UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
X Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2007
Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _____________
Commission File Number: 0-31619
Millennium Quest, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0430320
-------- --------------------------
(State of incorporation) (IRS Employer ID Number)
Beihuan Zhong Road
Junan County
Shandong, China 276600
(Address of principal executive offices)
(86) 539-7318818
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES NO X
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: May 11, 2007: 10,508,643
------------------------
Transitional Small Business Disclosure Format (check one): YES NO X
Millennium Quest, Inc.
Form 10-QSB for the Quarter ended March 31, 2007
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 9
Item 3 Controls and Procedures 11
Part II - Other Information
Item 1 Legal Proceedings 12
Item 2 Recent Sales of Unregistered Securities and Use of Proceeds 12
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits 13
Signatures 13
Part I
Item 1 - Financial Statements
Millennium Quest, Inc.
(a development stage company)
Unaudited Condensed Balance Sheets
March 31, December 31,
2007 2006
------- -------
ASSETS
Current Assets
Cash $ 623 $ 1,066
------- -------
Total Current Assets 623 1,066
------- -------
Total Assets $ 623 $ 1,066
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current Liabilities
Accounts payable $13,424 $15,568
Stockholder loans 32,000 27,000
Accrued interest payable on stockholder loans 1,847 1,346
------- -------
Total Current Liabilities 47,271 43,914
------- -------
Stockholders' Equity (Deficit)
Preferred stock - $0.001 par value
5,000,000 shares authorized,
none issued and outstanding -- --
Common stock - $0.001 par value.
20,000,000 shares authorized.
2,261,643 shares issued and outstanding 2,262 2,262
Capital in excess of par value 163,788 163,788
Retained deficit (106,991) (106,991)
Deficit accumulated during the development stage (105,707) (101,907)
--------- ---------
Total Stockholders' Equity (Deficit) (46,648) (42,848)
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 623 $ 1,066
========== =========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
Millennium Quest, Inc.
(a development stage company)
Unaudited Condensed Statements of Operations
Period from
May 4, 1994
(date of reentry
Three months Three months to development
ended ended stage) through
March 31, 2007 March 31, 2006 March 31, 2007
-------------- -------------- --------------
Revenues $ -- $ -- $ --
----------- ----------- -----------
Operating Expenses
General and administrative expenses 3,301 7,266 112,899
----------- ----------- -----------
Total operating expenses 3,301 7,266 112,899
----------- ----------- -----------
Loss from operations (3,301) (7,266) (112,899)
Other Income (Expense)
Interest expense - related party (501) (226) (1,847)
Interest and other income 2 16 9,039
----------- ----------- -----------
Total other income (expense) (499) (210) 7,192
----------- ----------- -----------
Loss before provision for income taxes (3,800) (7,476) (105,707)
Provision for income taxes -- -- --
----------- ----------- -----------
Net Loss $ (3,800) $ (7,476) $ (105,707)
=========== =========== ===========
Net loss per share of common stock
outstanding -
basic and fully diluted $ (0.00) $ (0.00)
=========== ===========
Weighted-average number of shares
outstanding - basic and fully diluted 2,261,643 2,101,643
=========== ===========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
Millennium Quest, Inc.
(a development stage company)
Unaudited Condensed Statements of Cash Flows
Period from
May 4, 1994
(date of reentry
Three months Three months to development
ended ended stage) through
March 31, 2007 March 31, 2006 March 31, 2007
-------------- -------------- --------------
Cash Flows from Operating Activities
Net loss $ (3,800) $ (7,476) $(105,707)
Adjustments to reconcile net loss to
net cash used by operating activities
Non-cash expenses -- 3,000 13,000
Net increase (decrease) in
Accounts payable (2,144) (8,227) 13,424
Accrued interest payable on stockholder loans 501 226 1,847
--------- --------- ---------
Net cash used by operating activities (5,443) (12,477) (77,436)
--------- --------- ---------
Cash Flows from Investing Activities -- -- --
--------- --------- ---------
Cash Flows from Financing Activities
Cash received from stockholder loans 5,000 20,000 32,000
--------- --------- ---------
Net cash provided by financing activities 5,000 20,000 32,000
--------- --------- ---------
Net Increase (Decrease) in Cash (443) 7,523 (45,436)
Cash at beginning of period 1,066 1,083 46,059
--------- --------- ---------
Cash at end of period $ 623 $ 8,606 $ 623
========= ========= =========
Supplemental Disclosure of Interest and Income Taxes Paid
Interest paid during the period $ -- $ -- $ --
========= ========= =========
Income taxes paid during the period $ -- $ -- $ --
========= ========= =========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
5
Millennium Quest, Inc.
(a development stage company)
Notes to Unaudited Condensed Financial Statements
Note A - Summary of Significant Accounting Policies
The accompanying financial statements have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 2007 and 2006 and for the
periods then ended have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
in the United States of America have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
2006 audited financial statements. The results of operations for the periods
ended March 31, 2007 and 2006 are not necessarily indicative of the operating
results for the full year.
Note B - Going Concern Uncertainty
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America which
contemplate continuation of the Company as a going concern. However, the Company
has incurred losses since re-entering development stage and has no on-going
operations. Further, the Company has current liabilities in excess of current
assets. These factors raise substantial doubt about the ability of the Company
to continue as a going concern. In this regard, management is proposing to raise
additional funds through loans or through additional sales of its common stock
or through the acquisition of other companies. There is no assurance that the
Company will be successful in raising this additional capital or in achieving
profitable operations. These financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Note C - Stockholder Loans
C&C Investment Partnership, an affiliate of the Company's former officers,
loaned an additional $5,000 to the Company on February 27, 2007. This loan is
evidenced by promissory note bearing in interest at 7% per annum. As of March
31, 2007, the Company owes a total of $32,000 in principal and has accrued an
aggregate $1,847 in interest payable on these loans. The interest expense on
these loans was $501 and $226 during the three months ended March 31, 2007 and
2006, respectively.
Note D - Income Taxes
Due to changes in control in April and May 2007, the Company has a nominal net
operating loss carryforward available for future periods. The ultimate amount
and availability of any future net operating loss carryforwards may be subject
to limitations set forth by the Internal Revenue Code. Factors such as the
number of shares ultimately issued within a three year look-back period; whether
there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt rate; continuity of historical business; and subsequent
taxable income of the Company all enter into the computation of allowable annual
utilization of the net operating loss carryforwards.
6
Millennium Quest, Inc.
(a development stage company)
Notes to Unaudited Condensed Financial Statements
Note D - Income Taxes - Continued
The Company's income tax expense (benefit) for each of the three month periods
ended March 31, 2007 and 2006 differed from the combined statutory federal and
state rate of 23.7 percent as follows:
Three months Three months
ended ended
March 31, 2007 March 31, 2006
-------------- --------------
Statutory rate applied to income before income taxes $ (901) $(1,772)
Income tax effect resulting from:
Federal benefit of state income taxes 50 98
Change in valuation allowance 851 1,674
------- -------
Income tax expense $ -- $ --
======= =======
As of March 31, 2007, the Company's deferred tax assets and valuation allowance
are as follows:
Deferred tax assets
Deferred compensation $ 672
Net operating loss carryforwards 31,587
Less valuation allowance (32,259)
----------
Net Deferred Tax Assets $ --
===========
Note E - Subsequent Events
Sale of Series A Voting Convertible Preferred Stock - On April 5, 2007, the
Company entered into a Stock Purchase Agreement ("Stock Purchase Agreement") by
and among Dimitri Cocorinis and Terry Cononelos, former officers, directors and
principal stockholders of the Company, and Halter Financial Investments, L.P.
("Halter"), a Texas limited partnership, pursuant to which Halter has agreed to
purchase and acquire from the Company, and the Company agrees to sell and
deliver to Halter, 100,000 restricted, unregistered shares of the Company's
Series A Voting Convertible Preferred stock, par value $0.001 ("the Shares"), in
consideration of Halter's payment to the Company of $455,000 in immediately
available funds. The Shares shall have voting rights equivalent to, and shall be
convertible into, 42,856,000 shares of the Company's common stock. This
transaction closed on April 10, 2007, and Terry Cononelos and Dimitri Cocorinis
resigned from their positions as officers of the Company, Terry Cononelos
resigned from his position as a director of the Company, and Timothy P. Halter
was appointed as President, Secretary and a director of the Company to fill the
vacancies created by such resignations. Later in April 2007, Dimitri Cocorinis
also resigned from his position as a director of the Company.
Cash Dividend - In connection with the Stock Purchase Agreement, the Company
declared a $0.1827 per share liquidating cash dividend to stockholders of record
of 2,261,643 shares of common stock on April 16, 2007.
7
Millennium Quest, Inc.
(a development stage company)
Notes to Unaudited Condensed Financial Statements
Note E - Subsequent Events - Continued
Common Stock Issued to Settle Loans - In connection with the Stock Purchase
Agreement, C&C Investment Partnership ("C&C"), a partnership owned by the
Company's two former officers, entered into a Settlement and Stock Issuance
Agreement with the Company, pursuant to which C&C and its principals agreed to
accept the issuance to them of a total of 2,500,000 shares of restricted common
stock of the Company in payment and satisfaction of $25,000 in principal amount
of notes payable obligations to C&C.
Consulting Agreements - On April 24, 2007, the Company entered into separate
consulting agreements ("Consulting Agreements") with Heritage Management
Consultants, Inc. ("Heritage") and Shufang Zhang ("Zhang"). Heritage and Zhang
have each been engaged to assist the Company in its efforts to consummate a
business combination transaction with a privately-held entity. In consideration
for the services to be provided under the Consulting Agreements, Heritage and
Zhang received 1,642,000 and 4,105,000 shares of the Company's common stock,
respectively.
Common Stock Split - On April 30, 2007, the Company's Board of Directors
approved, subject to receiving the approval of the holders of a majority of the
Company's outstanding capital stock, a 1-for-32.84 reverse split of the
Company's issued and outstanding common stock.
Amendment to Certificate of Incorporation - On April 30, 2007, the Company's
Board of Directors approved, subject to receiving the approval of the holders of
a majority of the Company's outstanding capital stock, an amendment and
restatement of the Company's Restated Certificate of Incorporation to increase
the total authorized stock from 20,000,000 to 200,000,000 shares of Common Stock
and change the name of the Company to "American Lorain Corporation".
Business Combination - On May 3, 2007, the Company entered into a Share Exchange
Agreement ("Share Exchange Agreement") with International Lorain Holding, Inc.,
a Cayman Islands company, and its sole shareholder, Mr. Hisashi Akazawa.
Pursuant to the Share Exchange Agreement, Mr. Akazawa agreed to transfer all of
the shares of the capital stock of International Lorain Holding, Inc. held by
him, constituting all of the issued and outstanding stock of International
Lorain Holding, Inc., in exchange for 697,663 shares of the Company's new Series
B Voting Convertible Preferred Stock. The Company has designated 1,000,000
shares of preferred stock as Series B with each share having voting rights
equivalent to, and being convertible into, approximately 23.375 shares of common
stock and having a stated value of $66.15 that would be paid first in the event
of the liquidation of the Company.
Sale of Series B Voting Convertible Preferred Stock and Common Stock Warrants
-On May 3, 2007, in connection with the Share Exchange Agreement, the Company
entered into Securities Purchase Agreements with certain accredited investors,
pursuant to which the Company agreed to issue and sell to these investors
299,055.78 shares of our Series B Voting Convertible Preferred Stock and
warrants for the purchase of 45,912,455 shares of the Company's common stock for
approximately $19.8 million. These warrants are for a term of 3 years and have
an exercise price of $0.1294153 per share.
Grant of Common Stock Warrants - In connection with the Share Exchange
Agreement, the Company agreed to issue warrants to consultants for the purchase
of 16,069,594 shares of common stock, which warrants are for a term of 3 years
and have an exercise price of $0.1294153 per share.
8
Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(1) Caution Regarding Forward-Looking Information
Certain statements contained in this quarterly filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
Results of Operations
The Company had no revenue for either of the three month periods ended March 31,
2007 and 2006.
General and administrative expenses for each of the respective three-month
periods ended March 31, 2007 and 2006 were nominal, consisting principally of
professional fees and other expenses related to the Company's compliance with
the Company's filing requirements under the Securities Exchange Act of 1934. It
is anticipated that future expenditure levels will increase as the Company
intends to fully comply with its periodic reporting requirements.
Net loss per share for the respective three-month periods ended March 31, 2007
and 2006 were $0.00 and $0.00 based on the weighted-average shares issued and
outstanding for each respective period.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under the Securities Exchange Act of 1934 unless and until
such time that the Company completes an acquisition with an operating company.
Liquidity and Capital Resources
At March 31, 2007, the Company had working capital of $(46,648).
It is the belief of management and significant stockholders that sufficient
working capital necessary to support and preserve the integrity of the corporate
entity will be present. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company's need for working capital may change dramatically as a result of
any business acquisition or combination transaction. There can be no assurance
that the Company will identify any such business, product, technology or company
9
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
Regardless of whether the Company's cash assets prove to be inadequate to meet
the Company's operational needs, the Company might seek to compensate providers
of services by issuances of stock in lieu of cash.
Transactions subsequent to March 31, 2007
On April 5, 2007, we entered into a Stock Purchase Agreement (Stock Purchase
Agreement) by and among Dimitri Cocorinis and Terry Cononelos, former officers,
directors and principal stockholders of the Company, and Halter Financial
Investments, L.P. (Halter), a Texas limited partnership, pursuant to which
Halter has agreed to purchase and acquire from the Company, and the Company
agreed to sell and deliver to Halter, 100,000 restricted, unregistered shares of
the Company's Series A Voting Convertible Preferred stock, par value $0.001 (the
"Shares"), in consideration of Halter's payment to the Company of $455,000 in
immediately available funds at Closing. The Shares shall have voting rights
equivalent to, and shall be convertible into, 42,856,000 shares of our common
stock.
The Stock Purchase Agreement contemplates that on or prior to the Closing Date,
we shall declare a special cash distribution to the stockholders of record of
the Company's common stock. Such special cash distribution shall be in the
aggregate amount of approximately $415,000 or approximately $0.18 per share for
each of the 2,261,643 shares of common stock outstanding on the record date for
such distribution; provided, however, that in no event shall the aggregate
amount of such distribution exceed the amount permitted by the Delaware General
Corporation Law. This special distribution totaled $413,202.
In connection with the Stock Purchase Agreement, C&C Investment Partnership
(C&C), a partnership owned by our then officers, entered into a Settlement and
Stock Issuance Agreement (Settlement Agreement) with the Company, pursuant to
which C&C and its principals agreed, following the Closing, to accept the
issuance to them of a total of 2,500,000 shares of restricted, unregistered
common stock of the Company in payment and satisfaction of $25,000 in principal
amount of notes payable obligations to C&C. The shares issuable under the
Settlement Agreement will not participate in the special dividend.
Promptly following the execution of the Stock Purchase Agreement, we undertook
the actions required by Regulation 14f-1 promulgated under the Securities
Exchange Act of 1934, as amended, with respect to a change in the Company's
management. On the Closing Date, Terry Cononelos and Dimitri Cocorinis resigned
from their positions as officers of the Company, and Terry Cononelos resigned
from his position as a director of the Company and Timothy P. Halter was
appointed as President, Secretary and a director of the Company to fill the
vacancies created by such resignations. Following the expiration of the waiting
period required by Regulation 14f-1, Dimitri Cocorinis resigned from his
position as a director of the Company.
The above discussed transaction(s) closed on April 10, 2007.
On April 24, 2007, we entered into separate consulting agreements (Consulting
Agreements) with Heritage Management Consultants, Inc. (Heritage) and Shufang
Zhang (Zhang), respectively. Heritage and Zhang have each been engaged to assist
the Company in its efforts to consummate a business combination transaction with
a privately-held entity. In consideration for the services to be provided under
the Consulting Agreements, Heritage and Zhang received 1,642,000 and 4,105,000
shares of the Company's common stock, respectively.
On May 3, 2007, we entered into a share exchange agreement with International
Lorain Holding, Inc., a Cayman Islands company, and its sole shareholder, Mr.
Hisashi Akazawa (Share Exchange Agreement). Pursuant to the Share Exchange
10
Agreement, Mr. Akazawa agreed to transfer all of the shares of the capital stock
of International Lorain Holding, Inc. held by him, constituting all of the
issued and outstanding stock of International Lorain Holding, Inc., in exchange
for a number of newly issued shares of our Series B Voting Convertible Preferred
Stock that would, in the aggregate, constitute at least 65.43% of our issued and
outstanding capital stock on a fully-diluted basis as of and immediately after
the consummation of the transactions contemplated by the Share Exchange
Agreement and after giving effect to a financing transaction that resulted in
gross proceeds to us of $19.8 million. In connection with the Share Exchange
Agreement, Mr. Akazawa agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any of his shares of our Series B
Voting Convertible Preferred Stock for a period of 12 months from the date of
issuance of such stock.
On May 3, 2007 Mr. Akazawa, granted an option to Mr. Si Chen, our Chief
Executive Officer, for the purchase of up to 627,897 of his shares of our Series
B Voting Convertible Preferred Stock along with any shares of Common Stock that
such Series B Preferred Stock may be converted into, pursuant to the terms of an
Option Agreement, dated as of May 3, 2007, between Mr. Akazawa and Mr. Chen (the
"Option Agreement"). Pursuant to the Option Agreement, if Mr. Chen exercises his
option to purchase such shares he will be bound to the lock-up provisions of the
Share Exchange Agreement mentioned above to the same extent to which Mr. Akazawa
is bound as if Mr. Chen had been an original party to the Share Exchange
Agreement.
On May 3, 2007, we entered into a securities purchase agreement with certain
accredited investors (Securities Purchase Agreement), pursuant to which we
issued and sold to these investors 299,055.78 shares of our Series B Voting
Convertible Preferred Stock and warrants for the purchase of up to an aggregate
of 45,912,455 shares of our Common Stock for approximately $19.8 million. At the
same time, we entered into a registration rights agreement with these investors
under which, among other things, we agreed to register the shares of our common
stock issuable upon conversion of our Series B Voting Convertible Preferred
Stock as well as shares of our common stock issuable upon exercise of the
warrants we issued to the investors within a pre-defined period.
Complete details of the above described transactions as well as copies of the
Share Exchange Agreement and Option Agreement can be found in our Current Report
on Form 8-K as filed with the SEC on May 9, 2007.
Item 3 - Controls and Procedures
The Company does not maintain a formal or written set of disclosure controls and
procedures designed to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. The Company's
current informal disclosure controls and procedures would not constitute
effective internal control over financial reporting as of March 31, 2007.
During the course of the Company's preparation of its December 2006 and March
2007 financial statements, including the audit of the year end financial
statements by the Company's independent public accounting firm, certain material
weaknesses in the Company's internal control over financial reporting were
identified. These material weaknesses were (1) the delay in recording financial
transactions, which could result in inadvertent errors or omissions, (2) the
lack of an organized system of document review, signing, retaining copies, and
orderly filing, (3) the lack of a significant segregation of duties or review of
financial transactions and (4) the lack of documentation of controls and
accounting procedures.
The material weaknesses described above are the direct result of a lack of
resources and accounting personnel. The Company's chief executive officer had
the primary responsibility for receipts and disbursements, and for the
preparation of financial statements and filing of periodic reports and other
filings. Because of limited resources, the Company was impaired in its ability
to segregate duties and to ensure consistently complete and accurate financial
reporting. Notwithstanding these limitations, management had implemented a
system that required the involvement of both officers in reviewing, recording,
authorizing, processing and monitoring transactions, the engagement of
accounting assistance when necessary; and the establishment of such additional
accounting controls and systems as may be appropriate.
There were no changes in the Company's disclosure controls and procedures that
occurred during the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting. Subsequent to the date of the evaluation, there have been
no significant changes in the Company's disclosure controls and procedures that
could significantly affect the Company's internal control over financial
reporting, other than the planned corrective actions discussed above.
11
(b) Changes in Internal Controls
During the quarter ended March 31, 2007, there were no changes (including
corrective actions with regard to significant deficiencies or material
weaknesses) in the Company's internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Recent Sales of Unregistered Securities and Use of Proceeds
On April 5, 2007, we entered into a Stock Purchase Agreement (Stock
Purchase Agreement) by and among Dimitri Cocorinis and Terry Cononelos,
former officers, directors and principal stockholders of the Company, and
Halter Financial Investments, L.P. (Halter), a Texas limited partnership,
pursuant to which Halter has agreed to purchase and acquire from the
Company, and the Company agreed to sell and deliver to Halter, 100,000
restricted, unregistered shares of the Company's Series A Voting
Convertible Preferred stock, par value $0.001 (the "Shares"), in
consideration of Halter's payment to the Company of $455,000 in immediately
available funds at Closing. The Shares shall have voting rights equivalent
to, and shall be convertible into, 42,856,000 shares of our common stock.
In connection with the Stock Purchase Agreement, C&C Investment Partnership
(C&C), a partnership owned by our then officers, entered into a Settlement
and Stock Issuance Agreement (Settlement Agreement) with the Company,
pursuant to which C&C and its principals agreed, following the Closing, to
accept the issuance to them of a total of 2,500,000 shares of restricted,
unregistered common stock of the Company in payment and satisfaction of
$25,000 in principal amount of notes payable obligations to C&C.
The above discussed transaction(s) closed on April 10, 2007.
On April 24, 2007, we entered into separate consulting agreements
(Consulting Agreements) with Heritage Management Consultants, Inc.
(Heritage) and Shufang Zhang (Zhang), respectively. Heritage and Zhang have
each been engaged to assist the Company in its efforts to consummate a
business combination transaction with a privately-held entity. In
consideration for the services to be provided under the Consulting
Agreements, Heritage and Zhang received 1,642,000 and 4,105,000 shares of
the Company's common stock, respectively.
On May 3, 2007, we entered into a share exchange agreement with
International Lorain Holding, Inc., a Cayman Islands company, and its sole
shareholder, Mr. Hisashi Akazawa (Share Exchange Agreement). Pursuant to
the Share Exchange Agreement, Mr. Akazawa agreed to transfer all of the
shares of the capital stock of International Lorain Holding, Inc. held by
him, constituting all of the issued and outstanding stock of International
Lorain Holding, Inc., in exchange for a number of newly issued shares of
our Series B Voting Convertible Preferred Stock that would, in the
aggregate, constitute at least 65.43% of our issued and outstanding capital
stock on a fully-diluted basis as of and immediately after the consummation
of the transactions contemplated by the Share Exchange Agreement and after
giving effect to a financing transaction that resulted in gross proceeds to
us of approximately $20.0 million. In connection with the Share Exchange
Agreement, Mr. Akazawa agreed not to offer, sell, contract to sell, pledge
12
or otherwise dispose of, directly or indirectly, any of his shares of our
Series B Voting Convertible Preferred Stock for a period of 12 months from
the date of issuance of such stock.
On May 3, 2007 Mr. Akazawa, granted an option to Mr. Si Chen, our Chief
Executive Officer, for the purchase of up to 627,897 of his shares of our
Series B Voting Convertible Preferred Stock along with any shares of Common
Stock that such Series B Preferred Stock may be converted into, pursuant to
the terms of an Option Agreement, dated as of May 3, 2007, between Mr.
Akazawa and Mr. Chen (the "Option Agreement"). Pursuant to the Option
Agreement, if Mr. Chen exercises his option to purchase such shares he will
be bound to the lock-up provisions of the Share Exchange Agreement
mentioned above to the same extent to which Mr. Akazawa is bound as if Mr.
Chen had been an original party to the Share Exchange Agreement.
On May 3, 2007, we entered into a securities purchase agreement with
certain accredited investors (Securities Purchase Agreement), pursuant to
which we issued and sold to these investors 299,055.78 shares of our Series
B Voting Convertible Preferred Stock and warrants for the purchase of up to
an aggregate of 45,912,455 shares of our Common Stock for approximately
$19.8 million. At the same time, we entered into a registration rights
agreement with these investors under which, among other things, we agreed
to register the shares of our common stock issuable upon conversion of our
Series B Voting Convertible Preferred Stock as well as shares of our common
stock issuable upon exercise of the warrants we issued to the investors
within a pre-defined period.
Complete details of the above described transactions as well as copies of
the Share Exchange Agreement and Option Agreement can be found in our
Current Report on Form 8-K as filed with the SEC on May 9, 2007.
Item 3 - Defaults on Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
stockholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 -
Chief Executive Officer
31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 -
Chief Financial Officer
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Millennium Quest, Inc.
Dated: May 17, 2007 By: /s/ Si Chen
--- --- ---- -----------------------
Si Chen
Chief Executive Officer
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