**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





(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 27, 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.




**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 fillings 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 was
      changed 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 offices are 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 our sole business became the
      business of Moral Star BVI and its affiliated companies. 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,
      3,090,000 shares of series A preferred stock and warrants to purchase 2,060,060
      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


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 equivalents are based on an exchange ratio of RMB 7.4 to
      US$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
            
            $
            0.312872008
                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
            
            $
            0.353412008
                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
            
            $
            0.41423




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, 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.




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. 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 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
            
            $
            1.152
            
            $
            1.9250%
                shortfall
            
            $
            0.45
            
            $
            0.7590%
                shortfall
            
            $
            0.018
            
            $
            0.03




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.




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 (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, and the maximum would be $408,000. As of March 28,
                2008,
                we were not in compliance with these provisions since we did not
                have a
                majority of independent directors or the required audit and compensation
                committees. Accrued liquidated damages through March 28, 2008 were
                $29,063, and increase at the rate of $1,117.81 per day
                thereafter.




·
            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.




·
            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.




·
            We
                paid Barron Partners $85,000 for its due diligence
                expenses.


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:





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.




**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
      workshops ,
      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 workshops 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 ntransference 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 our sole business became the business of Moral Star BVI and
      its
      affiliated companies. 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 $454,991 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
            
            $
            25,588
            
            
            100.0
            %
            $
            11,510
            
            
            100.0
            %Cost
                of sales
            
            
            20,410
            
            
            79.8
            %
            
            9,212
            
            
            80.0
            %Gross
                profit
            
            
            5,118
            
            
            20.0
            %
            
            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
            %
            
            -
            
            
            -Operating
                income
            
            
            4,909
            
            
            19.2
            %
            
            2,088
            
            
            18.1
            %Reverse
                acquisition expenses
            
            
            917
            
            
            3.6
            %
            
            -
            
            
            -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
            
            
            
            
            
            10,725Diluted
            
            
            11,444
            
            
            
            
            
            10,725




**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 $15,571,864
      or
      218% to $22,712,352 as compared to $7,140,488 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 and $9,211,533 for the twelve months ended December 31,
      2007 and 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 $8,038,451, 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 workshops,
      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 2,060,060
      share 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 Jibran 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 report, our chief executive
      officerand
      chief financial officer evaluated the effectiveness of our disclosure controls
      and procedures. Based on their evaluation, the chief executive officer and
      chief
      financial officer concluded that our disclosure controls and procedures are
      effective in alerting them to material information that is required to be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934, as amended. Our principal executive officer and principal financial
      officer have concluded that there were no significant changes in our internal
      controls or in other factors that could significantly affect these controls
      during the fourth quarter ended December 31, 2007




28




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




We
      are
      responsible for establishing and maintaining adequate internal control over
      financial reporting in accordance with Exchange Act Rule 13a-15. With the
      participation of our chief executive officer and chief financial officer, our
      management conducted an evaluation of the effectiveness of our internal control
      over financial reporting as of December 31, 2007 based on the criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2007, based on those criteria. A control system,
      no
      matter how well conceived and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, have been detected.




This
      annual report does not include an attestation report of our registered
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the Securities and Exchange
      Commission.




**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, directorShu
                Shaohua
            
            44
            
            Director




***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.




***Shu
      Shaohua***




Shu
      Shaohua became one of our directors on December 3, 2007. Mr.Shu worked as
      manager of the engineering department in Shenzhen Sight Decoration LED from
      1984
      to 2001. Mr. Shu joined Fuda Yiyang since 2002 as vice general manager for
      manufacturing and buyers. He majored in mechanical designing and manufacturing,
      and is an engineer who graduated from Jiangxi University of Technology in
      1983.




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




Our
      board
      of directors currently does not have a standing audit committee, a compensation
      committee nor a nominating committee.




The
      board
      has determined that at least one person on the Board, Wu Yaxu, qualifies as
      a
“financial expert” as defined by SEC rules implementing Section 407 of the
      Sarbanes-Oxley Act. Ms. Wu Yaxu does not meet the definition of an “independent”
director set forth in Rule 4200(a)(15) of the Market Place Rules of the Nasdaq
      Stock Market, which is the independence standard that we have chosen to report
      under.




**Code
      of Ethics**




We
      have
      not adopted a code of ethics as of the date of this current report. Prior to
      the
      Closing, we only had two individuals acting as a directors and executive
      officers of the Company, and it had no employees. However, we plan to adopt
      a
      code of ethics in the upcoming 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 its business became the business of the Company.
      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 March 31, 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 or either of them acting in the absence of the other 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.




/s/
                Wu Yiting
            
            March
                31, 2008
            Chief
                Executive Officer andWu
                Yiting
            
            
            Chairman
                of the Board of Directors
              (Principal
                Executive
                Officer)/s/
                Wu Yaxu
            
            March
                31, 2008
            Chief
                Financial Officer and DirectorWu
                Yaxu
            
            
            (Principal
                Financial Officer and
              Principal
                Accounting Officer)/s/
                Shu Shaohua
            
            March
                31, 2008
            DirectorShu
                Shaohua




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.
 
  /s/ *Bernstein
        & Pinchuk LLP*
  New
        York,
        New York
  February
        27, 2008


F-2




**FUDA
        FAUCET WORKS, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(AUDITED)**
 (US
                    dollars)December
                    31,2007
                
                2006Item**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
                
                
                819,802
                
                
                546,345Accrued
                    expenses
                
                
                112,280
                
                
                35,756Other
                    payables
                
                
                81,143
                
                
                39,327Total
                    current liabilities
                
                
                8,141,085
                
                
                6,300,825Total
                    Liabilities
                
                
                8,141,085
                
                
                6,300,825Commitments
                    and ContingenciesStockholders’equityCommon
                    stock - 0.001 par value; 110,000,000 shares authorized;10,725,440
                    issued
                    and outstanding shares on December 31, 2007
                
                
                10,725
                
                
                10,725Preferred
                    stock, 0.001 par value; 20,000,000 shares authorized; 3,090,909
                    share
                    issued and outstanding on December 31, 2007
                
                
                3,091
                
                
                -Additional
                    paid-in capital
                
                
                3,784,970
                
                
                592,596Surplus
                    reserve
                
                
                260,430
                
                
                260,430Retained
                    earnings
                
                
                7,753,585
                
                
                4,293,075Accumulated
                    other comprehensive income
                
                
                840,685
                
                
                262,538Total
                    stockholders’equity
                
                
                12,653,486
                
                
                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
              
              2006ItemNet
                  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)
              
              
              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
              
              
              -**Operating
                  income**
              
              
              4,909,065
              
              
              2,088,173**Reserve
                  acquistion costs**
              
              
              (916,908
              )
              
              -**Other
                  income**
              
              
              38,060
              
              
              -**Interest
                  expenses**
              
              
              (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
              
              
              10,725,440Diluted
              
              
              11,444,444
              
              
              10,725,440
  See
        notes
        to financial statements.
 
 F-4
  **Fuda
        Faucet Works, Inc.**
 **Statements
        of Changes in Stockholders' Equity**
 **(Audited)**
 (US
                    dollars)Number of
                    common stocks
                
                Amount of
                    common stocks
                
                Number of
                    preferred stocks
                
                Amount of
                    Preferred stocks
                
                Additional
                    paid-in capital
                
                Surplus
                    reserve
                
                Retained
                    earnings
                
                Other
                    comprehensive income
                
                Total
                    stockholders' equityItem**Balance
                    as of January 1, 2006**
                
                
                10,725,440
                
                
                10,725
                
                
                -
                
                
                -
                
                
                592,596
                
                
                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**
                
                
                10,725,440
                
                
                10,725
                
                
                
                
                
                
                
                
                592,596
                
                
                260,430
                
                
                4,293,075
                
                
                262,538
                
                
                5,419,364Share
                    exchange transaction and other restructuring in December 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                73,127
                
                
                -
                
                
                -
                
                
                -
                
                
                73,127Non
                    controlling interest in Fuda Yiyang as a variable interest entity
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                10,725
                
                
                -
                
                
                -
                
                
                -
                
                
                10,725Issuance
                    of preferred stocks and warrants in December 2007
                
                
                -
                
                
                -
                
                
                3,090,909
                
                
                3,091
                
                
                2,732,082
                
                
                -
                
                
                -
                
                
                -
                
                
                2,735,173Issuance
                    of warrants to a investor relation consultant in December
                    2007
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                68,613
                
                
                -
                
                
                -
                
                
                -
                
                
                68,613Issuance
                    of common stock to consultant as compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                307,827
                
                
                
                
                
                
                
                
                
                
                
                307,827Net
                    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
                
                
                10,725
                
                
                3,090,909
                
                
                3,091
                
                
                3,784,970
                
                
                260,430
                
                
                7,753,585
                
                
                840,685
                
                
                12,653,486
  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 empolyees
                  
                  
                  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 Company’s business became the
        business of Moral Star BVI and its affiliated companies. 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 labour 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.
  **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 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 workshops 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 $1,580,124 and $1,517,483, 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
              
              Interest
                rate
                (per
                annum)
              
              Principal
              
              Interest
                rate
                (per
                annum)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, bearing
              
              $
              57,000
              
              
              6.25
              %YiYang
                  Branch(1)
              
              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 workshops 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
              
              
              819,802
              
              
              38,419$
              819,802
              
              $
              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 $145,231.
        As
        of December 31, 2007, the balance due to Ms. Wu Yiting was $819,802. 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***
  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.
  ***(2)***  ***Common
        Stock***
  As
        of
        December 31, 2007 and 2006, the Company had 10,725,440 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.
  (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 relating 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 2,060,060
        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
 
 *(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.
  *(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 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 equivalents
        are based on an exchange ratio of RMB 7.4 to US$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
                
                RMB
                  per
                    share
                
                US$
                  per
                    share2007
                
                ¥
                1.66515
                
                $
                0.225022008
                    if none of the conditions listed below applies
                
                ¥
                2.31521
                
                $
                0.312872008
                    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
                
                $
                0.353412008
                    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
                
                $
                0.41423
 
 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. 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 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
              
              $3.00
                  warrantExercise
                  Price
              
              Exercise
                  PriceUnadjusted
              
              $
              1.80
              
              $
              3.0020%
                  shortfall
              
              $
              1.152
              
              $
              1.9250%
                  shortfall
              
              $
              0.45
              
              $
              0.7590%
                  shortfall
              
              $
              0.018
              
              $
              0.03
  Any
        adjustment in the exercise price will be determined based upon the Company’s
        actual EBIT per share, and the actual numbers may be different from those
        set
        forth in the table. There was no adjustment for 2007.
  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.
  *(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, which would be $408,000.
  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
        investors have a right of refusal on future financings. The Company filed
        with
        SEC registration statement on Form S-1 on February 14, 2008.
  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*
  We
        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 Stocks and terms of relevant
        agreements.
  We
        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 stocks issued to the
        financial advisors for this 2007 private placement based on their relative
        fair
        values as follows:
 
 Amount of fair value
              
              %
              
              AllocationSerials
                  A Preferred Stock
              
              $
              3,121,818
              
              
              37.90
              %
              $
              1,153,289Conversion
                  feature of Series A preferred stocks
              
              
              -
              
              
              0.00
              %
              
              -1.80
                  warrants
              
              
              1,519,810
              
              
              18.45
              %
              
              561,4613.00
                  warrants
              
              
              2,762,166
              
              
              33.53
              %
              
              1,020,423Common
                  stock issued to financial advisors
              
              
              833,252
              
              
              10.12
              %
              
              307,827Total
              
              $
              8,237,046
              
              
              100.00
              %
              $
              3,043,000
  We
        adopted the current trading price of the Company common stock at the date
        of
        evaluation as the fair value of the preferred stocks. The following factors
        have
        been taken into consideration: (1) no dividend will be payable to preferred
        stockholders; (2) the issuance price and conversion price ($1.10) were both
        higher than the trading price ($1.01).
  We
        adopted Black-Schole 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.
  Since
        the
        issuance price was equal to the conversion price, therefore this is no discount.
        No fair value of Beneficial Conversion Feature needs to be taken into
        consideration.
  Since
        we
        anticipate that the registration statement will be declared effective by
        the SEC
        before June 29, 2008, we did not accrue any liquidated damages at December
        31,
        2007.
  The
        net
        proceeds of $3,043,000 represents result of gross amount of proceeds $3,400,000
        net of relevant issuance costs, including due diligence fees and financing
        commission.
  **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
                %
                
                -
                
                
                -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
                %
 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.
  F-24