**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB/A**


(Amendment
      No. 1)





(Mark
      One)


**x ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**


**For
      the Fiscal Year Ended December 31, 2007**





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**


**For
      the transition period from** **_________** **to** **__________**





Commission
      File Number: 0-9879




**Fuda
      Faucet Works, Inc.**


(Name
      of
      small business issuer in its charter)





**Delaware**
            **13-2648442**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                Number)




Ge
      Jia
      Ba, Hua Ting, Yiyang


Jiangxi,
      PRC 334400


Telephone:
      86 793-5887178


(Address
      and telephone number of principal executive offices)




Securities
      registered under Section 12(b) of the Exchange Act:


None





Securities
      registered under Section 12(g) of the Exchange Act:





**Common
      Stock, $0.001 par value**


(Title
      of
      Each Class)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 þ****NO**** ̈**





Indicate
      by check mark if no disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-B is contained herein, and no such disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. **þ**





Registrant’s
      revenues for its fiscal year ended December 31, 2007 were
      $25,587,594.





The
      aggregate market value of voting and nonvoting common stock held by
      non-affiliates of the registrant, based upon the closing bid quotation for
      the
      registrant’s common stock, as reported on the OTC Bulletin Board quotation
      service, as of March 27, 2008 was approximately $1,478,693.





The
        number of shares of registrant’s common stock outstanding as of March 31, 2008
        was 10,725,440.


Transitional
      Small Business Disclosure Format: **YES** ** ̈** **NO**









**TABLE
      OF CONTENTS**




**PART
                I**
            **1**ITEM
                1. BUSINESS
            1ITEM
                2. PROPERTY
            18ITEM
                3. LEGAL PROCEEDINGS
            19ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            19**PART
                II**
            **20**ITEM
                5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS
            20ITEM
                6. MANAGEMENT’S DISCUSSION AND ANALYSIS
            21ITEM
                7. FINANCIAL STATEMENTS
            28ITEM
                8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE
            28ITEM
                8A. CONTROLS AND PROCEDURES
            28ITEM
                8B. OTHER INFORMATION
            29**PART
                III**
            **30**ITEM
                9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS , CONTROL PERSONS AND
                CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
                ACT
            30ITEM
                10. EXECUTIVE COMPENSATION
            31ITEM
                11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                AND
                RELATED STOCKHOLDER MATTERS
            31ITEM
                12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            32ITEM
                13. EXHIBITS
            33ITEM
                14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
            34INDEX
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-1









**FORWARD
      LOOKING STATEMENTS**




This
      Annual Report on Form 10-KSB contains forward-looking statements regarding
      our
      business, financial condition, results of operations and prospects. Words such
      as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates” and similar expressions or variations of such words are intended to
      identify forward-looking statements, but are not deemed to represent an
      all-inclusive means of identifying forward-looking statements as denoted in
      this
      Annual Report on Form 10-KSB. Additionally, statements concerning future matters
      are forward-looking statements.




Although
      forward-looking statements in this Annual Report on Form 10-KSB reflect the
      good
      faith judgment of our management, such statements can only be based on facts
      and
      factors currently known by us. Consequently, forward-looking statements are
      inherently subject to risks and uncertainties and actual results and outcomes
      may differ materially from the results and outcomes discussed in or anticipated
      by the forward-looking statements. Factors that could cause or contribute to
      such differences in results and outcomes include, without limitation, those
      specifically addressed under the headings “Risks Factors” and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations.” You
      are urged not to place undue reliance on these forward-looking statements,
      which
      speak only as of the date of this Annual Report on Form 10-KSB. We file reports
      with the SEC. The SEC maintains a website (www.sec.gov) that contains reports,
      proxy and information statements, and other information regarding issuers that
      file electronically with the SEC, including us. You can also read and copy
      any
      materials we file with the SEC at the SEC’s Public Reference Room at 100 F
      Street, NE, Washington, DC 20549. You can obtain additional information about
      the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.




We
      undertake no obligation to revise or update any forward-looking statements
      in
      order to reflect any event or circumstance that may arise after the date of
      this
      Annual Report on Form 10-KSB, except as required by law. Readers are urged
      to
      carefully review and consider the various disclosures made throughout the
      entirety of this Annual Report, which are designed to advise interested parties
      of the risks and factors that may affect our business, financial condition,
      results of operations and prospects.


**EXPLANATORY
        NOTE**
 
 We
        are
        filing this amendment to our annual report on Form 10-KSB/A to (i) restate
        its
        previously issued consolidated financial statements for the year ended December
        31, 2007, as set forth in greater detail in Note 18 of Notes to Financial
        Statements, (ii) to make changes in Item 6 - Management’s Discussion and
        Analysis, (iii) to make conforming and related changes in Item 1 - Description
        of Business to clarify information previously included; (iv) to revise Item
        8A -
        Controls and Procedures; and (v) to update the information as to our officers
        and directors in Item 9 - Directors, Executive Officers, Promoters, Control
        Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange
        Act. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act
        of
        1934, as amended, the Form 10-KSB/A contains currently dated certifications
        from
        the chief executive officer and the chief financial officer.




**PART
      I**




**ITEM
      1. BUSINESS**




**The
      Company**




References
      in this annual report to “we,” “us,” or “Fuda” refer to Fuda Faucet Works, Inc.,
      its wholly-owned subsidiaries and Jiangxi Yiyang Fuda Copper Co., Ltd. (“Fuda
      Yiyang”), a variable interest entity under the contractual arrangements with us
      whose financial statements are consolidated with ours, unless the context
      specifically states or implies otherwise.




We
      develop, manufacture, distribute and market a wide range of brass faucets and
      related spouts and fittings. We produce all of our products in China and export
      most of our products in international markets, primarily in the Middle East,
      Europe, and Africa. We sell our products to distributors rather than to end
      users.




We
        began
        our business by focusing on copper re-processing in 1995. In 2002, we began
        to
        produce and sell brass faucets, spouts and fittings to the Chinese local
        market,
        and in 2004, we began to sell our European style products
        internationally.


1




**About
      Us**




We
        are a
        Delaware corporation, incorporated in 1969 under the name Magnum Communications
        Corp. We subsequently changed our name to Vacation Ownership Marketing,
        Inc., whereupon we engaged in the development and marketing of time-shared
        condominiums.  In 1983, we ceased operations due to continued
        financial difficulties and adverse litigation.  From 1983 until August
        29, 2001, we were not engaged in any business. On August 29, 2001, we acquired
        Encore Builders, Inc., a construction company. Beginning on August 29, 2001
        we
        were engaged in the construction of Conquistador Plaza Apartments in Miami,
        Florida, pursuant to a lump sum construction contract with Conquistador Plaza.
        These operations ceased with the separation of Encore Builders from us in
        the
        first quarter of 2002. As of May 10, 2004, we changed our corporate name
        to
        Capital Solutions I, Inc. After the reverse acquisition in December 2007,
        we
        changed our corporate name to Fuda Faucet Works, Inc. on January 3,
        2008.




Our
        executive office is located at Ge Jia Ba, Hua Ting, Yiyang, Jiangxi, PRC
        334400.
        Our telephone number is 86 793-5887178. Our website is www.jxfuda.com .
        Information on our website and any other website is not a part of this annual
        report.




**Reverse
      Acquisition**


On
          December 3, 2007, we (then known as Capital Solutions I, Inc.) executed
          a share
          exchange agreement with Jibrin Issa Jibrin Al Jibrin, trustee (the “Trustee”) of
          the Wu Yiting Stock Trust (the “Trust”), which was the sole stockholder of Moral
          Star Development Limited, a British Virgin Islands company (“Moral Star BVI”),
          pursuant to which the Trustee transferred to us all of the capital stock
          of
          Moral Star BVI in exchange for 10,564,647 shares of our common stock, which
          were
          issued to the Trust and the designees of the Trust, some of whom acquired
          their
          shares as nominee of Wu Yiting, our chief executive officer. As a result,
          Moral
          Star BVI became our wholly-owned subsidiary and the business of Moral Star
          BVI
          and its affiliated companies became our business. The sole beneficiary
          of the
          Trust is Wu Yiting, who, as a result of the exchange, became our chief
          executive
          officer. The transaction is treated as a reverse acquisition. As a result,
          for
          accounting purposes, Moral Star BVI is treated as the acquiring company
          and our
          financial statements for period prior to December 3, 2007 reflect the historical
          operations of Moral Star BVI and its affiliated companies, including Fuda
          Yiyang.


**Stock
      Distribution**




On
      December 14, 2007, we effected a 3.2-for-one stock distribution of our common
      stock pursuant to which each share of common stock was converted into 3.2 shares
      of common stock. All references to shares and per share information in this
      annual report give effect to the stock distribution.




**December
      2007 Private Placement**




In
      connection with the acquisition of Moral Star BVI, we entered into the following
      agreements:


(a)  A
          securities purchase agreement with Barron Partners, LP, Silver Rock I,
          Ltd. and
          Eos Holdings pursuant to which the investors purchased, for $3,400,000,
          3,090,909 shares of series A preferred stock and warrants to purchase 2,060,606
          share of common stock at $1.80 per share and 4,121,212 shares of common
          stock at
          $3.00 per share.




The
      securities were issued to the investors in the following amounts:





Investor
            
            Purchase Price
            
            Series A Preferred
            
            $1.80 Warrants
            
            $3.00 WarrantsBarron
                Partners
            
            $
            3,125,000
            
            
            2,840,909
            
            
            1,893,939
            
            
            3,787,879Silver
                Rock I
            
            
            175,000
            
            
            159,091
            
            
            106,061
            
            
            212,121Eos
                Holdings
            
            
            100,000
            
            
            90,909
            
            
            60,606
            
            
            121,212Total
            
            $
            3,400,000
            
            
            3,090,909
            
            
            2,060,606
            
            
            4,121,212


The
          holders of Series A preferred stock and holders of the $1.80 and $3.00
          warrants
          have no right to require us to redeem or otherwise repurchase their
          securities.




2


(b)  An
          escrow
          agreement pursuant to which we issued 3,000,000 shares of series A preferred
          stock into escrow. These shares, which are in addition to the 3,090,909
          shares
          that we issued in the private placement, are to be transferred to the investors
          if our earnings before interest and taxes (“EBIT”) do not reach certain target
          levels for 2007 and 2008. The targets are set forth in RMB, the currency
          of
          China. The
          dollar equivalent is based on the exchange rate on March 31, 2008, which
          was
          RMB¥7.0190 to $1.00. This
          rate is subject to change, and, to the extent that the value of the RMB
          increases as against the United States dollar, the targets, expressed in
          United
          States dollars, will be less. The targets are:
 
 Period
                
                RMB per share
                
                US$ per share2007
                
                ¥
                1.66515
                
                $
                0.225022008
                    if none of the conditions listed below applies
                
                ¥
                2.31521
                
                $
                0.3302008
                    if all of the $1.80 warrants are exercised by June 30, 2008 and
                    50% of the
                    $3.00 warrants are exercised by September 30, 2008
                
                ¥
                2.61524
                
                $
                0.3732008
                    if all of the $1.80 warrants are exercised by June 30, 2008 and
                    all of the
                    $3.00 warrants are exercised by September 30, 2008
                
                ¥
                3.06528
                
                $
                0.437


If
      the
      target for either period is not met, the percentage shortfall is determined.
      If the
      percentage shortfall for 2007 is equal to or greater than 50%, then the escrow
      agent is to deliver the 3,000,000 shares of series A preferred stock to the
      investors. If the percentage shortfall for 2007 is less than 50%, then the
      adjustment percentage shall be determined. The escrow agent shall deliver to
      the
      investors such number of shares of series A preferred stock as is determined
      by
      multiplying the adjustment percentage by 3,000,000 shares and the escrow agent
      shall retain the balance.




The
      adjustment percentage shall mean the percentage that is determined by the
      following formula: Adjustment percentage equals (1/(1-P)) - 1, where P equals
      the percentage shortfall, expressed as a decimal. By way of example, the
      following table shows the adjustment percentage, based on several assumptions
      as
      to the percentage shortfall from the target.





Percentage Shortfall
            
            
            
            Adjustment Percentage10
            %
            
            
            11.11
            %25
            %
            
            
            33.33
            %40
            %
            
            
            66.67
            %50
            %
            
            
            100.00
            %




If
      the
      percentage shortfall for 2008 is equal to or greater than 50%, then the escrow
      agent shall deliver all of the shares of series A preferred stock then held
      in
      escrow to the investors. If the percentage shortfall for 2008 is less than
      50%,
      then the adjustment percentage for 2008 shall be determined. The maximum number
      of shares to be delivered shall be determined by multiplying the adjustment
      percentage by 3,000,000 shares. The number of shares to be delivered to the
      investors shall be the lesser of the number of shares of series A preferred
      stock then held in escrow or the number of shares determined by the preceding
      sentence. Any of the shares held in escrow that are not delivered to the
      investors shall be returned to us for cancellation




(c)  A
      buy-back agreement with Richard Astrom and Christopher Astrom, who were our
      then
      principal stockholders and sole directors and Christopher Astrom was our
      president, chief executive officer and chief financial officer, pursuant to
      which they sold to us all of the shares of common stock owned by them, which
      constituted 75% of our then outstanding common stock, for a purchase price
      of
      $625,000.




The
      certificate of designation for the series A preferred stock provides
      that:




·
            Each
                share of series A preferred stock is convertible into one share of
                common
                stock, at a conversion price of $1.10, subject to
                adjustment.




·
            If
                we issue common stock at a price, or options, warrants or other
                convertible securities with a conversion or exercise price less than
                the
                conversion price (presently $1.10 per share), with certain specified
                exceptions, the number of shares issuable upon conversion of one
                share of
                series A preferred stock is adjusted to reflect a conversion price
                equal
                to the lower price.


3




·
            No
                dividends are payable with respect to the series A preferred stock,
                and
                while the series A preferred stock is outstanding, the Company may
                not pay
                dividends on or redeem shares of common
                stock.




·
            Upon
                any voluntary or involuntary liquidation, dissolution or winding-up,
                the
                holders of the series A preferred stock are entitled to a preference
                of
                $1.10 per share before any distributions or payments may be made
                with
                respect to the common stock or any other class or series of capital
                stock
                which is junior to the series A preferred stock upon voluntary or
                involuntary liquidation, dissolution or
                winding-up.




·
            The
                holders of the series A preferred stock have no voting rights. However,
                so
                long as any shares of series A preferred stock are outstanding, we
                shall
                not, without the affirmative approval of the holders of 75% of the
                outstanding shares of series A preferred stock then outstanding,
                (a) alter
                or change adversely the powers, preferences or rights given to the
                series
                A preferred stock or alter or amend the certificate of designation,
                (b)
                authorize or create any class of stock ranking as to dividends or
                distribution of assets upon liquidation senior to or otherwise pari
                passu
                with the series A preferred stock, or any of preferred stock possessing
                greater voting rights or the right to convert at a more favorable
                price
                than the series A preferred stock, (c) amend our articles of incorporation
                or other charter documents in breach of any of the provisions thereof,
                (d)
                increase the authorized number of shares of series A preferred stock,
                or
                (e) enter into any agreement with respect to the
                foregoing.




·
            EBIT
                is defined asincome
                before income taxes and interest, determined in accordance with GAAP
                plus
                (a) any charges which are reflected under GAAP in our financial statements
                which relate to the transaction contemplated by the purchase agreement
                and
                the registration rights agreement and the other documents executed
                in
                connection with the financing, including the issuance of the series
                A
                preferred stock and warrants and any other securities issuable pursuant
                to
                the purchase agreement, the registration rights agreement and the
                other
                documents, minus (b) the amount, if any, by which all non-recurring
                losses
                or expenses exceed all non-recurring items or income or gain.
                EBIT shall not be adjusted if all non-recurring items of income or
                gain
                exceed all non-recurring losses or expenses. Items shall be deemed
                to be
                non-recurring only if they qualify as non-recurring pursuant to
                GAAP.


The
          warrants have terms of five years, which expires on December 3, 2012. The
          warrants provide a cashless exercise feature; however, the holders of the
          warrants may not make a cashless exercise during the six months for the
          $1.80
          warrants and twelve months for the $3.00 warrants following the date of
          the
          initial issuance and thereafter if the underlying shares are covered by
          an
          effective registration statement.
 
 The
          warrants provide that the exercise price of the warrants may be reduced
          by up to
          90% if our EBIT per share, on a fully diluted basis, is less than the target
          amounts described above. There was no adjustment for 2007. An adjustment
          in the
          warrant exercise price does not affect the number of shares issuable upon
          exercise of the warrants. The following table sets forth the exercise price
          of
          the warrants if our EBIT for 2008 is 20% below the target (a “20% shortfall”),
          50% below the target (a “50% shortfall”) or 90% below the target:
 
 $1.80
                    warrant
                  Exercise
                    Price
                
                $3.00
                    warrant
                  Exercise
                    PriceUnadjusted
                
                $
                1.80
                
                $
                3.0020%
                    shortfall
                
                $
                1.44
                
                $
                2.4050%
                    shortfall
                
                $
                0.90
                
                $
                1.5090%
                    shortfall
                
                $
                0.18
                
                $
                0.30





Any
        adjustment in the exercise price will be determined based upon the Company’s
        actual EBIT per share for 2008, and the actual numbers may be different from
        those set forth in the table.




If
      we
      issue common stock at a price, or options, warrants or other convertible
      securities with a conversion or exercise price less than the exercise price,
      with certain specified exceptions, the exercise price is reduced to an exercise
      price equal to the lower price in the case of the $3.00 warrant. The adjustment
      for the $1.80 warrant is based on a formula.


4


We
          have
          no right to redeem the warrants, and the holders of the warrants have no
          right
          to require us to redeem or otherwise repurchase the
          warrants.




Pursuant
      to the securities purchase agreement:




·
            Our
                board of directors and the holders of a majority of its capital stock
                approved a restated certificate of incorporation which changes the
                authorized capital stock to 130,000,000 shares, of which 20,000,000
                are
                shares of preferred stock, par value $.001 per share, and 110,000,00
                are
                shares of common stock, par value $.001 per share. Our present authorized
                capital stock is 20,000,000 shares of preferred stock, par value
                $.0000001
                per share, and 900,000,000 shares of common stock, par value $.0000001
                per
                share. The restated certificate will become effective 20 days after
                a
                Schedule 13D information statement is mailed to
                stockholders.




·
            We
                placed 3,000,000 shares of series A preferred stock in escrow as
                described
                above.




·
              We
                    agreed that, by March 2, 2008, which is 90 days after the closing
                    on
                    December 3, 2007, we would have appointed such number of independent
                    directors that would result in a majority of our directors being
                    independent directors and we would have an audit committee composed
                    solely
                    of at least three independent directors and a compensation committee
                    would
                    have a majority of independent directors. We are required to
                    pay
                    liquidated damages at the rate of 12% per annum from the date
                    such damages
                    begin to accrue until the condition giving rise to the liquidated
                    damages
                    is cured (i) if we fail to have a majority of independent directors
                    by
                    March 2, 2008 or (ii) thereafter, if he subsequently fail to
                    meet these
                    requirements for a period of 60 days for an excused reason, as
                    defined in
                    the purchase agreement, or 75 days for a reason which is not
                    an excused
                    reason. Liquidated damages are payable in cash or additional
                    shares of
                    series A preferred stock, with the series A preferred stock being
                    valued
                    at its liquidated preference of $1.10 per share. The liquidated
                    damages
                    are computed in an amount equal to 12% per annum of the purchase
                    price,based
                    on the number of days that the Company is in violaition of the
                    covenant,and the maximum would be $408,000.The appointment of five directors, four of whom are independent
                    directors,
                    took effect on April 28,2008, and audit and compensation committees
                    were
                    created on the same day. The investors waived their right to
                    liquidated
                    damages resulting from the failure to have met the required
                    schedule.




·
                We agreed
                      that we would not take any action that would cause our common
                      stock not to
                      be traded on the OTC Bulletin Board, Nasdaq or the American
                      or New York
                      Stock Exchange. If we fail to comply, we are to pay liquidated
                      damages
                      during the period that we are not in compliance with the covenant
                      at the
                      rate of 12% per annum based on the purchase price of the shares
                      of series
                      A preferred stock which have not then been sold. We also agreed
                      that by
                      May 3, 2009 we will have made application for the listing of
                      our common
                      stock on the Nasdaq Stock Market or the New York or American
                      Stock
                      Exchange. If during the period from May 3, 2009 and the date
                      that the
                      investors shall have converted series A preferred stock and
                      exercised
                      warrants and sold 90% of the total shares issuable upon conversion
                      or
                      exercise of the securities issued, If we fail to comply, we
                      are to pay
                      liquidated damages during the period that we are not in compliance
                      with
                      the covenant at the rate of 6% per annum based on the purchase
                      price of
                      the shares of preferred stock which have not then been sold.
                      In no event
                      shall the liquidated damages payable under these two provisions
                      exceed 12%
                      of the purchase price of the shares of series A preferred stock
                      that has
                      not been sold.


·
            We
                  and the investors entered into a registration rights agreement
                  pursuant to
                  which we are required to have a registration statement filed with
                  the SEC
                  by February 1, 2008 and declared effective by the SEC not later
                  than June
                  29, 2008. We are required to pay liquidated damages at the rate
                  of 1,000
                  shares of series A preferred stock for each day after June 29,
                  2008 that
                  the registration statement is not declared effective or for any
                  period
                  that we fail to keep the registration statement effective, up to
                  a maximum
                  of 370,000 shares. The number of shares of series A preferred stock
                  issuable pursuant to the liquidated damages provision is subject
                  to
                  reduction based on the maximum number of shares that can be registered
                  under the applicable SEC guidelines.Since we are only registering 1,250,000 shares, the number of shares
                  issuable as liquidated damages per day after June 29, 2008 would
                  be 202.2
                  shares.No
                  liquidated damages have been accrued and the Company believes the
                  registration statement will be declared effective by June 29,
                  2008.




·
            The
                investors have a right of refusal on future
                financings.




·
            We
                are restricted from issuing convertible debt or preferred stock or
                from
                having debt in an amount greater than twice our earnings before interest,
                taxes, depreciation and amortization.




·
            Our
                officers and directors agreed, with certain limited exceptions, not
                to
                publicly sell shares of common stock for 27 months or such earlier
                date as
                all of the convertible securities and warrants have been converted
                or
                exercised and the underlying shares of common stock have been sold.
                If any
                director, who is not also an executive officer, ceases to be a director,
                he or she may sell up to 50,000 shares of common stock during the
                restricted period. The lock-up agreement does not apply to shares
                issued
                pursuant to shares of common stock issued pursuant to a stock option
                or
                long-term incentive plan that is approved by the Company’s compensation
                committee if the committee is comprised of a majority of independent
                directors.




·
            Shanda
                  International Capital Investment Limited, of which Li Sheng is
                  a control
                  party, provided financial consulting services to the Company and
                  is to
                  receive a financing commission at the rate of 5%, of which $170,000
                  was
                  paid to Li Sheng at the closing, based on $3,400,000 financing,
                  and an
                  additional $185,455 will be paid to Shanda when all of the $1.80
                  warrants
                  are exercised and $618,182 will be paid to Shanda when all of the
                  $3.00
                  warrants are exercised.


5




**Corporate
      Structure**




Moral
      Star BVI owns 100% of the stock of Jiangxi Moral Star Copper Technology Co.,
      Ltd. (“Moral Star China”), which is a wholly foreign-owned enterprise under the
      laws of the PRC. Moral Star China is a party to a series of contractual
      arrangements with Fuda Yiyang, a limited liability company headquartered in,
      and
      organized under the laws of, the PRC.




Fuda
      Yiyang was incorporated as a limited liability company under the laws of the
      PRC
      on November 20, 1995, and Wu Yiting, our chief executive officer and chairman
      of
      the board of directors, is the sole owner of Fuda Yiyang. PRC law currently
      has
      limits on foreign ownership of certain companies. To comply with these foreign
      ownership restrictions, we operate our businesses in China through Fuda Yiyang.
      Fuda Yiyang has the licenses and approvals necessary to operate its business
      in
      China. We have a series of contractual arrangements with Fuda Yiyang and its
      sole owner pursuant to which we own and operate the business of Fuda Yiyang.
      Through these contractual arrangements, we also have the ability to
      substantially influence Fuda Yiyang’s daily operations and financial affairs,
      appoint its senior executives and approve all matters requiring stockholder
      approval. As a result of these contractual arrangements, which enable us to
      control Fuda Yiyang, we are considered the primary beneficiary of Fuda Yiyang.
      Accordingly, we consolidate the results, assets and liabilities of Fuda Yiyang
      in our financial statements, and the business described in this annual report
      is
      the business that was conducted by Fuda Yiyang prior to the share exchange
      transaction.




Our
      relationships with Fuda Yiyang and its sole owner are governed by a series
      of
      contractual arrangements between Moral Star China and Fuda Yiyang. Under PRC
      laws, each of Moral Star China and Fuda Yiyang is an independent legal person
      and none of them is exposed to liabilities incurred by the other parties. On
      December 3, 2007, we entered into the following contractual arrangements with
      Fuda Yiyang or its owner.




***Management
      Agreement***




Pursuant
      to the management agreement, Moral Star China manages and operates Fuda Yiyang’s
      business. In implementing this agreement, Moral Star China manages the
      operations of Fuda Yiyang, including, but not limited to, nominating and
      replacing members of Fuda Yiyang’s board, determining compensation and
      controlling management and day-to-day operation. All revenue (total profit
      (if
      any) after deduction of necessary expenses) generated by Fuda Yiyang shall
      be
      paid to Moral Star China and Moral Star China is responsible for paying Fuda
      Yiyang’s obligations incurred in connection with its business. In addition,
      Moral Star China manages and controls all of Fuda Yiyang’s funds.




***Related
      Transactions Agreement***




Under
      the
      related transactions agreement among Fuda Yiyang, Moral Star China, and Yiyang
      Kunpeng Worn Metal Recycling Co., Ltd. (“Kunpeng”), a company also owned by Wu
      Yiting, Kunpeng agreed to supply Fuda Yiyang and Moral Star China on an
      exclusive basis with recycled copper at its original cost, which will be not
      greater than the local market price. When the price of worn copper fluctuates
      in
      the local market by 20%, Kunpeng must notify Fuda Yiyang and Moral Star China.
      This agreement does not prohibit Fuda Yiyang or Moral Star China from obtaining
      recycled copper from other sources. Kunpeng is presently our largest supplier
      of
      raw materials. The agreement is a long-term agreement with no set expiration
      date.




***Purchase
      Agreement***




Pursuant
      to the purchase agreement, Moral Star China has a right to purchase the entire
      business of Fuda Yiyang. Moral Star China controls all of the operations of
      Fuda
      Yiyang and under the purchase agreement, agrees to purchase Fuda Yiyang’s
      equipment and patents and leases Fuda Yiyang’s manufacturing plants, land and
      remaining equipment. The purchase agreement is designed so that Moral Star
      China
      can conduct its business in China.




In
      December 2007, Moral Star China purchased equipment from Fuda Yiyang in the
      amount of $368,615 and finished products having a cost of $20,535 at the price
      equal to their book value.


6




***Stockholders’
      Voting Proxy Agreement***




Pursuant
      to the proxy agreement, Wu Yiting, sole owner of Fuda Yiyang, agreed to
      irrevocably grant a person to be designated by Moral Star China with the right
      to exercise the stockholder voting rights among other rights, including the
      attendance at and the voting of the Fuda Yiyang shares at stockholder meetings
      (or by written consent in lieu of such meetings) in accordance with applicable
      laws and its articles of association, including but not limited to the rights
      to
      sell or transfer all or any of her equity interests of Fuda Yiyang, and appoint
      and vote for the directors and chairman as the authorized representative of
      the
      stockholders of Fuda Yiyang.




***Shares
      Pledge Agreement***




Under
      the
      pledge agreement, Wu Yiting pledged all of her equity interests in Fuda Yiyang
      to Moral Star China to guarantee Fuda Yiyang’s performance of its obligations
      under all related agreements by and between Moral Star China and Fuda Yiyang.
      Neither Wu Yiting nor Fuda Yiyang may transfer any of the pledged shares without
      the permission of Moral Star China




***Exclusive
      Option Agreement***




Under
      the
      option agreement between the Wu Yiting and Moral Star China, Wu Yiting
      irrevocably granted Moral Star China or its designated person an exclusive
      option to purchase, to the extent permitted under PRC law, all or part of the
      equity interests in Fuda Yiyang, or to purchase the real estate and land used
      currently owned by Fuda Yiyang, at a price agreed upon by all parties. This
      agreement may not be terminated without the unanimous consent of all the
      parties, except that Moral Star China may, by giving thirty (30) days prior
      notice to the parties, may terminate this agreement.




***Patent
      Transfer Agreement***




Under
      the
      patent transfer agreement, Fuda Yiyang will transfer its patent certificate
      of
      utility model named Bending Water Pipe, designed by Yu Zeshi, patent number
      ZL
      99 2 59230.5, certificate number 427197 to Moral Star China. Moral Star China
      is
      to pay an assignment fee for the patent of RMB 10,000 (US$ 1,392). If Fuda
      Yiyang does not transfer the patent without reason, Fuda Yiyang is to pay a
      penalty fee to Moral Star China. If Fuda Yiyang delays the transfer for more
      than two (2) months, Moral Star China has the right to terminate this agreement
      and request a return of the assignment fee.




***Trademark
      Transfer Agreement***




Under
      the
      trademark transfer agreement, Fuda Yiyang transferred its trademark, “FURDHER”
to Moral Star China for RMB 10,000 (US$ 1,392). The registration is valid until
      January 1, 2015 in China. The trademark is registered with Serial No. 11, which
      includes bathroom equipment, flushing device and washing equipment.




The
      following chart summarizes our organizational and ownership
      structure.


7









**Our
      Business**




We
      are a
      holding company, and all of our operations are conducted by our Chinese
      subsidiary, Moral Star China, and our affiliated company, Fuda
      Yiyang.




The
      manufacture of brass faucets and related products is a labor-intensive industry.
      China has become one of most significant manufacturer of these products in
      the
      past two decades. Especially during the recent years, a number of global
      producers of sanitary ware and bathroom fittings have established manufacturing
      facilities in China. Our growth is dependent on expanding our manufacturing
      capacity, upgrading our products, improving quality, and improving international
      sales and service. The market for faucet and related products is related to
      the
      market for real estates. Although there is not a direct correlation between
      the
      real estate market and the market for bathroom fixtures, any slowdown affecting
      new residential construction would have an effect on the market for products,
      such as bathroom faucets and related products, that are used in new
      construction. Through December 31, 2007, we have not been affected by negative
      trends in the real estate market, largely because of the significant increase
      in
      sales to Dubai, where there has been an increase in construction projects.
      During 2007, we have expanded into Russia, which became one of our major
      international markets.




We
      provide services as an
      original equipment manufacturer or original design manufacturer for other
      companies. We plan to broaden the scope of our business to offer a broader
      range
      of services, including market research and tracking, product design, and
      integrated services including assembly, delivery and related services.




**Product
      Lines and Manufacturing Process**




Our
      products include kitchen and bar faucets, bathroom faucets and bathroom
      accessories. The following table set forth information as to the sales of these
      products for 2007 and 2006:


8





Years ended December 31,Category
            
            2007
            
            2006Kitchen
                and bar faucets
            
            $
            15,969,074
            
            $
            7,118,270Bathroom
                faucets
            
            
            8,914,466
            
            
            3,531,671Bathroom
                accessories
            
            
            704,054
            
            
            860,258Total
            
            $
            25,587,594
            
            $
            11,510,199




The
      basic
      process of our products consists of molding and forming
      the main
      body
      of the faucet, applying a finish, and then assembling the various components,
      followed by inspection and packaging.




Forging
      is the process of shaping metals by deforming them in some way. In hot forging,
      heated metal is forced results in a shape similar to the faucet body. In molding
      and forming our faucets, we use hot forging to create the shape of the faucet.
      We believe that forging is a more efficient process than machining since it
      can
      produce a near-net shape in about three seconds with little waste. As a result,
      only minor mechanical machining is required for us to produce the exact
      dimensions needed. After the machining process is completed, the faucet body
      is
      polished in an eight step process.




The
      next
      step is plating. Plating involves a leaching process that eliminates remaining
      molecules from the brass surface. The conventional plating is nickel and chrome
      since these materials are most resistant to corrosion. First, a base coating
      of
      electroplated nickel is applied, followed by a thin coating of electroplated
      chromium. The chrome layer is deposited from a plating bath containing certain
      additives that improve corrosion resistance.




Finally,
      the faucets and other components are sent for assembly. This process takes
      place
      on rotary assembly machines, which are precisely controlled. The sprout, if
      separate, is first installed, followed by the ceramic cartridge. This cartridge
      is screwed in place with a brass screw using a pneumatic gun, and then the
      handle is attached by hand. After assembly, the faucets are packaged in boxes
      along with any other components that are needed for final
      installation.




Our
      products are checked against the blueprints to ensure it matches all dimensions.
      A go-no-go gauge is used to make sure the interior and exterior threads fit
      together.




Before
      plating, parts are visually checked for surface imperfections, which are
      removed by sanding. After final assembly, every faucet is pressure tested with
      air and water for leaks and tested for durability.




The
      lab
      will sample some faucets, make use of special devices to test the thickness
      of
      plating, carry out a punished/forcing test to evaluate the working life of
      faucet, and ultimately approve for final installation.




**Market
      and Competition**




***Overview
      of the Copper and Faucet Industry***




Copper
      is
      one of the leading raw materials in the faucet production industry. As a result
      of increased living standards of homes worldwide, there is an increased demand
      for brass faucet industry, with an increasing demand for reprocessed copper.
      According to Britain BSRIA Ltd. (a consultancy, test and research
      not-for-profit, member-based association) and U.S. Scout Survey, the global
      faucet markets, valve and other plumbing sets are in strong demand. The global
      market volume of plumbing works is as large as $30 billion, with growth
      projected in the range of 20% per annum.




We
      believe that China will become increasingly important as the manufacturing
      base
      of plumbing works in the future. China, the United States and Italy manufacture
      over 80% of the world’s faucets. According to customs statistics from the United
      States, the faucet imports reached $2.5 billion in 2005, 20% of which was
      imported from China. U.S. imports of bathroom accessories reached almost $1
      billion in 2005.


9




Because
      of the increased urbanization of China’s residential and commercial communities,
      there is an increased demand in China’s local market for medium and high-end
      products. The sales volume of plumbing works in 2005 was about $1.33 billion
      in
      the Chinese domestic market. China exported about $700 million worth of plumbing
      works in 2004 and its exports are increasing at an annual rate of more than
      20%,
      according to The Analysis Report of China Plumbing Works Market.




The
      demand of faucets and relating accessories reflects increased business resulting
      from an active real-estate market. For example, Dubai has witnessed tremendous
      increase in real estate investment, growing to $1.8 billion in 2006 from
      $1.2billion in 2000. The construction boom in the Persia Gulf region is also
      at
      an all-time high, with 2,837 projects currently underway with an excess of
      $2.4
      trillion in investment. During the year ended December 31, 2007, we generated
      revenues of $17,112,000 from customers in Dubai as compared to revenues of
      $2,955,000 from Dubai-based customers during the comparable period of 2006,
      an
      increase of approximately 479%. Our Dubai customers are distributors of bathroom
      fixtures and related products.




***Sales
      and Marketing***




We
      are
      based in China, but we conduct business in the Middle East, Europe and Africa
      and export our products into United Arab Emirates, Spain, Turkey, Israel, Saudi
      Arabia, Italy, Libya, and Russia. Through distributors and wholesalers in Dubai,
      United Arab Emirates, our products are resold into different
      countries.




As
      of
      December 31, 2007, we had three sales offices outside of China. We established
      sales offices in Dubai in March 2006.


The
          following table describes net sales in the major geographic areas (dollars
          in thousands):


Years
                ended December 31,2007
            
            2006Country
            
            Amount
            
            Percentage
            
            Amount
            
            PercentageUnited
                Arab Emirates
            
            $
            22,521,534
            
            
            88.0
            %
            $
            7,006,441
            
            
            60.9
            %Russia
            
            
            1,609,917
            
            
            6.3
            %
            
            -
            
            
            -China
            
            
            405,616
            
            
            1.6
            %
            
            1,894,503
            
            
            16.5
            %Spain
            
            
            457,386
            
            
            1.8
            %
            
            906,605
            
            
            7.9
            %Turkey
            
            
            154,674
            
            
            0.6
            %
            
            980,366
            
            
            8.5
            %Israel
            
            
            -
            
            
            -
            
            
            348,291
            
            
            3.0
            %Other
            
            
            438,466
            
            
            1.7
            %
            
            373,993
            
            
            3.2
            %Total
            
            $
            25,587,594
            
            
            100.0
            %
            $
            11,510,199
            
            
            100
            %




**Raw
      Materials and Suppliers**




Copper
      is
      our principal raw material. Jiangxi province, the location of Fuda Yiyang
      factory, is rich in copper resources. In 2006, the production volume of copper
      in Jiangxi province was about 500,000 tons, according to the Analysis Report
      of
      China Copper Market on July 31, 2007. There are a number of copper processing
      factories in the area around the Fuda Yiyang factory and it is very easy for
      us
      to obtain scrap copper when needed. Our principal suppliers of copper are
      KunPeng and Yiyang Tengfei Electric Ware Company (“Tengfei”). KunPeng was our
      largest supplier for both 2007 and 2006. We purchased raw materials from KunPeng
      for $16,491,000, representing 70.5% of our total purchases, in 2007 and
      $5,808,538, representing 56.4% of our purchases, in 2006. Wu Yiting, our chief
      executive officer and chairman, owns 80% of the equity and is chairperson of
      KunPeng. Our purchases from Tengfei were $6,287,277, representing 26.9% of
      our
      purchases in 2007, and $3,966,986, representing 38.5% of our purchases in 2006.
      No other supplier accounted for more than 3% of our purchases for either year.


10




We
      manufacture the main part of the faucet, such as faucet body and utilize the
      services and products of other manufacturers for the fittings and/or components
      to the faucet. These products are readily available to us from a number of
      suppliers. The following table sets forth our main fittings
      suppliers.





Supplier
            
            FittingsWenzhou
                Haicheng Yongshi Valve Core Company
            
            Valve
                coreZhejiang
                Changhe Jinyi Plumbing Factory
            
            Shower
                seriesZhejiang
                Aifeiling Plumbing Company
            
            DowncomerYutao
                Lufu Ciwa Valve Factory
            
            Hose,
                valve coreWenzhou
                Huamei Copper Tube Company
            
            HoseZhejiang
                Changjiang Chaohong Plumbing Factory
            
            Shower
                series




The
      faucet body is usually made of brass, which is an alloy of copper and zinc.
      The
      proportions of zinc and copper can be varied to create a range of brasses with
      varying properties. Brass is the most widely used material for faucets due
      to
      its resistance to soft-water corrosion and hard-water calcification.These
      products are available from a wide range of suppliers.




**Customers**




A
      significant percentage of our business is generated from a small number of
      customers. The following table sets forth information as to sales to the only
      customers who accounted for 5% or more of our sales for either 2007 or
      2006.




Years
                Ended December
                31,2007
            
            2006Dollars
            
            Percent
            
            Dollars
            
            PercentIsabella
                Hardware Trading L.L.C.
            
            
            12,809,588
            
            
            50.1
            %
            
            2,843,157
            
            
            24.7
            %Al
                Jibrin General Trading L.L.C.
            
            
            6,829,049
            
            
            26.7
            %
            
            1,135,739
            
            
            9.9
            %Yiyang
                Jiayi I&E Company
            
            
            *
            
            
            *
            
            
            936,879
            
            
            8.1
            %




*
      stands
      for less than 5%.


Our
          customers located in the Middle East included United Arab Emirates and
          Turkey in
          2007. Our activities in these two countries include only marketing and
          sales
          efforts. Our second largest customer, Al Jibrin General Trading L.C.C.
          is owned
          by Mr. Jibrin Issa Jibrin Al Jibrin, who is trustee of the Wu Yiting Stock
          Trust
          and, since January 2008, has been sales director of Fuda Yiyang, and,
          since April 2008, has been one of our directors. Isabella Hardware is also
          a
          distributor located in the United Arab Emirates.




**Employees**




At
      March
      28, 2008, we had 718 full time employees at Fuda Yiyang, including 27 executive,
      620 manufacturing, 13 sales and marketing and 58 administrative employees.
      In
      addition, Fuda has four employees. Employees at Fuda Yiyang are represented
      by a
      union. We believe that our employee relations are good.




**Intellectual
      Property**




We
      rely
      on a combination of trademark, copyright and trade secret protection laws in
      China and other jurisdictions, as well as confidentiality procedures and
      contractual provisions to protect our intellectual property and our brand.
      The
      following table describes our intellectual property:


11





Type
            
            Name
            
            Issued
                by
            
            Duration
            
            DescriptionTrademark
            
            “FURDHER”
              Registration
                No. 3512752
            
            Trademark
                Bureau of the People’s Republic of China
            
            Ten
                years, expiring on January 27, 2015 (and renewable within six months
                prior
                to the end of each ten-year term for additional ten-year
                periods)
            
            Company’s
                trademark registered on product Serial No. 11: Bathroom equipment,
                flushing device and washing equipment.Patent(1)
            
            Bending
                Water Pipe
              Patent
                No. ZL 99 2 59230.5
              Certificate
                No. 427197
            
            Intellectual
                Property Bureau of the People’s Republic of China
            
            Ten
                years, expiring on December 2009




(1)  Approximately
      30% of our products rely on this patent.




**Environmental
      Matters**




Fuda
      Yiyang, which manufactures our products, is subject to Chinese and regional
      environmental laws and regulations. Wastes generated from the metal plating
      operations generally include: spent solutions containing metals, rinse waters
      (wastewater) and sludges. When present in sufficient concentration, nearly
      all
      of the wastes produced by metal-finishing operations are directly toxic to
      humans and when in discharges or spills will have negative impacts on the
      environment. Our plating facility and related water treatment system are built
      under rigorous government criterion, and we received a manufacturing license
      from the government department of environmental protection. Fuda Yiyang has
      passed environmental impact assessment by local environment authorities. Our
      plating facility and related water treatment system are built under government
      criterion, and we received a manufacturing license from the government
      department of environmental protection. We believe that we and Fuda Yiyang
      are
      in compliance in all material respects with all environmental protection laws
      and regulations.




**Risk
      Factors**




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




The
      PRC
      State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant
      Issues in the Foreign Exchange Control over Financing and Return Investment
      Through Special Purpose Companies by Residents inside China (Circular 75) in
      October 2005, and also promulgated its internal implementing guidelines (Notice
      106) in June 2007. These regulations require that a PRC resident shall apply
      for
      the registration of foreign exchange of investment offshore at the local or
      State Administration of Foreign Exchange before establishing or controlling
      an
      offshore special purpose company. If a PRC resident transfers his properties
      or
      equities of a domestic enterprise to the offshore special purpose company,
      or
      seeks equity financing offshore after the transference of properties or equities
      to the offshore special purpose company, he shall file a modification
      registration. There is uncertainty over how Circular 75 will be interpreted
      and
      implemented, and how or whether SAFE will apply it to us. As a consequence,
      we
      cannot predict how it will affect our business operations or future
      strategies.




We
      believe we comply with the applicable regulations. The owner of Fuda Yiyang,
      Wu
      Yiting, was not a stockholder of Moral Star BVI. Moral Star BVI’s sole
      stockholder, the Trustee is not a resident of the PRC.




However,
      to the best of our knowledge, based on the terms of the Trust and the
      irrevocable proxy which the Trust issued to her, Wu Yiting may be deemed to
      control Moral Star BVI, which is an offshore special purpose company, under
      these policies. Wu Yiting shall apply for a registration of foreign exchange
      at
      Jiangxi Branch of SAFE. If Wu Yiting fails to fulfill the registration of
      foreign exchange, Fuda Yiyang cannot transfer its payment of profit, dividend,
      liquidation, equity transference and capital reduction to Moral Star BVI since
      any such payment would be considered as exchange evasion. We are applying for
      registration of foreign exchange. However, there is no assurance that we will
      be
      granted for this registration. If we need to enforce the agreements with Fuda
      Yiyang, we must seek to enforce them in China. We cannot assure you that we
      will
      be able to enforce any of them or remedies will be available outside of
      China.


12




***We
      may need to raise additional capital which may not be available on acceptable
      terms or at all***




We
      will
      require additional capital to upgrade our existing facilities and construct
      a
      new factory, expand our marketing efforts and meet our growing working capital
      requirements. There can be no assurance that financing will be available in
      amounts or on terms acceptable to us, if at all. The inability to obtain
      additional capital may reduce our ability to develop our business. If we are
      unable to obtain additional financing, we will likely be required to curtail
      or
      significantly reduce our expansion plans. Further, any additional equity
      financing may involve substantial dilution to our then existing
      stockholders.




***If
      we raise additional capital the value of your investment may
      decrease.***




If
      we
      need to raise additional capital to implement or continue operations, we will
      likely issue additional equity or convertible debt securities. If we issue
      equity or convertible debt securities, the net tangible book value per share
      may
      decrease, the percentage ownership of our current stockholders may be diluted
      and any equity securities that we issue may have rights, preferences or
      privileges senior or more advantageous to our common stockholders.




***We
      must effectively manage the growth of our operations, or our company will
      suffer*** *.*




We
      are
      expanding our business by establishing offices in Dubai, Russia and Africa,
      and
      we plan to increase the range of services that we offer our customers. Further,
      although we do not have any plans to make any acquisitions, it is possible
      that
      we may expand our operations through acquisitions. Our ability to successfully
      develop our business requires an effective planning and management process,
      especially in view of the international nature of our business. The planned
      development of our business will place a significant strain on our management
      and our resources. If we grow, we will need to improve our financial and
      managerial controls and reporting systems and procedures, and we will need
      to
      expand, train and manage our workforce. Any failure to manage any of the
      foregoing areas efficiently and effectively would cause our business to
      suffer.




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




Any
      increase in the prices of raw materials, including copper, will affect the
      price
      at which we can sell our product. Although we set up a long-term raw material
      supply relationship with a related-party, the price of raw material purchased
      from this related-party is based on the local market price, which is not fixed.
      As a result, any increase in our suppliers’ costs, including KunPeng’s costs,
      would be passed on to us. Neither we nor KunPeng has any long term supply
      contracts with any source of copper. As a result, the prices at which we
      purchase raw materials are based on the market price at the time. If we are
      not
      able to raise our prices to pass on increased costs, we would be unable to
      maintain our margins.




***Our
      expansion into Russia and Africa markets may have an adverse affect on our
      profitability.***




We
      are
      beginning to expand our operations into Russia and Africa, which we consider
      significant potential markets for our products. Although we anticipate that
      these new markets will generate additional revenue and earnings in the long
      term, it is possible that our start up expenses may have an initial adverse
      impact until our operations are fully developed. We cannot assure you that
      we
      will be successful in entering these new markets or that we will generate any
      profits from these markets.




13


***We
      face intense competition, and many of our competitors have substantially greater
      resources than we have.***




We
      operate in a competitive environment that is characterized by price deflation
      and technological change. We compete with major international and domestic
      companies. Our competitors may have greater market recognition and substantially
      greater financial, technical, marketing, distribution, purchasing,
      manufacturing, personnel and other resources than we do. Furthermore, some
      of
      our competitors have manufacturing and sales forces that are geographically
      diversified, allowing them to reduce transportation expenses, tariff costs
      and
      currency fluctuations for certain customers in markets where their facilities
      are located. Many competitors have production lines that allow them to produce
      more sophisticated and complex devices than we currently offer and to offer
      a
      broader range of display devices. Other emerging companies or companies in
      related industries may also increase their participation in the display and
      display module markets, which would intensify competition in our markets. We
      might lose some of our current or future business to these competitors or be
      forced to reduce our margins to retain or acquire that business, which could
      decrease our revenues or slow our future revenue growth and lead to a decline
      in
      profitability.




***Failure
      to repay our loans can hinder our business operations and profitability.***


We
          have
          financed our business primarily from short-term bank loans and, to a lesser
          extent, from borrowings from a company which is controlled by our chief
          executive officer and which provides us with most of the raw copper that
          we use
          in manufacturing our products. The bank loans, which are secured by a mortgage
          on one of our parcels of land and 10 workshop buildings , typically have
          terms
          of two or three months. At December 31, 2007, these loans totaled approximately
          $5.3 million, accounts payable due to material and service suppliers was
          $0.7
          million and the payables to the related company was $2 million. The failure
          of
          the banks to continue to extend credit or to demand payment of a significant
          amount of our loans could impair our ability to operate
          profitably.




**Risks
      Related to Operating in China**




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




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




·
            the
                amount of government involvement;




·
            the
                level of development;




·
            the
                growth rate;




·
            the
                control of foreign
                exchange; and




·
            the
                allocation of resources.




While
      the
      Chinese economy has grown significantly in the past 20 years, the growth has
      been uneven, both geographically and among various sectors of the economy.
      The
      Chinese government has implemented various measures to encourage economic growth
      and guide the allocation of resources. Some of these measures benefit the
      overall Chinese economy, but may also have a negative effect on us. For example,
      our financial condition and results of operations may be adversely affected
      by
      government control over capital investments or changes in tax regulations that
      are applicable to us.




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




14




Any
      adverse change in the economic conditions or government policies, policy
      interpretations, imposition of confiscatory taxation, restrictions on currency
      conversion, imports and sources of supply, devaluations of currency, the
      nationalization or other expropriation of private enterprises in China could
      have a material adverse effect on the overall economic growth and the level
      of
      investments and expenditures in China, which in turn could lead to a reduction
      in demand for our products and consequently have a material adverse effect
      on
      our businesses and our operations and assets in China.




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




The
      change in value of the Renminbi against the U.S. dollar and other
      currencies is affected by, among other things, changes in China’s political and
      economic conditions. On July 21, 2005, the Chinese government changed its
      decade-old policy of pegging the value of the Renminbi to the U.S. dollar.
      Under the new policy, the Renminbi is permitted to fluctuate within a narrow
      and
      managed band against a basket of certain foreign currencies. This change in
      policy has resulted in approximately 2.1% appreciation of Renminbi against
      U.S. dollar. While the international reaction to the Renminbi revaluation
      has generally been positive, there remains significant international pressure
      on
      the Chinese government to adopt an even more flexible currency policy, which
      could result in a further and more significant appreciation of the Renminbi
      against the U.S. dollar. As a portion of our costs and expenses is
      denominated in Renminbi, the revaluation in July 2005 and potential future
      revaluation has and could further increase our costs. In addition, as we rely
      entirely on dividends paid to us by our operating subsidiaries, any significant
      revaluation of the Renminbi may have a material adverse effect on our revenues
      and financial condition, and the value of, and any of our dividends payable
      on
      our ordinary shares in foreign currency terms. For example, to the extent that
      we need to convert U.S. dollars we receive from this offering into Renminbi
      for our operations, appreciation of the Renminbi against the U.S. dollar
      would have an adverse effect on the Renminbi amount we receive from the
      conversion. Conversely, if we decide to convert our Renminbi into
      U.S. dollars for the purpose of making payments for dividends on our
      ordinary shares or for other business purposes, appreciation of the U.S. dollar
      against the Renminbi would have a negative effect on the U.S. dollar amount
      available to us.




Because
      most of our sales are in the international market and payment is made in
      currency other than Renminbi, any change in the conversion rate between the
      time
      we issue an invoice for goods and services and the time we receive payment
      could
      result in a currency loss if the amount we receive in Renminbi is less than
      the
      amount we reflect as a receivable.




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




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




Foreign
      exchange transactions by Moral Star China under the capital account continue
      to
      be subject to significant foreign exchange controls and require the approval
      of
      China’s governmental authorities, including the SAFE. In particular, if Moral
      Star China borrows foreign currency loans from us or other foreign lenders,
      these loans must be registered with the SAFE, and if we finance Moral Star
      China
      by means of additional capital contributions, these capital contributions must
      be approved by certain government authorities including the Ministry of Commerce
      or its local counterparts. These limitations could affect the ability of Moral
      Star China to obtain foreign exchange through debt or equity
      financing.




15




***We
      do not carry property or casualty insurance and as a result any business
      disruption, litigation or natural disaster might result in substantial costs
      and
      diversion of resources.***




The
      insurance industry in China is still at an early stage of development. Insurance
      companies in China offer limited business insurance products, and do not, to
      our
      knowledge, offer business liability insurance. As a result, we do not have
      any
      business liability insurance coverage for our operations. Any business property
      loss, natural disaster or litigation might result in substantial costs and
      diversion of resources.




***Capital
      outflow policies in The People’s Republic of China may hamper our ability to
      remit income to the United States.***




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




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




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




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




We
      are
      seeking to meet what we see as an increasing demand and market in China local
      market for medium to high quality faucet products due to the rapid economy
      growth and increased urbanization. However, the growth of the Chinese economy
      has been uneven across geographic regions and economic sectors, and economic
      growth does not continue unabated indefinitely. Any downturn in the Chinese
      economy or in the residential real estate marker may have a negative effect
      on
      our business.




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




Chinese
      law governs almost all of our material agreements relating to the purchase
      of
      raw materials, the manufacture of our products and the distribution of our
      products within China, as well as our agreements with Fuda Yiyang. We cannot
      assure you that we will be able to enforce any of our material agreements or
      that remedies will be available outside of China. The system of laws and the
      enforcement of existing laws in China may not be as certain in implementation
      and interpretation as in the United States.  The Chinese judiciary is
      relatively inexperienced in enforcing corporate and commercial law, leading
      to a
      higher than usual degree of uncertainty as to the outcome of any litigation.
      The
      inability to enforce or obtain a remedy under any of our agreements could result
      in a significant loss of business, business opportunities or
      capital.




16




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




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




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




China
      historically has not followed Western style management and financial reporting
      concepts and practices, and its access to modern banking, computer and other
      control systems has been limited.  Although we will be required to
      implement internal controls, we may have difficulty in hiring and retaining
      a
      sufficient number of qualified employees to work in China in these areas. As
      a
      result of these factors, we may experience difficulty in establishing the
      required controls and instituting business practices that meet Western
      standards, making it difficult for management to forecast its needs and to
      present the results of our operations accurately at all times.




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




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




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




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




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




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




17




**Risks
      Related to Our Securities**




***There
      is a limited market for our common stock which may make it more difficult to
      dispose of your stock.***




Our
      common stock is currently quoted on the Over the Counter Bulletin Board under
      the symbol “FUFW.” There is a limited trading market for our common stock, and
      on many days there is no activity in our common stock. Accordingly, there can
      be
      no assurance as to the liquidity of any markets that may develop for our common
      stock, the ability of holders of our common stock to sell our common stock,
      or
      the prices at which holders may be able to sell our common stock.




***Our
      common stock is subject to the “Penny Stock” rules of the SEC and the trading
      market in our securities is limited, which makes transactions in our stock
      cumbersome and may reduce the value of an investment in our
      stock.***




The
      SEC
      has adopted Rule 3a51-1 which establishes the definition of a “penny stock”, for
      the purposes relevant to us, as any equity security that has a market price
      of
      less than $5.00 per share or with an exercise price of less than $5.00 per
      share, subject to certain exceptions. For any transaction involving a penny
      stock, unless exempt, Rule 15g-9 requires the broker or dealer to approve a
      person’s account for transactions in penny stocks and dealer receives from the
      investor a written agreement to the transaction, setting forth the identity
      and
      quantity of the penny stock to be purchased.




In
      order
      to approve a person’s account for transactions in penny stocks, the broker or
      dealer must obtain financial information and investment experience objectives
      of
      the person and make a reasonable determination that the transactions in penny
      stocks are suitable for that person and the person has sufficient knowledge
      and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which sets forth the basis on which the broker or dealer made the suitability
      determination and receive a signed agreement from the investor prior to the
      transaction.




Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.




Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
“penny stock” rules. This may make it more difficult for investors to dispose of
      our common stock and cause a decline in the market value of our
      stock.




**ITEM
      2. PROPERTY**




In
      China,
      there is no private ownership of land. The government issues a certificate
      of
      land use right, which is transferable and permits the holder to use the land.
      We
      hold three certificates of property rights which cover two blocks of
      industrial-use land in Jiangxi province in China, covering 262,000
      square feet, for the
      term of 50 years, beginning from issuance date of the certificates,
      respectively.


One
          block
          of land and ten workshop buildings are held as collateral pursuant to a
          maximum
          amount mortgage contract with a commercial bank which we entered into on
          September 6, 2007.
  Our
          chief
          executive officer, Wu Yiting, holds the land use right covering 229,703
          square
          feet, where a new facility is to be located. Ms. Wu is currently applying
          for
          registration of the land use right to transference to Fuda Yiyang.




18




We
      also
      lease office space in Dubai, United Arab Emirates under a one-year lease which
      expires in September 2008.




We
      believe our real property, including the property under construction, is
      adequate to meet our current needs.




**ITEM
      3. LEGAL PROCEEDINGS**




We
      are
      not a defendant in any material legal proceedings.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




On
      December 4, 2007, the holders of more than a majority of our outstanding common
      stock approved our restated certificate of incorporation. The restated
      certificate of incorporation will be filed with the Secretary of State of the
      State of Delaware approximately 20 days after we mail an information statement
      to our stockholders. The information statement will be mailed following the
      filing of this annual report and after we have responded to any comments which
      the SEC may have.




19


**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**




Market
      Information




Our
      common stock is listed on the Over the Counter Bulletin Board under the symbol
      “FUFW.” Our common stock was previously traded under the symbol “CSNI.” However,
      there is currently no regular market or trading in the Company’s common stock,
      and we cannot give an assurance that such a market will develop.




The
      following table sets forth the high and low bid quotations per share of our
      common stock as reported on the OTC Bulletin Board for the periods indicated.
      The high and low bid quotations reflect inter-dealer prices, without retail
      mark-up, mark-down or commission and may not necessarily represent actual
      transactions.





2006
            
            High
            
            LowFirst
                Quarter
            
            
            8.125
            
            
            0.15Second
                Quarter
            
            
            0.25
            
            
            0.15Third
                Quarter
            
            
            2.90
            
            
            0.20Fourth
                Quarter
            
            
            2.90
            
            
            0.30





2007
            
            High
            
            LowFirst
                Quarter
            
            
            1.50
            
            
            1.01Second
                Quarter
            
            
            1.03
            
            
            1.03Third
                Quarter
            
            
            1.03
            
            
            1.03Fourth
                Quarter
            
            
            7.00
            
            
            1.01




As
      of
      March 28, 2008, we had approximately 921 holders of record of our common
      stock.




We
      have
      not declared any dividends to date. Pursuant to a securities purchase agreement
      with Barron Partners, LP, Silver Rock I, Ltd. and Eos Holdings dated on December
      3, 2007 , we may not pay dividends on or redeem shares of common stock while
      the
      series A preferred stock is outstanding.




20




**Equity
      Compensation Plan**




The
      following table summarizes the equity compensation plans under which our
      securities may be issued as of December 31, 2007.





Plan
                Category
            
            Number of securities tobe issued uponexercise of outstandingoptions, warrants andrights(a)
            
            Weighted-averageexercise price ofoutstanding options,warrants and rights(b)
            
            Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))(c)Equity
                compensation plans approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            -0-Equity
                compensation plans not approved by security holders
            
            
            160,000
            
            $
            1.60
            
            
            -0-




The
      equity compensation plan not approved by security holders is a warrant to
      purchase 100,000 shares of common stock at $1.60 per share, issued to CCG Elite,
      for investor relations services.




**Recent
      Sales of Unregistered Securities**




There
      were no sales of unregistered securities during the year ended December 31,
      2007
      that were not disclosed in a quarterly report on Form 10-QSB or a current report
      on Form 8-K.




**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers**




In
      connection with the reverse acquisition in December 2007, we entered into a
      buy-back agreement with Richard Astrom and Christopher Astrom, who were our
      then
      principal stockholders and sole directors and Christopher Astrom was our
      president, chief executive officer and chief financial officer, pursuant to
      which we purchased from them all of the shares of our common stock that was
      owned by them, which constituted 75% of our then outstanding common stock,
      for a
      purchase price of $625,000, which represented a price per share of approximately
      $3.91.




**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS**




**Overview**


Prior
          to
          December 3, 2007, we were a public reporting blind pool company with no
          assets.
          On December 3, 2007, we consummated a share exchange agreement with Jibrin
          Issa
          Jibrin Al Jibrin, trustee of the Trust, which was the sole stockholder
          of Moral
          Star BVI. Pursuant to the share exchange agreement, the Trustee transferred
          to
          us all of the capital stock of Moral Star BVI in exchange for 10,564,647
          shares
          of our common stock, which were issued to the Trust and the designees of
          the
          Trust, some of whom acquired their shares as nominees of Wu Yiting, our
          chief
          executive officer. As a result, Moral Star BVI became our wholly-owned
          subsidiary and the business of Moral Star BVI and its affiliated companies
          became our business. The transaction is treated as a reverse acquisition.
          As a
          result, for accounting purposes, Moral Star BVI is treated as the acquiring
          company for accounting purposes and our financial statements for period
          prior to
          December 3, 2007 reflect the historical operations of Fuda
          Yiyang.


We
      have a
      series of contractual arrangements with Fuda Yiyang which provide us with both
      control over the operations of Fuda Yiyang and the net income from Fuda Yiyang’s
      operations. Thus this discussion relates to the business, financial condition
      and results of operations of Fuda Yiyang.




We
      develop, manufacture, distribute and market high-quality brass faucets and
      related spouts and fittings. We produce all our products in China and export
      most of them to international markets. We do not have long-term contracts with
      any of our customers. In 2007, we focused more on expanding international
      market, apart from the Middle East, primarily Dubai and Turkey, and we began
      to
      sell our products in Russia and Africa. As a result, our sales in China declined
      from 14% of revenue in 2006 to 1.3% in 2007, and the sales in Russia during
      2007, the first year in which we sold in Russia, was $1.6 million, or 6.2%
      of
      our total sales.




21




All
      of
      our manufacturing facilities are located in China, and most of our sales were
      generated from the Middle East. Most of our exports to
      Russia
      and Africa in 2007 were also conducted through local distributors in the Middle
      East. We are subject to special considerations and significant risks not
      typically associated with companies in North America and Western Europe. These
      risks include, among others, risks associated with the political, economic
      and
      legal environments and foreign currency exchange limitations. Our results of
      operations may be adversely affected by changes in the political and social
      conditions in China, the Middle East, Russia, Africa and any other markets
      that
      we enter and by changes in governmental policies with respect to laws and
      regulations, among other things.




In
      accordance with relevant Chinese rules and regulations on management of foreign
      exchanges, we cannot deposit our revenues in the international market outside
      of
      China. Rather, without specific authorization, we must sell the foreign exchange
      to designated banks. In addition, we have to buy foreign exchanges from
      designated banks upon the strength of valid vouchers and commercial bills when
      paying current expenditures with foreign currency. In addition, all of our
      transactions undertaken in China are denominated in RMB, which must be converted
      into other currencies before remittance out of China. Both the conversion of
      RMB
      into foreign currencies and the remittance of foreign currencies abroad require
      the approval of the Chinese government. To the extent that fluctuation in
      Chinese currency against other international currencies makes our products
      more
      expensive, our competitive position will be impaired.




Our
      principal raw material is raw copper, which we obtain from local Chinese
      suppliers. Any increase in prices of raw material, including copper, will affect
      our costs and consequently the price of our products. We do not have long-term
      fixed-price supply contracts. A significant portion of our copper is recycled
      copper which we purchase from KunPeng, a related party. The contract provides
      that we purchase the copper at cost, but not more than market price. However,
      this agreement does not restrict us from acquiring copper from other suppliers.
      Since we purchased large proportion of copper from KunPeng during past years,
      therefore, to some extent we rely on KunPeng. The agreement with KunPeng has
      no
      definite term.




Prior
      to
      December 3, 2007, Fuda Yiyang was a private company, and we did not have the
      expenses typically incurred as a public company. As a result, we expect to
      incur
      significantly greater legal, accounting and other professional expenses relating
      to our status as a public company and compliance with SEC rules, including
      the
      development and implementation of internal controls.




**Significant
      Accounting Estimates and Policies**




The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our financial statements which have been prepared in accordance
      with
      accounting principles generally accepted in the United States (US GAAP). The
      preparation of these financial statements requires management to make estimates
      and judgments that affect the reported amounts of assets and liabilities. On
      an
      on-going basis, we evaluate our estimates including the allowance for doubtful
      accounts, the salability and recoverability of our products, income taxes and
      contingencies. We base our estimates on historical experience and on other
      assumptions that we believe to be reasonable under the circumstances, the
      results of which form our basis for making judgments about the carrying values
      of assets and liabilities that are not readily apparent from other sources.
      Actual results may differ from these estimates under different assumptions
      or
      conditions.




**Revenue
      Recognition** - We
      recognizes sales of our products in accordance with SEC Staff Accounting
      Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” as
      amended by SAB No. 104, “Revenue Recognition.” Sales represent the invoiced
      value of goods, net of value added tax (“VAT”), if any, and are recognized upon
      delivery of goods and passage of title.




Pursuant
      to China’s VAT rules and regulations, Fuda Yiyang’s sales in China are subject
      to a VAT tax rate of 17% (“output VAT”) as an ordinary VAT taxpayer, and the
      relating revenues were recognized by the invoiced value offsetting 17% output
      VAT. However, our sales outside of China are eligible for VAT exemption, credit
      and refund policy, and the relating revenues were equal to the invoiced value.
      The applicable refund rate from January 1, 2006 to June 30, 2007 was 13% and
      it
      has been adjusted down to 9% since July 1, 2007. The actual VAT
      payable is the balance after offsetting both VAT paid on purchases (“input VAT”)
      and the amount exempted or credited.




22




**Reverse
      Acquisition –** On
      December 3, 2007, we acquired all of the stock of Moral Star BVI in exchange
      for
      a controlling interest in us. As a result, our business became the business
      of
      Moral Star BVI, which, as a result of its agreements with Fuda Yiyang, includes
      the business of Fuda Yiyang. The transaction is accounted for as a reverse
      merger, with the result that our historical financial statement for periods
      prior to December 3, 2007 are the financial statements of Fuda Yiyang, and
      the
      shares that were issued to the Trust and its designees are deemed to be
      outstanding from the beginning of the periods presented in the financial
      statements.




**Variable
      Interest Entity –** Our consolidated
      financial statements include the financial statements of our wholly owned
      subsidiaries, Moral Star BVI and Moral Star China, as well as Fuda Yiyang,
      which
      is a variable interest entity whose financial statements are consolidated with
      ours pursuant to FASB Interpretation No. 46R “Consolidation of Variable Interest
      Entities” (“FIN 46R”), an Interpretation of Accounting Research Bulletin No. 51.
      FIN 46R requires a variable interest entity to be consolidated by a company
      if
      that company is subject to a majority of the risk of loss for the variable
      interest entity or is entitled to receive a majority of the variable interest
      entity’s residual returns. Variable interest entities are those entities in
      which we, through contractual arrangements, bear the risks of, and enjoys the
      rewards normally associated with ownership of the entities, and therefore we
      are
      the primary beneficiary of these entities.




Moral
      Star China is a party to a series of agreements with Fuda Yiyang. These
      agreements include a management agreement pursuant to which all net income
      after
      deduction of necessary expenses, if any, generated by Fuda Yiyang is paid to
      Moral Star China and Moral Star China is responsible for paying Fuda Yiyang’s
      obligations incurred in connection with its business. In addition, Moral Star
      China manages and controls all of the funds of Fuda Yiyang. Moral Star China
      also has the right to purchase Fuda Yiyang’s equipment and patents and lease its
      manufacturing plants, land and remaining equipment. This agreement is designed
      so that Moral Star China can conduct its business in China. Pursuant to two
      other agreements, the sole stockholder of Fuda Yiyang, who is also our chief
      executive officer, has pledged all of her equity in Fuda Yiyang as security
      for
      performance of Fuda Yiyang’s obligations to Moral Star China, and she granted
      Moral Star China an irrevocable grant of a proxy over her stock in Fuda Yiyang.
      As a result, Fuda Yiyang is considered a variable interest entity.




**Comprehensive
      Income (Loss)** - We
      have adopted Statements of Financial Accounting Standards (“SFAS”) No. 130,
“Reporting Comprehensive Income,” which establishes standards for reporting and
      presentation of comprehensive income (loss) and its components in a full set
      of
      general-purpose financial statements. We have has chosen to report comprehensive
      income (loss) in the statements of operations and comprehensive
      income.




**Income
      Taxes** - We
      account for income taxes under the provisions of SFAS No. 109, “Accounting for
      Income Taxes”, which requires recognition of deferred tax assets and liabilities
      for the expected future tax consequences of events that have been included
      in
      the consolidated financial statements or tax returns. Deferred tax assets and
      liabilities are recognized for the future tax consequence attributable to the
      difference between the tax bases of assets and liabilities and their reported
      amounts in the financial statements. Deferred tax assets and liabilities are
      measured using the enacted tax rate expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment date.
      We
      establishe a valuation allowance when it is more likely than not that the assets
      will not be recovered.




With
      the
      approvals of the County Government of Yiyang, Fuda Yiyang was exempt from
      corporate income taxes during 2007 and 2006. Simultaneously the Local Tax Bureau
      of Yiyang County has also confirmed the above said preferential tax
      treatment.




23




On
      March
      16, 2007, China’s parliament, the National People’s Congress, adopted the
      Enterprise Income Tax Law, which took effect on January 1, 2008. The new income
      tax law sets unified income tax rate for domestic and foreign companies at
      25%,
      except that qualified high and new technology enterprises are eligible for
      a 15%
      corporate income tax rate. Under the new income tax law, the low preferential
      tax rate shall gradually increase to the new tax rate within five years after
      the implementation of this law.




**Accounts
      Receivable –** We
      perform ongoing credit evaluations of our customers and intend to establish
      an
      allowance for doubtful accounts when outstanding balances are not considered
      fully collectable. According to our credit policy, we generally provides 100%
      bad debt provision for the amounts outstanding over 180 days after the deduction
      of the amount subsequently settled after the balance sheet date, which
      management believes is consistent with industry practice.




We
      may
      require our customers to make a partial payment when placing an order, based
      on
      our credit evaluation. We generally require payment within three months. We
      maintain a policy that all sales are final and we do not allow returns. No
      return occurred in the twelve months ended December 31, 2007 and 2006. Based
      on
      industry practice and the credit history of customers, we believe the accounts
      receivable shown on its balance sheets are fully collectable.




**Inventories** -
      Inventories are stated at the lower of cost, determined on a weighted average,
      method, and net realizable value. Work in progress and finished goods are
      composed of direct material, direct labor and a portion of manufacturing
      overhead. Net realizable value is the estimated selling price, in the ordinary
      course of business, less estimated costs to complete and dispose. We believe
      that there was no obsolete inventory as of December 31, 2007 and
      2006.




**Property,
      Plant and Equipment** -
      Property, plant and equipment are stated at cost. Major expenditures for
      betterments and renewals are capitalized while ordinary repairs and maintenance
      costs are expensed as incurred. Depreciation and amortization is provided using
      the straight-line method over the estimated useful life of the assets after
      taking into account the estimated residual value.




There
      is
      no private ownership of commercial land in China. All land ownership is held
      by
      the government of China, its agencies and collectives. Land use rights are
      obtained from government, and are typically renewable. Land use rights can
      be
      transferred upon approval by the land administrative authorities of China (State
      Land Administration Bureau) upon payment of the required transfer fee. Under
      three “State-owned Land Use Right Certificates”, issued in September 23, 1999,
      November 23, 1999 and July 19, 2001 **,** we own
      the use right of two blocks of industrial-use land (covering 261,669 square
      feet) for the term of 50 years, beginning from issuance date of the
      certificates, respectively. We record the property subject to land use rights
      as
      property.




Our
      chief
      executive officer, Wu Yiting, holds the land use right covering 229,703 square
      feet where a new facility is located. Ms. Wu Yiting has agreed to transfer
      the
      land use right of this block of land to Fuda Yiyang without any cost to Fuda
      Yiyang prior to the completion of construction, which started in early
      2007.




**Impairment
      of Long-lived Assets** -
      Our
      long-lived assets consist of property and equipment. As of December 31, 2007
      and
      2006, the net value of property and equipment was $2,747,522 and $2,603,826
      respectively, which represented approximately 13.2% and 22.2% of our total
      assets.


From
          December 2004 to present, fixed assets, including land, workshop buildings
          and
          equipment, amounting to $536,505 were unused. Since the value of land in
          similar
          sections of the city was increasing, no impairment on land use right has
          been
          charged. The workshop buildings were maintained in good condition, and
          most of
          the equipment will be transported and reinstalled into the Company’s new
          workshop building, which is now under construction. A provision for impairment
          of certain idle assets in the amount of $146,209 was made previously when
          they
          became idle.


**Recent
      Accounting Pronouncements**




See
      Note
      2 to the Consolidated Financial Statements.




24




**Results
      of Operations**




**Years
      ended December 31, 2007 and 2006**




The
      following table sets forth information from our statements of operations for
      the
      years ended December31, 2007 and 2006, in dollars and as a percentage of revenue
      (dollars in thousands).


Year
                    Ended December 31,2007
                
                2006Dollars
                
                Percent
                
                Dollars
                
                PercentNet
                    sales-unrelated parties
                
                $
                18,567
                
                
                72.6
                %
                $
                11,510
                
                
                100.0
                %Net
                    sales-related parties
                
                
                7,021
                
                
                27.4
                %Net
                    sales-total
                
                
                25,588
                
                
                100.0
                %
                
                11,510
                
                
                100.0
                %Cost
                    of sales-unrelated parties
                
                
                5,209
                
                
                20.37
                %
                
                3,569
                
                
                31.00
                %Cost
                    of sales-related parties
                
                
                15,200
                
                
                59.43
                %
                
                5,642
                
                
                49.0
                %Cost
                    of sales-total
                
                
                20,410
                
                
                79.8
                
                
                9,212
                
                
                80.0Gross
                    profit
                
                
                5,178
                
                
                20.2
                %
                
                2,299
                
                
                20.0
                %Selling
                    expenses
                
                
                276
                
                
                1.1
                %
                
                72
                
                
                0.6
                %General
                    and administrative
                
                
                432
                
                
                1.7
                %
                
                107
                
                
                0.9
                %Officers’
                    compensation
                
                
                24
                
                
                0.1
                %
                
                22
                
                
                0.2
                %Depreciation
                    and amortization
                
                
                39
                
                
                0.2
                %
                
                9
                
                
                0.1
                %Income
                    from sale of patents, net
                
                
                576
                
                
                2.3
                %
                
                -
                
                
                -Consulting
                    and professional fees
                
                
                73
                
                
                0.3
                %
                
                -
                
                
                -Reverse
                    acquisition expenses
                
                
                917
                
                
                3.6
                %
                
                -
                
                
                --
                %Operating
                    income
                
                
                3,992
                
                
                15.6
                %
                
                2,088
                
                
                18.1%-Interest
                    expense
                
                
                371
                
                
                1.4
                %
                
                263
                
                
                2.3
                %Foreign
                    exchange loss
                
                
                198
                
                
                0.8
                %
                
                -
                
                
                -Net
                    income
                
                
                3,461
                
                
                13.5
                %
                
                1,825
                
                
                15.9
                %Net
                    income per share:Basic
                
                $
                0.32
                
                
                
                
                $
                0.17Diluted
                
                $
                0.30
                
                
                
                
                $
                0.17Weighted
                    averages shares of common stock outstandingBasic
                
                
                10,725
                
                
                
                
                
                10,565Diluted
                
                
                11,444
                
                
                
                
                
                10,565
  **Net
        Sales**
  Net
          sales
          were $25,587,594 and $11,510,199 for the fiscal year 2007 and 2006,
          respectively, representing an increase $14,077,395, or 122.3%. The significant
          increase is mainly due to our marketing efforts in Dubai, United Arab Emirates,
          which is a retail and wholesale center of bathroom supply distributors
          in the
          Middle East. During fiscal 2007, our net sales in Dubai increased $15,515,093
          or
          221% to $22,521,534 as compared to $7,006,441 in 2006. In addition, we
          generated
          revenue of $1,584,942 in Russia during 2007. We generated no revenue from
          Russia
          in 2006.




25




**Cost
      of Sales; Gross Profit**


Cost
          of
          sales was $20,409,749 (of which $15,200,461 were the raw materials from
          the
          related party, Kunpeng) for 2007 and $9,211,533 (of which $5,642,137 were
          the
          raw materials from the related party, Kunpeng) for 2006, respectively.
          The
          increase of $11,198,216 or 121.6% in cost of sales was primarily due to
          the
          rapid increase of sales. Cost of sales is the costs of finished goods sold,
          including raw materials, labor costs and manufacturing overhead. Manufacturing
          overhead covers the depreciation of production facilities. Our gross margins
          are
          not comparable to those of other entities, which record delivery expenses
          into
          cost of sales, since we charge delivery expenses into selling expenses.
          Gross
          profit was $5,177,845 for 2007 and $2,298,666 for 2006, representing a
          gross
          margin of 20.0% for both years.


Although
      we were able to significantly increase our sales in years 2007 from 2006, the
      gross margin did not increase. The main reasons include the reduction in our
      selling prices to increase the appeal of our products to customers and the
      increase of the cost of our main raw material, worn copper. The adverse impact
      of these two factors together offset the decrease of the unit fixed cost with
      huge sales volume.




**Selling
      Expenses**




During
      2007, selling expenses were $275,634, an increase of $203,299, or 281.1%, from
      $72,335 for 2006. Selling expenses include delivery expense, advertising and
      salaries. This increase is mainly attributable to significantly increase of
      delivery expenses resulting from both the growth in sales volume and the
      increased sales in the international market, as well as the expenses incurred
      from our sales offices. During 2007, delivery expenses increased by $149,586
      to
      $198,076 as compared to $48,486 in 2006. Expenses in connection with sales
      offices increased $42,066 to $106,926 for fiscal 2007 as compared to $64,860
      in
      2006.




**General
      and administrative**




General
      and administrative expenses were $432,427 and $106,845 for the twelve months
      ended December 31, 2007 and 2006, an increase of $325,582 or 304.7%. General
      and
      administrative expenses include salaries, business entertainment, travel and
      entertainment, rent, office expense, car expenses and insurance costs. The
      increase is mainly resulted from the expansion of our operating activities
      in
      Fuda Yiyang, which led to the increased amount of business entertainment, car
      expenses, travel, office expenses, and etc.




**Officers’
      compensation**




Officers’
      compensation was $24,353 and $22,612 for 2007 and 2006, respectively. The
      nominal difference was due to a change in the exchange rates prevailing at
      the
      two dates.




**Depreciation
      and amortization**




Depreciation
      and amortization, excluding depreciation included in cost of production,
      increased $30,725 or 353.1% from $8,701 of fiscal 2006 to $39,426 of fiscal
      2007. The increase in depreciation and amortization is mainly due to additional
      office equipments and automobiles purchased in 2007.




**Consulting
      and professional fees**




We
      did
      not incur any consulting or professional fee in 2006, when Fuda Yiyang was
      still
      a private company only engaging in product development, manufacturing and market
      exploration. After the reverse acquisition, our consulting and professional
      fees
      increased to $73,433 as a result of our public company expenses.




**Income
      from Transfer of Patents**




During
      2007, we transferred two patents to a non-affiliated company for $621,451.
      The
      costs relating to the development of these patents had been expensed as incurred
      and not capitalized. As a result, the basis of these patents was zero. We
      recognized income of $576,493, representing the purchase price less related
      taxes and expenses.




26




**Reserve
      Acquisition Costs**




We
      incurred costs relating the December 2007 reverse acquisition of $916,908 were
      incurred in the fourth quarter of 2007. This amount includes the payment of
      $625,000 to the former principal stockholders to purchase its shares, and
      professional fees $291,908, including a non-cash charge of $33,852, the fair
      value of 33,517 shares of common stock issued to a reverse merger consultant.
      These reverse merger costs in 2007 are non-recurring.




**Net
      Interest Expense**


Net
          interest expense, offsetting minor interest income, was $371,334 and $263,061
          for 2007 and 2006, respectively, representing $108,273 or 41.2% increase
          as a
          result of the increase of short-term bank loans.


**Foreign
      Exchange Loss**




Net
      foreign exchange loss during 2007 was $198,373, which reflected a foreign
      exchange loss of $213,017 on accounts receivable from the customers out of
      China, offsetting foreign exchange gain of $14,644, which generated from loans
      of United States dollars.




**Net
      Income**




As
      a
      result of the factors described above, our net income for 2007 was $3,460,510,
      or $0.32 per share (basic) and $0.30 per share (diluted), an increase of
      $1,635,398 or 89.6% compared to $1,825,112, or $0.17 per share (basic and
      diluted) for 2006. With
      the
      approval of the County Government of Yiyang, Fuda Yiyang was exempt from
      corporate income taxes for 2007 and 2006. As a
      result, we did not pay any income tax in either 2007 or 2006.




**Liquidity
      and Capital Resources**


At
          December 31, 2007, we had working capital of $7,988,451, reflecting a current
          ratio of 2:1, compared to working capital of $2,815,538, reflecting a current
          ratio 1.45:1, as of December 31, 2006.


As
      of
      December 31, 2007 and 2006, we had cash of $169,319 and $380,714,
      respectively.




During
      2007, our operations utilized cash of $4,011,085 as compared with $1,618,703
      used by operations for 2006. The principal uses of cash in both years were
      significant increases in receivables from customers (including a related party)
      and inventories. During 2007, such receivables increased by $4,310,995, compared
      with an increase in accounts receivables of $1,792,799 in 2006. Similarly,
      inventories, including raw materials, work in progress and finished goods,
      increased by $3,153,039 in 2007, as compared with $2,089,845 in 2006.




During
      2007, we utilized $2,354,500 on purchase of fixed assets, including progress
      payments for construction of new facilities, and received $612,451 from the
      sale
      of two patents. During 2006, we did not purchase any fixed assets.




During
      2007, we generated $4,330,422 from financing activities, consisting of (1)
      proceeds of $3,043,000 from issuance of convertible preferred stock and
      warrants, net of issuance costs; (2) proceeds $13,576,349 from short-term bank
      loans, which was partially offset by repayments of $12,363,917; (3) proceeds
      from related parties of $4,596,921, which was offset in part by repayment of
      $4,521,931; and (4) proceeds $932,657 from employees, which had been fully
      repaid. During 2006, we generated $950,684 from financing activities, including
      proceeds of $6,462,023from short-term bank loans with repayments $6,106,010,
      and
      proceeds from related parties of $658,702, which was offset in part by repayment
      of $64,031.




27


We
          have
          financed our operations principally through rolling short-term bank loans
          and,
          to a lesser extent, through loans from related parties. The bank loans,
          which
          are secured by a mortgage on one of our parcels of land and ten workshop
          buildings, typically have terms of two or three months in connection with
          our
          export orders. There can be no assurance that we will acquire necessary
          working
          capital from banks continuously. In December 2007, in connection with the
          share
          exchange acquisition, we sold shares of series A preferred stock and warrants,
          from which we received net proceeds of $2,228,440. This number is net of
          all
          issuance costs and reverse acquisition costs in cash. The proceeds were
          mainly
          used to expand our manufacturing facilities. The warrants include (1) to
          purchase 2,060,606 shares of common stock at $1.80 per share; and (2) to
          purchase 4,121,212 shares of common stock at $3.00 per share. We are in
          the
          process of registering part of the shares under these warrants. After the
          registration statement becomes effective, holders of these warrants could
          exercise them and we may receive corresponding proceeds.
  We
        believe that our working capital will be sufficient to meet our cash
        requirements for the next 12 months. However, in order to expand our business
        by
        enlarging our production capacity and developing new markets we will require
        significant additional capital, and we can not assure you that any necessary
        financing will be available on reasonable terms, if at all.
  During
          2007, our second largest customer, accounting for sales of $7,020,720,
          or
          approximately 27.4% of sales, was a Dubai-based company owned and controlled
          by
          Jibrin Issa Jibrin Al Jibrin, who is the trustee of the Wu Yiting Trust,
          our
          controlling stockholder. At December 31, 2007, accounts receivable from
          this
          customer were $6,996,322, which represent approximately 87% of our working
          capital and have been fully collected as of March 28, 2008.


Pursuant
      to the securities purchase agreement dated December 3, 2007, the investors
      have
      a right of refusal on future financings, and we is restricted from issuing
      convertible debt or preferred stock or from having debt in an amount greater
      than twice our earnings before interest, taxes, depreciation and amortization.
      These provisions may make it difficult for us to raise money for our future
      operations or acquisitions.




**Off-Balance
      Sheet Arrangements**




At
      December 31, 2007, we did not have any relationships with unconsolidated
      entities or financial partnerships, such as entities often referred to as
      structured finance or special purpose entities, which would have been
      established for the purpose of facilitating off-balance sheet arrangements
      or
      other contractually narrow or limited purposes. As such, we are not exposed
      to
      any financing, liquidity, market or credit risk that could arise if we had
      engaged in such relationships.




**ITEM
      7. FINANCIAL STATEMENTS**




The
      Consolidated Financial Statements begin on page F-1.




**ITEM 8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None




**ITEM
      8A. CONTROLS AND PROCEDURES**


As
        of the
        end of the period covered by this annual report, management performed, with
        the
        participation of our chief executive officer and chief financial officer,
        an
        evaluation of the effectiveness of our disclosure controls and procedures
        as
        defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure
        controls and procedures are designed to ensure that information required
        to be
        disclosed in the report we file or submit under the Exchange Act is recorded,
        processed, summarized, and reported within the time periods specified in
        the
        SEC’s forms, and that such information is accumulated and communicated to our
        management including our chief executive officer and chief financial officer,
        to
        allow timely decisions regarding required disclosures. Based on the evaluation
        and the identification of the material weaknesses in internal control over
        financial reporting described below, our chief executive officer and chief
        financial officer concluded that, as of December 31, 2007 our controls were
        effective.




28




**Management’s
      Report of Internal Control over Financial Reporting.**


Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
        Act. Internal control over financial reporting is a process designed to provide
        reasonable assurance regarding the reliability of financial reporting and
        the
        preparation of financial statements in accordance with GAAP. Because of its
        inherent limitations, internal control over financial reporting may not prevent
        or detect misstatements. Also, projection of any evaluation of effectiveness
        to
        future periods is subject to the risk that controls may become inadequate
        because of changes in conditions, or that the degree of compliance with the
        policies or procedures may deteriorate.
  Management
        has conducted, with the participation of our chief executive officer and
        our
        chief financial officer, an assessment, including testing of the effectiveness,
        of our internal control over financial reporting as of December 31, 2007.
        Management’s assessment of internal control over financial reporting was
        conducted using the criteria in Internal Control over Financial Reporting
        -
        Guidance for Smaller Public Companies issued by the Committee of Sponsoring
        Organizations of the Treadway Commission.
  A
        material weakness is a deficiency, or a combination of deficiencies, in internal
        controls over financial reporting, such that there is a reasonable possibility
        that a material misstatement of the Company’s annual or interim financial
        statements will not be prevented or detected on a timely basis. In connection
        with management’s assessment of our internal control over financial reporting as
        required under Section 404 of the Sarbanes-Oxley Act of 2002, we concluded
        there
        were no material deficiencies in our internal controls over financial reporting,
        and, accordingly, our controls are effective. However, we recognize that
        there
        are weaknesses, particularly with respect to the application of United States
        GAAP to complicated financing transactions, which we consider immaterial.
        These
        weaknesses did not result in any material misstatements in our financial
        statements. The restatement of our financial statements for the year ended
        December 31, 2007 did not result in any material changes in our previously
        presented financial condition, results of operations or cash flows at December
        31, 2007 and for the year then ended. We are taking the following steps to
        address these weaknesses:
  1.
        The
        Company will establish more financial reporting monitoring activities to
        mitigate the risk of management override, specifically:
  a.
        Delegation of authority will be reviewed and formally documented from time
        to
        time subject to updating;
  b.
        Provide sufficient oversight in the implementation of accounting principles
        and
        external audit functions.
  2.
        We
        intend to further strengthen in-house internal control team to **minimize** the
        reliance on the external auditors to review and adjust the annual and quarterly
        financial statements, to monitor new accounting principles, and to ensure
        compliance with GAAP and SEC disclosure requirements, particularly with respect
        to transactions that are not routine, including financing transactions and
        accounting for the reverse acquisitions and the relationship with a variable
        interest entity;
  3.
        We
        will seek to adequately divide, or compensate for, incompatible functions
        among
        personnel to reduce the risk that a potential material misstatement of the
        financial statements would occur without being prevented or detected.
  Management
        is in the process of improving its system of internal control over financial
        reporting through the following actions:
  I.
        In
        April 2008, we elected four independent directors, three of whom are members
        of
        the audit committee. We anticipate the audit committee will work with our
        management, including our chief executive officer and chief financial officer,
        to implement an internal controls and training program.
  II.
        We
        plan to engage an independent firm with experience in dealing with the
        disclosure requirements of the federal securities law and with companies
        that
        are located in the PRC and whose internal books are kept in accordance with
        PRC
        GAAP and require conversion to US GAAP.
  III.
        Part
        of the responsibility of the independent firm will be both to assist us on
        the
        necessary controls that have to be implemented, to assist us in implementing
        these controls and to train our staff to remain in compliance with the internal
        controls on an ongoing basis, and to continue to be available as needed to
        assist us in assembling the information necessary for inclusion in our SEC
        reports and in preparing the reports for review by our independent registered
        public accounting firm and our counsel.
  IV.
        We
        will increase our internal staff to enable us to assume the responsibilities
        in
        both implementing and maintaining our internal controls and in adapting our
        controls to meet changing conditions.
  V.
        As a
        small business, we do not have the resources to fund sufficient staff to
        ensure
        a complete segregation of responsibilities within the accounting function.
        However, our management does review, and will increase the review of, financial
        statements on a monthly basis, and the newly-formed audit committee will
        review
        our accounting controls and financial statements with the independent registered
        public accounting firm on an annual and quarterly basis.
  The
        foregoing initiatives will enable us to improve our internal controls over
        financial reporting. Management is committed to continuing efforts aimed
        at
        improving the design adequacy and operational effectiveness of its system
        of
        internal controls. The remediation efforts noted above will be subject to
        the
        Company’s internal control assessment, testing and evaluation
        process.
  The
        reportable conditions and other areas of our internal control over financial
        reporting identified by us as needing improvement have not resulted in a
        material restatement of our financial statements. We are not aware of any
        instance where such reportable conditions or other identified areas of weakness
        have resulted in a material misstatement of omission in any report we have
        filed
        with or submitted to the Commission.
  This
        annual report does not include an attestation report of the Company’s registered
        public accounting firm regarding internal control over financial reporting.
        Management’s report was not subject to attestation by the Company’s registered
        public accounting firm pursuant to temporary rules of the SEC that permit
        the
        Company to provide only management’s report in this annual report.
  **Changes
        in Internal Control Over Financial Reporting**
  There
        were no changes in our internal control over financial reporting during the
        fourth quarter ended December 31, 2007 that materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting.


**ITEM
      8B. OTHER INFORMATION**




Not
      applicable.




29




PART
      III




**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS , CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
                ACT**




**Directors
      and executive officers**




The
      directors and executive officers of the Company are as follows:


**Name**
                
                **Age**
                
                **Position**Wu
                    Yiting
                
                44
                
                Chief
                    executive officer and chairman of the board of
                    directorsWu
                    Yaxu
                
                42
                
                Chief
                    financial officer, directorYu
                    Hao(1)
                
                35
                
                DirectorZhang
                    Ning(1)(2)
                
                49
                
                DirectorDavid
                    Yaudoon Chiang(1)(2)
                
                38
                
                DirectorDavid
                    Oldridge(2)
                
                54
                
                DirectorJibrin
                    Issa Jibrin Al Jibrin
                
                49
                
                Director
 (1)  Member
          of
          the audit committee.
 (2)  Member
          of
          the compensation committee.


***Wu
      Yiting***




Wu
      Yiting
      became our chief executive officer and chairman of the Board of Directors on
      December 3, 2007. From 1995 Ms. Wu founded Fuda Yiyang and has been its chief
      executive officer from its organization until the present. Ms. Wu majored in
      economy management, graduated from Central China Political University in 2000
      and is a registered accountant in China.




***Wu
      Yaxu***




Wu
      Yaxu
      became our chief financial officer and one of our directors on December 3,
      2007.
      She worked as accounting supervisor in Jiangxi Gandongbei Bushing Factory from
      1983 to 1994. Ms. Wu has been working at Fuda Yiyang since 1995 until the
      present. She majored in Corporation Management, graduated from Beijing Academy
      of Social Science in 1989. She is a registered accountant in China.


**Yu
          Hao**
  Yu
          Hao has more than 15 years of work experience in finance and accounting.
          Ms. Yu is a chartered certified accountant. Ms. Yu has been chief financial
          officer of Shen Zhen Min Run Agriculture Products Distribution Chain Store
          Co.,
          Ltd. since March 2008. Ms. Yu worked as a financial controller at DeCoro
          Limited
          from July 2004 to March 2008, as chief financial officer at Hubei Tianhua
          Shareholding Co., Ltd from May 2000 to July 2004, and as an internal audit
          and
          business control manager at Shenzhen IBM Technology Product Co., Ltd. from
          July
          1998 to May 2000. Ms. Yu Hao graduated with a MS in accounting from The
          Chinese
          University of Hong Kong Business School and a BS in technical economics
          from
          Huazhong Science & Technology University.
 
 **Zhang
          Ning**
 
 Zhang
          Ning has more than 20 years of experience in accounting and corporate finance.
          Mr. Zhang has been a senior financial consultant at Friedland Capital
          Corporation since July 2005. He worked in the finance consulting division
          at
          Benchmark Capital from July 2002 to June 2005, as an audit manager at Beijing
          Xiwen Accounting firm from July 1997 to July 2002, and as an audit manager
          at
          Beijing Dexin Accounting firm from March 1993 to June 1997. Mr. Zhang received
          a
          BS in Finance and Accounting from Renmin University of China
 
 **David
          Yaudoon Chiang**
 
 David
          Yaudoon Chiang has more than 15 years of experience in finance. Since July
          2004,
          Mr. Chiang has been a managing director in the investment banking division
          of
          Northeast Securities, Inc. Mr. Chiang was a principal of Bayview Consulting
          from
          June 2003 to July 2004, a vice president at C.E. Unterberg, Towbin Asset
          Management from February 2002 to March 2003, an analyst at C.E. Unterberg
          Towbin
          from December 1999 to December 2001, a senior equity analyst at Nikko Securities
          International from June 1997 to February 1999. Mr. David Yaudoon Chiang
          graduated with honors from New York University - Stern School of Business
          and
          holds a BS degree in Finance and International Business.
 
 **David
          Oldridge**
 
 David
          Oldridge has more than 30 years of experience in operations management
          and
          entrepreneurship. Mr. Oldridge has been the head of Contract Logistics
          North
          Asian for CEVA since October 2007. Mr. Oldridge was managing director of
          Asian
          Insight from January 2007 to October 2007, chief executive officer of SCFulfil
          Logistics Limited from March 2006 to January 2007, chief executive officer
          of
          Tradeport Hong Kong Limited from January 2002 to March 2006, vice president
          of
          BAX Global from December 1998 to January 2002 and an executive director
          at PT
          Global Indonesia from December 1997 to December 1998.
 
 Jibrin
          Issa Jibrin Al Jibrin**
 
 Jibrin
          Issa Jibrin Al Jibrin joined Fuda’s affiliated company in 2006 and has served as
          sales director since January 2008. Mr. Jibrin held director positions in
          Dammam
          Dome Group in Saudi Arabia from 2002 to 2006, Issa Al Jiblin from 1999
          to 2002;
          and Gabieal International Corporation from 1983 to 1999. Mr. Jibrin graduated
          from Kent State University with a Bachelors degree in Computer Science
          and
          Business Management.
 
 For
          their
          services as directors and committee members, the Company shall pay each
          of the
          independent directors an annual fee of $15,000, payable quarterly, and
          issued to
          each of them 2,632 shares of common stock, which represents the number
          of shares
          that has a value of $10,000 on April 22, 2008.




**Committees
      of the Board of Directors and Financial Expert**


Effective
          April 28, 2008, we elected Yu Hao, Zhang Ning, David Yaudoon Chiang, David
          Oldridge and Jibrin Issa Jibrin Al Jibrin were elected as directors. Ms.
          Yu, Mr.
          Zhang, Mr. Chiang, and Mr. Oldridge are independent directors. On that
          date, the
          board also created audit and compensation committees. The audit committee
          consists of Yu Hao, as chairperson, Zhang Ning and David Yaudoon Chiang.
          The compensation committee consists of Zhang Ning, as chairperson, David
          Yaudoon
          Chiang and David Oldridge.
 
 The
          board
          has determined that at least one person on the audit committee, Ms. Yu
          Hao,
          qualifies as a “financial expert” as defined by SEC rules.


**Code
      of Ethics**


We
          have
          not adopted a code of ethics as of the date of this annual report. However,
          we
          plan to adopt a code of ethics within the
          current fiscal
          year.


30




**Section
      16(a) Beneficial Ownership Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires our officers, directors
      and certain persons holding more than 10% of a registered class of our common
      stock to file with the Securities and Exchange Commission initial reports of
      ownership and reports of changes in ownership of our common stock. Officers,
      directors and certain other shareholders are required by the Securities and
      Exchange Commission to furnish the Company with copies of all Section 16(a)
      forms they file. To
      the
      best of the Company’s knowledge, based solely upon a review of the copies of
      such reports, during 2007, all of the required filings were made on a timely
      basis.




**Family
      Relationships**




Ms.
      Wu
      Yiting and Ms. Wu Yaxu are sisters. There are no other family relationships
      within the Company.




**ITEM
      10. EXECUTIVE COMPENSATION**




**Summary
      Compensation Table**




The
      following table sets forth all compensation paid for the past two years for
      each
      person who served as our chief executive officer and our chief financial officer
      during 2007 and 2006. Compensation includes compensation from Fuda Yiyang.
      No
      officer received compensation in of $100,000 during 2007 and 2006 (collectively,
      the “Named Executive Officers”).




Name
            
            Year
            
            Salary
            
            Bonus
            
            Stock Awards
            
            Option
              Awards
            
            Non-Equity
              Incentive Plan
              Compensation
            
            All Other
              Compensation
            
            TotalWu
                Yiting,
            
            
            2007
            
            $
            8,100
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            $
            8,100-chief
                executive
            
            
            2006
            
            
            8,100
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            $
            8,100-officer
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -0-Wu
                Yaxu, chief
            
            
            2007
            
            $
            6,500
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            $
            6,500financial
                officer
            
            
            2006
            
            
            6,500
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            6,500Christopher
            
            
            2007
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Astrom,
                chief executive and financial officer
            
            
            2006
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-





None
      of
      our officers have employment contracts, options or other equity-based
      incentives. We do not have a stock option or other equity-based incentive
      plan.




**Compensation
      of Directors**




Our
      directors receive no compensation for their service on the board of
      directors.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of March 15, 2008, by:




·
            each
                person known by us to be a beneficial owner of more than 5% of our
                outstanding common stock;


·
            each
                of our directors;


·
            each
                of our named executive officers;
                and


·
            all
                directors and executive officers as a
                group


31





Name
            
            Shares of Common Stock
              Beneficially
                Owned(2)
            
            PercentageJibrin
                Issa Jibrin ALJibrin(2)
            
            
            7,017,620
            
            
            65.4
            %Wu
                Yiting(2)
            
            
            9,739,645
            
            
            90.8
            %Wu
                Yaxu
            
            
            -
            
            
            -
            %Shu
                Shaohua
            
            
            0
            
            
            0
            %All
                officers and directors as a group(2)
            
            
            9,739,645
            
            
            90.8
            %




Except
      as
      otherwise indicated each person has the sole power to vote and dispose of all
      shares of common stock listed opposite his name. Each person is deemed to own
      beneficially shares of common stock which are issuable upon exercise or warrants
      or options or upon conversion of convertible securities if they are exercisable
      or convertible within 60 days of March 15, 2008. At such date, none of the
      persons named in the table held any options or warrants.




(1)
            Unless
                otherwise noted, the address for each of the named beneficial owners
                and
                directors and officers is c/o Fuda Faucet Works, Inc., Ge Jia Ba,
                Hua
                Ting, Yiyang, Jiangxi, PRC 334400.




(2)
            Jibrin
                Issa Jibrin AlJibrin is trustee of the Ms. Wu Yiting Stock Trust.
                Ms. Wu
                Yiting is our chief executive officer and chairman of our board of
                directors. The shares held by the trust are deemed to be beneficially
                owned by Ms. Wu since she has a right to instruct the trustee as
                to the
                voting or disposition of the shares. Ms. Wu is also the beneficial
                owner
                of 2,722,025 shares of common stock which are held by certain of
                our
                employees as nominee for Ms. Wu.




Barron
      Partners owns series A preferred stock and warrants which, if fully converted
      and exercised, would result in the ownership of more than 5% of our outstanding
      common stock. However, the series A preferred stock may not be converted and
      the
      warrants may not be exercised if such conversion or exercise would result in
      Barron Partners and its affiliates owning more than 4.9% of our outstanding
      common stock. This limitation may not be waived.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**


In
          connection with the reverse acquisition, Jibrin Issa Jibrin Al Jibrin,
          trustee
          of the Trust, transferred to us all of the capital stock of Moral Star
          BVI in
          exchange for 10,564,647 shares of our common stock, which were issued to
          the
          Trust and the designees of the Trust. As a result, Moral Star BVI became
          our
          wholly-owned subsidiary and the business of Moral Star BVI and its affiliated
          company became our business . The sole beneficiary of the Trust is Wu Yiting,
          who, as a result of the exchange, became the chief executive officer and
          chairman of the board.


Wu
      Yiting
      is the sole owner of Fuda Yiyang. Moral Star China is party to a series of
      agreements with Fuda Yiyang which are described in Item 1. These agreements
      provide that we operate the business of Fuda Yiyang and derive the profits
      (and
      sustain the losses) of Fuda Yiyang. Wu Yiting is also the chief executive
      officer and an 80% stockholder of Kunpeng. Kunpeng has agreed to supply Fuda
      Yiyang and Moral Star China on an exclusive basis with recycled copper at its
      original cost, which will be not greater than the local market price. When
      the
      price of worn copper fluctuates in the local market by 20%, Kunpeng must notify
      Fuda Yiyang and Moral Star China. The agreement has no fixed term. We purchase
      most of our raw copper from Kunpeng. Our purchases from KunPeng totaled
      $16,491,000, representing 70.5% of our total purchases, in 2007 and $5,808,538,
      representing 56.4% of our purchases, in 2006. As
      of
      December 31, 2007 and 2006, the amount due to Kunpeng in connection with
      above-said trade transactions was $1,189,152 and $1,168,963,
      respectively.




On
      January 1, 2008, Jibrin Issa Jibrin Al Jibrin became sales director of Fuda
      Yiyang. Al Jibrin General Trading L.L.C., a Dubai-based distribution company
      that is owned by Mr. Al Jibrin, was our second largest customer in 2007,
      accounting for sales of $7.0 million, or 27.4% of our sales. Sales to Al Jibrin
      General Trading were made at the same prices and on the same terms, including
      credit terms, as sales to non-affiliated distributors. A s
      of
      December 31, 2007, the amount due from Jibrin company was $6,996,322, all of
      which have been collected as of March 28, 2008. Mr.
      Al
      Jibrin is the trustee of the Wu Yiting Trust, which is our controlling
      stockholder.


32




We
      have
      from time to time borrowed money from related parties on a non-interest bearing
      basis. Mr. Yu Zeshi, the husband of Ms. Wu Yiting, owned 51% of the equity
      in
      Fuda Yiyang and was its chairman of the board until April 8, 2007. On April
      8,
      2007, Mr. Yu transferred all of his equity to his wife, Wu Yiting. As of
      December 31, 2006, we owed Mr. Yu $507,926. In 2007, Mr. Yu advanced $268,689
      to
      us and we repaid all outstanding balance to Mr. Yu. All abovementioned loans
      bear no interest.




As
      of
      December 31, 2006, we owed Ms. Wu Yiting $38,419. In 2007, Ms. Wu advanced
      $926,614 to us. We repaid Ms. Wu $145,231 during 2007. As of December 31, 2007,
      the balance due to Ms. Wu was $819,802.




During
      fiscal 2007, Wu Yaxu lent us $3,643,826, which was paid in full during 2007.




None
      of
      our directors is an independent director, as that term is defined by the
      regulations of the Nasdaq Stock Market.




**ITEM
      13. EXHIBITS**


Description
      of Exhibits





**Exhibit**
              **No.**
            
            **Description**
            
            **Incorporated by**
              **Reference
                in**
              **Document**
            
            **Exhibit
                No.**
              **in**
              **Incorporated**
              **Document**2.1
            
            Share
                Exchange Agreement, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.73.1
            
            Restated
                Certificate of Incorporation
            
            Form
                8-K filed on December 10, 2007
            
            3.13.2
            
            Certificate
                of Ownership and Merger of Fuda Faucet Works, Inc. and Capital Solutions
                I, Inc., dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            3.299.2
            
            Certificate
                of Designation of Series A Preferred Stock
            
            Form
                8-K filed on December 10, 2007
            
            99.24.1
            
            Form
                of $1.80 Warrants, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.34.2
            
            Form
                of $3.00 Warrants, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.410.1
            
            Securities
                Purchase Agreement, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.110.2
            
            Registration
                Rights Agreement, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.510.3
            
            Closing
                Escrow Agreement, dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.610.4
            
            Buyback
                Agreement. Dated December 3, 2007
            
            Form
                8-K filed on December 10, 2007
            
            99.810.5
            
            Frequently
                Related Transactions Structural Agreement between Moral Star China,
                Fuda,
                and Kunpeng
            
            Form
                8-K filed on December 10, 2007
            
            99.9




33




10.6
            
            Purchase
                Agreement between Moral Star China and Fuda Yiyang
            
            Form
                8-K filed on December 10, 2007
            
            99.1021.1
            
            List
                of Subsidiaries
            
            Form
                S-1 filed on February 14, 2008
            
            21.131.1
            
            Certification
                by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002
                Section
                302.
            
            Attached31.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002
                Section
                302.
            
            Attached32.1
            
            Certification
                by chief executive officer and chief financial officer pursuant to
                Sarbanes-Oxley Act of 2002 Section 906.
            
            Attached




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




Our
      financial statements at May 31, 2007 and 2006 were audited by Bagell, Josephs
      & Company, L.L.C (“Bagell”). On January 16, 2008, our board of directors
      dismissed Bagell as our independent registered accounting firm and appointed
      Bernstein & Pinchuk LLP (“Bernstein”) to serve as our independent registered
      accounting firm. On the same day we changed our fiscal year to the calendar
      year, which is the fiscal year of Moral Star BVI and Fuda Yiyang. Bernstein
      was
      the independent registered accounting firm for Fuda Yiyang prior to the reverse
      acquisition.




Since
      we
      do not have a formal audit committee, our entire Board of Directors serves
      as
      our audit committee. We have not adopted pre-approval policies and procedures
      with respect to our accountants. All of the services provided and fees charged
      by our independent registered accounting firms were approved by the board of
      directors.




**Services
      rendered by Bernstein**




**Audit
      fees**




Aggregate
      fees for professional services rendered by Bernstein for the fiscal year ended
      December 31, 2007 were $75,000. In addition, in 2007 we also paid Berstein
      $95,000 for auditing of Fuda Yiyang’s financial statements at December 31, 2006
      and 2005.




**Audit
      -related Fees, Tax Fees and All Other Fees**




There
      were no audit-related fees, tax fees and other fees billed by Berstein for
      other
      relevant services rendered to the
      Company during
      the 2007.




**Services
      rendered by Bagell**




Prior
      to
      the share exchange transaction, aggregate fees for professional services
      rendered for the Company by Bagell, for the fiscal years ended May 31, 2007
      and
      2006 are set forth below. The aggregate fees included in the Audit category
      are
      fees billed for the fiscal years for the audit of the Company’s annual financial
      statements and review of financial statements and statutory and regulatory
      filings or engagements. The aggregate fees included in each of the other
      categories are fees billed in the fiscal years.


34





Fiscal Year Ended
              31-May-07
            
            Fiscal Year Ended
              31-May-06Audit-related
                Fees
            
            $
            7,500
            
            $
            5,000Audit
                Fees
            
            
            7,000
            
            
            1,000Tax
                Fees
            
            
            1,000
            
            
            3,324All
                Other Fees
            
            
            -
            
            
            -Total
            
            $
            15,500
            
            $
            9,324




Audit
      fees for the fiscal years ended May 31, 2007 and 2006 were for professional
      services rendered for the audits of the consolidated financial statements of
      the
      Company, quarterly review of the financial statements included in Quarterly
      Reports on Form 10-QSB, consents, and other assistance required to complete
      the
      year end audit of the consolidated financial statements.




Audit-related
      fees as of the fiscal years ended May 31, 2007 and 2006 were for assurance
      and
      related services reasonably related to the performance of the audit or review
      of
      financial statements and not reported under the caption audit fees.




Tax
      fees
      as of the fiscal years ended May 31, 2007 and 2006 were for professional
      services related to tax compliance, tax authority audit support and tax
      planning.




There
      were no fees that were classified as all other fees as of the fiscal years
      ended
      May 31, 2007 and 2006.


35




**SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized on May 28, 2008.
 
 **FUDA
                  FAUCET WORKS, INC**By:
              /s/
                  Wu YitingWu
                  Yiting
                Chief
                  Executive Officer and Chairman of the Board of Directors
                (Principal
                  Executive Officer)
  Pursuant
        to the requirements of the Securities Act of 1934, this report has been signed
        below by the following persons on behalf of the registrant and in the capacities
        on the dates indicated. Each person whose signature appears below hereby
        authorizes Wu Yiting as his or her true and lawful attorney-in-fact and agent,
        with full power of substitution and resubstitution for him or her and in
        his or
        her name, place and stead, in any and all capacities to sign any and all
        amendments to this report, and to file the same, with all exhibits thereto
        and
        other documents in connection therewith, with the Securities and Exchange
        Commission.
  Signature
              
              Title
              
              Date/s/
                  Wu Yiting
              
              President,
                  chief executive officer and director
              
              May
                  28 , 2008Wu
                  Yiting
              
              (Principal
                  executive officer)/s/
                  Wu Yaxu
              
              Chief
                  financial officer and director
              
              May
                  28 , 2008Wu
                  Yaxu
              
              (Principal
                  financial and accounting officer)/s/
                  Yu Hao
              
              Director
              
              May
                  28 , 2008Yu
                  Hao/s/
                  Zhang Ning
              
              Director
              
              May
                  28 , 2008Zhang
                  Ning/s/
                  David Yaudoon Chiang
              
              Director
              
              May
                  28 , 2008David
                  Yaudoon Chiang/s/
                  David Oldridge
              
              Director
              
              May
                  28 , 2008David
                  Oldridge/s/Jibrin
                  Issa Jibrin AlJibrin
              
              Director
              
              May
                  28 , 2008Jibrin
                  Issa Jibrin AlJibrin


36




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page**Report
                of Independent Registered Accounting Firm
            F-2Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            F-3Consolidated
                Statements of Operations and Comprehensive Income for the years ended
                December 31, 2007 and 2006
            F-4Consolidated
                Statements of Stockholders’ Equity for the period from January 1, 2006
                through December 31, 2007
            F-5Consolidated
                Cash Flows Statements for the years ended December 31, 2007 and
                2006
            F-6Notes
                to Consolidated Financial Statements
            F-7




F-1


**REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                  FIRM**
 
 To
                the
                Board of Directors and Stockholders of
 Fuda
                Faucet Works, Inc.
 
 We
                have
                audited the accompanying consolidated balance sheets of Fuda Faucet
                Works, Inc.
                and subsidiaries (“Fuda”) as of December 31, 2007 and 2006, and the related
                consolidated statements of income and comprehensive income, changes
                in
                stockholders’ equity, and cash flows for each of the years in the two-year
                period ended December 31, 2007. Fuda’s management is responsible for these
                financial statements. Our responsibility is to express an opinion
                on these
                financial statements based on our audits.
 
 We
                conducted our audits in accordance with the standards of the Public
                Company
                Accounting Oversight Board (United States). Those standards require
                that we plan
                and perform the audit to obtain reasonable assurance about whether
                the financial
                statements are free of material misstatement. The company is not
                required to
                have, nor were we engaged to perform, an audit of its internal control
                over
                financial reporting. Our audit included consideration of internal
                control over
                financial reporting as a basis for designing audit procedures that
                are
                appropriate in the circumstances, but not for the purpose of expressing
                an
                opinion on the effectiveness of the company’s internal control over financial
                reporting. Accordingly, we express no such opinion. An audit also
                includes
                examining, on a test basis, evidence supporting the amounts and disclosures
                in
                the financial statements, assessing the accounting principles used
                and
                significant estimates made by management, as well as evaluating the
                overall
                financial statement presentation. We believe that our audits provide
                a
                reasonable basis for our opinion.
 
 In
                our
                opinion, the consolidated financial statements referred to above
                present fairly,
                in all material respects, the financial position of Fuda as of December
                31, 2007
                and 2006, and the results of its operations and its cash flows for
                each of the
                years in the two-year period ended December 31, 2007 in conformity
                with
                accounting principles generally accepted in the United States of
                America.
 
 The
                consolidated balance sheets at December 31, 2007 and 2006 and the
                consolidated
                statements of operations and comprehensive income and changes in
                stockholders'
                equity and related footnote disclosures for 2007 and 2006 are restated
                to
                reflect a correction to the par value of both common and preferred
                stock, a
                correction to the number of shares outstanding as of January 1, 2006,
                a revision
                to the accounting for the capitalization of a subsidiary, and a correction
                to
                the accounting for the recapitalization in December 2007. These matters
                are
                further described in Note 18.
 
  /s/ *Bernstein
                & Pinchuk LLP*
  New
                York,
                New York
  February
                27, 2008, except for the corrections made as described above and
                in Note 18, as
                to which the date is May 22, 2008.
  F-2
  **FUDA
              FAUCET WORKS, INC.**
 **CONSOLIDATED
              BALANCE SHEETS**
 **(AUDITED)**
 
 (US
                          dollars)December
                          31,2007
                      
                      2006Item
                      
                      
                      Restated
                      
                      
                      Restated**ASSETS**Current
                          assetsCash
                          and cash equivalents
                      
                      
                      169,319
                      
                      
                      380,714Accounts
                          receivable
                      
                      
                      487,471
                      
                      
                      3,172,797Due
                          from related parties – trade
                      
                      
                      6,996,322
                      
                      
                      -Prepayments
                          to suppliers
                      
                      
                      14,326
                      
                      
                      371,934Inventories
                      
                      
                      8,260,479
                      
                      
                      5,107,440Other
                          current assets
                      
                      
                      251,619
                      
                      
                      83,478Total
                          current assets
                      
                      
                      16,179,536
                      
                      
                      9,116,363Property,
                          plant and equipmentLand
                          use right
                      
                      
                      869,251
                      
                      
                      813,136Buildings
                      
                      
                      1,180,427
                      
                      
                      1,103,277Machinery
                          and equipment
                      
                      
                      758,619
                      
                      
                      692,459Automobiles
                      
                      
                      128,495
                      
                      
                      84,617Office
                          equipment
                      
                      
                      72,801
                      
                      
                      3,022Property
                          plant and equipment – total
                      
                      
                      3,009,593
                      
                      
                      2,696,511Less:
                          accumulated depreciation
                      
                      
                      (777,600
                      )
                      
                      (574,941
                      )Property
                          plant and equipment – net
                      
                      
                      2,231,993
                      
                      
                      2,121,570Construction
                          in progress
                      
                      
                      1,867,513
                      
                      
                      -Other
                          long-term assets - idle assetsMachinery
                          and equipment – net
                      
                      
                      331,324
                      
                      
                      309,942Land
                          use right – net
                      
                      
                      184,205
                      
                      
                      172,314**Total
                          assets**
                      
                      
                      20,794,571
                      
                      
                      11,720,189**LIABILITIES
                          AND STOCKHOLDERS’ EQUITY**Current
                          liabilitiesShort-term
                          bank loans
                      
                      
                      5,252,594
                      
                      
                      3,793,205Accounts
                          payable
                      
                      
                      686,114
                      
                      
                      717,229Due
                          to related parties-trade
                      
                      
                      1,189,152
                      
                      
                      1,168,963Due
                          to related parties- non-trade
                      
                      
                      869,802
                      
                      
                      546,345Accrued
                          expenses
                      
                      
                      112,280
                      
                      
                      35,756Other
                          payables
                      
                      
                      81,143
                      
                      
                      39,327Total
                          current liabilities
                      
                      
                      8,191,085
                      
                      
                      6,300,825Total
                          Liabilities
                      
                      
                      8,191,085
                      
                      
                      6,300,825Commitments
                          and ContingenciesStockholders’equityPreferred
                          stock, 0.0000001 par value; 20,000,000 shares authorized;
                          3,090,909 shares
                          and nil issued and outstanding on December 31, 2007 and
                          2006,
                          respectively
                      
                      
                      -
                      
                      
                      -Common
                          stock - 0.0000001 par value; 900,000,000 shares authorized;
                          10,725,440
                          shares and 10,564,647 shares issued and outstanding on
                          December 31, 2007
                          and 2006, respectively
                      
                      
                      1
                      
                      
                      1Additional
                          paid-in capital
                      
                      
                      3,748,785
                      
                      
                      603,320Surplus
                          reserve
                      
                      
                      260,430
                      
                      
                      260,430Retained
                          earnings
                      
                      
                      7,753,585
                      
                      
                      4,293,075Accumulated
                          other comprehensive income
                      
                      
                      840,685
                      
                      
                      262,538Total
                          stockholders’equity
                      
                      
                      12,603,486
                      
                      
                      5,419,364**Total
                          liabilities and stockholders’equity**
                      
                      
                      20,794,571
                      
                      
                      11,720,189
 
 See
                notes
                to financial statements.
  F-3
 
 **FUDA
              FAUCET WORKS, INC.**
 **CONSOLIDATED
              STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**
 **(AUDITED)**
 
 (US
                          dollars)Years ended December 31,2007
                      
                      2006Item
                      
                      
                      Restated
                      
                      
                      RestatedNet
                          sales from unrelated parties
                      
                      
                      18,566,873
                      
                      
                      11,510,199Net
                          sales from related parties
                      
                      
                      7,020,721
                      
                      
                      -**Net
                          sales – Total**
                      
                      
                      25,587,594
                      
                      
                      11,510,199Cost
                          of sales (exclusive of items shown separately below)
                      
                      
                      5,209,288
                      
                      
                      3,569,396Cost
                          of sales – related parties
                      
                      
                      15,200,461
                      
                      
                      5,642,137Cost
                          of sales – total
                      
                      
                      20,409,749
                      
                      
                      9,211,533**Gross
                          profit**
                      
                      
                      5,177,845
                      
                      
                      2,298,666**Operating
                          expenses:**Selling
                          expenses
                      
                      
                      275,634
                      
                      
                      72,335General
                          and administrative
                      
                      
                      432,427
                      
                      
                      106,845Officers’
                          compensation
                      
                      
                      24,353
                      
                      
                      22,612Depreciation
                          and amortization
                      
                      
                      39,426
                      
                      
                      8,701Consulting
                          and professional fees
                      
                      
                      73,433
                      
                      
                      -**Total
                          operating expenses**
                      
                      
                      845,273
                      
                      
                      210,493**Income
                          from transfer of patents – net**
                      
                      
                      576,493
                      
                      
                      -**Reverse
                          acquisition costs**
                      
                      
                      (916,908
                      )
                      
                      -**Operating
                          income**
                      
                      
                      3,992,157
                      
                      
                      2,088,173**Other
                          income**
                      
                      
                      38,060
                      
                      
                      -**Interest
                          expense**
                      
                      
                      (371,334
                      )
                      
                      (263,061
                      )**Foreign
                          exchange loss**
                      
                      
                      (198,373
                      )
                      
                      -**Net
                          income**
                      
                      
                      3,460,510
                      
                      
                      1,825,112**Other
                          comprehensive income**Foreign
                          currency translation adjustment
                      
                      
                      578,147
                      
                      
                      188,272**Comprehensive
                          income**
                      
                      
                      4,038,657
                      
                      
                      2,013,384**Earnings
                          per common share**Basic
                      
                      
                      0.32
                      
                      
                      0.17Diluted
                      
                      
                      0.30
                      
                      
                      0.17**Weighted
                          average number of common shares outstanding**Basic
                      
                      
                      10,725,440
                      
                      
                      10,564,647Diluted
                      
                      
                      11,444,444
                      
                      
                      10,564,647
  See
                notes
                to financial statements.
 
 F-4
  **Fuda
              Faucet Works, Inc.**
 **Statements
              of Changes in Stockholders' Equity**
 **(Audited)**
 (US
                            dollars)Number of
                          common stock
                        
                        Amount of
                          common
                          stock
                        
                        Number of
                          preferred
                          stock
                        
                        Amount of
                          Preferred
                          stock
                        
                        Additional
                          paid-in capital
                        
                        Surplus
                          reserve
                        
                        Retained
                          earnings
                        
                        Other
                          comprehensive
                          income
                        
                        Total
                          stockholders'
                          equityItem**Balance
                            as of January 1, 2006 (Restated)**
                        
                        
                        10,564,647
                        
                        
                        1
                        
                        
                        -
                        
                        
                        -
                        
                        
                        603,320
                        
                        
                        260,430
                        
                        
                        2,467,963
                        
                        
                        74,266
                        
                        
                        3,405,980Net
                            income for the year ended December 31, 2006
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,825,112
                        
                        
                        -
                        
                        
                        1,825,112Other
                            Comprehensive income (loss)
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        188,272
                        
                        
                        188,272**Balance
                            as of December 31, 2006**
                        
                        
                        10,564,647
                        
                        
                        1
                        
                        
                        
                        
                        
                        
                        
                        
                        603,320
                        
                        
                        260,430
                        
                        
                        4,293,075
                        
                        
                        262,538
                        
                        
                        5,419,364Issuance
                            of stock in recapitalization in December 2007 (Restated)
                        
                        
                        53,539-
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Issuance
                            of common stock for services of a reverse merger consultant
                            in December
                            2007 (Restated)
                        
                        
                        107,254-
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        33,852
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        33,852Issuance
                            of preferred stock and warrants in December 2007
                            (Restated)
                        
                        
                        -
                        
                        
                        -
                        
                        
                        3,090,909
                        
                        
                        -
                        
                        
                        3,043,000
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        3,043,000Issuance
                            of warrants to a investor relation consultant in December
                            2007
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        68,613
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        68,613Net
                            income for the year ended December 31, 2007
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        3,460,510
                        
                        
                        -
                        
                        
                        3,460,510Other
                            Comprehensive income (loss)
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        578,147
                        
                        
                        578,147**Balance
                            as of December 31, 2007**
                        
                        
                        10,725,440
                        
                        
                        1
                        
                        
                        3,090,909
                        
                        
                        -
                        
                        
                        3,748,785
                        
                        
                        260,430
                        
                        
                        7,753,585
                        
                        
                        840,685
                        
                        
                        12,603,486
  See
                notes
                to financial statements.
  F-5
 
 **FUDA
              FAUCET WORKS, INC.**
 **CONSOLIDATED
              CASH FLOWS STATEMENTS**
 **(AUDITED)**
  (US
                          dollars)Years ended December 31,2007
                      
                      2006Item**Cash
                          flows from operating activities:**Net
                          income
                      
                      
                      3,460,510
                      
                      
                      1,825,112Adjustments
                          to reconcile net income to net cash used in operating
                          activities:Depreciation
                          and amortization
                      
                      
                      202,659
                      
                      
                      154,478Gain
                          from transfer of patents
                      
                      
                      (576,493
                      )
                      
                      -Amortization
                          of fair value of warrants and stocks as compensation
                      
                      
                      39,570
                      
                      
                      -(Increase)
                          decrease in:Accounts
                          receivable
                      
                      
                      2,685,326
                      
                      
                      (1,792,799
                      )Due
                          from related parties – trade
                      
                      
                      (6,996,322
                      )
                      
                      -Prepayments
                          to suppliers
                      
                      
                      357,608
                      
                      
                      (361,489
                      )Inventories
                      
                      
                      (3,153,039
                      )
                      
                      (2,089,845
                      )Other
                          current assets
                      
                      
                      (105,246
                      )
                      
                      (31,092
                      )Increase
                          (decrease) in:Accounts
                          payable
                      
                      
                      (31,115
                      )
                      
                      597,775Due
                          to related parties-trade
                      
                      
                      20,189
                      
                      
                      55,282Accrued
                          expenses
                      
                      
                      76,524
                      
                      
                      (8,116
                      )Other
                          payables
                      
                      
                      8,744
                      
                      
                      31,991**Net
                          cash used in operating activities:**
                      
                      
                      (4,011,085
                      )
                      
                      (1,618,703
                      )**Cash
                          flows from investing activities:**Purchase
                          of fixed assets
                      
                      
                      (2,354,500
                      )
                      
                      -Proceeds
                          from transfer of patents
                      
                      
                      612,451
                      
                      
                      -**Net
                          cash used in investing activities**
                      
                      
                      (1,742,049
                      )
                      
                      -**Cash
                          flows from financing activities:**Proceeds
                          from issuance of preferred stock and warrants
                      
                      
                      3,043,000
                      
                      
                      -Proceeds
                          from short-term bank loans
                      
                      
                      13,576,349
                      
                      
                      6,462,023Repayment
                          of short-term bank loans
                      
                      
                      (12,363,917
                      )
                      
                      (6,106,010
                      )Loans
                          from related parties
                      
                      
                      4,596,921
                      
                      
                      658,702Repayment
                          to related parties
                      
                      
                      (4,521,931
                      )
                      
                      (64,031
                      )Loans
                          from employees
                      
                      
                      932,657
                      
                      
                      -Repayment
                          to employees
                      
                      
                      (932,657
                      )
                      
                      -**Net
                          cash from financing activities**
                      
                      
                      4,330,422
                      
                      
                      950,684**Effect
                          of exchange rate changes on cash and cash
                          equivalents:**
                      
                      
                      1,211,318
                      
                      
                      185,821**Cash
                          and equivalents**Net
                          increase (decrease) in cash and equivalents
                      
                      
                      (211,395
                      )
                      
                      (482,198
                      )Cash
                          and equivalents, beginning of year
                      
                      
                      380,714
                      
                      
                      862,912**Cash
                          and equivalents, end of year**
                      
                      
                      169,319
                      
                      
                      380,714**Supplemental
                          Disclosures of Cash flow Information:**Cash
                          paid for interest
                      
                      
                      316,846
                      
                      
                      268,164Cash
                          paid for income taxes
                      
                      
                      -
                      
                      
                      -Non-cash
                          investing and financing activities:Common
                          stock issued as compensation to financing consultants
                      
                      
                      307,827
                      
                      
                      -Warrants
                          issued to an investor relation consultant
                      
                      
                      68,613
                      
                      
                      -
  See
                notes
                to financial statements.
  F-6
  **1.
                  Organization and Basis of Presentation**
  ***(1)
                  Organization***
  Fuda
                Faucet Works, Inc. (the “Company,” “we,” “us,” “our” ) was incorporated in
                Delaware on June 10, 1969 under the name Magnum Communications Corp.
                On December
                9, 1980, the Company changed its name to Vacation Ownership Marketing,
                Inc. and
                was engaged in the development and marketing of time-shared condominiums.
                In
                1983, the Company ceased operations due to continued financial difficulties
                and
                adverse litigation. From 1983 until August 29, 2001, the Company
                was not engaged
                in any business. On August 29, 2001, the Company acquired Encore
                Builders, Inc.,
                a construction company, through what was then a subsidiary of the
                Company.
                Beginning on August 29, 2001, the Company was engaged in the construction
                of
                Conquistador Plaza Apartments in Miami, Florida, pursuant to a lump
                sum
                construction contract with Conquistador Plaza. These operations ceased
                with the
                separation of Encore Builders from the Company in the first quarter
                of 2002. On
                May 6, 2004, the Company changed its corporate name to Capital Solutions
                I, Inc.
                Prior to December 3, 2007, the Company was not engaged in any business.
                On
                January 3, 2008, the Company changed its name to Fuda Faucet Works,
                Inc.
  On
                December 3, 2007, the Company entered into a buy-back agreement with
                Richard
                Astrom and Christopher Astrom, who were the Company’s principal stockholders and
                sole directors and Christopher Astrom was the Company’s president, chief
                executive officer and chief financial officer, pursuant to which
                they sold to
                the Company all of the shares of common stock owned by them, which
                constituted
                75% of the Company’s outstanding common stock, for a purchase price of $625,000.
                Richard and Christopher Astrom resigned from all positions as officers
                and
                directors simultaneously.
  Contemporaneously
                with the purchase of stock from the former principal stockholders,
                the Company
                executed a share exchange agreement with Jibrin Issa Jibrin Al Jibrin,
                trustee
                of the Wu Yiting Stock Trust, the sole stockholder of Moral Star
                Development
                Limited, a British Virgin Islands company (“Moral Star BVI”), pursuant to which
                the trustee transferred to the Company all of the capital stock of
                Moral Star
                BVI in exchange for 10,564,647 shares of the Company’s common stock,
                approximately 98.5% of the Company’s outstanding common stock, which were issued
                to the Trust and the designees of the Trust. As a result, Moral Star
                BVI became
                the Company’s wholly-owned subsidiary and the business of Moral Star BVI and
                its
                affiliated companies became our business. The sole beneficiary of
                the trust is
                Ms. Wu Yiting, who, as a result of the exchange, became the chief
                fxecutive
                officer, president and a director of the Company.
  On
                January 3, 2008, the Company effected a 3.2-for-one stock distribution
                pursuant
                to which each share of common stock was converted into 3.2 shares
                of common
                stock. All references in these financial statements to shares and
                per share
                information give effect to the stock distribution.
  Moral
                Star BVI owns 100% of the stock of Jiangxi Moral Star Copper Technology
                Co.,
                Ltd. (“Moral Star China”), which is a wholly foreign-owned enterprise organized
                under the laws of the Peoples’ Republic of China (“PRC”). Moral Star China is a
                party to a series of contractual arrangements with Jiangxi Yiyang
                Fuda Copper
                Co. Ltd. (“Fuda Yiyang”), a limited liability company headquartered in, and
                organized under the laws of, the PRC. The relationship among the
                above companies
                as follows:
 
 F-7
  
  Under
                generally accepted accounting principles, the acquisition by the
                Company of
                Moral Star BVI is considered to be capital transactions in substance,
                rather
                than a business combination. That is, the acquisition is equivalent,
                in the
                acquisition by Moral Star BVI of the Company, then known as Capital
                Solutions I,
                Inc., with the issuance of stock by Moral Star BVI for the net monetary
                assets
                of the Company. This transaction is accompanied by a recapitalization,
                and is
                accounted for as a change in capital structure. Accordingly, the
                accounting for
                the acquisition is identical to that resulting from a reverse acquisition,
                except that no goodwill is recorded. Under reverse takeover accounting,
                the
                comparative historical financial statements of the Company, as the
                legal
                acquirer, are those of the accounting acquirer, Moral Star BVI. Since
                Moral Star
                BVI and Moral Star China did not have any business activities, the
                Company’s
                financial statements prior to the closing on the reverse acquisition,
                reflect
                only business of Fuda Yiyang. The accompanying financial statements
                reflect the
                recapitalization of the stockholders’ equity as if the transactions occurred as
                of the beginning of the first period presented. Thus, the 10,564,647
                shares of
                common stock issued to the trust and its designees are deemed to
                be outstanding
                from December 31, 2005.
  The
                contractual arrangements among Moral Star China, Fuda Yiyang, its
                sole owner, Wu
                Yiting and related parties are represented by a series of agreements,
                including
                Management Agreement, Related Transactions Agreement, Purchase Agreement,
                Stockholders’ Voting Proxy Agreement, Shares Pledge Agreement, Exclusive Option
                Agreement, Patent Transfer Agreement, and Trademark Transfer Agreement,
                pursuant
                to which the Company obtained control over the business and operations
                of Fuda
                Yiyang, and became the primary beneficiary of Fuda Yiyang
                operations.
  ***(2)***  ***Business***
  The
                Company’s business is presently the business conducted by Fuda Yiyang prior
                to
                the share exchange, which is the development, manufacture and distribution
                of a
                wide range of brass faucets and related spouts and fittings. The
                Company’s
                products include kitchen and bar faucets, bathroom faucets and bathroom
                accessories. The Company produces all of its products in China and
                exports most
                of them into the international marketplace. The Company started doing
                business
                by focusing on copper re-processing when Fuda Yiyang was initially
                formed in
                1995. In 2002, the Company began to produce and sell the European
                style brass
                faucets, spouts and fittings to the Chinese local market, and in
                2004, it began
                to sell our products internationally. We sell our products to bathroom
                supplies
                distributors
 
 F-8
  ***(3)***  ***Basis
              of Presentation***
  The
              consolidated financial statements have been prepared pursuant to the
              rules and
              regulations of the Securities and Exchange Commission (“SEC”) and in accordance
              with generally accepted accounting principles in the United States
              of America
              (“US GAAP”). The Company’s functional currency is the Chinese Renminbi; however
              the accompanying consolidated financial statements have been translated
              and
              presented in United States Dollars ($).
  **Principles
              of consolidation** –
The
              Company’s consolidated financial statements include the financial statements
              of
              its wholly owned subsidiaries, Moral Star BVI and Moral Star China,
              as well as
              Fuda Yiyang, which is a variable interest entity whose financial statements
              are
              consolidated with those of the Company pursuant to FASB Interpretation
              No. 46R
“Consolidation of Variable Interest Entities” (“FIN 46R”), an Interpretation of
              Accounting Research Bulletin No. 51. All significant intercompany accounts
              and
              transactions have been eliminated in the combination.
  FIN
              46R
              requires a variable interest entity to be consolidated by a company
              if that
              company is subject to a majority of the risk of loss for the variable
              interest
              entity or is entitled to receive a majority of the variable interest
              entity’s
              residual returns. Variable interest entities are those entities in
              which the
              Company, through contractual arrangements, bears the risks of, and
              enjoys the
              rewards normally associated with ownership of the entities, and therefore
              the
              Company is the primary beneficiary of these entities.
  Moral
              Star China is a party to a series of contractual arrangements with
              Fuda Yiyang.
              These agreements include a management agreement pursuant to which all
              net income
              after deduction of necessary expenses, if any, generated by Fuda Yiyang
              is paid
              to Moral Star China and Moral Star China is responsible for paying
              Fuda Yiyang’s
              obligations incurred in connection with its business. In addition,
              Moral Star
              China manages and controls all of the funds of Fuda Yiyang. Moral Star
              China
              also has the right to purchase Fuda Yiyang’s equipment and patents and lease its
              manufacturing plants, land and remaining equipment. This agreement
              is designed
              so that Moral Star China can conduct its business in China. Pursuant
              to two
              other agreements, the sole stockholder of Fuda Yiyang, who is also
              the Company’s
              chief executive officer, has pledged all of her equity in Fuda Yiyang
              as
              security for performance of Fuda Yiyang’s obligations to Moral Star China, and
              she granted Moral Star China an irrevocable grant of a proxy over her
              stock in
              Fuda Yiyang. As a result, Fuda Yiyang is considered a variable interest
              entity.
  **Use
              of Estimates** –
              The preparation of financial statements in conformity with US GAAP
              requires
              management to make estimates and assumptions that affect the reported
              amounts of
              assets and liabilities, disclosure of contingent assets and liabilities
              at the
              date of the financial statements, and the reported amounts of revenues
              and
              expenses during the reporting period. Actual results could differ from
              those
              estimates. Significant accounting estimates include bad debt provision,
              impairment of long-lived assets, depreciation and amortization,
              etc.
  **Country
              Risk** –
              As the Company’s manufacturing base is located in China and its market is mainly
              located in Middle East, Africa and Russia, the Company is subject to
              special
              considerations and significant risks not typically associated with
              companies in
              North America and/or Western Europe. These risks include, among others,
              risks
              associated with the political, economic and legal environments and
              foreign
              currency exchange limitations encountered in these areas. The Company’s results
              of operations may be adversely affected by changes in the political
              and social
              conditions in these areas, and by changes in governmental policies
              with respect
              to laws and regulations, among other things.
  In
              accordance with the relevant Chinese rules and regulations on management
              of
              foreign exchanges, the foreign exchanges generated from sales of our
              products
              out of China shall be brought back into China and sold to designated
              banks
              instead of being deposited out of China without authorization. On the
              other
              hand, the Company has to buy foreign exchanges from designated banks
              when paying
              current expenditures with foreign exchanges. In addition, all of the
              Company’s
              transactions undertaken in China are denominated in Renminbi (“RMB”), which must
              be converted into other currencies before remittance out of China.
              Both the
              conversion of RMB into foreign currencies and the remittance of foreign
              currencies abroad require the approval of the Chinese
              government.
  F-9
 
 **Credit
              Risk** –
The
              Company performs ongoing credit evaluations of its customers and intends
              to
              establish an allowance for doubtful accounts when outstanding balances
              are not
              considered fully collectable. According to the Company’s credit policy, the
              Company generally provides 100% bad debt provision for the amounts
              outstanding
              over 180 days after the deduction of the amount subsequently settled
              after the
              balance sheet date, which management believes is consistent with industry
              practice.
  The
              Company may require its customers to make a partial payment, based
              on the
              Company’s credit evaluation. The Company generally requires payment within
              three
              months. We maintain a policy that all sales are final and we do not
              allow
              returns. No return occurred in the fiscal year of 2007 and 2006. Based
              on
              industry practice and the credit history of customers, the Company
              believes the
              accounts receivable shown on its balance sheets are fully
              collectable.
  **Foreign
              Currency Translation** –
              The functional currency of the Company is China RMB, which is the primary
              medium
              of exchange where the Company operates. The Company reports its financial
              results in United States dollars (“U.S. dollars” or “US$”).
  The
              Company translates its assets and liabilities into U.S. dollars using
              the rate
              of exchange prevailing at the balance sheet date, and the statement
              of
              operations is translated at the average rates over each month during
              the
              reporting period. Equity items are translated at historical exchange
              rates.
              Adjustments resulting from the translation from RMB into U.S. dollars
              are
              recorded in stockholders’ equity as part of accumulated comprehensive income
              (loss). Gains or losses resulting from transactions in currencies other
              than RMB
              are reflected in the statement of operations and comprehensive income.
              The
              translation rates from RMB to US dollars for the fiscal years of 2007
              and 2006
              are as follows:
  2007
                    
                    2006Translation
                        rate for assets and liabilities as of December 31,
                    
                    
                    7.3046:1
                    
                    
                    7.8087:1Translation
                        rate for equity items as of December 31,
                    
                    
                    8.2875:1
                    
                    
                    8.2875:1Translation
                        rate for profit & loss items for the fiscal year of
                    
                    
                    7.3912:1
                    
                    
                    7.9602:1
  **Revenue
              Recognition** –
The
              Company recognizes sales of its products in accordance with Securities
              and
              Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “ *Revenue
              Recognition in Financial Statements”, as amended by SAB No. 104, “Revenue
              Recognition.* ”
              Revenues represent the invoiced value of goods, net of value added
              tax (“VAT”),
              if any, and are recognized upon delivery of goods and passage of
              title.
  Pursuant
              to China’s VAT rules and regulations, Fuda Yiyang’s sales in China mainland are
              subject to a tax rate of 17% (“output VAT”) as an ordinary VAT taxpayer, and the
              relating revenues were recognized by the invoiced value offsetting
              17% output
              VAT. However, its sales outside of China mainland are applicable for
              VAT
              exemption, credit and refund policy, and the relating revenues were
              equal to the
              invoiced value. The applicable refund rate from January 1, 2007 to
              June 30, 2007
              was 13% and it has been adjusted down to 9% since July 1, 2007. The
              actual VAT
              payable is the balance after offsetting both VAT paid on purchases
              (“input VAT”)
              and the amount exempted or credited. The actual VAT refunded is recognized
              as
              other income.
  **Shipping
              and handling cost** –
We
              bear
              shipping and handling costs from our factory to our customers’ designated
              location, and not billed them to our customers. From accounting perspective,
              we
              record such costs as delivery expenses, which are accounted for as
              part of
              selling expenses. Delivery expenses for the twelve months ended December
              31,
              2007 and 2006 were $198,072 and $48,486, respectively.
  **Advertising** - The
              Company expenses all advertising costs as incurred. The advertising
              cost for the
              twelve months ended December 31, 2007 and 2006 was $48,343 and $23,849,
              respectively.
  **Comprehensive
              Income (Loss)** –
The
              Company has adopted SFAS No. 130, “ *Reporting
              Comprehensive Income* ”
which
              establishes standards for reporting and presentation of comprehensive
              income
              (loss) and its components in a full set of general-purpose financial
              statements.
              The Company has chosen to report comprehensive income (loss) in the
              statements
              of operations and comprehensive income.
  F-10
 
 **Income
              Taxes** –
The
              Company accounts for income taxes under the provisions of SFAS No.
              109, “ *Accounting
              for Income Taxes* ”
which
              requires recognition of deferred tax assets and liabilities for the
              expected
              future tax consequences of events that have been included in the consolidated
              financial statements or tax returns. Deferred tax assets and liabilities
              are
              recognized for the future tax consequence attributable to the difference
              between
              the tax bases of assets and liabilities and their reported amounts
              in the
              financial statements. Deferred tax assets and liabilities are measured
              using the
              enacted tax rate expected to apply to taxable income in the years in
              which those
              temporary differences are expected to be recovered or settled. The
              effect on
              deferred tax assets and liabilities of a change in tax rates is recognized
              in
              income in the period that includes the enactment date. The Company
              establishes a
              valuation allowance when it is more likely than not that the assets
              will not be
              recovered.
  With
              the
              approvals of the County Government of Yiyang, Fuda Yiyang was exempt
              from
              corporate income taxes for 2007 and 2006. The Local Tax Bureau of Yiyang
              County
              also retroactively confirmed the above-said preferential tax treatment.
              See Note
              16.
  On
              March
              16, 2007, China’s parliament, the National People’s Congress, adopted the
              Enterprise Income Tax Law, which took effect on January 1, 2008. The
              new income
              tax law sets unified income tax rate for domestic and foreign companies
              at 25%
              except a 15% corporate income tax rate for qualified high and new technology
              enterprises. In accordance with this new income tax law, low preferential
              tax
              rate in accordance with both the tax laws and administrative regulations
              prior
              to the promulgation of this Law shall gradually transit to the new
              tax rate
              within five years after the implementation of this law.
  **Cash
              and Cash Equivalents** –
Highly
              liquid investments with a maturity of three months or less at the time
              of
              acquisition are considered to be cash equivalents.
  **Inventories** –
              Inventories are stated at the lower of cost, determined on a weighted
              average
              basis, and net realizable value. Work in progress and finished goods
              are
              composed of direct material, direct labor and a portion of manufacturing
              overhead. Net realizable value is the estimated selling price, in the
              ordinary
              course of business, less estimated costs to complete and dispose. Management
              believes that there was no obsolete inventory as of December 31, 2007
              and
              2006.
  **Property,
              Plant and Equipment**  **** –
              Property, plant and equipment are stated at cost. Major expenditures
              for
              betterments and renewals are capitalized while ordinary repairs and
              maintenance
              costs are expensed as incurred. Depreciation and amortization is provided
              using
              the straight-line method over the estimated useful life of the assets
              after
              taking into account the estimated residual value. The estimated useful
              life of
              property, plant and equipment are as follows:
 
 Land
                        use rights
                    
                    
                    50
                        yearsBuildings
                    
                    
                    30
                        yearsMachinery
                        and equipment
                    
                    
                    10
                        yearsAutomobiles
                    
                    
                    5
                        yearsOffice
                        equipment
                    
                    
                    5
                        years
  There
              is
              no private ownership of land in the PRC. All land is owned by the government
              which grants a transferable land use right pursuant to which the holder
              of the
              land use right has the right to use the land for the term of the land
              use
              rights. The estimated useful life of the land use rights is based on
              the term of
              the land use rights, which is 50 years.
  F-11
 
 We
              periodically evaluate our investment in long-lived assets, including
              property
              and equipment, for recoverability whenever events or changes in circumstances
              indicate the net carrying amount may not be recoverable. Our judgments
              regarding
              potential impairment are based on legal factors, market conditions
              and
              operational performance indicators, among others. In assessing the
              impairment of
              property and equipment, we make assumptions regarding the estimated
              future cash
              flows and other factors to determine the fair value of the respective
              assets. If
              these estimates or the related assumptions change in the future, we
              may be
              required to record impairment charges for these assets. From December
              2004 to
              present, fixed assets amounting to $510,529 were left unused, including
              land,
              workshop building and equipment. ** Since
              value of land in similar sections of the city was increasing, no impairment
              on
              land use right has been charged. The workshop buildings were maintained
              in good
              condition, and most of the equipment will be transported and reinstalled
              into
              the Company’s new workshop building, which is now under construction. A
              provision for impairment of certain idle assets in the amount of $146,209
              was
              made previously when they were turned into idle status.
  **Surplus
              Reserve** - The
              surplus reserve as of December 31, 2007 and 2006 was $260,430, representing
              $127,085 appropriated as statutory accumulation reserve and $133,345
              as
              statutory welfare reserve in 2004 and 2005, in accordance with the
              Company Law
              of PRC then in effect, which has been replaced by a revised law taking
              effect on
              January 1, 2006. The statutory accumulation reserve may be used for
              making up
              losses, expanding operations or increasing the amount of capital. The
              statutory
              welfare reserve should be used in employee collective welfare. According
              to the
              Company Law of PRC currently in effect, when a company distributes
              its after tax
              profits of the current year, it shall appropriate 10% of the profits
              as the
              company’s statutory accumulation reserve and no statutory welfare should be
              appropriated.
  **Derivative
              Instruments** - The
              Company accounts for financial instruments under the provisions of
              SFAS No. 133,
“ *Accounting
              for Derivative Instruments and Hedging Activities* ”
and
              EITF 00-19 “ *Accounting
              for Derivative Financial Instruments Indexed to, and Potentially Settled
              in, a
              Company’s Own Stock* ”,
              which
              requires that all derivative financial instruments be recognized in
              the
              consolidated financial statements and maintained at fair value regardless
              of the
              purpose or intent for holding them.
  We
              accounted for our convertible preferred stock and relating freestanding
              warrants
              (See Note 13) as equity. At the same time, we evaluated the fair values
              of such
              preferred stock, warrants and embedded conversion feature and made
              the
              allocation of proceeds between the detachable warrants and equity based
              on their
              relative fair values.
  **Financial
              Instruments and Fair Value** - SFAS
              No. 107 “ *Disclosures
              about Fair Value of Financial Instruments* ”,
              requires that the Company disclose estimated fair values of financial
              instruments.
  The
              carrying amounts for cash and cash equivalents, accounts receivable,
              prepayments, short-term loans, accounts payable, advances, accruals
              and other
              payables approximate their fair values because of the short maturity
              of those
              instruments.
  **2.**  **Recent
              Accounting Pronouncements**
  In
              February 2006, the FASB issued SFAS No. 155, “ *Accounting
              for Certain Hybrid Financial Instruments-an amendment of FASB Statements
              No. 133
              and 140* .” SFAS
              No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging
              Activities”, to permit fair value remeasurement for any hybrid financial
              instrument with an embedded derivative that otherwise would require
              bifurcation,
              provided that the whole instrument is accounted for on a fair value
              basis. SFAS
              No. 155 amends SFAS No. 140, “Accounting for the Impairment or Disposal of
              Long-Lived Assets”, to allow a qualifying special-purpose entity (“SPE”) to hold
              a derivative financial instrument that pertains to a beneficial interest
              other
              than another derivative financial instrument. SFAS No. 155 applies
              to all
              financial instruments acquired or issued after the beginning of an
              entity’s
              first fiscal year that begins after September 15, 2006, with earlier
              application
              allowed. The Company does not have any financial instruments and does
              not expect
              the adoption of SFAS No. 155 to have a material impact on its consolidated
              results of operations and financial condition.
  In
              March
              2006, the FASB issued SFAS No. 156, “ *Accounting
              for Servicing of Financial Assets-an amendment of FASB Statement No.
              140* .” SFAS
              No. 156 requires that all separately recognized servicing rights be
              initially
              measured at fair value, if practicable. In addition, this Statement
              permits an
              entity to choose between two measurement methods (amortization method
              or fair
              value measurement method) for each class of separately recognized servicing
              assets and liabilities. This new accounting standard is effective January
              1,
              2007. The adoption of SFAS 156 is expected to have no material impact
              on our
              financial statements.
  In
              April
              2006, the FASB issued FASB Staff Position (“FSP”) FIN 46(R)-6, “ *Determining
              the Variability to Be Considered in Applying FASB Interpretation No.
              46(R)* ”,
              that
              became effective beginning July 2006. FSP FIN No. 46(R)-6 clarifies
              that the
              variability to be considered in applying Interpretation 46(R) shall
              be based on
              an analysis of the design of the variable interest entity. The operations
              of
              Fuda Yiyang are consolidated with those of the Company pursuant to
              FIN 46(R).
              See Basis of Presentation in Note 1.
  F-12
 
 In
              June
              2006, the FASB issued FASB Interpretation No. 48, *Accounting
              for Uncertain Income Taxes* (“FIN
              48”). FIN 48 clarifies the accounting for uncertainty in income taxes
              recognized
              in an entity’s financial statements. FIN 48 prescribes a comprehensive model for
              how a company should recognize, measure, present, and disclose in its
              financial
              statements uncertain tax positions that the company has taken or expects
              to take
              on a tax return. FIN 48 is effective for fiscal years beginning after
              December
              16, 2006. The Company evaluated the impact of the tax exempt treatments
              enjoyed
              by the Company that were approved by the local government and also
              confirmed by
              the local tax bureau. See Note 16. Accordingly, management believe
              that for the
              there is no uncertainty for 2007and 2006.
  In
              September 2006, the FASB issued SFAS No. 157, “ *Fair
              Value Measurements* .” This
              statement defines fair value, establishes a framework for measuring
              fair value
              in generally accepted accounting principle and expands disclosures
              of fair value
              measurement. In application, this statement does not require any new
              fair value
              measurements. It shall be effective for fiscal years beginning after
              November
              15, 2007, and all interim periods within those fiscal years. Earlier
              application
              is permitted if the entity has not yet issued interim or annual financial
              statements for that fiscal year. The Company is currently evaluating
              the impact
              that the adoption of this statement will have on the Company’s consolidated
              financial position, results of operations or cash flows.
  In
              September 2006, the FASB issued SFAS No. 158, “ *Employers’
              Accounting for Defined Benefit Pension and Other Postretirement
              Plans.* ”
This
              statement requires an employer to recognize the overfunded or underfunded
              status
              of a defined benefit postretirement plan (other than a multiemployer
              plan) as an
              asset or liability in its statement of financial position and to recognize
              changes in that funded status in the year in which the changes occur
              through
              comprehensive income or business entity. For an employer with publicly
              traded
              equity securities, the requirement to recognize the funded status of
              a benefit
              plan and the disclosure requirements are effective as of the end of
              the fiscal
              year ending after December 15, 2006. The Company is currently evaluating
              the
              impact that the adoption of this statement will have on the Company’s
              consolidated financial position, results of operations and cash
              flows.
  In
              February 2007, the FASB issued SFAS No. 159, “ *The
              Fair Value Option for Financial Assets and Financial Liabilities -
              Including an
              amendment of FASB Statement No. 115* .” This
              Statement permits entities to choose to measure many financial instruments
              and
              certain other items at fair value. The objective is to improve financial
              reporting by providing entities with the opportunity to mitigate volatility
              in
              reported earnings caused by measuring related assets and liabilities
              differently
              without having to apply complex hedge accounting provisions. This Statement
              is
              expected to expand the use of fair value measurement, which is consistent
              with
              the Board’s long-term measurement objectives for accounting for financial
              instruments. We are required to adopt SFAS No. 159 in the first quarter
              of 2008
              and are currently evaluating the impact that SFAS No. 159 will have
              on our
              consolidated financial statements.
  In
              December 2007, the Financial Accounting Standards Board (“FASB”) issued
              Statement of Financial Accounting Standards (“SFAS”) No. 141 (Revised 2007), *Business
              Combinations* . SFAS
              141(R) retains the fundamental requirements of the original pronouncement
              requiring that the purchase method be used for all business combinations.
              SFAS
              141(R) defines the acquirer as the entity that obtains control of one
              or more
              businesses in the business combination, establishes the acquisition
              date as the
              date that the acquirer achieves control and requires the acquirer to
              recognize
              the assets acquired, liabilities assumed and any noncontrolling interest
              at
              their fair values as of the acquisition date. In addition, SFAS 141(R)
              requires
              expensing of acquisition-related and restructure-related costs, remeasurement
              of
              earn out provisions at fair value, measurement of equity securities
              issued for
              purchase at the date of close of the transaction and non-expensing
              of in-process
              research and development related intangibles. SFAS 141(R) is effective
              for the
              Company’s business combinations for which the acquisition date is on or after
              July 1, 2009. The Company is currently evaluating the impact of the
              implementation of SFAS No. 141(R) on its consolidated financial position,
              results of operations and cash flows.
  F-13
 
 In
              December 2007, the FASB issued SFAS No. 160, *Noncontrolling
              Interests in Consolidated Financial Statements—an amendment of ARB No.
              51* . This
              Statement amends ARB 51 to establish accounting and reporting standards
              for the
              noncontrolling interest in a subsidiary and for the deconsolidation
              of a
              subsidiary. It clarifies that a noncontrolling interest in a subsidiary
              is an
              ownership interest in the consolidated entity that should be reported
              as equity
              in the consolidated financial statements. It requires consolidated
              net income to
              be reported at amounts that include the amounts attributable to both
              the parent
              and the noncontrolling interest. This Statement establishes a single
              method of
              accounting for changes in a parent’s ownership interest in a subsidiary that do
              not result in deconsolidation. SFAS No. 160 is effective for the Company’s
              fiscal year beginning July 1, 2009. The Company is currently evaluating
              the
              impact of the implementation of SFAS No. 160 on its consolidated financial
              position, results of operations and cash flows.
  Other
              recent accounting pronouncements issued by the FASB (including its
              Emerging
              Issues Task Force), the AICPA, and the SEC did not or are not believed
              by
              management to have a material impact on the Company’s present or future
              consolidated financial statements.
  **3.**  **Variable
              Interest Entity**
  As
              a
              result of the contractual arrangements among Moral Star China, Fuda
              Yiyang, its
              sole shareholder, Wu Yiting, and related parties, the Company was given
              control
              over the business and operations of Fuda Yiyang and became the primary
              beneficiary of Fuda Yiyang. The consolidated financial statements for
              the fiscal
              year ended December 31, 2007 and 2006 included the results of operations
              of Fuda
              Yiyang for the same periods, even though the Company does not own any
              of Fuda
              Yiyang’s equity.
  Fuda
              Yiyang’s assets and liabilities as of December 31, 2007 and 2006 are as
              follows:
  (US
                        dollars)December
                        31,2007
                    
                    2006ItemCash
                        and cash equivalents
                    
                    
                    167,148
                    
                    
                    380,714Accounts
                        receivable
                    
                    
                    7,483,792
                    
                    
                    3,172,797Prepayments
                        to suppliers
                    
                    
                    14,326
                    
                    
                    371,934Inventories
                    
                    
                    8,239,944
                    
                    
                    5,107,440Other
                        current assets
                    
                    
                    55,724
                    
                    
                    83,478Property
                        plant and equipment - net
                    
                    
                    3,832,895
                    
                    
                    2,121,570Construction
                        in progress
                    
                    
                    1,867,513
                    
                    
                    -Other
                        long-term assets
                    
                    
                    515,529
                    
                    
                    482,256Total
                        assets
                    
                    
                    22,176,871
                    
                    
                    11,720,189Short-term
                        bank loans
                    
                    
                    5,252,594
                    
                    
                    3,793,205Accounts
                        payable
                    
                    
                    602,901
                    
                    
                    717,229Due
                        to related parties-trade
                    
                    
                    1,189,152
                    
                    
                    1,168,963Due
                        to related parties- non-trade
                    
                    
                    676,559
                    
                    
                    546,345Accrued
                        expenses
                    
                    
                    112,280
                    
                    
                    35,756Other
                        payables
                    
                    
                    81,143
                    
                    
                    39,327Total
                        liabilities
                    
                    
                    7,914,629
                    
                    
                    6,300,825
  A
              $1,942,742 intercompany payable on Fuda Yiyang’s books was not included in the
              above table, since this balance had been eliminated during
              consolidation.
  As
              of
              December 31, 2007, non-controlling interest consists of 100% of the
              equity of
              Fuda Yiyang owned by Wu Yiting.
  F-14
 
 **4.**  **Accounts
              Receivable**
  As
              of
              December 31, 2007 and 2006, the balance of accounts receivable, excluding
              receivables from related parties, was $487,471 and $3,172,797, respectively,
              representing a decrease 84.6%. During the last few months of 2007,
              we exported
              $7.02 million through Jibrin company , a related party, of which $7
              million was
              outstanding as of December 31, 2007. This receivable is reflected as
“due from
              related parties.”
  **5.**  **Inventories**
  Inventories
              consisted of the following as of December 31, 2007 and 2006:
  **Inventories**
                    
                    December 31, 2007
                    
                    December 31, 2006Raw
                        materials
                    
                    $
                    3,844,897
                    
                    $
                    3,381,948Work
                        in progress
                    
                    
                    2,098,383
                    
                    
                    742,642Finished
                        goods
                    
                    
                    2,317,199
                    
                    
                    982,850Total
                    
                    $
                    8,260,479
                    
                    $
                    5,107,440
  Management
              believes that no inventory was obsolete on each balance sheet date
              thus no
              impairment on inventories was provided.
  **6.**  **Property,
              Plant and Equipment**
  The
              total
              cost of property, plant and equipment was $3,009,593 and $2,696,511
              as of
              December 31, 2007 and 2006, respectively. The increase was mainly due
              to
              appreciation of value of the RMB in United States dollars.
  In
              China,
              all land is owned by the government and there is no private ownership
              of land.
              The government issues a certificate of use right, which is transferable,
              and
              permits the holder to use the land. Under three “State-owned Land Use Right
              Certificates”, the Company owns the use right for two blocks of industrial-use
              land (covering approximately 262,000 square feet) for the term of 50
              years,
              beginning from issuance date of the certificates, which were 1991 and
              2001.
  Depreciation
              expense was $202,659 and $154,478 for the fiscal year of 2007 and 2006,
              respectively.
  The
              land
              use rights for one parcel of land and 10 workshop buildings are used
              as
              collateral pursuant to a mortgage agreement with a commercial bank.
              The mortgage
              agreement initially has a term from September 6, 2004 to September
              5, 2007, and,
              on September 6, 2007, was replaced by a mortgage agreement that expires
              on
              September 5, 2010. The net book value of this collateral as of December
              31, 2007
              and 2006 was $1,517,483 and $1,580,124 respectively. Under the terms
              of the
              mortgage agreement, the Company may borrow from time to time up to
              the maximum
              amount provided in the mortgage agreement, which is $1.7
              million.
  **7.**  **Construction
              in Progress**
  A
              s of
              December 31, 2007, the balance of construction in progress was $1,867,513,
              which
              represents the construction of new workshop buildings to expand current
              production capability. The construction started in the early part of
              2007. We
              made progress payments to the contractor in accordance with the actual
              construction progress, thus the balance was in line with those already
              paid.
  The
              land
              use right (covering 229,703 square feet) , on which these new workshop
              buildings
              are being constructed, is under the name of Ms. Wu Yiting, the Company’s Chief
              Executive Officer and sole stockholder of Fuda Yiyang. She has agreed
              to
              transfer the land use right of this block of land to the Company before
              the
              construction is finished.
  F-15
 
 **8.**  **Other
              long-term assets**
  As
              of
              December 31, 2007 and 2006, the balance of other long-term assets was
              $515,529
              and $482,256. The increase was due to appreciation of value of the
              RMB in United
              States dollars. These other long-term assets include one block of land
              and a
              workshop building and equipment, which have not been used since 2004.
              Since
              value of land in similar sections of the city was increasing, no impairment
              on
              land use right has been charged. The workshop buildings were maintained
              in good
              condition, and most of the equipment will be transported and reinstalled
              into
              the Company’s new workshop building, which is now under construction. A
              provision for impairment of certain idle assets in the amount of $146,209
              was
              made previously when they were turned into idle status.
  **9.**  **Short-term
              bank loans**
  The
              balance of short-term bank loans as of December 31, 2007 and 2006 was$5,252,594
              and $3,793,205, respectively as follows:
  Loan Bank
                    
                    Main Terms
                    
                    December 31, 2007
                    
                    December 31, 2006Principal
                    
                    Interestrate(perannum)
                    
                    Principal
                    
                    Interestrate(perannum)Industrial
                        and
                    
                    Two
                      or three-month-term loans,
                    
                    $
                    444,925
                    
                    
                    7.776
                    %
                    $
                    33,296
                    
                    
                    7.308
                    %Commercial
                        Bank
                    
                    bearing
                      benchmark interest rate
                    
                    
                    521,589
                    
                    
                    8.07
                    %
                    
                    945,100
                    
                    
                    8.190
                    %of
                        China Ltd.,
                    
                    announced
                      by People's Bank of
                    
                    
                    2,349,205
                    
                    
                    8.42
                    %
                    
                    938,696
                    
                    
                    7.812
                    %YiYang
                        Branch
                    
                    China
                    
                    
                    383,320
                    
                    
                    8.54
                    %
                    
                    393,151
                    
                    
                    8.568
                    %130,055
                    
                    
                    9.13
                    %
                    
                    389,310
                    
                    
                    7.810
                    %Subtotal
                    
                    
                    3,829,094
                    
                    
                    
                    
                    
                    2,699,553Bank
                        of China,
                    
                    Two
                      or three-month-term secured loans,
                    
                    $
                    57,000
                    
                    
                    6.25
                    %YiYang Branch (1)
                    
                    bearing
                      benchmark interest rate
                    
                    
                    140,000
                    
                    
                    6.44
                    %
                    $
                    197,216
                    
                    
                    6.840
                    %announced
                      by People's Bank of
                    
                    
                    960,000
                    
                    
                    7.00
                    %
                    
                    55,067
                    
                    
                    7.440
                    %China
                    
                    
                    266,500
                    
                    
                    8.69
                    %
                    
                    841,369
                    
                    
                    7.680
                    %Subtotal
                    
                    
                    1,423,500
                    
                    
                    
                    
                    
                    1,093,652Total
                    
                    $
                    5,252,594
                    
                    
                    
                    
                    $
                    3,793,205
  (1)
              The
              loans from Bank of China, Yiyang Branch, were secured by the land use
              right for
              one block of land and 10 workshop buildings under a mortgage agreement
              with the
              bank dated September 6, 2004, and on September 6, 2007, this mortgage
              contract
              was replaced by a mortgage which will expire on September 5, 2010.
              See Note
              6.
  **10.**  **Accounts
              Payable**
  The
              balance of accounts payable was $686,114 and $717,229 as of December
              31, 2007
              and 2006, respectively, which included payables to material suppliers
              and
              professional service providers.
  **11.**  **Related
              party transactions**
  The
              transactions between the Company and related parties are classified
              into two
              categories: non-trade and trade.
  F-16
  ***(1)***  ***Non-trade
              transactions with related parties***
  December
                        31,Related
                      party
                    
                    Catergory
                    
                    2007
                    
                    2006Yu
                        Zeshi
                    
                    Due
                      from related party
                    
                    $
                    -
                    
                    $
                    507,926Wu
                        Yiting
                    
                    Due
                      to related party
                    
                    
                    869,802
                    
                    
                    38,419$
                    869,802
                    
                    $
                    546,345
  *(i)*  *Yu
              Zeshi*
  Mr.
              Yu
              Zeshi owned 51% of the equity in Fuda Yiyang until April 8, 2007. He
              was also
              Chairman of the Board during the same period. On April 8, 2007, Mr.
              Yu Zeshi
              transferred all of his equity to his wife, Wu Yiting, who is the Company’s chief
              executive officer and a director and was, at the time of the transfer,
              Fuda
              Yiyang’s other stockholder.
  As
              of
              December 31, 2006, the Company owed Mr. Yu $507,926. In 2007, Mr. Yu
              advanced
              $268,689 to the Company and the Company repaid all outstanding balance
              to Mr.
              Yu. All abovementioned loans bear no interest.
  *(ii)*  *Wu
              Yiting*
  Ms.
              Wu
              Yiting is our chief executive officer and Chairman of the
              Board.
  As
              of
              December 31, 2006, the Company owed Ms. Wu Yiting $38,419. In the twelve
              months
              ended December 31, 2007, Ms. Wu Yiting advanced $926,614 to the Company,
              which
              were mainly used for working capital for the Company’s Dubai office and other
              costs occurred during the reverse merger. Ms. Wu Yiting was repaid
              $95,231. As
              of December 31, 2007, the balance due to Ms. Wu Yiting was $869,802.
              All
              abovementioned loans bear no interest.
  *(iii)*  *Wu
              Yaxu*
  Wu
              Yaxu
              is one of our directors and our chief financial officer and sister
              of Wu
              Yiting.
  During
              fiscal 2007, Wu Yaxu lent to the Company $3,643,826, which was paid
              in full
              during 2007.
  ***(2)***  ***Trade
              transactions with related parties***
  *(i)*  *Yiyang
              KunPeng Worn Metal Recycling Co., Ltd.*
  Wu
              Yiting
              holds 80% equity of Yiyang KunPeng Metal Recycling Co., Ltd. (“KunPeng”). Ms. Wu
              Yiting is also the Chairman of KunPeng. Mr. Kun Yang, the Vice-President
              of Fuda
              holds the remaining 20% equity of KungPeng.
  The
              Company purchased a significant percentage of our copper from KunPeng.
              During
              2007 and 2006, the Company purchased $16,491,264 and $5,808,538, representing
              70.5% and 56.4% of the total raw material purchase amount, respectively,
              from
              KunPeng.
  As
              of
              December 31, 2007 and 2006, the amount due to KunPeng in connection
              with
              above-said trade transactions was $1,189,152 and $1,168,963,
              respectively.
  *(ii)*  *Al
              Jibrin Gereral Trading Co.,Ltd.*
  Jibrin
              Issa Jibrin Al Jibrin is the owner of Al Jibrin Gereral Trading Co.,
              Ltd.
              (“Jibrin company”). He is the trustee of the Wu Yiting Stock Trust and became
              Sales Director of Fuda Yiyang from January 1, 2008.
  F-17
 
 During
              fiscal year 2007, the Company sold products amounted to $7,020,721
              to Jibrin
              company, representing 21% of our total net sales, which contributed
              approximately gross profit of $1.4 million for the Company.
  As
              of
              December 31, 2007, the amount due from Jibrin company was $6,699,322,
              all of
              which has been collected as of March 28, 2008.
  **12.**  **Accrued
              Expenses**
  As
              of
              December 31, 2007 and 2006, the accrued expenses were $112,280 and
              $35,756
              respectively. Accrued expenses mainly consist of accrued
              salaries.
  **13.**  **Equity-based
              Transactions**
  As
              above
              mentioned in Note 1, the consolidated financial statements reflect
              the equity
              structure as if the recapitalization transactions occurred as of the
              beginning
              of the first period presented.
  ***(1)***  ***Authorized
              shares***
  As
              of
              December 31, 2007, the Company’s authorized capital stock consisted of
              20,000,000 shares of preferred stock, par value $.0000001 per share,
              and
              900,000,000 shares of common stock, par value $.0000001 per share.
              In December
              2007, the Company’s board of directors and the holders of a majority of its
              capital stock approved a restated certificate of incorporation which
              changes the
              authorized capital stock to 130,000,000 shares, of which 20,000,000
              are shares
              of preferred stock, par value $.001 per share, and 110,000,00 are shares
              of
              common stock, par value $.001 per share. The Company’s certificate of
              incorporation will be amended to reflect the change in authorized capital
              after
              an information statement has been mailed to stockholders. As of March
              27, 2008,
              the restated certificate of incorporation has not yet been
              filed.
  ***(2)***  ***Common
              Stock***
  As
              of
              December 31, 2007 and 2006, the Company had 10,725,440 and 10,564,647
              shares of
              common stock issued and outstanding, respectively. From January 1,
              2007 to
              December 31, 2007, the Company has engaged in the following equity-based
              transactions:
  (i)
              On
              December 3, 2007, the Company entered into a buy-back agreement with
              the
              controlling shareholders of Capital Solution (the former of the Company),
              pursuant to which the Company purchased back 160,003 shares they hold
              for a
              purchase price of $625,000. After the buy-back transaction, the Company
              retained
              53,539 shares of common stock as public float.
  (ii)
              On
              the same day, the Company executed a share exchange agreement, pursuant
              to which
              the Company issued to Jibrin Issa Jibrin Al Jibrin, trustee of the
              Wu Yiting
              Stock Trust, the sole stockholder of Moral Star BVI, and its designees
              a total
              of 10,564,647 shares of common stock in exchange for all of the capital
              stock of
              Moral Star BVI. Such shares are deemed to be outstanding from December
              31,
              2005.
 .
 (iii)
              On
              the same day, the Company issued 107,254 shares of common stock to
              a consultant
              providing services in connection with reverse merger
              transaction.
  (iv)
              On
              the same day, the board of directors approved the 3.2-for-one stock
              distribution
              described in Note 1. The distribution took effect on January 3, 2008.
              The
              above-listed (i), (ii) and (iii) reflect the result of the
              distribution.
  ***(3)***  ***Preferred
              stock and related warrants***
  On
              December 3, 2007, the Company entered into a securities purchase agreement
              and
              an escrow agreement with three investors, pursuant to which the Company
              closed a
              private financing of $3,400,000 and correspondingly issued to the investors
              3,090,909 shares of series A preferred stock and warrants to purchase
              2,060,606
              share of common stock at $1.80 per share and 4,121,212 shares of common
              stock at
              $3.00 per share. The securities were issued to the investors in the
              following
              amounts:
  F-18
 
 Investor
                    
                    Purchase Price
                    
                    Series A Preferred
                    
                    $1.80 Warrants
                    
                    $3.00 WarrantsBarron Partners
                    
                    $
                    3,125,000
                    
                    
                    2,840,909
                    
                    
                    1,893,939
                    
                    
                    3,787,879Silver
                        Rock I
                    
                    
                    175,000
                    
                    
                    159,091
                    
                    
                    106,061
                    
                    
                    212,121Eos
                        Holdings
                    
                    
                    100,000
                    
                    
                    90,909
                    
                    
                    60,606
                    
                    
                    121,212Total
                    
                    $
                    3,400,000
                    
                    
                    3,090,909
                    
                    
                    2,060,606
                    
                    
                    4,121,212
 
 The
              holders of Series A preferred stock and holders of the $1.80 and $3.00
              warrants
              have no right to require us to redeem or otherwise repurchase their
              securities.
 
 *(i)*  *Designation
              of series A preferred stock*
  The
              certificate of designation for the series A preferred stock provides
              that:
  · Each
              share of series A preferred stock is convertible into one share of
              common stock,
              at a conversion price of $1.10, subject to adjustment.
  · If the
              Company issues common stock at a price, or options, warrants or other
              convertible securities with a conversion or exercise price less than
              the
              conversion price (presently $1.10 per share), with certain specified
              exceptions,
              the number of shares issuable upon conversion of one share of series
              A preferred
              stock is adjusted to reflect a conversion price equal to the lower
              price.
  · No
              dividends are payable with respect to the series A preferred stock,
              and while
              the series A preferred stock is outstanding, the Company may not pay
              dividends
              on or redeem shares of common stock.
  · Upon any
              voluntary or involuntary liquidation, dissolution or winding-up, the
              holders of
              the series A preferred stock are entitled to a preference of $1.10
              per share
              before any distributions or payments may be made with respect to the
              common
              stock or any other class or series of capital stock which is junior
              to the
              series A preferred stock upon voluntary or involuntary liquidation,
              dissolution
              or winding-up.
  · The
              holders of the series A preferred stock have no voting rights. However,
              so long
              as any shares of series A preferred stock are outstanding, we shall
              not, without
              the affirmative approval of the holders of 75% of the outstanding shares
              of
              series A preferred stock then outstanding, (a) alter or change adversely
              the
              powers, preferences or rights given to the series A preferred stock
              or alter or
              amend the certificate of designation, (b) authorize or create any class
              of stock
              ranking as to dividends or distribution of assets upon liquidation
              senior to or
              otherwise pari passu with the series A preferred stock, or any of preferred
              stock possessing greater voting rights or the right to convert at a
              more
              favorable price than the series A preferred stock, (c) amend our articles
              of
              incorporation or other charter documents in breach of any of the provisions
              thereof, (d) increase the authorized number of shares of series A preferred
              stock, or (e) enter into any agreement with respect to the
              foregoing.
 
 · Neither
              the Company nor any holders of the series A preferred stock has any
              right to
              redeem or require the redemption of the series A preferred
              stock.
  *(ii)*  *Adjustment
              based on EBIT*
  The
              escrow agreement provided that the Company issued 3,000,000 shares
              of Series A
              preferred stock into escrow. These shares are in addition to the 3,090,909
              shares that were issued to the investors. These shares are to be transferred
              to
              the investors if the Company’s EBIT does not reach certain target levels for
              2007 and 2008. The targets are set forth in RMB, the currency of China. The
              dollar equivalent is based on the exchange rate in effect on March
              31, 2008,
              which was RMB¥7.0190 to $1.00 This
              rate is subject to change, and, to the extent that the value of the
              RMB
              increases as against the United States dollar, the targets, in United
              States
              dollars, will be less. The targets are:
  Period
                    
                    RMBper
                        share
                    
                    US$per
                        share2007
                    
                    ¥
                    1.66515
                    
                    $
                    0.225022008
                        if none of the conditions listed below applies
                    
                    ¥
                    2.31521
                    
                    $
                    0.3302008
                        if all of the $1.80 warrants are exercised by June 30, 2008
                        and 50% of the
                        $3.00 warrants are exercised by September 30, 2008
                    
                    ¥
                    2.61524
                    
                    $
                    0.3732008
                        if all of the $1.80 warrants are exercised by June 30, 2008
                        and all of the
                        $3.00 warrants are exercised by September 30, 2008
                    
                    ¥
                    3.06528
                    
                    $
                    0.437
  F-19
  If
              the
              target for either period is not met, the percentage shortfall is determined.
              If
              the percentage shortfall for 2007 is equal to or greater than 50%,
              then the
              escrow agent is to deliver the 3,000,000 shares of series A preferred
              stock to
              the investors. If the percentage shortfall for 2007 is less than 50%,
              then the
              adjustment percentage shall be determined. The escrow agent shall deliver
              to the
              investors such number of shares of series A preferred stock as is determined
              by
              multiplying the adjustment percentage by 3,000,000 shares and the escrow
              agent
              shall retain the balance.
  The
              adjustment percentage shall mean the percentage that is determined
              by the
              following formula: Adjustment percentage equals (1/(1-P)) – 1, where P equals
              the percentage shortfall, expressed as a decimal. By way of example,
              the
              following table shows the adjustment percentage, based on several assumptions
              as
              to the percentage shortfall from the target.
  Percentage
                      Shortfall
                    
                    Adjustment Percentage10%
                    
                    
                    11.11
                    %25%
                    
                    
                    33.33
                    %40%
                    
                    
                    66.67
                    %50%
                    
                    
                    100.00
                    %
  If
              the
              percentage shortfall for 2008 is equal to or greater than 50%, then
              the escrow
              agent shall deliver all of the shares of series A preferred stock then
              held in
              escrow to the investors. If the percentage shortfall for 2008 is less
              than 50%,
              then the adjustment percentage for 2008 shall be determined. The maximum
              number
              of shares to be delivered shall be determined by multiplying the adjustment
              percentage by 3,000,000 shares. The number of shares to be delivered
              to the
              investors shall be the lesser of the number of shares of series A preferred
              stock then held in escrow or the number of shares determined by the
              preceding
              sentence. Any of the shares held in escrow that are not delivered to
              the
              investors shall be returned to the Company for cancellation.
  EBIT
              is
              defined as income before income taxes and interest, determined in accordance
              with GAAP plus (a) any charges which are reflected under GAAP in the
              Company’s
              financial statements which relate to the transaction contemplated by
              the
              purchase agreement and the registration rights agreement and the other
              documents
              executed in connection with the financing, including the issuance of
              the series
              A preferred stock and warrants and any other securities issuable pursuant
              to the
              purchase agreement, the registration rights agreement and the other
              documents,
              minus (b) the amount, if any, by which all non-recurring losses or
              expenses
              exceed all non-recurring items or income or gain. EBIT shall not be
              adjusted if
              all non-recurring items of income or gain exceed all non-recurring
              losses or
              expenses. Items shall be deemed to be non-recurring only if they qualify
              as
              non-recurring pursuant to GAAP.
  During
              fiscal year, net income was $3,460, 510. Following the above mentioned
              formula,
              EBIT defined here was $4,748,752 after adding back net interest expenses
              and non
              recurring reverse merger costs. According to the method of computing
              the
              formula, the number of outstanding shares of Common Stock was 19,998,167
              shares,
              which results in EBIT of $0.2375 per share, which is greater than the
              target. As
              a result, there is no adjustment for 2007.
  *(iii)*  *Warrants*
  The
              warrants have terms of five years, and expire December 3, 2012. The
              warrants
              provide a cashless exercise feature; however, the holders of the warrants
              may
              not make a cashless exercise during the six months for the $1.80 warrants
              and
              twelve months for the $3.00 warrants following the date of the initial
              issuance
              and thereafter if the underlying shares are covered by an effective
              registration
              statement.
  F-20
 
 The
              warrants provide that the exercise price of the warrants may be reduced
              by up to
              90% if the Company’s EBIT per share, on a fully-diluted basis, is less than the
              target amounts described above for 2007 and 2008. The Company met the
              target for
              2007, and, accordingly, there was no adjustment for 2008 . An adjustment
              in the
              warrant exercise price does not affect the number of shares issuable
              upon
              exercise of the warrants. The following table sets forth the exercise
              price of
              the warrants if the Company’s EBIT for 2008 is 20% below the target (a “20%
              shortfall”), 50% below the target (a “50% shortfall”) or 90% below the target (a
“90% shortfall”):
  $1.80 warrant
                      Exercise Price
                    
                    $3.00
                        warrant
                      Exercise PriceUnadjusted
                    
                    $
                    1.80
                    
                    $
                    3.0020%
                        shortfall
                    
                    $
                    1.44
                    
                    $
                    2.4050%
                        shortfall
                    
                    $
                    0.90
                    
                    $
                    1.5090%
                        shortfall
                    
                    $
                    0.18
                    
                    $
                    0.30
  Any
              adjustment in the exercise price will be determined based upon the
              Company’s
              actual EBIT per share for 2008, and the actual numbers may be different
              from
              those set forth in the table.
  If
              the
              Company issues common stock at a price, or options, warrants or other
              convertible securities with a conversion or exercise price less than
              the
              exercise price, with certain specified exceptions, the exercise price
              is reduced
              to an exercise price equal to the lower price in the case of the $3.00
              warrant.
              The adjustment for the $1.80 warrant is based on a formula. The Company
              has no
              right to redeem the warrants, and the holders of the warrants have
              no right to
              require the Company to redeem the warrants.
  *(iv)*  *Liquidated
              damages and limits*
  The
              Company agreed that, by March 2, 2008, which is 90 days after the closing
              on
              December 3, 2007, it would have appointed such number of independent
              directors
              that would result in a majority of our directors being independent
              directors and
              we would have an audit committee composed solely of at least three
              independent
              directors and a compensation committee would have a majority of independent
              directors. The Company is required to pay liquidated damages (i) if
              the Company
              fails to have a majority of independent directors 90 days after the
              closing or
              (ii) thereafter, if the Company subsequently fails to meet these requirements
              for a period of 60 days for an excused reason, as defined in the purchase
              agreement, or 75 days for a reason which is not an excused reason.
              Liquidated
              damages are payable in cash or additional shares of series A preferred
              stock,
              with the series A preferred stock being valued at its liquidated preference
              of
              $1.10 per share. The liquidated damages are computed in an amount equal
              to 12%
              per annum of the purchase price based on the number of days that the
              Company is
              not in compliance with its obligations. The Company’s maximum liability would be
              $408,000. On April 28, 2008, the Company’s board of directors was increased by
              the election of five directors, four of whom are independent directors,
              and the
              Company created the audit and compensation committees on the same day.
              The
              investors waived their right to liquidated damages resulting from the
              delay in
              meeting the required schedule.
  The
              Company and the investors entered into a registration rights agreement
              pursuant
              to which we are required to have a registration statement filed with
              the SEC by
              February 1, 2008 and declared effective by the SEC not later than June
              29, 2008.
              We are required to pay liquidated damages at the rate of 1,000 shares
              of series
              A preferred stock for each day after June 29, 2008 that the registration
              statement is not declared effective or for any period that we fail
              to keep the
              registration statement effective, up to a maximum of 370,000 shares.
              The number
              of shares of series A preferred stock issuable pursuant to the liquidated
              damages provision is subject to reduction based on the maximum number
              of shares
              that can be registered under the applicable SEC guidelines.  The
              Company filed with SEC registration statement on Form S-1 on February
              14, 2008. Since
              we
              are only registering 1,250,000 shares, the number of shares issuable
              as
              liquidated damages per day after June 29, 2008 would be 202.2 shares.
              No
              liquidated damages have been accrued since, at February 27, 2008, the
              Company
              believed that the registration statement will be declared effective
              by June 29,
              2008.
  The
              investors have a right of refusal on future financings.
  The
              Company is restricted from issuing convertible debt or preferred stock
              or from
              having debt in an amount greater than twice its earnings before interest,
              taxes,
              depreciation and amortization.
  Our
              officers and directors agreed, with certain limited exceptions, not
              to publicly
              sell shares of common stock for 27 months or such earlier date as all
              of the
              convertible securities and warrants have been converted or exercised
              and the
              underlying shares of common stock have been sold. If any director,
              who is not
              also an executive officer, ceases to be a director, he or she may sell
              up to
              50,000 shares of common stock during the restricted period. The lock-up
              agreement does not apply to shares issued pursuant to shares of common
              stock
              issued pursuant to a stock option or long-term incentive plan that
              is approved
              by the Company’s compensation committee if the committee is comprised of a
              majority of independent directors.
  F-21
 
 *(v)*  *Accounting
              treatment*
  The
              Company accounted for the above-mentioned convertible preferred stock
              and
              relating freestanding warrants as equity according to their features,
              stipulated
              by the certificate of designation of Series A preferred stock and terms
              of
              relevant agreements.
  The
              Company evaluated the fair values of such preferred stock, warrants
              and embedded
              conversion feature and made the allocation of proceeds between the
              detachable
              warrants, the Serial A Preferred Stock and the common stock issued
              to the
              financial advisors for this 2007 private placement based on their relative
              fair
              values as follows:
  Amount of fair value
                    
                    %
                    
                    AllocationSeries
                        A preferred stock
                    
                    $
                    3,400,000
                    
                    
                    44.26
                    %
                    $
                    1,504,840Conversion
                        feature of series A preferred stock
                    
                    
                    -
                    
                    
                    0.00
                    %
                    
                    -1.80
                        warrants
                    
                    
                    1,519,810
                    
                    
                    19.78
                    %
                    
                    672,5203.00
                        warrants
                    
                    
                    2,762,166
                    
                    
                    35.96
                    %
                    
                    1,222,640Total
                    
                    $
                    7,681,976
                    
                    
                    100.00
                    %
                    $
                    3,400,000
  The
              Company adopted Black-Scholes model when calculating fair value of
              warrants,
              which has been based on the following assumptions: (1) exercise price
              will not
              be reduced, which means that the Company could meet the EBIT target;
              (2) the
              stock volatility of 110% was adopted instead of the actual volatility
              of the
              Company, which was the result adjusted from the volatility of one comparable
              public company, since the number of tradable common stock and actual
              trading
              volume of the Company were extremely low.
  As
                noted
                above, a portion of the consideration paid for the series A preferred
                stock and
                warrants is allocated to the warrants, with $1,504,840 being allocated
                to the
                series A preferred stock. The effective conversion price is determined
                by
                dividing the consideration allocated to the series A preferred stock
                by the
                number of shares of common stock issu able upon conversion of the
                series A
                preferred stock. Pursuant to the securities purchase agreement, 3,000,000
                additional shares of series A preferred stock are being held in escrow.
                Some or
                all of these shares may be delivered to the investors contingent
                on future
                earnings, with the remaining shares, if any, delivered to the Company
                and
                cancelled. No shares were required to be delivered to t h e investors at
                December 31, 2007, since the financial test for 2007 had been met.
                When, it is
                determined whether or not any additional shares of series A preferred
                stock are
                to be delivered to the investors, the Company calculate the effective
                conversion
                price at that time and report a dividend to the preferred stockholders
                equal to
                the intrinsic value of the beneficial conversion feature Accordingly,
                at
                December 31, 2007, the Company did not recognize a dividend to the
                preferred
                stockholders.
  In
              addition to standard anti-dilution adjustments for stock splits and
              stock
              dividends, the conversion price of the series A preferred stock is
              adjusted
              downwards if, with certain limited exceptions, the Company sells securities
              at a
              price or with an exercise or conversion price less than the conversion
              price of
              the series A preferred stock.
  As
              a
              result, the series A preferred stock would not be considered to be
“conventional
              convertible preferred stock,” as that term is used in EITF Issues 00-19 and
              05-02 because it is not convertible into a fixed number of shares.
              However,
              although the series A preferred stock has a liquidation preference
              of $1.10 per
              share and does not have voting rights (except on matters that would
              adversely
              affect the rights of the holders), it has no redemption provisions
              and is not
              entitled to dividends. Accordingly, the preferred stock is more akin
              to an
              equity instrument than a debt instrument, as discussed in FAS 133,
              paragraphs
              61(k) and 61(l). See also, FAS 150, paragraph 12. As an equity instrument,
              with
              no redemption provisions and no dividends, the risks and rewards of
              the embedded
              conversion option are considered to be clearly and closely related
              to the risks
              and rewards of the host instrument. Accordingly, in accordance with
              FAS 133,
              paragraph 12(a), the embedded derivative should not be
              bifurcated.
  The
              only
              embedded derivative in the series A preferred stock is the conversion
              option,
              which, as discussed above, is not required to be bifurcated and accounted
              for
              separately as a derivative instrument liability.
  In
              addition to the series A preferred stock, the Company issued to the
              investors
              five-year warrants to purchase 2,060.606 shares of common stock at
              $1.80 per
              share and 4,121,212 shares of common stock at $3.00 per share.
  The
              warrants contain the same anti-dilution provisions as the series A
              preferred
              stock, i.e. ,
              the
              exercise price of the warrants is adjusted downwards under if the Company
              issues
              stock at a price or convertible securities which have a conversion
              or exercise
              price which is less than the exercise price or if the Company fails
              to meet
              certain financial tests. However, the number of shares of common stock
              issuable
              upon exercise of the warrants is not changed in such circumstances, i.e. ,
              the
              number of shares issuable is fixed.
  Both
              the
              series A preferred stock and the warrants are subject to a registration
              rights
              agreement, which imposes liquidated damages for non-performance. The
              Company is
              required to file a registration statement registering the common shares
              underlying the preferred stock and warrants by February 1, 2008 and
              have the
              registration statement declared effective by June 29, 2008. The Company
              believes
              that the registration statement will be declared effective by June
              29, 2008.
              Accordingly, no liquidated damages were accrued at March 31, 2008.
              In the event
              that the registration statement is not declared effective by June 29,
              2008, and
              the date is not extended, the Company will accrue, at June 30, 2008
              the amount
              of liquidated damages accrued through June 30, 2008 plus such additional
              liquidated damages as would be payable based on the Company’s estimate as to
              when the registration statement would be declared effective.
  The
              Company accounts separately for liquidated damages under the registration
              rights
              agreement in accordance with FAS 5, i.e. ,
              a
              liability for the fair value of the series A preferred stock expected
              to be
              issued is recorded when it becomes probable that a liability will be
              incurred
              (and it can be reasonably estimated). The existence of the potential
              liquidated
              damages does not affect the evaluation of the appropriate accounting
              for the
              embedded conversion option of the series A preferred stock or the warrants,
              under FAS 133 or EITF 00-19.
  **14.**  **Concentration
              of Suppliers and Customers**
  Two
              significant suppliers accounted for 70.5% and 26.9% of our net purchase
              for the
              fiscal year ended December 31, 2007. Two suppliers accounted for 56.4%,
              and
              38.5% of our raw material purchase for the year ended December 31,
              2006. No
              other single supplier accounted for more than 3% of our purchases for
              both
              periods. KunPeng was the biggest supplier for the fiscal year 2007
              and 2006, is
              80% owned by the Company’s chief executive officer and she is also the chief
              executive officer of the supplier. See Note 11.
  F-22
 
 During
              the year ended December 31, 2007, two customers accounted for 50.1%
              and 26.7% of
              our net sales. The second largest customer for 2007 is a related party.
              See Note
              11. For the year ended December 31, 2006, five customers accounted
              for 24.7%,
              two of 16.2%, 9.9% and 8.1% of the Company’s net sales, respectively and no
              other single customer accounted for more than 5% of net sales. The
              largest three
              customers were different in each year.
  **15.**  **Segment
              Reporting**
  We
              operate in one segment – producing and distributing brass faucets and related
              spouts and fittings, no business segment information is presented.
              The following
              table sets forth, by geographic region, information concerning the
              Company’s net
              sales classified by the major geographic areas in which we sold our
              products:
 
 Years ended December 31,2007
                    
                    2006Country
                    
                    Amount
                    
                    Percentage
                    
                    Amount
                    
                    PercentageUnited
                        Arab Emirates
                    
                    $
                    22,521,534
                    
                    
                    88.0
                    %
                    $
                    7,006,441
                    
                    
                    60.9
                    %Russia
                    
                    
                    1,609,917
                    
                    
                    6.3
                    %
                    
                    0
                    
                    
                    0.0
                    %Spain
                    
                    
                    457,386
                    
                    
                    1.8
                    %
                    
                    906,605
                    
                    
                    7.9
                    %Africa,
                        primarily Nigeria
                    
                    
                    437,463
                    
                    
                    1.6
                    %
                    
                    134,047
                    
                    
                    1.2
                    %China
                    
                    
                    405,616
                    
                    
                    1.6
                    %
                    
                    1,894,503
                    
                    
                    16.5
                    %Turkey
                    
                    
                    154,674
                    
                    
                    0.6
                    %
                    
                    980,366
                    
                    
                    8.5
                    %Israel
                    
                    
                    0
                    
                    
                    0.0
                    %
                    
                    348,291
                    
                    
                    3.0
                    %Other
                    
                    
                    1,003
                    
                    
                    0.1
                    %
                    
                    239,946
                    
                    
                    2.0
                    %Total
                    
                    $
                    25,587,594
                    
                    
                    100.0
                    %
                    $
                    11,510,199
                    
                    
                    100.0
                    %
 
 Our
              products fall within three categories - kitchen and bar faucets, bathroom
              faucets and bathroom accessories, which are presented by the following
              table.
  Year ended December 31,Category
                    
                    2007
                    
                    2006Kitchen
                        and bar faucets
                    
                    $
                    15,969,074
                    
                    $
                    7,118,270Bathroom
                        faucets
                    
                    
                    8,914,466
                    
                    
                    3,531,671Bathroom
                        accessories
                    
                    
                    704,054
                    
                    
                    860,258Total
                    
                    $
                    25,587,594
                    
                    $
                    11,510,199
  **16.**  **Income
              Tax**
  The
              income (loss) generated in Fuda, Moral Star BVI, Moral Star China and
              Fuda
              Yiyang before income taxes in 2007 and 2006, respectively, was as
              follows:
 
 Years Ended December 31,2007
                    
                    2006Loss
                        in Fuda
                    
                    $
                    (1,019,000
                    )
                    $
                    N/ALoss
                        in Moral Star BVI
                    
                    
                    (82
                    )
                    
                    N/ALoss
                        in Moral Star China
                    
                    
                    (2,081
                    )
                    
                    N/AIncome
                        in Fuda Yiyang
                    
                    
                    4,481,673
                    
                    
                    1,825,112
  F-23
  The
              effective income tax rate was as follows:
 
 Years Ended December 31,2007
                    
                    2006Fuda
                    
                    $
                    15
                    %
                    $
                    N/AMoral
                        Star BVI
                    
                    
                    -
                    
                    
                    N/AMoral
                        Star China
                    
                    
                    -
                    
                    
                    N/AFuda
                        Yiyang
                    
                    
                    -
                    
                    
                    -
  In
              accordance with the relevant tax laws in the British Virgin Islands,
              Moral Star
              BVI, as an International Business Company, is exempt from income
              taxes.
  In
              accordance with the income tax laws applicable to Moral Star China
              when it was
              established in September 2007, it is exempt from corporate income taxes
              for its
              first two profitable years and are entitled to a 50% tax reduction
              for the
              succeeding three years based on the normal income tax rate 30%. After
              the
              Enterprise Income Tax Law of the PRC promulgated on March 16, 2007
              took effect
              as of January 1, 2008, fiscal year 2008 shall be regarded as the first
              profitable year for determining eligibility of these benefits even
              if Moral Star
              China has not been profitable in 2008.
  With
              the
              approvals of the County Government of Yiyang, Fuda Yiyang was exempt
              from
              corporate income taxes during 2007 and 2006. Simultaneously the Local
              Tax Bureau
              of Yiyang County has also confirmed the above said preferential tax
              treatment.
  There
              was
              no provision (benefit) for income taxes for fiscal years 2007 and 2006
              since
              Fuda as a holding company will not be profitable in the expected future.
              The tax
              effect of temporary differences and operating loss carryforwards is
              as follows
              as of December 31, 2007 and 2006:
  
 Year ended December 31,2007
                    
                    2006**Deferred
                        tax assets**Net
                        operating loss carryforwards
                    
                    $
                    44,153
                    
                    $
                    -44,153
                    
                    
                    -**Deferred
                        tax liabilities**Prepaid
                        expenses
                    
                    
                    (29,384
                    )
                    
                    -Valuation
                        allowance
                    
                    
                    (14,768
                    )
                    
                    -Net
                        deferred tax assets
                    
                    $
                    -
                    
                    $
                    -
  The
              operating carryforwards occurred in Fuda and Moral Star China. Fuda’s operating
              loss could be carried forward and taken against any taxable income
              for a period
              of not more than twenty years from the year of the initial loss pursuant
              to
              Section 172 of the Internal Revenue Code of 1986, as amended. The net
              operating
              loss of Moral Star China could be carried forward for a period of not
              more than
              five years from the year of the initial loss pursuant to relevant P.R.C.
              tax
              laws and regulations.
  **17.**  **Commitments
              and Contingencies**
  The
              Company previously leased an office in Dubai under an operating lease
              that
              expired in September 2007 with an aggregate monthly lease payment of
              approximately $1,313. This operating lease was replaced by another
              operating
              lease expiring in September 2008 with the same rent. Rent expense under
              the
              operating leases for the years ended December 31, 2007 and 2006 was
              $ and
              $13,130, respectively.
  **18.** **Restated
              Financial Statements (Restated)**
  The
              Company has restated its consolidated balance sheets as of December
              31, 2007 and
              2006, and the related consolidated statements of income and comprehensive
              income, changes in stockholders’ equity for the years ended December 31, 2007
              and 2006. The restated items are described as follows:
 (i)            
              Revising the par value of both common stock and preferred stock from
              $0.001 as
              previously reported to $0.0000001, because the restated certificate
              of
              incorporation, pursuant to which the par value will be changed to $0.001,
              has
              not taken effect as of December 31, 2007.
 (ii)           
              Revising the number of common stock issued and outstanding as of January
              1, 2006
              from 10,725,440 to 10,564,647 shares, which were issued to the Trust
              and the
              designees of the Trust in the share exchange transaction in December
              2007.
 (iii)          
              Revising the net assets of Moral Star BVI from $50,000 to zero. We
              previously
              recorded one creditor’s right from Wu Yiting, a related party, based on the par
              value. As a holding company, the $50,000 was just to capitalize Moral
              Star BVI
              and should be netted against equity and not shown as an asset. The
              revision
              affects the balance of additional paid in capital and due from the
              related
              parties (non trade).
 (iv)          
              Reclassifying and Separately showing cost of sales associated with
              related
              parties.
 A
              summary
              of the significant effects of the restatement on the Company's consolidated
              balance sheets as of December 31, 2007 and 2006 is as
              follows:
  As
                        of December 31, 2007
                    
                    As
                        of December 31, 2006As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        Restated
                    
                    As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        RestatedDue to related parties- non-trade
                    
                    
                    819,802
                    
                    
                    50,000
                    
                    
                    869,802Total
                        Current liabilities
                    
                    
                    8,141,085
                    
                    
                    50,000
                    
                    
                    8,191,085Total
                        liabilities
                    
                    
                    8,141,085
                    
                    
                    50,000
                    
                    
                    8,191,085Preferred
                        stock, $0.0000001 par value;
                      20,000,000 shares authorized;
                      3,090,909 shares and none issued and
                      outstanding on December 31, 2007
                      and 2006, respectively
                    
                    
                    3,091
                    
                    
                    (3,091)
                    
                    
                    -Common
                        stock - $0.0000001 par value;
                      900,000,000 shares authorized;
                      10,725,440 shares and 10,564,647
                      shares issued and outstanding on
                      December 31, 2007 and 2006,
                      Respectively
                    
                    
                    10,725
                    
                    
                    (10,724)
                    
                    
                    1
                    
                    
                    10,725
                    
                    
                    (10,724)
                    
                    
                    1Additional paid-in capital
                    
                    
                    3,784,970
                    
                    
                    (36,185)
                    
                    
                    3,748,785
                    
                    
                    592,596
                    
                    
                    10,724
                    
                    
                    603,320Total
                        stockholders’ equity
                    
                    
                    12,653,486
                    
                    
                    (50,000)
                    
                    
                    12,603,486
                    
                    
                    5,419,364
                    
                    
                    -
                    
                    
                    5,419,364Total
                        liabilities and stockholders’ equity
                    
                    
                    20,794,571
                    
                    
                    -
                    
                    
                    20,794,571
                    
                    
                    11,720,189
                    
                    
                    -
                    
                    
                    11,720,189
   A
              summary
              of the significant effects of the restatement on the Company's consolidated
              statement of income and comprehensive income for the years ended December
              31,
              2007 and 2006 is as follows:
  Year
                        ended December 31, 2007
                    
                    Year
                        ended December 31, 2006As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        Restated
                    
                    As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        RestatedCost
                        of sales (exclusive of
                      items shown separately
                      below)
                    
                    
                    20,409,749
                    
                    
                    (15,200,461)
                    
                    
                    5,209,288
                    
                    
                    9,211,533
                    
                    
                    (5,642,137)
                    
                    
                    3,569,396Cost of sales - related parties
                    
                    
                    -
                    
                    
                    15,200,461
                    
                    
                    15,200,461
                    
                    
                    -
                    
                    
                    5,642,137
                    
                    
                    5,642,137Cost
                        of sales - Total
                    
                    
                    20,409,749
                    
                    
                    -
                    
                    
                    20,409,749
                    
                    
                    9,211,533
                    
                    
                    -
                    
                    
                    9,211,533**Earnings
                        per common share**Basic
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    0.17
                    
                    
                    -
                    
                    
                    0.17Diluted
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    0.17
                    
                    
                    -
                    
                    
                    0.17**Weighted
                        average number of common shares outstanding**Basic
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10,725,440
                    
                    
                    (160,793)
                    
                    
                    10,564,647Diluted
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10,725,440
                    
                    
                    (160,793)
                    
                    
                    10,564,647
  The
              items
              of surplus reserve, retained earnings and other comprehensive income
              in the
              statements of changes in stockholders’ equity had not any changes in the
              restatement. All the revisions are related to issuance of common stock
              and
              preferred stock and corresponding additional paid-in capital.
  (i)           
              Changes of balance as of January 1, 2006:
  **Balance
                        as of January 1, 2006**As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        RestatedNumber
                        of common stock
                    10,725,440
                    
                    (160,793)
                    
                    10,564,647Amount
                        of common stock
                    10,725
                    
                    (10,724)
                    
                    1Additional
                        paid-in capital
                    592,596
                    
                    10,724
                    
                    603,320Surplus
                        reserve
                    260,430
                    
                    -
                    
                    260,430Retained
                        earnings
                    2,467,963
                    
                    -
                    
                    2,467,963Other
                        comprehensive income
                    74,266
                    
                    -
                    
                    74,266Total
                        stockholders' equity
                    3,405,980
                    
                    -
                    
                    3,405,980
  (ii)          
              Changes of issuance of common stock in December 2007
  Issuance
                        of common stock in recapitalization in December 2007
                    
                    Issuance
                        of common stock for services of  a reverse merger 
                        consultant in December 2007As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        Restated
                    
                    As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        RestatedNumber
                        of common stock
                    
                    
                    -
                    
                    
                    53,539
                    
                    
                    53,539
                    
                    
                    -
                    
                    
                    107,254
                    
                    
                    107,254Amount
                        of common stock
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Additional
                        paid-in capital
                    
                    
                    
                    
                    
                    -
                    
                    
                    -
                    
                    
                    73,127
                    
                    
                    (39,275)
                    
                    
                    33,852Total
                        stockholders' equity
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    73,127
                    
                    
                    (39,275)
                    
                    
                    33,852
  (iii)         
              Changes of Non controlling interest in Fuda Yiyang as a variable interest
              entity: Additional paid-in Capital resulted from Non controlling interest
              in
              Fuda Yiyang was changed to zero, because it was reflected in the beginning
              balance of additional paid-in balance as of January 1, 2006.
  (iv)         
              Changes of issuance of preferred stock in December 2007
  Issuance
                        of preferred stock and warrants in December 2007
                    
                    Issuance
                        of common stock to consultant as compensationAs
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        Restated
                    
                    As
                        Previously Reported
                    
                    Adjustments
                    
                    As
                        RestatedNumber
                        of preferred stock
                    3,090,909
                    
                    
                    
                    3,090,909Amount
                        of Preferred stock
                    3,091
                    
                    (3,091)
                    
                    -Additional
                        paid-in capital
                    2,732,082
                    
                    310,918
                    
                    3,043,000
                    
                    307,827
                    
                    (307,827)
                    
                    -Total
                        stockholders' equity
                    2,735,173
                    
                    307,827
                    
                    3,043,000
                    
                    307,827
                    
                    (307,827)
                    
                    -
  The
              restatement had no effect on the Company’s net income, comprehensive income and
              cash flows.
  F-24