247,359    |   |   |   | 105,172 |   |
| Gross      deferred tax assets          |   |   | 4,122,802  |   |   |   | 1,491,466  |   |   |   | 533,073 |   |
| Deferred      tax liabilities           |   |   | -          |   |   |   | -          |   |   |   | - |   |
| Total      deferred tax assets          |   |   | 4,122,802  |   |   |   | 1,491,466  |   |   |   | 533,073 |   |
| Valuation      allowance                |   |   | (4,122,802 | )      |   |   | (1,491,466 | )      |   |   | (533,073 | ) |
| Net      deferred tax assets            |   |   | -          |   |   |   | -          |   |   |   | - |   |

----

| Beginning      balance at January 1, 2007                      |   | $      | 1,701,010 |   |
|----------------------------------------------------------------|--------|--------|-----------|--------|
|                                                           |   |   |      |   |
| Increase      in unrecorded tax benefits taken in current year |   | $      | 1,113,603 |   |
|                                                           |   |   |      |   |
| Ending      balance at December 31, 2007                       |   | $      | 2,814,613 |   |

| 7.  | EARNINGS PER ORDINARYSHARE |
|----------|----------------------------|

|                                                    |   | December      31 |      |
|---------------------------------------------------------|--------|------------------|-----------|
|                                                    |   | 2007             |      |   | 2006 |   |   | 2005 |   |
| Net      income available to shareholders – basic |   |             | 8,284,393 |   |   |   | 16,433,372 |   |   |   | 11,312,238 |   |
| Effect      of dilutive securities                      |   |             |      |   |   |   |   |   |   |   |   |   |
|   Convertible      notes                      |   |             | 218,322   |   |   |   | 934,113 |   |   |   | - |   |
| Net      income available to shareholders - diluted     |   |             | 8,502,715 |   |   |   | 17,367,485 |   |   |   | 11,312,238 |   |

|                                       |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|--------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Weighted-average      shares – basic |   |   | 16,327,616 |   |   |   | 14,745,930 |   |   |   | 13,836,573 |   |
| Effect      of dilutive securities         |   |   |       |   |   |   |       |   |   |   |   |   |
|   Convertible      notes         |   |   | 335,287    |   |   |   | 995,066    |   |   |   | - |   |
|   Warrants      issued           |   |   | 1,034,094  |   |   |   | 1,910,716  |   |   |   | 1,828,199 |   |
| Weighted-average      shares - diluted     |   |   | 17,696,997 |   |   |   | 17,651,712 |   |   |   | 15,664,772 |   |

----

| 8.  | NOTES AND LOANSRECEIVABLE |
|----------|---------------------------|

|                                                                                             |   | 2007   |      |   | 2006   |   |    | 2005   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|
|                                                                                             |   | US$    |      |   | US$    |   |    | US$    |   |
| Bills      receivable from banks in the PRC, due within three months                             |   |   | 190,182   |   |   |   | 230,474 |   |   |   | - |   |
| Loans      receivable from a third party, bearing interest at 5.85%, due on October      1, 2008 |   |   | 1,095,200 |   |   |   | -       |   |   |   | - |   |
|                                                                                             |   |   | 1,285,382 |   |   |   | 230,474 |   |   |   | - |   |

|                                                                                            |   | 2007   |       |   | 2006   |   |   | 2005   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|
|                                                                                            |   | US$    |       |   | US$    |   |   | US$    |   |
| Promissory      note, bearing interest at 8%, due on June 27, 2009 (See Note      4(3))         |   |   | 4,000,000  |   |   |   | -      |   |   |   | - |   |
| Loans      receivable from a third party, bearing interest at 10%, due on January 17,      2009 |   |   | 1,368,999  |   |   |   | -      |   |   |   | - |   |
|                                                                                            |   |   | 5,368,999  |   |   |   | -      |   |   |   | - |   |
| Less:      Allowance for doubtful note receivable                                               |   |   | (4,000,000 | )      |   |   | -      |   |   |   | - |   |
|                                                                                            |   |   | 1,368,999  |   |   |   | -      |   |   |   | - |   |

| 9.  | TRADE RECEIVABLES,NET |
|----------|-----------------------|

|                                       |   | 2007   |      |   | 2006   |   |      | 2005   |   |
|--------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
|                                       |   | US$    |      |   | US$    |   |      | US$    |   |
| Trade      receivables                     |   |   | 5,188,760 |   |   |   | 5,858,972 |   |   |   | 5,465,979 |   |
| Less:      Allowance for doubtful accounts |   |   | (670,113  | )      |   |   | (292,507  | )      |   |   | (109,744 | ) |
| Trade      receivables, net                |   |   | 4,518,647 |   |   |   | 5,566,465 |   |   |   | 5,356,235 |   |

|                                |   | 2007   |      |   | 2006   |   |    | 2005   |   |
|-------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|
|                                |   | US$    |      |   | US$    |   |    | US$    |   |
| Balance      at January 1           |   |   | 292,507   |   |   |   | 109,744 |   |   |   | 38,098 |   |
| Add:      Current year additions    |   |   | 4,377,606 |   |   |   | 182,763 |   |   |   | 71,646 |   |
| Less:      Current year deletions   |   |   | -         |   |   |   | -       |   |   |   | - |   |
| Less:      Current year charge offs |   |   | -         |   |   |   | -       |   |   |   | - |   |
| Balance      at December 31         |   |   | 4,670,113 |   |   |   | 292,507 |   |   |   | 109,744 |   |

| 10.  | INVENTORIES,NET |
|-----------|-----------------|

|                        |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-----------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                        |   | US$    |       |   | US$    |   |       | US$    |   |
| Raw      materials          |   |   | 9,420,116  |   |   |   | 5,070,961  |   |   |   | 2,899,022 |   |
| Work-in-progress            |   |   | 9,459,614  |   |   |   | 545,715    |   |   |   | 1,034,539 |   |
| Finished      goods         |   |   | 5,816,304  |   |   |   | 9,039,886  |   |   |   | 5,582,581 |   |
| Total      inventories, net |   |   | 24,696,034 |   |   |   | 14,656,562 |   |   |   | 9,516,142 |   |

----

|                                |   | 2007   |    |   | 2006   |   |     | 2005   |   |
|-------------------------------------|--------|--------|---------|--------|--------|--------|----------|--------|--------|
|                                |   | US$    |    |   | US$    |   |     | US$    |   |
| Balance      at January 1           |   |   | 147,687 |   |   |   | 395,880  |   |   |   | 53,486 |   |
| Add:      Current year additions    |   |   | 586,162 |   |   |   | 39,522   |   |   |   | 339,320 |   |
| Less:      Current year deletions   |   |   | -       |   |   |   | -        |   |   |   | - |   |
| Less:      Current year charge offs |   |   | -       |   |   |   | (300,894 | )      |   |   | - |   |
| Foreign      exchange fluctuation   |   |   | 10,218  |   |   |   | 13,179   |   |   |   | 3,074 |   |
| Balance      at December 31         |   |   | 744,067 |   |   |   | 147,687  |   |   |   | 395,880 |   |

| 11.  | INVESTMENT IN MUTUAL FUNDS – Available for  sale |
|-----------|--------------------------------------------------------|

| 12.  | DEPOSIT FOR EQUITYINVESTMENT |
|-----------|------------------------------|

| 13.  | PROPERTY AND EQUIPMENT,NET |
|-----------|----------------------------|

|                                |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                |   | US$    |       |   | US$    |   |       | US$    |   |
|                                |   |   |       |   |   |   |       |   |   |
| Buildings      and plant            |   |   | 30,752,574 |   |   |   | 20,447,224 |   |   |   | 20,020,267 |   |
| Machinery      and equipment        |   |   | 27,054,642 |   |   |   | 18,272,616 |   |   |   | 10,599,506 |   |
| Office      equipment               |   |   | 433,623    |   |   |   | 301,324    |   |   |   | 202,303 |   |
| Motor      vehicles                 |   |   | 805,299    |   |   |   | 801,026    |   |   |   | 795,810 |   |
|                                |   |   | 59,046,138 |   |   |   | 39,822,190 |   |   |   | 31,617,886 |   |
| Less:      Accumulated depreciation |   |   | (6,766,327 | )      |   |   | (3,630,656 | )      |   |   | (1,442,375 | ) |
| Net      book value                 |   |   | 52,279,811 |   |   |   | 36,191,534 |   |   |   | 30,175,511 |   |

----

| 14. | CONSTRUCTION IN      PROGRESS |
|-----|-------------------------------|

|                                              |   | 2007   |       |   | 2006   |   |      | 2005   |   |
|---------------------------------------------------|--------|--------|------------|--------|--------|--------|-----------|--------|--------|
|                                              |   | US$    |       |   | US$    |   |      | US$    |   |
| Feihe      Dairy processing facilities            |   |   | 498,876    |   |   |   | 515,480   |   |   |   | 5,462,681 |   |
| Langfang      Feihe production factory facilities |   |   | 4,994      |   |   |   | 4,231,433 |   |   |   | - |   |
| Gannan      production factory facilities         |   |   | 16,313,727 |   |   |   | 3,583,602 |   |   |   | - |   |
| Shanxi      walnut processing facilities          |   |   | 58,979     |   |   |   | -         |   |   |   | 17,741 |   |
| Gannan      Pasture facilities                    |   |   | 7,409,610  |   |   |   | -         |   |   |   | - |   |
| Kedong      Pasture facilities                    |   |   | 7,546,838  |   |   |   | -         |   |   |   | - |   |
| Soybean      processing facilities                |   |   | 1,161,209  |   |   |   | -         |   |   |   | - |   |
| Others                                            |   |   | 15,759     |   |   |   | 177,349   |   |   |   | 127,822 |   |
| Total                                             |   |   | 33,009,992 |   |   |   | 8,507,864 |   |   |   | 5,608,244 |   |

| 15.  | GOODWILL |
|-----------|----------|

| 16.  | DEFERRED CHARGES, NET |
|-----------|-----------------------|

| 17.  | NOTES AND LOANSPAYABLE |
|-----------|------------------------|

|                                                                                                                                                                                              |   | 2007   |            |   | 2006   |   |       | 2005   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------|--------|--------|--------|------------|--------|--------|
|                                                                                                                                                                                              |   | US$    |            |   | US$    |   |       | US$    |   |
| Note      payable to a bank in the PRC, bearing interest at 6.696% per annum,      secured by plant and machinery, payable in monthly installments, due on      June 20, 2006                     |   |   |  -         |   |   |   | -          |   |   |   | 3,097,894 |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 5.85% per annum, secured      by loan guarantee from Feihe Dairy, payable with interest on maturity, due      on July 26, 2007        |   |   | -               |   |   |   | 3,849,168  |   |   |   |  - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 6.138% per annum,      secured by loan guarantees from Feihe Dairy, payable with interest on      maturity, due on June 27, 2007      |   |   | -               |   |   |   | 3,201,024  |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 6.138% per annum,      secured by a loan guarantee from Feihe Dairy, payable with interest on      maturity, due on February 27, 2007 |   |   | -               |   |   |   | 1,920,615  |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 7.29% per annum, secured      by plant and machinery, payable with interest on maturity, due on October      29, 2008                 |   |   | 3,422,501       |   |   |   | -          |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 7.47% per annum, secured      by a loan guarantee from Feihe Dairy, payable with interest on maturity,      due on December 25, 2008  |   |   | 3,422,502       |   |   |   | -          |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Note      payable to a bank in the PRC, bearing interest at 8.019% per annum,      unsecured, payable with interest on maturity, due on December 5,      2008                                     |   |   |  1,369,000 |   |   |   | -          |   |   |   | - |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Unsecured,      non-interest bearing notes payable to raw materials suppliers for      settlement of purchases, due on demand.                                                                    |   |   | -               |   |   |   | 2,144,686  |   |   |   |   |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Unsecured,      non-interest bearing loan payable to County Finance Department, due on      demand. (i)                                                                                           |   |   | 298,443         |   |   |   | 279,129    |   |   |   | 258,488 |   |
|                                                                                                                                                                                              |   |   |            |   |   |   |       |   |   |   |   |   |
| Total                                                                                                                                                                                             |   |   | 8,512,446       |   |   |   | 11,394,622 |   |   |   | 3,356,382 |   |

----

| 18.  | RELATED PARTYTRANSACTIONS |
|-----------|---------------------------|

|                                             |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                             |   | US$    |    |   | US$    |   |    | US$    |   |
| Due      from related parties:                   |   |   |    |   |   |   |    |   |   |
|   Due      from Directors of the Group |   |   | 50,855  |   |   |   | 7,776   |   |   |   | 109,665 |   |
|   Due      from related companies      |   |   | 64,622  |   |   |   | 95,640  |   |   |   | 140,749 |   |
| Total                                            |   |   | 115,477 |   |   |   | 103,416 |   |   |   | 250,414 |   |

|                                               |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                               |   | US$    |    |   | US$    |   |    | US$    |   |
| Due      to related parties:                       |   |   |    |   |   |   |    |   |   |
|   Due      to Directors of the Group     |   |   | 129,222 |   |   |   | 120,599 |   |   |   | 933,311 |   |
|   Due      to related companies          |   |   | 20,788  |   |   |   | 49,196  |   |   |   | 140,213 |   |
|   Loan      payable to a related party   |   |   | 251,550 |   |   |   | 358,515 |   |   |   | - |   |
|   Payable      to a minority shareholder |   |   | -       |   |   |   | -       |   |   |   | 470,012 |   |
| Total                                              |   |   | 401,560 |   |   |   | 528,310 |   |   |   | 1,543,536 |   |

|   | (1)      Due from/to Directors of the Group |
|--------|---------------------------------------------|

|                                      |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                      |   | US$    |   |   | US$    |   |   | US$    |   |
|                                      |   |   |   |   |   |   |   |   |   |
| Liu      Hua                              |   |   | 47,208 |   |   |   | 7,776  |   |   |   | 109,665 |   |
| Directors      of subsidiaries in the PRC |   |   | 3,647  |   |   |   | -      |   |   |   | - |   |
| Total                                     |   |   | 50,855 |   |   |   | 7,776  |   |   |   | 109,665 |   |

----

|                                      |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|-------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                      |   | US$    |    |   | US$    |   |    | US$    |   |
|                                      |   |   |    |   |   |   |    |   |   |
| Leng      You-Bin                         |   |   | 41,606  |   |   |   | 33,201  |   |   |   | 856,412 |   |
| Liu      Sheng-Hui                        |   |   | 87,616  |   |   |   | 81,946  |   |   |   | 49,566 |   |
| Directors      of subsidiaries in the PRC |   |   | -       |   |   |   | 5,452   |   |   |   | 27,333 |   |
| Total                                     |   |   | 129,222 |   |   |   | 120,599 |   |   |   | 933,311 |   |

|                                    |   | 2007   |    |   | 2006   |   |    | 2005   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                    |   | US$    |    |   | US$    |   |    | US$    |   |
|                                    |   |   |    |   |   |   |    |   |   |
| Tangshan      Feihe Trading Company     |   |   | 790,331 |   |   |   | 740,716 |   |   |   | 466,654 |   |
| Qianhuangdao      Feihe Trading Company |   |   | 107,421 |   |   |   | 54,270  |   |   |   | 127,856 |   |
| Dalian      Hewang Trading Company      |   |   | 25,400  |   |   |   | 11,420  |   |   |   | - |   |
| Total                                   |   |   | 923,152 |   |   |   | 806,406 |   |   |   | 594,510 |   |

|                                |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                |   | US$    |   |   | US$    |   |   | US$    |   |
|                                |   |   |   |   |   |   |   |   |   |
| Tangshan      Feihe Trading Company |   |   | 64,622 |   |   |   | 95,640 |   |   |   | 140,749 |   |

|                                    |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                    |   | US$    |   |   | US$    |   |   | US$    |   |
|                                    |   |   |   |   |   |   |   |   |   |
| Qianhuangdao      Feihe Trading Company |   |   | 16,412 |   |   |   | 48,266 |   |   |   | 140,213 |   |
| Dalian      Hewang Trading Company      |   |   | 4,376  |   |   |   | 930    |   |   |   | - |   |
| Total                                   |   |   | 20,788 |   |   |   | 49,196 |   |   |   | 140,213 |   |

| 19.  | ADVANCES FROMEMPLOYEES |
|-----------|------------------------|

----

| 20.  | EMPLOYEE BENEFITS |
|-----------|-------------------|

| 21.  | LONG TERM DEBT |
|-----------|----------------|

|                                                                                                                                                                                                                     |   | 2007   |       |   | 2006   |   |      | 2005   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|-----------|--------|--------|
|                                                                                                                                                                                                                     |   | US$    |       |   | US$    |   |      | US$    |   |
|                                                                                                                                                                                                                     |   |   |       |   |   |   |      |   |   |
| Loan      payable to a bank in the PRC, bearing interest at 5.76%, secured by plant      and machinery and payable in monthly installments.  The Loan      commenced in 2004 and matures on September 30, 2012 |   |   | 484,455    |   |   |   | 548,496   |   |   |   | 638,527 |   |
|                                                                                                                                                                                                                     |   |   |       |   |   |   |      |   |   |   |   |   |
| Loan      payable to a Financial Institution in the PRC, bearing interest at 5.85%,      unsecured and payable on maturity.  The loan commenced in 2007      and matures on December 15, 2008.                 |   |   | 1,362,155  |   |   |   | -         |   |   |   | - |   |
|                                                                                                                                                                                                                     |   |   |       |   |   |   |      |   |   |   |   |   |
| Loan      payable to non-related companies, bearing interest at 6.36%, unsecured and      payable on maturity.  The Loan commenced in 2005 and matures on      February 15, 2007                               |   |   | -          |   |   |   | 1,032,782 |   |   |   | 999,508 |   |
|                                                                                                                                                                                                                     |   |   | 1,846,610  |   |   |   | 1,581,278 |   |   |   | 1,638,035 |   |
| Less:      current portion of long-term debt                                                                                                                                                                             |   |   | (1,464,145 | )      |   |   | (95,391   | )      |   |   | (92,317 | ) |
|                                                                                                                                                                                                                     |   |   | 382,465    |   |   |   | 1,485,887 |   |   |   | 1,545,718 |   |

| Year      ended December 31, |   |   | Future      repayments |      |
|------------------------------|--------|--------|------------------------|-----------|
|                         |   |   | US$                    |      |
|  2008                   |   |   |                   | 1,464,145 |   |
|  2009                   |   |   |                   | 101,991   |   |
|  2010                   |   |   | 101,991                |      |
|  2011                   |   |   |                   | 101,991   |   |
|  2012                   |   |   |                   | 76,492    |   |
|                         |   |   |                   | 1,846,610 |   |

----

| 22.  | CONVERTIBLE DEBT, NET |
|-----------|-----------------------|

|                                                                                                                                          |   | 2007   |       |   | 2006   |      |       | 2005   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|------------|--------|--------|
|                                                                                                                                          |   | US$    |       |   | US$    |      |       | US$    |   |
| Series      A Convertible Note                                                                                                                |   | -      |       |   |   | -         |       |   |   | 3,000,000 |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |
| Series      B Convertible Note                                                                                                                |   | -      |       |   |   | 5,000,000 |       |   |   | 5,000,000 |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |
| 7.75%      Convertible Notes due 2009, net of discount of $1,091,919 and $1,715,871      at December 31, 2007 and 2006, respectively          |   |   | 17,108,081 |   |   |      | 16,484,129 |   |   |   | - |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |   |
| 1.00%      Guaranteed Senior Secured Convertible, including guaranteed redemption      accrual of $8,151,867 and note discount of $50,022,177 |   |   | 38,129,690 |   |   |      | -          |   |   |   | - |   |
|                                                                                                                                          |   |   | 55,237,771 |   |   |      | 21,484,129 |   |   |   | 8,000,000 |   |
| Less:      current portion                                                                                                                    |   |   | -          |   |   |      | (5,000,000 | )      |   |   | (3,000,000 | ) |
|                                                                                                                                          |   |   | 55,237,771 |   |   |      | 16,484,129 |   |   |   | 5,000,000 |   |

----

----

| Year      ended December 31 |   |   | Future      repayments |        |
|-----------------------------|--------|--------|------------------------|-------------|
|                        |   |   | US$                    |        |
|  2008                  |   |   |                   | -           |   |
|  2009                  |   |   |                   | 18,200,000  |   |
|  2010                  |   |   |                   | -           |   |
|  2011                  |   |   |                   | -           |   |
|  2012                  |   |   |                   | 88,151,867  |   |
|                        |   |   | 106,351,867            |        |
| Less      discount          |   |   |                   | (51,114,096 | ) |
|                        |   |   |                   | 55,237,771  |   |

| 23.  | ORDINARY SHARES AND EQUITYTRANSACTIONS |
|-----------|----------------------------------------|

----

| 24.  | OPTION      PLAN AND WARRANTS |
|-----------|-------------------------------|

|                                           |   | Warrants |       |   | Average      exercise price |   |
|------------------------------------------------|--------|----------|------------|--------|-----------------------------|--------|
|                                           |   |     |       |   | US$                         |   |
| Outstanding      warrants at January 1, 2005   |   |     | 2,992,866  |   |                        |   | 2.16 |   |
| Warrants      granted                          |   |     | -          |   |                        |   | - |   |
| Exercised                                      |   |     | (428,570   | )      |                        |   | 1.75 |   |
| Expired                                        |   |     | -          |   |                        |   | - |   |
| Outstanding      warrants at December 31, 2005 |   |     | 2,564,296  |   |                        |   | 2.23 |   |
| Warrants      granted                          |   |     | 251,040    |   |                        |   | 14.50 |   |
| Exercised                                      |   |     | (1,196,251 | )      |                        |   | 2.57 |   |
| Expired                                        |   |     | (64,404    | )      |                        |   | 1.75 |   |
| Outstanding      warrants at December 31, 2006 |   |     | 1,554,681  |   |                        |   | 4.11 |   |
| Exercised                                      |   |     | (505,698   | )      |                        |   | 2.17 |   |
| Expired                                        |   |     | -          |   |                        |   | - |   |
| Outstanding      warrants at December 31, 2007 |   |     | 1,048,983  |   |                        |   | 5.05 |   |

----

|                     |   |   | Warrants      outstanding at |   |
|--------------------------|--------|--------|------------------------------|--------|
|                     |   |   | December 31,      2007  |   |
|                     |   |   |                         |   |   | Weighted |   |   |   |   |
|                     |   |   |                         |   |   | Average |   |   | Weighted |   |
|                     |   |   |                         |   |   | Remaining |   |   | Average |   |
|                     |   |   | Warrants                     |   |   | Contractual |   |   | Exercise |   |
| Exercise      Prices US$ |   |   | Outstanding                  |   |   | Life      (years) |   |   | Price      US$ |   |
|                     |   |   |                         |   |   |   |   |   |   |   |
|                     | 1.50   |   |                         |   | 184,543 |   |   |   | 1.8 |   |   |   | 1.50 |   |
|                     | 2.25   |   |                         |   | 613,400 |   |   |   | 1.7 |   |   |   | 2.25 |   |
|                     | 14.50  |   |                         |   | 251,040 |   |   |   | 4.8 |   |   |   | 14.50 |   |
|                     |   |   |                         |   | 1,048,983 |   |   |   |   |   |   |   |   |   |

| 25.  | STATUTORYRESERVES |
|-----------|-------------------|

| 26.  | COMMITMENTS ANDCONTINGENCIES |
|-----------|------------------------------|

| 27.  | SUBSEQUENTEVENTS |
|-----------|------------------|

----

| 28.  | QUARTERLY OPERATINGRESULTS |
|-----------|----------------------------|

|                              | Three      Months Ended (Unaudited) |
|-----------------------------------|-------------------------------------|
|                              |                                |   |   |   |   |   |
| Fiscal      2007                  | December      31                    |   | September      30 |   | June      30 |   | March      31 |
|                              | US$                                 |   | US$ |   | US$ |   | US$ |
| Sales                             |                                |   | 45,736,337 |   |   |   | 44,113,426 |   |   |   | 39,746,028 |   |   |   | 36,372,358 |   |
| Gross      profit                 |                                |   | 16,075,511 |   |   |   | 18,906,012 |   |   |   | 18,577,977 |   |   |   | 19,471,231 |   |
| Net      income                   |                                |   | 1,799,631 |   |   |   | (6,874,506 | ) |   |   | 6,849,802 |   |   |   | 6,509,466 |   |
|                              |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Basic   |                                |   | 0.11 |   |   |   | (0.42 | ) |   |   | 0.43 |   |   |   | 0.41 |   |
|                              |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Diluted |                                |   | 0.10 |   |   |   | (0.42 | ) |   |   | 0.39 |   |   |   | 0.37 |   |

----

|                              |   | Three      Months Ended (Unaudited) |       |
|-----------------------------------|--------|-------------------------------------|------------|
|                              |   |                                |       |
| Fiscal      2006                  |   | December      31                    |       |   | September      30 |   |   | June      30 |   |   | March      31 |   |
|                              |   | US$                                 |       |   | $US |   |   | US$ |   |   | US$ |   |
| Sales                             |   |                                | 32,999,677 |   |   |   | 32,248,705 |   |   |   | 24,872,457 |   |   |   | 24,961,228 |   |
| Gross      profit                 |   |                                | 12,467,935 |   |   |   | 15,609,126 |   |   |   | 8,749,098 |   |   |   | 13,086,055 |   |
| Net      income                   |   |                                | 2,161,103  |   |   |   | 5,365,174 |   |   |   | 4,432,645 |   |   |   | 4,474,450 |   |
|                              |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Basic   |   |                                | 0.14       |   |   |   | 0.36 |   |   |   | 0.30 |   |   |   | 0.32 |   |
|                              |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Diluted |   |                                | 0.13       |   |   |   | 0.32 |   |   |   | 0.26 |   |   |   | 0.27 |   |

|                              |   | Three      Months Ended (Unaudited) |       |
|-----------------------------------|--------|-------------------------------------|------------|
|                              |   |                                |       |
| Fiscal      2005                  |   | December      31                    |       |   | September      30 |   |   | June      30 |   |   | March      31 |   |
|                              |   | US$                            |       |   | US$  |   |   | US$  |   |   | US$  |   |
| Sales                             |   |                                | 23,532,432 |   |   |   | 15,774,736 |   |   |   | 15,082,046 |   |   |   | 13,808,094 |   |
| Gross      profit                 |   |                                | 8,859,700  |   |   |   | 7,557,194 |   |   |   | 7,140,458 |   |   |   | 6,758,377 |   |
| Net      income                   |   |                                | 3,456,825  |   |   |   | 2,583,138 |   |   |   | 2,451,899 |   |   |   | 2,820,376 |   |
|                              |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Basic   |   |                                | 0.25       |   |   |   | 0.19 |   |   |   | 0.18 |   |   |   | 0.21 |   |
|                              |   |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per share - Diluted |   |                                | 0.22       |   |   |   | 0.17 |   |   |   | 0.16 |   |   |   | 0.19 |   |

| 29.  | ADJUSTMENTS TO PREVIOUSLY REPORTED FINANCIAL      STATEMENTS |
|-----------|--------------------------------------------------------------|

----

|                                                    |   | Note   |   |   | Previouslyreported      December 31, 2004 |   |       | Reclassification |   |   | Correction      of Errors |   |   | January      1,2005(Restated) |     |
|---------------------------------------------------------|--------|--------|--------|--------|-------------------------------------------|--------|------------|------------------|--------|--------|---------------------------|--------|--------|-------------------------------|----------|
|                                                    |   |   |   |   | US$                                       |   |       | US$              |   |   | US$                       |   |   | US$                           |     |
|                                                    |   |   |   |   |                                      |   |       |             |   |   |                      |   |   |                          |     |
| Shareholders’      equity                         |   |   |   |   |                                      |   |       |             |   |   |                      |   |   |                          |     |
| Ordinary      shares                                    |   |   |   |   |                                      | 13,556 |       |             |   | -      |                      |   |   | -                             |     |   |   | 13,556 |   |
|   Additional      paid-in capital             |   |   | a      |   |                                      |   | 7,519,174  |             |   |   | (4,119,485                | )      |   |                          | 12,318   |   |   |   | 3,412,007 |   |
|   Ordinary      share warrants                |   |   |   |   |                                      |   | -          |             |   |   | 4,119,485                 |   |   |                          | -        |   |   |   | 4,119,485 |   |
|   Statutory      reserves                     |   |   |   |   |                                      |   | -          |             |   |   | 812,549                   |   |   |                          | -        |   |   |   | 812,549 |   |
|   Accumulated      other comprehensive income |   |   |   |   |                                      |   | -          |             |   |   | -                         |   |   |                          | -        |   |   |   | - |   |
|   Retained      earnings                      |   |   | b      |   |                                      |   | 8,639,364  |             |   |   | (812,549                  | )      |   |                          | (739,685 | ) |   |   | 7,087,130 |   |
| Total      shareholders’ equity                   |   |   |   |   |                                      |   | 16,172,094 |             |   |   |                      |   |   |                          |     |   |   |   | 15,444,727 |   |

| Decrease      in depreciation charge on property and equipment                |   |   | 24,256   |   |
|-------------------------------------------------------------------------------|--------|--------|----------|--------|
| Correction of inventory costing      error                                    |   |   | (270,628 | )      |
| Under accrual of      expenses                                                |   |   | (170,456 | )      |
| Incorrectly capitalized      expenses                                         |   |   | (59,644  | )      |
| Increase allowance for      doubtful      accounts                            |   |   | (38,098  | )      |
| Overstatement of      sales                                                   |   |   | (97,149  | )      |
| Increase allowance for      inventories                                       |   |   | (53,486  | )      |
| Decrease in minority      shareholder’s share of retained      earnings |   |   | 22,600   |   |
| Under provision of tax      liabilities                                       |   |   | (97,080  | )      |
| Decrease in retained      earnings                                            |   |   | (739,685 | )      |

----

|                                                    |   | Note   |   |   | Previously      reported December 31, 2005 |       |       | Reclassification |   |    | Correction      of Errors |   |   | Effect      of exchange rate change (o) |       |   | December      31,2005 (Restated) |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------------------------------------------|------------|------------|------------------|--------|---------|---------------------------|--------|--------|-----------------------------------------|------------|--------|---------------------------------------|--------|
|                                                    |   |   |   |   | US$                                        |       |       | US$              |   |    | US$                       |   |   | US$                                     |       |   | US$                                   |   |
| ASSETS                                                  |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |
| Current      assets:                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |
| Cash      and cash equivalents                          |   |   |   |   |                                       | 12,958,435 |       |             |   | 166,047 |                      |   |   | -                                       |       |   |                                  | 63,156 |   |   |   | 13,187,638 |   |
| Trade      receivables, net                             |   |   | a      |   |                                       |       | 4,132,931  |             |   |    | 670,437                   |   |   |                                    | 526,827    |   |                                  |   | 26,040 |   |   |   | 5,356,235 |   |
| Due      from related parties                           |   |   |   |   |                                       |       | -          |             |   |    | 250,414                   |   |   |                                    | -          |   |                                  |   | - |   |   |   | 250,414 |   |
| Employee      receivable                                |   |   |   |   |                                       |       | 488,413    |             |   |    | (190,985                  | )      |   |                                    | -          |   |                                  |   | 2,421 |   |   |   | 299,849 |   |
| Advances      to suppliers                              |   |   |   |   |                                       |       | 1,216,172  |             |   |    | 504,286                   |   |   |                                    | -          |   |                                  |   | 6,029 |   |   |   | 1,726,487 |   |
| Inventories,      net                                   |   |   | b      |   |                                       |       | 9,622,347  |             |   |    | (33,771                   | )      |   |                                    | (118,095   | )      |                                  |   | 45,661 |   |   |   | 9,516,142 |   |
| Prepayments      and other current assets               |   |   | c      |   |                                       |       | 875,031    |             |   |    | -                         |   |   |                                    | (40,682    | )      |                                  |   | 8,738 |   |   |   | 843,087 |   |
| Refundable      taxes                                   |   |   |   |   |                                       |       | 500,892    |             |   |    | 108,380                   |   |   |                                    | -          |   |                                  |   | 21,850 |   |   |   | 631,122 |   |
| Other      receivables                                  |   |   | d      |   |                                       |       | 1,516,105  |             |   |    | 120,261                   |   |   |                                    | (60,448    | )      |                                  |   | 7,827 |   |   |   | 1,583,745 |   |
| Total      current assets                               |   |   |   |   |                                       |       | 31,310,326 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 33,394,719 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Property      and equipment:                            |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Property      and equipment, net                        |   |   | e      |   |                                       |       | 34,685,898 |             |   |    | (4,364,571                | )      |   |                                    | (317,615   | )      |                                  |   | 171,799 |   |   |   | 30,175,511 |   |
| Constructions      in progress                          |   |   | f      |   |                                       |       | 3,373,833  |             |   |    | 2,610,698                 |   |   |                                    | (392,542   | )      |                                  |   | 16,255 |   |   |   | 5,608,244 |   |
|                                                    |   |   |   |   |                                       |       | 38,059,731 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 35,783,755 |   |
| Other      assets:                                      |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
|    Prepaid      leases                   |   |   | g      |   |                                       |       | -          |             |   |    | 186,183                   |   |   |                                    | 1,446,697  |   |                                  |   | - |   |   |   | 1,632,880 |   |
| Total      assets                                       |   |   |   |   |                                       |       | 69,370,057 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 70,811,354 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’      EQUITY    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Liabilites                                         |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Current      liabilities:                               |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Current      maturities of long-term debt               |   |   |   |   |                                       |       | 102,466    |             |   |    | (10,149                   | )      |   |                                    | -          |   |                                  |   | - |   |   |   | 92,317 |   |
| Convertible      debt redeemable within one year        |   |   |   |   |                                       |       | -          |             |   |    | 3,000,000                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 3,000,000 |   |
| Notes      and loans payable                            |   |   |   |   |                                       |       | 7,323,801  |             |   |    | (3,983,974                | )      |   |                                    | -          |   |                                  |   | 16,555 |   |   |   | 3,356,382 |   |
| Accounts      payable and accrued expenses              |   |   | h      |   |                                       |       | 11,855,430 |             |   |    | (5,583,066                | )      |   |                                    | 604,093    |   |                                  |   | 52,621 |   |   |   | 6,929,078 |   |
| Other      tax payable                                  |   |   |   |   |                                       |       | -          |             |   |    | 399,608                   |   |   |                                    | -          |   |                                  |   | - |   |   |   | 399,608 |   |
| Advances      from customers                            |   |   |   |   |                                       |       | 12,073,781 |             |   |    | (268,964                  | )      |   |                                    | -          |   |                                  |   | 63,866 |   |   |   | 11,868,683 |   |
| Due      to related parties                             |   |   | i      |   |                                       |       | 932,942    |             |   |    | 140,213                   |   |   |                                    | 464,188    |   |                                  |   | 6,193 |   |   |   | 1,543,536 |   |
| Advances      from employees                            |   |   |   |   |                                       |       | 947,596    |             |   |    | 301,740                   |   |   |                                    | -          |   |                                  |   | 4,697 |   |   |   | 1,254,033 |   |
| Accrued      employee benefits                          |   |   | j      |   |                                       |       | -          |             |   |    | 193,111                   |   |   |                                    | 124,668    |   |                                  |   | - |   |   |   | 317,779 |   |
| Payable      for property and equipment                 |   |   |   |   |                                       |       | -          |             |   |    | 2,670,838                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 2,670,838 |   |
| Payable      for leases                                 |   |   |   |   |                                       |       | -          |             |   |    | 1,065,957                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 1,065,957 |   |
|    Other      payables                   |   |   | k      |   |                                       |       | -          |             |   |    | 781,813                   |   |   |                                    | 566,912    |   |                                  |   | - |   |   |   | 1,348,725 |   |
| Total      current liabilities                          |   |   |   |   |                                       |       | 33,236,016 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 33,846,936 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Long      term debt, net of current portion             |   |   |   |   |                                       |       | 5,543,517  |             |   |    | (4,005,877                | )      |   |                                    | -          |   |                                  |   | 8,078 |   |   |   | 1,545,718 |   |
| Long      term tax payable                              |   |   | l      |   |                                       |       | -          |             |   |    | -                         |   |   |                                    | 452,234    |   |                                  |   | - |   |   |   | 452,234 |   |
| Convertible      debt, net                              |   |   |   |   |                                       |       | -          |             |   |    | 5,000,000                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 5,000,000 |   |
| Deferred      income                                    |   |   |   |   |                                       |       | -          |             |   |    | 350,037                   |   |   |                                    | -          |   |                                  |   | - |   |   |   | 350,037 |   |
| Total      liabilities                                  |   |   |   |   |                                       |       | 38,779,533 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 41,194,925 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Minority      interests                                 |   |   | m      |   |                                       |       | 493,500    |             |   |    | -                         |   |   |                                    | (275,674   | )      |                                  |   | 2,424 |   |   |   | 220,250 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Shareholders’      equity                         |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Ordinary      shares                                    |   |   |   |   |                                       |       | 14,133     |             |   |    | -                         |   |   |                                    | -          |   |                                  |   | - |   |   |   | 14,133 |   |
|   Additional      paid-in capital             |   |   | n      |   |                                       |       | 9,208,837  |             |   |    | (3,549,230                | )      |   |                                    | 193,294    |   |                                  |   | 18,251 |   |   |   | 5,871,152 |   |
|   Ordinary      share warrants                |   |   |   |   |                                       |       | -          |             |   |    | 3,525,317                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 3,525,317 |   |
|   Statutory      reserves                     |   |   |   |   |                                       |       | -          |             |   |    | 1,588,966                 |   |   |                                    | -          |   |                                  |   | - |   |   |   | 1,588,966 |   |
|   Accumulated      other comprehensive income |   |   | o      |   |                                       |       | 605,261    |             |   |    | -                         |   |   |                                    | -          |   |                                  |   | 168,399 |   |   |   | 773,660 |   |
|   Retained      earnings                      |   |   | p      |   |                                       |       | 20,268,793 |             |   |    | (1,588,966                | )      |   |                                    | (1,093,984 | )      |                                  |   | 37,108 |   |   |   | 17,622,951 |   |
| Total      shareholders’ equity                   |   |   |   |   |                                       |       | 30,097,024 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 29,396,179 |   |
|                                                    |   |   |   |   |                                       |       |       |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   |   |   |
| Total      liabilities and shareholders’ equity   |   |   |   |   |                                       |       | 69,370,057 |             |   |    |                      |   |   |                                    |       |   |                                  |   |   |   |   |   | 70,811,354 |   |

----

| Understatement of      sales                  |   |   | 327,110 |   |
|-----------------------------------------------|--------|--------|---------|--------|
| Decrease allowance for doubtful      accounts |   |   | 199,717 |   |
| Increase in trade      receivables            |   |   | 526,827 |   |

| Understatement of      purchases           |   |   | 82,211   |   |
|--------------------------------------------|--------|--------|----------|--------|
| Correction of inventory costing      error |   |   | 195,574  |   |
| Increase allowance for      inventories    |   |   | (395,880 | )      |
| Decrease in      inventories               |   |   | (118,095 | )      |

| Increase allowance for doubtful      accounts      |   |   | (51,768 | ) |
|----------------------------------------------------|--------|--------|---------|---|
| Overstatement      of value added taxes receivable |   |   | (8,680  | ) |
| Decrease in other      receivables                 |   |   | (60,448 | ) |

| Overstatement of property and      equipment costs |   |   | (334,750 | )      |
|----------------------------------------------------|--------|--------|----------|--------|
| Decrease in depreciation charges                   |   |   | 17,135   |   |
| Decrease in property and equipment,      net       |   |   | (317,615 | )      |

| Understatement of prepaid    leases             |   |   | 1,515,667     |   |
|-------------------------------------------------|--------|--------|---------------|--------|
| Increase in amortization of prepaid      leases |   |   |  (68,970 | )      |
| Increase in prepaid      expenses               |   |   | 1,446,697     |   |

| Understatement of accounts      payable                |   |   | 482,335 |   |
|--------------------------------------------------------|--------|--------|---------|--------|
| Under accrual of expenses                              |   |   | 121,758 |   |
| Increase in accounts payable and accrued      expenses |   |   | 604,093 |   |

| Understatement of payable for      leases |   |   | 415,585 |   |
|-------------------------------------------|--------|--------|---------|--------|
| Under accrual of expenses                 |   |   | 151,327 |   |
| Increase in other payables                |   |   | 566,912 |   |

| Correction of inventory costing      error                                    |   |   | 189,210    |   |
|-------------------------------------------------------------------------------|--------|--------|------------|--------|
| Under accrual of      expenses                                                |   |   | (539,220   | )      |
| Incorrectly capitalized      expenses                                         |   |   | (126,999   | )      |
| Decrease allowance for      doubtful      accounts                            |   |   | 149,596    |   |
| Understatement of      sales                                                  |   |   | 52,081     |   |
| Increase allowance for      inventories                                       |   |   | (391,294   | )      |
| Decrease in minority      shareholder’s share of retained      earnings |   |   | 64,582     |   |
| Under provision of tax      liabilities                                       |   |   | (451,768   | )      |
| Increase in depreciation      charges                                         |   |   | (40,172    | )      |
| Decrease in retained      earnings                                            |   |   | (1,093,984 | )      |

----

|                                                                                                                                                                                                                          |   | Note   |   |   | Previously      reported December 31, 2005 |   |       | Reclassification |   |   | Correction      of Errors |   |   | Effect      of exchange rate change (i) |     |   | December      31,2005(Restated) |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------------------|--------|------------|------------------|--------|--------|---------------------------|--------|--------|-----------------------------------------|----------|--------|---------------------------------|--------|
|                                                                                                                                                                                                                          |   |   |   |   | US$                                        |   |       | US$              |   |   | US$                       |   |   | US$                                     |     |   | US$                             |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |
| Sales                                     |   |   | a      |   |                                       |   | 68,023,903 |             |   |   | 472,403                   |   |   |                                    | (41,695  | )      |                            |   | (257,303 | ) |   |   | 68,197,308 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Cost      of goods sold                                                                                                                                                                                                       |   |   | b      |   |                                       |   | 38,715,895 |             |   |   | (333,152                  | )      |   |                                    | (406,269 | )      |                            |   | (94,895 | ) |   |   | 37,881,579 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                                                             |   |   |   |   |                                       |   | 29,308,008 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 30,315,729 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Operating      and administrative expenses:                                                                                                                                                                                   |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Sales      and marketing                                                                                                                                                                                                      |   |   | c      |   |                                       |   | 16,742,578 |             |   |   | 763,554                   |   |   |                                    | 196,839  |   |                            |   | (65,644 | ) |   |   | 17,637,327 |   |
| General      and administrative                                                                                                                                                                                               |   |   | d      |   |                                       |   | 2,645,489  |             |   |   | (119,234                  | )      |   |                                    | 189,107  |   |                            |   | 6,627 |   |   |   | 2,721,989 |   |
| Total      operating expenses                                                                                                                                                                                                 |   |   |   |   |                                       |   | 19,388,067 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 20,359,316 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Income      from operations                                                                                                                                                                                                   |   |   |   |   |                                       |   | 9,919,941  |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 9,956,413 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Other      income (expenses):                                                                                                                                                                                                 |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
|    Interest      income                                                                                                                                                                                        |   |   |   |   |                                       |   | -          |             |   |   | 31,463                    |   |   |                                    | -        |   |                            |   | - |   |   |   | 31,463 |   |
|    Interest      and finance costs                                                                                                                                                                             |   |   | e      |   |                                       |   | (522,812   | )                |   |   | 68,138                    |   |   |                                    | (4,128   | )      |                            |   | 6,072 |   |   |   | (452,730 | ) |
| Government      subsidy-tax refund                                                                                                                                                                                            |   |   | f      |   |                                       |   | 1,502,127  |             |   |   | 2,745,332                 |   |   |                                    | 283,856  |   |                            |   | (10,513 | ) |   |   | 4,520,802 |   |
| Other      income (expenses), net                                                                                                                                                                                             |   |   |   |   |                                       |   | 727,749    |             |   |   | (746,095                  | )      |   |                                    | -        |   |                            |   | (5,451 | ) |   |   | (23,797 | ) |
| Income      before income tax expenses and minority interests                                                                                                                                                                 |   |   |   |   |                                       |   | 11,627,005 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 14,032,151 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Income      tax expenses                                                                                                                                                                                                      |   |   | g      |   |                                       |   | -          |             |   |   | 2,123,797                 |   |   |                                    | 638,635  |   |                            |   | - |   |   |   | 2,762,432 |   |
| Net      income before minority interest                                                                                                                                                                                      |   |   |   |   |                                       |   | 11,627,005 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 11,269,719 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Minority      interests                                                                                                                                                                                                       |   |   | h      |   |                                       |   | 2,424      |             |   |   | -                         |   |   |                                    | 42,519   |   |                            |   | (2,424 | ) |   |   | 42,519 |   |
| Net      income attributable to ordinary shareholders                                                                                                                                                                         |   |   |   |   |                                       |   | 11,629,429 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 11,312,238 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Other      comprehensive income:                                                                                                                                                                                              |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
|    Cumulative      currency translation adjustments                                                                                                                                                            |   |   | i      |   |                                       |   | 605,261    |             |   |   | -                         |   |   |                                    | -        |   |                            |   | 168,399 |   |   |   | 773,660 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Total      comprehensive income                                                                                                                                                                                               |   |   |   |   |                                       |   | 12,234,690 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 12,085,898 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Earnings      per ordinary share                                                                                                                                                                                              |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
|   Basic                                                                                                                                                                                                             |   |   |   |   |                                       |   | $0.83      |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | $0.82 |   |
|   Diluted                                                                                                                                                                                                           |   |   |   |   |                                       |   | $0.74      |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | $0.72 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
| Weighted      average ordinary shares outstanding                                                                                                                                                                             |   |   |   |   |                                       |   |       |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   |   |   |
|   Basic                                                                                                                                                                                                             |   |   |   |   |                                       |   | 13,931,006 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 13,836,573 |   |
|   Diluted                                                                                                                                                                                                           |   |   |   |   |                                       |   | 16,057,073 |             |   |   |                      |   |   |                                    |     |   |                            |   |   |   |   |   | 15,664,772 |   |

----

| Overstatement of cost of goods      sold   |   |   | (225,140 | )      |
|--------------------------------------------|--------|--------|----------|--------|
| Correction of inventory costing      error |   |   | (466,880 | )      |
| Increase allowance for      inventories    |   |   | 336,416  |   |
| Decrease depreciation      expenses        |   |   | (50,665  | )      |
| Decrease in cost of goods      sold        |   |   | (406,269 | )      |

| Increase allowance for doubtful      accounts                    |   |   | (188,686 | )       |
|------------------------------------------------------------------|--------|--------|----------|---------|
| Under accrual of      expenses                                   |   |   | 295,685  |    |
| Incorrectly capitalized      expenses                            |   |   | 65,803   |    |
| Recognition      of amortization charges      on pre-paid leases |   |   | 37,024   |    |
| Decrease in depreciation    expenses                             |   |   | (20,719  | )  |
| Decrease in general administrative      expenses                 |   |   | 189,107  |    |

----

|                                                    |   | Note   |   |   | Previously      reported December 31, 2006 |       |        | Reclassification |   |   | Correction      of Errors |   |   | Effect      of exchange rate change (q) |       |   | December      31,2006(Restated) |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------------------------------------------|------------|-------------|------------------|--------|--------|---------------------------|--------|--------|-----------------------------------------|------------|--------|---------------------------------|--------|
|                                                    |   |   |   |   | US$                                        |       |        | US$              |   |   | US$                       |   |   | US$                                     |       |   | US$                             |   |
| ASSETS                                                  |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |
| Current      assets:                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |
| Cash      and cash equivalents                          |   |   |   |   |                                       | 39,473,910 |        |             |   | -      |                      |   |   | -                                       |       |   |                            | 47,538 |   |   |   | 39,521,448 |   |
| Notes      and loans receivable                         |   |   |   |   |                                       | 230,179    |        |             |   | -      |                      |   |   | -                                       |       |   |                            | 295    |   |   |   | 230,474 |   |
| Trade      receivables, net                             |   |   | a      |   |                                       |       | 5,459,760   |             |   |   | (39,942                   | )      |   |                                    | 139,656    |   |                            |   | 6,991 |   |   |   | 5,566,465 |   |
| Due      from related parties                           |   |   |   |   |                                       |       | -           |             |   |   | 103,416                   |   |   |                                    | -          |   |                            |   | - |   |   |   | 103,416 |   |
| Employee      receivable                                |   |   |   |   |                                       |       | 433,121     |             |   |   | (218,971                  | )      |   |                                    | -          |   |                            |   | - |   |   |   | 214,150 |   |
| Advances      to suppliers                              |   |   | b      |   |                                       |       | 1,301,935   |             |   |   | 33,135                    |   |   |                                    | (153,649   | )      |                            |   | 1,667 |   |   |   | 1,183,088 |   |
| Inventories,      net                                   |   |   | c      |   |                                       |       | 13,913,766  |             |   |   | -                         |   |   |                                    | 722,552    |   |                            |   | 20,244 |   |   |   | 14,656,562 |   |
| Prepayments      and other current assets               |   |   | d      |   |                                       |       | 664,530     |             |   |   | (482,776                  | )      |   |                                    | 100,753    |   |                            |   | 10,596 |   |   |   | 293,103 |   |
| Refundable      taxes                                   |   |   |   |   |                                       |       | 1,365,214   |             |   |   | (490,618                  | )      |   |                                    | -          |   |                            |   | 1,748 |   |   |   | 876,344 |   |
| Other      receivables                                  |   |   | e      |   |                                       |       | 452,728     |             |   |   | 1,816,105                 |   |   |                                    | (55,967    | )      |                            |   | 1,131 |   |   |   | 2,213,997 |   |
| Total      current assets                               |   |   |   |   |                                       |       | 63,295,143  |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 64,859,047 |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Property      and equipment:                            |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Property      and equipment, net                        |   |   | f      |   |                                       |       | 36,981,569  |             |   |   | 11,614                    |   |   |                                    | (779,715   | )      |                            |   | (21,934 | ) |   |   | 36,191,534 |   |
| Constructions      in progress                          |   |   | g      |   |                                       |       | 9,433,148   |             |   |   | (122,557                  | )      |   |                                    | (815,267   | )      |                            |   | 12,540 |   |   |   | 8,507,864 |   |
|                                                    |   |   |   |   |                                       |       | 46,414,717  |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 44,699,398 |   |
| Other      assets:                                      |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
|    Prepaid      leases                   |   |   | h      |   |                                       |       | -           |             |   |   | -                         |   |   |                                    | 6,063,250  |   |                            |   | - |   |   |   | 6,063,250 |   |
|    Goodwill                              |   |   | i      |   |                                       |       | 1,460,695   |             |   |   | -                         |   |   |                                    | 542,766    |   |                            |   | - |   |   |   | 2,003,461 |   |
| Total      assets                                       |   |   |   |   |                                       |       | 111,170,555 |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 117,625,156 |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’      EQUITY    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Liabilities                                        |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Current      liabilities:                               |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Current      maturities of long-term debt               |   |   |   |   |                                       |       | 5,103,197   |             |   |   | (5,007,806                | )      |   |                                    | -          |   |                            |   | - |   |   |   | 95,391 |   |
| Convertible      debt redeemable within one year        |   |   |   |   |                                       |       | -           |             |   |   | 5,000,0000                |   |   |                                    | -          |   |                            |   | - |   |   |   | 5,000,000 |   |
| Notes      and loans payable                            |   |   |   |   |                                       |       | 13,122,868  |             |   |   | (1,824,994                | )      |   |                                    | -          |   |                            |   | 96,748 |   |   |   | 11,394,622 |   |
| Accounts      payable and accrued expenses              |   |   | j      |   |                                       |       | 13,263,315  |             |   |   | (4,311,872                | )      |   |                                    | 2,384,739  |   |                            |   | 15,786 |   |   |   | 11,351,968 |   |
| Other      taxes payable                                |   |   |   |   |                                       |       | -           |             |   |   | 805,214                   |   |   |                                    | -          |   |                            |   | - |   |   |   | 805,214 |   |
| Advances      from customers                            |   |   |   |   |                                       |       | 2,145,325   |             |   |   | (6,522                    | )      |   |                                    | -          |   |                            |   | 2,747 |   |   |   | 2,141,550 |   |
| Due      to related parties                             |   |   |   |   |                                       |       | 119,911     |             |   |   | 407,711                   |   |   |                                    | -          |   |                            |   | 688 |   |   |   | 528,310 |   |
| Advances      from employees                            |   |   |   |   |                                       |       | 735,294     |             |   |   | 2,317                     |   |   |                                    | -          |   |                            |   | 942 |   |   |   | 738,553 |   |
| Accrued      employee benefits                          |   |   | k      |   |                                       |       | -           |             |   |   | 334,055                   |   |   |                                    | 254,987    |   |                            |   | - |   |   |   | 589,042 |   |
| Payable      for property and equipment                 |   |   |   |   |                                       |       | -           |             |   |   | 1,701,715                 |   |   |                                    | -          |   |                            |   | - |   |   |   | 1,701,715 |   |
| Payable      for leases                                 |   |   | l      |   |                                       |       | -           |             |   |   | -                         |   |   |                                    | 3,984,322  |   |                            |   | - |   |   |   | 3,984,322 |   |
| Other      payables                                     |   |   | m      |   |                                       |       | -           |             |   |   | 1,941,161                 |   |   |                                    | 793,540    |   |                            |   | - |   |   |   | 2,734,701 |   |
| Total      current liabilities                          |   |   |   |   |                                       |       | 34,489,910  |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 41,065,388 |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Long      term debt, net of current portion             |   |   |   |   |                                       |       | 16,936,654  |             |   |   | (15,371,534               | )      |   |                                    | -          |   |                            |   | (79,233 | ) |   |   | 1,485,887 |   |
| Income      tax payable                                 |   |   | n      |   |                                       |       | -           |             |   |   | -                         |   |   |                                    | 1,005,567  |   |                            |   | - |   |   |   | 1,005,567 |   |
| Convertible      debt, net                              |   |   |   |   |                                       |       | -           |             |   |   | 16,484,129                |   |   |                                    | -          |   |                            |   | - |   |   |   | 16,484,129 |   |
| Deferred      income                                    |   |   | o      |   |                                       |       | -           |             |   |   | 361,690                   |   |   |                                    | 1,063,488  |   |                            |   | - |   |   |   | 1,425,178 |   |
| Total      liabilities                                  |   |   |   |   |                                       |       | 51,426,564  |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 61,466,149 |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Shareholders’      equity                         |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Ordinary      shares                                    |   |   |   |   |                                       |       | 15,831      |             |   |   | -                         |   |   |                                    | -          |   |                            |   | - |   |   |   | 15,831 |   |
|   Additional      paid-in capital             |   |   | p      |   |                                       |       | 17,834,429  |             |   |   | (3,603,107                | )      |   |                                    | (112,007   | )      |                            |   | 960 |   |   |   | 14,120,275 |   |
|   Ordinary      share warrants                |   |   |   |   |                                       |       | -           |             |   |   | 3,610,835                 |   |   |                                    | -          |   |                            |   | - |   |   |   | 3,610,835 |   |
|   Statutory      reserves                     |   |   |   |   |                                       |       | -           |             |   |   | 3,053,906                 |   |   |                                    | -          |   |                            |   | - |   |   |   | 3,053,906 |   |
|   Accumulated      other comprehensive income |   |   | q      |   |                                       |       | 1,716,657   |             |   |   | -                         |   |   |                                    | -          |   |                            |   | 1,050,120 |   |   |   | 2,766,777 |   |
|   Retained      earnings                      |   |   | r      |   |                                       |       | 40,177,074  |             |   |   | (2,968,030                | )      |   |                                    | (3,520,007 | )      |                            |   | (1,097,654 | ) |   |   | 32,591,383 |   |
| Total      shareholders’ equity                   |   |   |   |   |                                       |       | 59,743,991  |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 56,159,007 |   |
|                                                    |   |   |   |   |                                       |       |        |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   |   |   |
| Total      liabilities and shareholders’ equity   |   |   |   |   |                                       |       | 111,170,555 |             |   |   |                      |   |   |                                    |       |   |                            |   |   |   |   |   | 117,625,156 |   |

----

| Understatement of trade      receivables      |   |   | 109,230 |   |
|-----------------------------------------------|--------|--------|---------|--------|
| Decrease allowance for doubtful      accounts |   |   | 30,426  |   |
| Decrease in trade      receivables            |   |   | 139,656 |   |

| Decrease in depreciation charges      allocated to cost of inventories |   |   | 315,133  |   |
|------------------------------------------------------------------------|--------|--------|----------|--------|
| Understatement of      inventories                                     |   |   | 933,325  |   |
| Correction of inventory costing      error                             |   |   | (378,219 | )      |
| Increase allowance for      inventories                                |   |   | (147,687 | )      |
| Increase in    inventories                                             |   |   | 722,552  |   |

| Increase allowance for doubtful      accounts       |   |   | (140,801 | )      |
|-----------------------------------------------------|--------|--------|----------|--------|
| Understatement      of value added taxes receivable |   |   | 84,834   |   |
| Decrease in other      receivables                  |   |   | (55,967  | )      |

| Overstatement of property and      equipment costs           |   |   | (661,387 | )      |
|--------------------------------------------------------------|--------|--------|----------|--------|
| Increase in depreciation      charges                        |   |   | (243,721 | )      |
| Revaluation increase from minority interest      acquisition |   |   | 125,393  |   |
| Increase in property and      equipment                      |   |   | (779,715 | )      |

| Revaluation increase from minority interest      acquisition |   |   | 33,706    |   |
|--------------------------------------------------------------|--------|--------|-----------|--------|
| Understatement of prepaid      leases                        |   |   | 6,179,841 |   |
| Increase amortization charge on prepaid    leases            |   |   | (150,297  | )      |
| Increase in prepaid leases                                   |   |   | 6,063,250 |   |

| Understatement of accounts      payable                |   |   | 1,127,336 |   |
|--------------------------------------------------------|--------|--------|-----------|--------|
| Under accrual of expenses                              |   |   | 1,257,403 |   |
| Increase in accounts payable and accrued      expenses |   |   | 2,384,739 |   |

| Under accrual of expenses                       |   |   | 814,120 |   |
|-------------------------------------------------|--------|--------|---------|--------|
| Overstatement      of value added taxes payable |   |   | (20,580 | )      |
| Decrease in other    payables                   |   |   | 793,540 |   |

----

| Write off of expenses incorrectly capitalized       |   |   | (290,991 | )      |
|-----------------------------------------------------|--------|--------|----------|--------|
| Decrease in minority      shareholder’s share |   |   | 178,984  |   |
| Decrease in additional paid in      capital    |   |   | (112,007 | )      |

| Increase      in depreciation charges                                         |   |   | (58,706    | )      |
|-------------------------------------------------------------------------------|--------|--------|------------|--------|
| Correction of inventory      costing      error                               |   |   | (366,570   | )      |
| Increase in amortization      charges                                         |   |   | (50,610    | )      |
| Under accrual of      expenses                                                |   |   | (1,564,187 | )      |
| Incorrectly capitalized      expenses                                         |   |   | 351,548    |   |
| Decrease in allowance for doubtful      accounts                              |   |   | (105,027   | )      |
| Loss on extinguishment of      debt                                           |   |   | (687,578   | )      |
| Understatement of      sales                                                  |   |   | 160,393    |   |
| Increase allowance for      inventories                                       |   |   | (152,934   | )      |
| Decrease in minority      shareholder’s share of retained      earnings |   |   | (43,406    | )      |
| Under provision of tax      liabilities                                       |   |   | (1,002,930 | )      |
| Decrease in retained      earnings                                            |   |   | (3,520,007 | )      |

----

|                                                                                                                                                                                                                          |   | Note   |   |   | Previously      reported December 31, 2006 |   |             | Reclassification |   |   | Correction      of Errors |   |   | Effect      of exchange rate change      (i) |      |   | December      31,2006(Restated) |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------------------|--------|------------------|------------------|--------|--------|---------------------------|--------|--------|----------------------------------------------|-----------|--------|---------------------------------|--------|
|                                                                                                                                                                                                                          |   |   |   |   | US$                                        |   |             | (US$)            |   |   | US$                       |   |   | US$                                          |      |   | US$                             |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |
| Sales                                     |   |   | a      |   |                                       |   | 122,799,191      |             |   |   | (3,552,620                | )      |   |                                         | (233,218  | )      |                            |   | (3,931,286 | ) |   |   | 115,082,067 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Cost      of goods sold                                                                                                                                                                                                       |   |   | b      |   |                                       |   | 70,221,023       |             |   |   | (2,898,126                | )      |   |                                         | 52,701    |   |                            |   | (2,205,745 | ) |   |   | 65,169,853 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                                                             |   |   |   |   |                                       |   | 52,578,168       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 49,912,214 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Operating      and administrative expenses:                                                                                                                                                                                   |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Sales      and marketing                                                                                                                                                                                                      |   |   | c      |   |                                       |   | 29,397,910       |             |   |   | (1,359,077                | )      |   |                                         | 1,121,304 |   |                            |   | (1,093,738 | ) |   |   | 28,066,399 |   |
| General      and administrative                                                                                                                                                                                               |   |   | d      |   |                                       |   | 5,484,680        |             |   |   | (35,262                   | )      |   |                                         | 230,015   |   |                            |   | (89,187 | ) |   |   | 5,590,246 |   |
| Total      operating expenses                                                                                                                                                                                                 |   |   |   |   |                                       |   | 34,882,590       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 33,656,645 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Income      from operations                                                                                                                                                                                                   |   |   |   |   |                                       |   | 17,695,578       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 16,255,569 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Other      income (expenses):                                                                                                                                                                                                 |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
|    Interest      income                                                                                                                                                                                        |   |   |   |   |                                       |   | -                |             |   |   | 175,986                   |   |   |                                         | -         |   |                            |   | - |   |   |   | 175,986 |   |
|    Interest      and finance costs                                                                                                                                                                             |   |   |   |   |                                       |   | (1,196,694       | )                |   |   | (268,864                  | )      |   |                                         | -         |   |                            |   | (55,298 | ) |   |   | (1,520,856 | ) |
|    Loss      on extinguishment of debt                                                                                                                                                                         |   |   | e      |   |                                       |   | -                |             |   |   | -                         |   |   |                                         | (687,578  | )      |                            |   | - |   |   |   | (687,578 | ) |
|         Government subsidy-tax refund                                                                                                                                                                               |   |   | f      |   |                                       |   | 3,344,635        |             |   |   | 3,722,845                 |   |   |                                         | 487,276   |   |                            |   | (62,948 | ) |   |   | 7,491,808 |   |
|         Other income (expenses), net                                                                                                                                                                                |   |   |   |   |                                       |   | 64,762           |             |   |   | (550,800                  | )      |   |                                         | 11,814    |   |                            |   | 38,906 |   |   |   | (435,318 | ) |
| Income      before income tax expenses and minority interests                                                                                                                                                                 |   |   |   |   |                                       |   | 19,908,281       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 21,279,611 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Income      tax expenses                                                                                                                                                                                                      |   |   | g      |   |                                       |   | -                |             |   |   | 3,819,013                 |   |   |                                         | 1,038,548 |   |                            |   | - |   |   |   | 4,857,561 |   |
| Net      income before minority interest                                                                                                                                                                                 |   |   |   |   |                                       |   |  19,908,281 |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |  16,422,050 |   |
| Minority      interests                                                                                                                                                                                                       |   |   | h      |   |                                       |   | -                |             |   |   | -                         |   |   |                                         | 11,322    |   |                            |   | - |   |   |   | 11,322 |   |
| Net      income attributable to ordinary shareholders                                                                                                                                                                         |   |   |   |   |                                       |   | 19,908,281       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 16,433,372 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Other      comprehensive income:                                                                                                                                                                                              |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
|    Cumulative      currency translation adjustments                                                                                                                                                            |   |   | i      |   |                                       |   | 1,111,395        |             |   |   | -                         |   |   |                                         | -         |   |                            |   | 881,722 |   |   |   | 1,993,117 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Total      comprehensive income                                                                                                                                                                                               |   |   |   |   |                                       |   | 21,019,676       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 18,426,489 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Earnings      per ordinary share                                                                                                                                                                                              |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
|  Basic                                                                                                                                                                                                                   |   |   |   |   |                                       | $      | 1.35             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   | $ | 1.11 |   |
|  Diluted                                                                                                                                                                                                                 |   |   |   |   |                                       | $      | 1.14             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   | $ | 0.98 |   |
|                                                                                                                                                                                                                          |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
| Weighted      average ordinary shares outstanding                                                                                                                                                                             |   |   |   |   |                                       |   |             |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   |   |   |
|  Basic                                                                                                                                                                                                                   |   |   |   |   |                                       |   | 14,755,576       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 14,745,930 |   |
|  Diluted                                                                                                                                                                                                                 |   |   |   |   |                                       |   | 18,056,143       |             |   |   |                      |   |   |                                         |      |   |                            |   |   |   |   |   | 17,651,712 |   |

----

| Overstatement of cost of goods      sold   |   |   | (233,731 | )      |
|--------------------------------------------|--------|--------|----------|--------|
| Correction of inventory costing      error |   |   | 688,520  |   |
| Decrease allowance for      inventories    |   |   | (294,854 | )      |
| Decrease in depreciation      expenses     |   |   | (107,234 | )      |
| Decrease in cost of goods      sold        |   |   | 52,701   |   |

| Increase allowance for doubtful      accounts                         |   |   | 261,072  |   |
|-----------------------------------------------------------------------|--------|--------|----------|--------|
| Under accrual of expenses                                             |   |   | 315,825  |   |
| Incorrectly capitalized      expenses                       |   |   | (397,825 | )      |
| Recognition      of unrecorded amortization charges on prepaid leases |   |   | 77,112   |   |
| Under      allocation of depreciation charges                         |   |   | (26,169  | )      |
| Increase in general administrative      expenses                      |   |   | 230,015  |   |

----

|                                                                                                                                                                                                            |   |   | December      31, 2007  |        |   | December      31, 2006  |   |       | December      31, 2005  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------|-------------|--------|------------------------------|--------|------------|------------------------------|--------|
|                                                                                                                                                                                                            |   |   | US$                          |        |   | US$                          |   |       | US$                     |   |
|                                                                                                                                                                                                            |   |   |                         |        |   | (Restated)                   |   |       | (Restated)                   |   |
| ASSETS                                                                                                                                                                                                          |   |   |                         |        |   |                         |   |       |                         |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |
| Current      assets:                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |
|   Cash      and cash equivalents                                                                                                                                                                      |   |   |                         | 176,530     |   |                         |   | 2,220,690  |                         |   |   | 205,917 |   |
|   Other      receivables                                                                                                                                                                              |   |   |                         | 161,564     |   |                         |   | 1,567      |                         |   |   | 1,567 |   |
|   Due      from related parties                                                                                                                                                                       |   |   |                         | 77,869,848  |   |                         |   | 31,186,545 |                         |   |   | 14,449,097 |   |
|   Prepayments      and other assets                                                                                                                                                                   |   |   |                         | 217,651     |   |                         |   | 20,250     |                         |   |   | 22,500 |   |
| Total      current assets                                                                                                                                                                                       |   |   |                         | 78,425,593  |   |                         |   | 33,429,052 |                         |   |   | 14,679,081 |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Investment      in subsidiaries, reported on equity method                                                                                                                                                      |   |   |                         | 128,917,341 |   |                         |   | 61,075,803 |                         |   |   | 22,419,880 |   |
| Deferred      charges, net                                                                                                                                                                                      |   |   |                         | 3,328,140   |   |                         |   | -          |                         |   |   | - |   |
| Total      assets                                                                                                                                                                                               |   |   |                         | 210,671,074 |   |                         |   | 94,504,855 |                         |   |   | 37,098,961 |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’      EQUITY                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Liabilities                                                                                                                                                                                                |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Current      liabilities:                                                                                                                                                                                       |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
|   Accounts      payable and accrued expenses                                                                                                                                                          |   |   |                         | 2,961,846   |   |                         |   | 1,744,380  |                         |   |   | 362,153 |   |
|   Due      to related parties                                                                                                                                                                         |   |   |                         | -           |   |                         |   | -          |                         |   |   | 301,823 |   |
|   Payable      to subsidiaries                                                                                                                                                                        |   |   |                         | 33,039,866  |   |                         |   | 18,071,651 |                         |   |   | - |   |
|   Convertible      debt redeemable within one year                                                                                                                                                    |   |   |                         | -           |   |                         |   | 5,000,000  |                         |   |   | 3,000,000 |   |
| Total      current liabilities                                                                                                                                                                                  |   |   |                         | 36,001,712  |   |                         |   | 24,816,031 |                         |   |   | 3,663,976 |   |
|   Tax      payable                                                                                                                                                                                    |   |   |                         | 12,505      |   |                         |   | 100        |                         |   |   | 100 |   |
|   Convertible      debt, net                                                                                                                                                                          |   |   |                         | 55,237,771  |   |                         |   | 16,484,128 |                         |   |   | 5,000,000 |   |
|   Derivative                                                                                                                                                                                          |   |   |                         | 50,019,300  |   |                         |   | -          |                         |   |   | - |   |
| Total      liabilities                                                                                                                                                                                          |   |   |                         | 141,271,288 |   |                         |   | 41,300,259 |                         |   |   | 8,664,076 |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Shareholders’      equity                                                                                                                                                                                 |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Ordinary      shares (US$0.001 par value, 50,000,000 shares authorized, 16,961,768,      15,831,820 and 14,132,824 issued and outstanding as of  December      31, 2007, 2006 and 2005, respectively) |   |   |                         | 16,961      |   |                         |   | 15,831     |                         |   |   | 14,133 |   |
| Additional      paid-in capital                                                                                                                                                                                 |   |   |                         | 22,441,699  |   |                         |   | 13,932,641 |                         |   |   | 5,683,518 |   |
| Ordinary      share warrants                                                                                                                                                                                    |   |   |                         | 3,011,444   |   |                         |   | 3,610,835  |                         |   |   | 3,525,317 |   |
| Retained      earnings                                                                                                                                                                                          |   |   |                         | 43,929,682  |   |                         |   | 35,645,289 |                         |   |   | 19,211,917 |   |
| Total      shareholders’ equity                                                                                                                                                                           |   |   |                         | 69,399,786  |   |                         |   | 53,204,596 |                         |   |   | 28,434,885 |   |
|                                                                                                                                                                                                            |   |   |                         |        |   |                         |   |       |                         |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                           |   |   |                         | 210,671,074 |   |                         |   | 94,504,855 |                         |   |   | 37,098,961 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                           |   |   | For      the years ended December 31  |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                                                                                           |   |   | 2007                                  |        |   | 2006  |   |   | 2005  |   |
|                                                                                                                                                                                                                                                                                                                                                                           |   |   | US$                                        |        |   | US$ |   |   | US$ |   |
|                                                                                                                                                                                                                                                                                                                                                                           |   |   |                                       |        |   | (Restated) |   |   | (Restated) |   |
|                                                                                                                                                                                                                                                                                                                                                                           |   |   |                                       |        |   |   |   |   |   |   |
| Net      revenues                                                                                          |   |   |                                       | -           |   |   |   | - |   |   |   | - |   |
| Operating      and other administrative expenses:                                                                                                                                                                                                                                                                                                                              |   |   |                                       |        |   |   |   |   |   |   |   |   |   |
|   General      and administrative expenses                                                                                                                                                                                                                                                                                                                           |   |   |                                       | (8,988,245  | ) |   |   | (2,363,839 | ) |   |   | (1,478,799 | ) |
| Expenses      from operations                                                                                                                                                                                                                                                                                                                                                  |   |   |                                       | (8,988,245  | ) |   |   | (2,363,839 | ) |   |   | (1,478,799 | ) |
|                                                                                                                                                                                                                                                                                                                                                                           |   |   |                                       |        |   |   |   |   |   |   |   |   |   |
| Other      income (expenses):                                                                                                                                                                                                                                                                                                                                                  |   |   |                                       |        |   |   |   |   |   |   |   |   |   |
|   Equity      in earnings of unconsolidated subsidiaries                                                                                                                                                                                                                                                                                                             |   |   |                                       | 29,776,162  |   |   |   | 19,770,278 |   |   |   | 13,111,380 |   |
|   Other      income (expenses), net                                                                                                                                                                                                                                                                                                                                  |   |   |                                       | -           |   |   |   | 780 |   |   |   | (21,000 | ) |
|   Amortization      of deferred      charges                                                     |   |   |                                       | (369,794    | ) |   |   | - |   |   |   | - |   |
|   Registration      rights      penalty                                                          |   |   |                                       | (2,540,000  | ) |   |   | - |   |   |   | - |   |
|   Gain      on      derivatives                                                                                                                                                                           |   |   |                                       | 3,279,031   |   |   |   | - |   |   |   | - |   |
|   Interest      and financial      costs                                                         |   |   |                                       | (12,860,256 | ) |   |   | (973,747 | ) |   |   | (299,243 | ) |
|                                                                                                                                                                                                                                                                                                                                                                           |   |   |                                       | 17,285,143  |   |   |   | 18,797,311 |   |   |   | 12,791,137 |   |
| Income      before income tax                                                                                                                                                                                                                                                                                                                                                  |   |   |                                       | 8,296,898   |   |   |   | 16,433,472 |   |   |   | 11,312,338 |   |
|   Income      tax      expense                                                                   |   |   |                                       | 12,505      |   |   |   | 100 |   |   |   | 100 |   |
| Net      income                                                                                            |   |   |                                       | 8,284,393   |   |   |   | 16,433,372 |   |   |   | 11,312,238 |   |

----

|                                             |   | Ordinary      shares      |       |   |       |   |   |     |   |   |       |   |   |     |       |
|--------------------------------------------------|--------|---------------------------|------------|--------|------------|--------|--------|----------|--------|--------|------------|--------|--------|----------|------------|
|                                             |   | (US$0.001      par value) |       |   | Additional |   |   | Ordinary |   |   | Retained   |   |   | Total    |       |
|                                             |   | Number      of            |       |   | Par        |   |   | Paid-in  |   |   | Share      |   |   | Earnings |       |   | Shareholders’ |   |
|                                             |   | Shares                    |       |   | Value      |   |   | Capital  |   |   | Warrants   |   |   |     |       |   | Equity |   |
|                                             |   |                      |       |   | US$        |   |   | US$      |   |   | US$        |   |   | US$      |       |   | US$ |   |
|                                             |   |                      |       |   |       |   |   |     |   |   |       |   |   |     |       |   |   |   |
| Balance      as of January 1, 2005 (Restated)    |   |                      | 13,556,354 |   |       |   | 13,556 |     |   |   | 3,399,687  |   |   |     | 4,119,485  |   |   |   | 7,899,679 |   |   |   | 15,432,407 |   |
|  Warrant      exercise                      |   |                      | 428,570    |   |       |   | 429    |     |   |   | 1,343,739  |   |   |     | (594,168   | ) |   |   | - |   |   |   | 750,000 |   |
|  Shares      issued for services            |   |                      | 147,900    |   |       |   | 148    |     |   |   | 940,092    |   |   |     | -          |   |   |   | - |   |   |   | 940,240 |   |
|    Net      income                |   |                      | -          |   |       |   | -      |     |   |   | -          |   |   |     | -          |   |   |   | 11,312,238 |   |   |   | 11,312,238 |   |
| Balance      as of December 31, 2005(Restated)   |   |                      | 14,132,824 |   |       |   | 14,133 |     |   |   | 5,683,518  |   |   |     | 3,525,317  |   |   |   | 19,211,917 |   |   |   | 28,434,885 |   |
|  Warrant      exercise                      |   |                      | 1,196,251  |   |       |   | 1,196  |     |   |   | 3,792,001  |   |   |     | (1,786,341 | ) |   |   | - |   |   |   | 2,006,856 |   |
|  Shares      issued for services            |   |                      | 103,370    |   |       |   | 103    |     |   |   | 1,262,521  |   |   |     | -          |   |   |   | - |   |   |   | 1,262,624 |   |
|  Shares      issued for notes conversion    |   |                      | 399,375    |   |       |   | 399    |     |   |   | 3,194,601  |   |   |     | -          |   |   |   | - |   |   |   | 3,195,000 |   |
|  Warrant      issued with convertible notes |   |                      | -          |   |       |   | -      |     |   |   | -          |   |   |     | 1,871,859  |   |   |   | - |   |   |   | 1,871,859 |   |
|  Net      income                            |   |                      | -          |   |       |   | -      |     |   |   | -          |   |   |     | -          |   |   |   | 16,433,372 |   |   |   | 16,433,372 |   |
| Balance      as of December 31, 2006 (Restated)  |   |                      | 15,831,820 |   |       |   | 15,831 |     |   |   | 13,932,641 |   |   |     | 3,610,835  |   |   |   | 35,645,289 |   |   |   | 53,204,596 |   |
|  Warrant      exercise                      |   |                      | 505,698    |   |       |   | 506    |     |   |   | 1,698,932  |   |   |     | (599,391   | ) |   |   | - |   |   |   | 1,100,047 |   |
|  Shares      issued for services            |   |                      | 49,250     |   |       |   | 49     |     |   |   | 1,060,701  |   |   |     | -          |   |   |   | - |   |   |   | 1,060,750 |   |
|  Shares      issued for notes conversion    |   |                      | 575,000    |   |       |   | 575    |     |   |   | 5,749,425  |   |   |     | -          |   |   |   | - |   |   |   | 5,750,000 |   |
|    Net      income                |   |                      | -          |   |       |   | -      |     |   |   | -          |   |   |     | -          |   |   |   | 8,284,393 |   |   |   | 8,284,393 |   |
| Balance      as of December 31, 2007             |   |                      | 16,961,768 |   |       |   | 16,961 |     |   |   | 22,441,699 |   |   |     | 3,011,444  |   |   |   | 43,929,682 |   |   |   | 69,399,786 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | For      the years ended December 31 |        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2007                                 |        |   | 2006 |   |   | 2005 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | US$                                  |        |   | US$ |   |   | US$ |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   | (Restated) |   |   | (Restated) |   |
| Cash      flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |        |   |   |   |   |   |   |
| Net      income                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                 | 8,284,393   |   |   |   | 16,433,372 |   |   |   | 11,312,238 |   |
| Adjustments      to reconcile net income to operating activities:                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Provision      for losses on receivable                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                 | 4,000,000   |   |   |   | - |   |   |   | - |   |
| Compensation      expenses for stock      issued                                                                                   |   |                                 | 1,060,750   |   |   |   | 1,262,623 |   |   |   | 940,240 |   |
| Equity      in earnings of unconsolidated subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 | (49,776,337 | ) |   |   | (38,655,921 | ) |   |   | (13,111,381 | ) |
| Interest      expense from accrual of guaranteed redemption value                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 | 8,151,867   |   |   |   | - |   |   |   | - |   |
| Interest      expense from amortization of note discounts                                                                                                                                                                                                                                                                                                                                                                                                |   |                                 | 3,900,106   |   |   |   | 155,988 |   |   |   | - |   |
| Gain      on derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 | (3,279,031  | ) |   |   | - |   |   |   | - |   |
| Amortization      of convertible debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 | 369,794     |   |   |   | - |   |   |   | - |   |
| Changes      in assets and liabilities                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Increase      in due from      subsidiaries                                                                                        |   |                                 | (46,683,303 | ) |   |   | (16,737,448 | ) |   |   | (7,905,429 | ) |
| (Increase)      decrease in prepayments and other receivables                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 | (357,400    | ) |   |   | 2,250 |   |   |   | (22,500 | ) |
| Increase      in accounts payable and other payables                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 | 1,967,467   |   |   |   | 1,577,226 |   |   |   | 224,002 |   |
| Decrease      in due to related      parties                                                                                       |   |                                 | (40,783     | ) |   |   | - |   |   |   | (232,946 | ) |
| Increase      in tax      payable                                                                                                  |   |                                 | 12,405      |   |   |   | - |   |   |   | 100 |   |
| (Decrease)      Increase in payable to subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                 | 15,008,999  |   |   |   | 17,769,827 |   |   |   | 240,800 |   |
| Net      cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 | (57,381,073 | ) |   |   | (18,192,083 | ) |   |   | (8,554,876 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Increase      in long term notes      receivable                                                                    |   |                                 | (4,000,000  | ) |   |   | - |   |   |   | - |   |
| Cash      paid for investment in      subsidiaries                                                                  |   |                                 | (18,065,200 | ) |   |   | - |   |   |   | - |   |
| Net      cash used in investing      activities                                                                     |   |                                 | (22,065,200 | ) |   |   | - |   |   |   | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Proceeds      from convertible debt, net of issuance costs                                                                                                                                                                                                                                                                                                                                                                                               |   |                                 | 76,302,066  |   |   |   | 18,200,000 |   |   |   | 8,000,000 |   |
| Warrant      exercise                                                                                               |   |                                 | 1,100,047   |   |   |   | 2,006,856 |   |   |   | 750,000 |   |
| Net      cash provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                 | 77,402,113  |   |   |   | 20,206,856 |   |   |   | 8,750,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Net      (decrease) increase in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                |   |                                 | (2,044,160  | ) |   |   | 2,014,773 |   |   |   | 195,124 |   |
| Cash      and cash equivalents, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                 | 2,220,690   |   |   |   | 205,917 |   |   |   | 10,793 |   |
| Cash      and cash equivalents, end of year                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                 | 176,530     |   |   |   | 2,220,690 |   |   |   | 205,917 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of cash flow information:                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Cash      paid during the year for liquidating damages                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 | (1,820,000  | ) |   |   | - |   |   |   | - |   |
| Interest      paid during the year                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                 | (715,520    | ) |   |   | (469,493 | ) |   |   | (177,723 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of non-cash investing and financing activities:                                                                                                                                                                                                                                                                                                                                                                             |   |                                 |        |   |   |   |   |   |   |   |   |   |
| Conversion      of convertible debt to ordinary shares                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                 | 5,750,000   |   |   |   | 3,195,000 |   |   |   | - |   |
| Cashless      warrant exercise - 478,454 shares                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                 | -           |   |   |   | 478 |   |   |   | - |   |
| Non-cash      asset contribution                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                 | -           |   |   |   | - |   |   |   | 8,647 |   |

----

|                                                                                                                                          |   | 2007   |       |   | 2006   |      |       | 2005   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|------------|--------|--------|
|                                                                                                                                          |   | US$    |       |   | US$    |      |       | US$    |   |
| Series      A Convertible Note                                                                                                                |   |   |       |   |   | -         |       |   |   | 3,000,000 |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |
| Series      B Convertible Note                                                                                                                |   |   |       |   |   | 5,000,000 |       |   |   | 5,000,000 |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |
| 7.75%      Convertible Notes due 2009, net of discount of $1,091,919 and $1,715,871      at December 31, 2007 and 2006, respectively          |   |   | 17,108,081 |   |   |      | 16,484,129 |   |   |   | - |   |
|                                                                                                                                          |   |   |       |   |   |      |       |   |   |   |   |   |
| 1.00%      Guaranteed Senior Secured Convertible, including guaranteed redemption      accrual of $8,151,867 and note discount of $50,022,177 |   |   | 38,129,690 |   |   |      | -          |   |   |   | - |   |
|                                                                                                                                          |   |   | 55,237,771 |   |   |      | 21,484,129 |   |   |   | 8,000,000 |   |
| Less:      current portion                                                                                                                    |   |   | -          |   |   |      | (5,000,000 | )      |   |   | (3,000,000 | ) |
|                                                                                                                                          |   |   | 55,237,771 |   |   |      | 16,484,129 |   |   |   | 5,000,000 |   |

----

----

| Year      ended December 31 |   |   | Future      repayments |        |
|-----------------------------|--------|--------|------------------------|-------------|
|                        |   |   | US$                    |        |
|  2008                  |   |   |                   | -           |   |
|  2009                  |   |   |                   | 18,200,000  |   |
|  2010                  |   |   |                   | -           |   |
|  2011                  |   |   |                   | -           |   |
|  2012                  |   |   |                   | 88,151,867  |   |
|                        |   |   |                   | 106,351,867 |   |
| Less discount          |   |   |                   | (51,114,096 | ) |
|                        |   |   |                   | 55,237,771  |   |

----