UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**Form
      10-K**




(mark
      one)


x
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the fiscal year ended**  **June
      30, 2008**




**OR**




 ̈
            **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: 000-27129**




**ASIAN
      FINANCIAL, INC.**


(Exact
      name of registrant as specified in its charter)




**Wyoming**
            **91-1922225**(State
                or other jurisdiction of incorporation or
              organization)
            (I.R.S.
                Employer
              Identification
                No.)


**4/F,
        No. 3 Jinyuan Road**
 **Daxing
        District Industrial Development Zone**
 **Beijing,
          People’s Republic of China**
 **102600**
 (Address
          of principal executive offices)




**+86
      10 6021 2222**


(Registrant’s
      telephone number, including area code)


**Not
          Applicable**


(Former
      name, former address and former fiscal year, if changed since last
      report)




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




Title
                of class
            Name
                of each exchange on which
                registered





None.





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


None.





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes  ̈   No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act.


Yes  ̈   No x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act 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 x  No  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not 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-K or any amendment to
      this
      Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated
      filer x Smaller
      reporting company  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈ No x









State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates of the registrant. The aggregate market value shall be computed
        by reference to the price at which the common equity was sold, or the average
        bid and asked prices of such common equity, as of the last business day of
        the
        registrant’s most recently completed second fiscal quarter.


As
        of
        December 31, 2007, which was the last business day of the registrant’s most
        recently completed second fiscal quarter, the aggregate market value of the
        Company’s common stock, par value $0.001 per share, held by non-affiliates was
        approximately $96.0 million, based upon the price of $3.84 per share, as
        determined by the purchase price paid by certain of our shareholders for
        the
        Company’s common stock on November 2, 2006 in a private equity purchase
        transaction.
 
 There
        were 25,000,050 shares of the registrant’s common stock issued and outstanding
        as of September 22, 2008.









**ASIAN
      FINANCIAL, INC.**





FORM
      10-K





INDEX





**Page**PART
                I
            
            
            1Item
                1. Business
            
            
            1Item
                1A. Risk Factors
            
            
            15Item
                2. Properties
            
            
            35Item
                3. Legal Proceedings
            
            
            36Item
                4. Submission of Matters to a Vote of Security Holders
            
            
            36PART
                II
            
            
            37Item
                5. Market for Registrant’s Common Equity, Related Stockholder Matters and
                Issuer Purchases of Equity Securities
            
            
            37Item
                6. Selected Financial Data
            
            
            37Item
                7. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            
            39Item
                7A. Quantitative and Qualitative Disclosures About Market Risk
            
            
            50Item
                8. Financial Statements and Supplementary Data
            
            
            51Item
                9. Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            
            51Item
                9A. Controls and Procedures
            
            
            51Item
                9B. Other Information
            
            
            53PART
                III
            
            
            54Item
                10. Directors, Executive Officers and Corporate Governance
            
            
            54Item
                11. Executive Compensation
            
            
            56Item
                12. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            
            63Item
                13. Certain Relationships and Related Transactions, and Director
                Independence
            
            
            65Item
                14. Principal Accountant Fees and Services
            
            
            68PART
                IV
            
            
            69Item
                15. Exhibits and Financial Statement Schedules
            
            
            69Signatures
            
            
            70Report
                of independent registered public accounting firm
            
            
            F-1Financial
                Statements
            
            
            F-2


i




**PART
      I**




**Special
      Note Regarding Forward-Looking Statements**




This
      document and the documents incorporated by reference into this Annual Report,
      including “Item 7. Management’s Discussion and Analysis of Financial Condition
      and Results of Operations,” contain statements that constitute “forward-looking
      statements” within the meaning of Section 21E of the Exchange Act and
      Section 27A of the Securities Act of 1933, as amended. The words “expect,”
“estimate,” “anticipate,” “predict,” “believe” and similar expressions and
      variations thereof are intended to identify forward-looking statements. These
      statements appear in a number of places in this document and include statements
      regarding the intent, belief or current expectations of the Company, its
      directors or its officers with respect to, among other things, trends affecting
      the Company’s financial condition or results of operations. The readers of this
      document are cautioned that any forward-looking statements are not guarantees
      of
      future performance and involve risks and uncertainties. More information
      regarding these risks, uncertainties and other factors is set forth under the
      heading “Item 1A. Risk Factors” in this Annual Report. The Company does not
      ordinarily make projections of its future operating results and undertakes
      no
      obligation (and expressly disclaims any obligation) to publicly update or revise
      any forward-looking statements, whether as a result of new information, future
      events or otherwise, except as required by law. Readers should carefully review
      this document and the other documents filed by the Company with the SEC. This
      section should be read together with the audited consolidated financial
      statements of the Company and related notes set forth elsewhere in this Annual
      Report.





**Item
                1.**
            **Business.**





Asian
      Financial, Inc., a Wyoming corporation, is a leading offset printing equipment
      provider in the People’s Republic of China (“China” or the “PRC). Through two
      principal operating subsidiaries headquartered in Beijing, China, Asian
      Financial, Inc. designs and manufactures offset printing equipment used in
      the
      three stages of the offset printing process, namely pre-press, press and
      post-press. The activities of Asian Financial, Inc. are conducted principally
      in
      the PRC. Unless otherwise indicated, references in this Annual Report on Form
      10-K (the “Annual Report”) to “we,” “us,” “our,” or the “Company” means Asian
      Financial, Inc. and its subsidiaries.





We
      were
      originally organized under the law of the State of Nevada on August 10, 1998.
      On
      July 27, 2005, we merged with Asian Financial, Inc. (“AFI”), a Wyoming
      corporation, for the purpose of changing our domicile from Nevada to
      Wyoming.





The
        Company’s principal executive officers are located at 4/F, No. 3 Jinyuan Road,
        Daxing District Industrial Development Zone, Beijing, People’s Republic of
        China. Our website address is  *www.duoyuan.com* .
        The
        Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
        Reports on Form 8-K and amendments to those reports filed or furnished pursuant
        to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
        (the “Exchange Act”) are available, free of charge, on the website of the
        Securities and Exchange Commission (“SEC”) at www.sec.gov.





*The
      Acquisition of Duoyuan*





On
        October 6, 2006, we completed an acquisition of Duoyuan Digital Printing
        Technology Industries (China) Co., Ltd. (“Duoyuan China”), pursuant to that
        certain Equity Transfer Agreement, and Duoyuan China became our wholly-owned
        subsidiary (the “2006 Equity Transfer”). The purpose of the 2006 Equity Transfer
        is to make Duoyuan China a public company through a reverse merger. Since
        our
        inception and prior to the 2006 Equity Transfer, pursuant
        to which we acquired the printing press business (namely 100% of Duoyuan
        China
        and its subsidiaries), we were a shell company without operations,
        revenues and employees, other than officers and directors. Our primary activity
        prior to the 2006 Equity Transfer was to seek merger or acquisition candidates.


1





On
        November 2, 2006, we closed the transactions contemplated by that certain
        Securities Purchase Agreement dated October 24, 2006 by and among us and
        certain
        unrelated investors (the “Purchase Agreement”). In accordance with the Purchase
        Agreement, we issued an aggregate of 16,447,019 pre-split shares or 6,132,614
        post-split shares of our common stock for a purchase price of approximately
        $1.43 (pre-split price) or $3.84 (post-split price) per share or an aggregate
        purchase price of $23.5 million. This private equity financing was made pursuant
        to the exemption from the registration provisions of Section 4 (2) of the
        Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of
        Regulation D promulgated thereunder, for issuances not involving a public
        offering.




*Our
          Principal Operating Subsidiary* .
          Duoyuan
          China is our operating headquarter for strategic planning, management,
          financing, research and development, sales and marketing, after-sales services
          and other administration functions. Duoyuan China was originally established
          in
          the PRC in 2001 by Duoyuan Industries (Holding), Inc (“Duoyuan Industries”),
          which was incorporated in the British Virgin Islands. In September 2002,
          Duoyuan
          Industries entered into that certain Equity Transfer Agreement with Duoyuan
          Investments Limited (“Duoyuan Investments”), whereby Duoyuan Investments
          acquired 100% of Duoyuan China’s equity from Duoyuan Industries. Mr. Wenhua Guo
          is the sole stockholder of both Duoyuan Industries and Duoyuan Investments.
          The
          purpose of this equity transfer was to simplify and clarify the structure
          and
          operations of Duoyuan China.


Duoyuan
        China’s origin in offset press manufacturing can be traced back to 1994, when
        Beijing Duoyuan Electric Co. Ltd (“Duoyuan Electric”), a company established by
        Mr. Wenhua Guo, produced its first generation of single-color small-format
        offset presses. Besides printing press, Duoyuan Electric also manufactured
        water
        treatment equipment and fax machines. As the printing industry in China
        developed, Duoyuan Electric’s management took a long-term view on its printing
        press business and decided to spin off the printing business into a new entity.
        On June 21, 2001, Duoyuan China was established to focus on the development,
        manufacturing and marketing of printing equipment. Duoyuan China
        acquired only the relevant intellectual property and know-how relating
        to printing press manufacturing from Duoyuan Electric, with the remaining
        assets
        and liabilities retained by Duoyuan Electric (which continued to operate
        as a
        separate entity manufacturing water treatment equipment and fax machines).
        Duoyuan Electric operates in different industry sectors from Duoyuan China
        and
        does not compete with Duoyuan China.





*Our
        Manufacturing Subsidiaries and Facilities.* Langfang
        Duoyuan Digital Technology Co., Ltd. (“Langfang Duoyuan”), established in
        2002, is our manufacturing base for pre-press and post-press products, as
        well as small-format press products. Duoyuan
        China first acquired a 5% capital interest in Langfang Duoyuan in 2002, then
        in
        2005 acquired an additional 90% capital interest in Langfang Duoyuan. In
        both
        cases, the equity transfer was made by and the consideration was paid to
        entities controlled by Mr. Guo. Currently, the remaining 5% capital interest
        of
        Langfang Duoyuan is owned by an entity formed and controlled by Mr. Guo,
        Beijing
        Yinghang Yinlu Advertisement Co. Ltd., (“Huiyuan Duoyuan”), an original
        shareholder of Langfang Duoyuan.


Hunan
          Duoyuan Printing Equipment Manufacturer Co., Ltd. (“Hunan Duoyuan”) is our
          manufacturing base for large-format offset presses. Duoyuan China acquired
          Hunan
          Duoyuan in March 2004, in which Duoyuan China and Langfang Duoyuan acquired
          88%
          and 12% of Hunan Duoyuan’s capital interest, respectively. Prior to this
          acquisition, Hunan Duoyuan, known as Hunan Printing presses Co., Ltd.,
          was a
          state-owned enterprise founded in 1969. Hunan Duoyuan was historically
          one of
          three major large-format offset press manufacturers in China and was designated
          to produce multi-color presses. Duoyuan China acquired Hunan Duoyuan to
          acquire
          the customer base and production capacity for large-format offset presses.




None
          of
          the entities formed or controlled by Mr. Guo involved in the foregoing
          transactions engages in the same industry sector as Duoyuan China or competes
          with Duoyuan China.
 2
 The
          chart
          below shows our ownership structure, including our subsidiaries and affiliated
          companies.







*Our
      Business*




As
      a
      result of the 2006 Equity Transfer, the operations of Duoyuan China became
      our
      principal operations and the management of Duoyuan China became our management,
      and therefore all the information provided below includes the operations of
      Duoyuan China, which is now our subsidiary. We are a leading offset printing
      equipment provider in China. Our products cover all three stages of the offset
      printing process, namely pre-press, press and post-press. We currently
      commercially produce and sell pre-press and press products, and plan to begin
      commercial production and sales of our post-press products in 2010. We produce
      single-color and multi-color presses, which are available in both small-format
      and large-format.




We
      believe we are one of the leaders in the design and development of offset
      printing equipment and solutions in China. We have research and development
      centers staffed by nearly 200 engineers, which enables us to continuously launch
      new and improved products into the market.




Our
      sales
      and distribution network consists of over 200 sales professionals in over 60
      cities and 23 provinces throughout China. We believe we have one of the largest
      sales and distribution network among our competitors in China.





In
      the
      pre-press segment, we offer thermal Computer-To-Plate systems (“CTP”), which
      transmit digital image data directly to a press plate from a computer. CTP
      technology offers better consistency and higher quality because it eliminates
      the risk for human errors. We believe that we are the first, and currently
      the
      only Chinese offset press producer to offer CTP at a commercial level.





In
      the
      offset press segment, we offer four types of sheet-fed offset presses:
      single-color small-format presses, single-color large-format presses,
      multi-color small-format presses and multi-color large-format presses. Our
      multi-color presses currently generate the majority of our press
      sales.





In
      the
      post-press segment, we have two products, namely automatic booklet maker and
      automatic cutter in trial production. We also plan to expand our post-press
      product offering by building a new factory in Langfang Duoyuan to manufacture
      cold-set corrugated printing presses.


3





Our
      operations in the PRC give us cost advantages, which enable us to offer our
      products at one-quarter to one-third the price of our international competitors.
      Our large-format presses are manufactured in our Hunan Duoyuan facility, while
      our small-format presses and pre-press and post-press products are manufactured
      at our Langfang Duoyuan facility.





We
      believe there are two major entry barriers for the printing equipment
      manufacturing market in China: (i) large amount of capital investment and (ii)
      high degree of technical know-how. The industry is particularly capital
      intensive due to the high production costs, and we believe the requisite
      industry technical knowledge is limited to a selected few manufacturers.





*The
      Industry in Which We Operate*





*The
      Printing Industry in China*





As
      PRC’s
      economy rapidly grows and its export sector booms, demands for publication
      printing, such as newspapers, magazines and books, and commercial printing,
      such
      as packages, corporate brochures, product categories, and conference materials,
      also grow. From 2001 to 2005, the total output of the printing industry grew
      at
      an average rate of 12% per annum, according to the Printing and Printing
      Equipment Industries Association of China (the “PEIAC”). In dollar value, in
      2004, package printing is the largest category with nearly $13.5 billion in
      output, representing 36% of the total industry, with books and magazines
      printing and news paper printing representing the second and third largest
      categories, at approximately 25% and 16% of total output, respectively,
      according to PEIAC. This growth was largely driven by a combination of improved
      printing quality and lower prices on related services.





The
      printing industry in China is currently undergoing a transition from
      single-color printing to multi-color printing. A few years ago, most high
      quality multi-color printing was handled by large and sophisticated printing
      companies located in the coastal areas, especially in the Pearl River Delta
      region. Now, almost every major city has a suburban area with printing companies
      that can meet a wide spectrum of printing demands, from simple single-color
      printing to fairly high quality multi-color printing. Multi-color printing
      is
      becoming a mainstream capability that almost every printing company must have
      to
      sustain its market competitiveness.




*The
      Printing Equipment Industry in China*





The
      rapid
      development in the printing industry fueled the growth in demand for printing
      equipment in China. From 2002 to 2004, the output value of the PRC printing
      equipment industry grew at an average rate of 22% per annum, according to
      PEIAC.





The
      printing companies in China generally have two sources for printing equipment,
      namely domestic manufacturers and overseas manufacturers. Although the domestic
      printing equipment industry witnessed rapid growth during the past few years,
      the design and technical capacities of domestic printing equipment still cannot
      meet the end-user customers’ needs. Thus China still imports a large quantity of
      high-end printing equipment. According to PEIAC data, based on Chinese Customs
      Office statistics, China imported $1.7 billion worth of printing equipment
      in
      2005 alone. This was about 1.4 times the amount of printing equipment made
      and
      sold domestically. The printing industry in China spent approximately $2.6
      billion on printing equipment in 2005, which includes domestically made and
      imported printing equipment. This was an increase from $2 billion in 2001.
      Spending on printing equipment grew at an average rate of approximately t 11%
      per annum from 2002 to 2005. Leading domestic PRC printing equipment
      manufacturers are determined to compete with international competitors by
      investing in research and development to elevate their product quality. As
      a
      result, domestic PRC printing equipment manufacturers are gaining market share
      more quickly than overseas suppliers. The market share occupied by domestically
      made printing equipment increased from approximately 33% in 2002 to
      approximately 42% in 2005. The market trends show that imports of printing
      equipment are decreasing, while exports are increasing. In 2005, Chinese
      manufacturers exported $381 million worth of printing equipment, a 39% increase
      from 2004 and 9.5 times of that was exported five years ago.


4





*Products,
      Technology and Solutions*





We
      currently offer pre-press, press and post-press equipment. Below is a table
      of
      our current product offerings:





**Category**
            
            **Commercial
                Name**
            
            **Model
                Code**
            
            **Specifications/Paper
                Size****Pre-press**
            
            CTP
                System
            
            DYCTP600IDYCTP800I
            
            1160
                x 940 mm
            
            45.67
                x 37.01 inch
            
            A0CTP
                Developer
            
            DYSB560
            
            560
                x 400 mm
            
            22.05
                x 15.75 inchDYSB650
            
            650
                x 550 mm
            
            25.60
                x 21.65 inch
            
            A2**Single-color**
            
            Large
                Octavo Thin
            
            YP1A3A
            
            440
                x 320 mm
            
            17.32
                x 12.60 inch
            
            A3**Small-format**
            
            Paper
                King
            
            YP1A3B
            
            440
                x 320 mm
            
            17.32
                x 12.61 inch
            
            A3**Press**
            
            Large
                Octavo Omnipotent King
            
            YP1A3C
            
            440
                x 320 mm
            
            17.32
                x 12.62 inch
            
            A3Large
                Octavo Note King
            
            YP1A3D-NP*
            
            440
                x 320 mm
            
            17.32
                x 12.63 inch
            
            A3Sexto
                Omnipotent King
            
            DYA47C
            
            470
                x 360 mm
            
            18.50
                x 14.17 inchDY52C
            
            520
                x 360 mm
            
            20.47
                x 14.17 inch
            
            B3Sexto
                Note King
            
            DYA47D-NP*
            
            470
                x 360 mm
            
            18.50
                x 14.17 inchDY47C-NP*
            
            470
                x 360 mm
            
            18.50
                x 14.17 inchDY52D-NP*
            
            520
                x 360 mm
            
            20.47
                x 14.17 inch
            
            B3DY56C
            
            560
                x 400 mm
            
            22.05
                x 15.75 inch**Single-color**
            
            Quarto
                Press
            
            J4105
            
            660
                x 480 mm
            
            25.98
                x 18.90 inch
            
            A2**Large-format**
            
            
            
            J4109
            
            660
                x 480 mm
            
            25.98
                x 18.90 inch
            
            A2**Press**
            
            
            
            DYA174
            
            740
                x 540 mm
            
            29.13
                x 21.28 inch
            
            B2DY174***
            
            740
                x 540 mm
            
            29.13
                x 21.27 inch
            
            B2DY174-AL**
            
            740
                x 540 mm
            
            29.13
                x 21.28 inch
            
            B2**Multi-color
                Press**
            
            2-color
                Large Octavo Press
            
            YP2A3
            
            440
                x 320 mm
            
            17.32
                x 12.60 inch
            
            A32-color
                Sexto Press
            
            DY252
            
            520
                x 360 mm
            
            20.47
                x 14.17 inch
            
            B3DYA252**
            
            520
                x 370 mm
            
            20.47
                x 14.57 inch
            
            B32-color
                Quarto Press
            
            DY274
            
            740
                x 540 mm
            
            29.13
                x 21.26 inch
            
            B2DY274-AL**
            
            740
                x 540 mm
            
            29.13
                x 21.26 inch
            
            B24-color
                Large Octavo Press
            
            YP4A3
            
            440
                x 320 mm
            
            17.32
                x 12.60 inch
            
            A3DY452
            
            520
                x 370 mm
            
            20.47
                x 14.57 inch
            
            B34-color
                Sexto Press
            
            DYA452**
            
            520
                x 370 mm
            
            20.47
                x 14.57 inch
            
            B34-color
                Quarto Press
            
            PZ4660
            
            660
                x 480 mm
            
            25.98
                x 18.90 inch
            
            A2PZ4660-AL**
            
            660
                x 480 mm
            
            25.98
                x 18.90 inch
            
            A2DY474
            
            740
                x 540 mm
            
            29.13
                x 21.26 inch
            
            B2DY474-AL**
            
            740
                x 540 mm
            
            29.13
                x 21.26 inch
            
            B2**Post-press**
            
            Automatic
                Booklet Maker
            
            DYPDZQ520
            
            520
                x 350 mm
            
            20.47
                x 13.78 inch
            
            B3Automatic
                Paper Cutter





*
            with
                number-punching function**
            with
                alcohol dampening system***
            with
                high paper-collecting plate


5





*Pre-press
      Printing Equipment*





In
      pre-press, we currently produce CTP, plate developers and automatic plate
      punch-makers.





·
            *CTP.*Digital
                formatting and processing, both of which are pre-press processes,
                play
                important roles in improving the printing quality and efficiency.
                Such
                level of quality and efficiency can be achieved through the use of
                CTP.
                Since its inception, CTP has quickly been adopted by commercial printing,
                package printing and newspaper printing companies in Europe and the
                U.S.
                In 2002, Chinese printing companies began using CTP. Because the
                price of
                CTP plates is much higher than that of traditional plates, CTP penetration
                in Chinese printing companies was relatively low. With increased
                investment in CTP plate technology, the output of CTP plates will
                increase
                and the price is expected to drop, thus boosting sales of CTP. Currently,
                the majority of CTP in China are imported from overseas suppliers,
                principally from Japan and U.S. We believe we are among the first
                few
                companies in China to develop CTP and the first offset press maker
                able to
                commercially produce them. We currently produce two models of CTP:
                the
                CTP600 and the CTP800. CTP800 has a higher configuration than CTP600.
                To
                date, all CTP sold were CTP800s.


·
            *Plate
                Developer and Automatic Plate Punch-Maker.*We
                also produce traditional plate developers and automatic plate
                punch-makers. Traditional plate development is the transfer of an
                image
                onto a press plate. Plate developers are typically sold by us as
                an
                accessory to offset presses, not as a stand-alone product. Automatic
                plate
                punch-makers punch holes of specific measurements through a plate
                to fit
                different offset presses. We also sell automatic plate punch-makers
                as a
                complimentary product.





*Sheet-fed
      Offset Printing Presses*





In
      sheet-fed offset printing press, our products follow the European and U.S.
      style
      of manufacturing, and are built on solid framework and designed for heavy
      commercial printing work. Our offset presses have passed testing by
      the  China
      National Printing presses Quality Supervision and Testing Center. We offer
      four
      types of sheet-fed offset presses:


·
            *Single-color
                Small-format Press*.
                A
                single-color offset press has one set of press rollers dedicated
                to one
                color. To make color print with a single-color press, a sheet of
                paper
                typically must be processed four times, each time requiring precise
                adjustments for overprint, an obviously time-consuming and efficiency
                deficient form of printing. Generally speaking, a small-format offset
                press has a maximum sheet in-take width of equal to or less than
                520 mm
                (24.47 inches). This type of press is typically best suited for end-users
                who are just moved into offset printing from type-set printing, or
                whose
                print demands are mostly single-colored, such as books. It requires
                low
                initial investment and low operating skills for simple print
                needs.


·
            *Single-color
                Large-format Press*.
                A
                large-format offset press has a maximum sheet in-take width of larger
                than
                520 mm (24.47 inches). It can also handle thick and ultra-thick paper
                sheet. A single-color large-format offset press is an entry-level
                solution
                for package printing. It requires relatively low initial investment
                and
                relatively low operating skills for simple package and multi-color
                printing needs.


·
            *Multi-color
                Small-format Offset Press*.
                A
                multi-color offset press has more than one set of rollers. Most
                multi-color presses have four sets of rollers dedicated to four separate
                colors, typically black, magenta, cyan, and yellow, which are widely
                used
                to generate all different colors. A multi-color small-format offset
                press
                offers a relatively low-cost solution for higher quality and higher
                margin
                multi-color printing needs. It requires relatively higher operating
                skills. A multi-color small-format offset press is most suitable
                for a
                variety of multi-color printing needs such as corporate brochures,
                product
                catalogues, labels and small packages.


·
            *Multi-color
                Large-format Offset Press*.
                This press combines multi-color with large paper sheet printing ability.
                This is the most robust printing solution and is suited for high
                quality,
                high margin, and timely printing needs. Multi-color large-format
                offset
                press requires the highest manufacturing skill and high operating
                skill.
                This type of press also requires a fair amount of high investment
                from the
                end-user customers.


6





*Post-press
      Equipment*





·
            *Automatic
                Paper Cutter*.
                We are able to manufacture an automatic paper cutter that is typically
                packaged together with our offset presses. We plan to begin commercial
                production and sale of our automatic paper cutter in 2010.


·
            *Automatic
                Booklet Maker*.
                We are able to manufacture an automatic booklet maker which combines
                the
                function of collating, folding, stitching and cutting paper into
                one
                machine. We plan to begin commercial production and sale of our automatic
                booklet maker in 2010.


·
            *Cold-set
                Corrugated Printing Press.*We
                are in the preparation stages of building a factory at our Langfang
                facility to manufacture cold-set corrugated printing press that will
                be
                part of our post-press product offering with equipment that we believe
                can
                provide greater efficiency and energy savings to our customers.





*Technology*




We
      combine advance technical innovation and precise engineering to offer a broad
      range of high quality and durable offset printing equipment at affordable
      prices. We have proprietary technologies and applications that make our products
      stand out among our competitors in China. These technologies increase the
      quality of printing and reduce operator workload. We have accumulated and
      implemented many technologies and applications to our production, mainly
      associated with automation process as it relates to sheet-feeding and transfer,
      ink dispense, and overall centralized control ability. These technologies
      decrease error and increase efficiency.





**Technology**
            
            **Application
                and Function**Sheet-feeding
                system
            
            Designed
                with four suckers for sheet-placing and sheet-advancing, all controlled
                by
                conjugated cams, which are a pair of cams coupled together to drive
                a
                common moving mechanism and designated to create an outline that
                follows
                the same motion cycle of the mechanism. Height of paper sheet pile
                can be
                automatically measured and adjusted based on thickness of paper sheet,
                and
                angle of sheet-lifting suckers also automatically adjusted according
                to
                angle of paper sheet pile.Sheet-guiding
                technology
            
            Uses
                atmospheric pressure to push paper onto transfer bridge to reduce
                jams
                caused by mechanical parts, which increases smoothness of paper sheet
                transfer.Centralized
                monitoring and automatic regulation
            
            Central
                touch screen control panel shows status of sheet-feed and automatically
                regulates paper arrival time and slant sheet
                misregistration.Centralized
                subsystems
            
            Central
                control panel regulates and readies all sub-systems, such as
                sheet-feeding, front and side lay, pressure controller and cylinder
                registration controller. Data inputted or adjusted through touch
                screen
                window for pre-configuration to reduce make-ready
                time.




Cam-controlled
                hem front design
            
            Increases
                both printing speed and accuracy of sheet transfer.Multiple
                front lay guides
            
            Several
                groups of individually adjustable front lay guides increase efficiency
                of
                press while in operation.The
                combination of front lay and transfer gripping sheet control and
                localizing technology
            
            Combination
                improves operating stability and printing
                speed.


7





Photoelectric
                detecting and auto lock-up
            
            Automatically
                detects errors during printing and stops press if
                necessary.Double-diameter
                impression cylinders
            
            Use
                large impression cylinders twice the size of normal impression cylinders,
                producing higher quality print work, particularly in multi-color
                printing
                and can also handle thicker paper.




Anti-triangle
                7 o’clock cylinder alignment
            
            Superior
                cylinder layout assures even and consistent inking and prevents dot
                deformation. Dots are the basis for reproduction of prints and recreation
                of colors and also reflect the realization of gradation, levels and
                color
                reproduction of prints. The quality of microdots directly determines
                the
                quality of prints and hence the quality control of dots is very
                important.Data
                memory
            
            Most
                frequently used press configuration data can be stored on a memory
                chip
                for the repeated print work.Semiautomatic
                plate-changing
            
            Aids
                manual changing of press plate, which reduces the make-ready time
                and
                increases efficiency.Pneumatic
                engagement and disengagement unit
            
            Improves
                accuracy of any adjustment.Continuous
                alcohol
            
            System
                improves quality of color application and can automatically match
                press
                speed.CPC
                technology
            
            CPC
                is an add-on sub-system to centrally control the amount of ink dispensed
                on to press rollers and adjusting color hue as needed. Traditional
                way of
                adjusting color hue is by manually adjusting the individual screw
                that
                controls each ink flow. CPC can be added to an electronically-controlled
                offset press to achieve the same
                purpose.





*CTP
      Technology*





We
      have
      also developed proprietary technologies used in our CTP. These technologies
      enable better customization of each plate according to various customer
      requirements. This includes an open data interface technology that allows
      customers to use custom workflow control systems, multiple plate compatibility
      that allows various plate threshold ranges, and data storage network that can
      be
      shared for varying types of CTP plates.





**Technology**
            
            **Application
                and Function**Variable
                laser modulation
            
            Modular-design
                enables various combinations of laser scanners assembled to match
                differing customer requirements. Increased number of laser scanners
                translates into faster speed and increased efficiency.Intelligent
                data center
            
            Ensures
                multiple outputs after one raster image processing and enables Tagged
                Image File Format, one of the most widely supported file formats
                for
                storing bit-mapped images on personal computers, to be transferred
                to any
                CTP through a network, to share resources.Open
                data interface
            
            Ability
                to select custom workflow control systems from different suppliers
                to
                match CTP needs.User-friendly
                interface
            
            Ensures
                simple and safe operation.Plate-compatibility
            
            Enables
                CTP to use various types of thermo-plates with 830 nano meter in
                wavelength and 120 - 140mj/cm2 in threshold
                range.




8





*Solutions*





We
      offer
      a range of products to printing companies with various requirements, at
      different stages and within pre-determined operating budgets. Our ability to
      offer complete and flexible solutions, ranging from low-cost, minimal operation
      skills for small print projects to more advanced, high-quality robust printing
      projects, is one of our key competitive advantages. The following table
      describes the range of our solution offerings.





**Solution**
            
            **Target
                Client**
            
            **Features
                of Solution**1)
                Economy
            
            Transitioning
                from type-set printing to offset printing
            
            Requires
                small investment, lower operation skills and small space, but generates
                quick return on investment. Products include: Plate Developer, Small-size
                single-color offset press, Cutter.2)
                Premium
            
            Thick
                paper and/or multi-color printing
            
            Generates
                high quality printing and handles thick and ultra-thick paper. Products
                include: CTP, Plate Developer, Single-color small-format offset press,
                Automatic Booklet Maker, Cutter.3)
                Note Printing
            
            Large
                amount of commercial note printing such as invoices, receipts, etc.,
                printing work and multi-color printing work
            
            Handles
                extra-thin paper and reduces paper waste associated with thin- and
                extra-thin paper printing. Modular design enables multiple projects
                to be
                processed simultaneously. Products include: CTP, Plate Developer,
                Single-color small-format offset press, and Cutter.4)
                Multi-color
            
            High
                quality and higher margin multi-color print projects
            
            Offers
                high quality printing at reasonable prices. Products include: CTP,
                Plate
                Developer, Multi-color offset press, Automatic Booklet Maker, and
                Cutter.5)
                Packaging
            
            Small-format
                package print
            
            Offers
                high quality package print solution at affordable price. Products
                include:
                Single-color large-format offset press.6)
                Advanced
            
            Highest
                quality and timely printing tasks
            
            Requires
                very low operating expenses with highest quality output. Products
                include:
                CTP, Plate Developer, Multi-color offset press, Automatic Booklet
                Maker
                and Cutter.




*Research
      & Development* ****





*Research
      and Development Centers.* Historically, our research and development center was located at our Beijing
      headquarters. Our research and development emphasis in the initial years was
      to
      invent new printing press models, especially multi-color presses, and add new
      functionalities to existing products. Beginning in 2006, our research and
      development emphasis gradually shifted to improving existing printing presses’
features and performances based on customers’ feedback. This required our
      research and development to be closer to production facilities so that
      improvements can be effectively and timely reflected in production. Therefore,
      in late 2006, we split the research and development center into two and
      installed one research and development center at each of Langfang Duoyuan and
      Hunan Duoyuan. The research and development center at Langfang Duoyuan occupies
      approximately 26,900 square feet of floor space and has a team of 123 engineers
      as of June 30, 2008. Langfang Duoyuan research and development center mainly
      focuses on improving our small-format presses, as well as development of new
      press models and pre-press and post-press equipment. The research and
      development center at Hunan Duoyuan occupies approximately 32,280 square feet
      of
      floor space and has a team of 69 engineers as of June 30, 2008. Hunan Duoyuan
      research and development center mainly focuses on improvement of large-format
      presses. Since Hunan Duoyuan is also the production base for some of the key
      components used in our production, Hunan Duoyuan research and development center
      is also engaged in development and improvement of foundry casting technique
      and
      mechanical processing technique. The expertise of our engineers covers a broad
      range of disciplines, including printing theory, image processing, mechanical
      engineering, automation, and computer sciences. We hire experienced engineers
      from other major printing equipment manufacturers in China. These engineers
      have
      spent decades in offset printing product designs and development, and help
      guide
      our research and development efforts as well as supervise overall design. We
      employ engineers who are knowledgeable in the latest technologies and aware
      of
      market demands. We believe these engineers’ experience and work ethics form the
      basis for high design quality and sound design structure, on which our products
      are based.


9




Our
      research and development expenses increased from $1.0 million in each of the
      years ended June 30, 2006 and 2007, to $1.7 million in the year ended June
      30,
      2008. Our research and development expenses account for 2.4%, 1.5 % and 1.9%
      of
      our revenues in the years ended June 30, 2006, 2007 and 2008,
      respectively.





*Software
      and Design Tools.* We
      believe our research and development centers are equipped with the best design
      and test tools in the industry. We installed and used Inventor 3D designing
      software for product design. We also established a software-based printing
      equipment simulation platform to test design and process control. Specific
      printing parts can be designed using the 3D software and exported directly
      onto
      the simulation platform where it is tested for practical applications. Such
      a
      simulation system drastically improves design efficiency and lowers cost for
      new
      product development.





*File
      Management System.* We
      apply
      a complete design process and file management system to better use and manage
      our research and development resources. Our research and development ideas
      come
      mainly from two resources. One is through tracking the latest design
      technologies and applications in the industry. The second and more important
      source is customer feedback. Our sales and distribution staff hold regular
      weekly calls with our major customers to determine market needs and changes.
      These ideas are collected, categorized, filed, and prioritized. We have
      project-based teams to work on each customer suggestion to determine
      feasibility. All research and development files are electronically stored and
      secured by our product documentation management system. This process improves
      design efficiency, consistency and accuracy, and also protects our intellectual
      property and know-how.





*Strategic
      Relationships.* In
      addition to our in-house research and development team, we have established
      long-term cooperation with Beijing Aeronautic Manufacturing Technology Research
      Institute and Xi’an Technology University.





*End-User
      Service and Support*





Due
      to
      the nature of the product offering, offset printing equipment requires reliable
      sales-related and post-sales services. Our representatives consult with
      customers and agents to craft an individualized solution based on the type
      and
      amount of printing needs of our end-user costumers, and also take into
      consideration pre-determined budget constraints. After product delivery, we
      are
      responsible for the installation and configuration of the machines. Our service
      team consists of staff from sales, service, and the research and development
      departments. The service team works around pre-determined timetables to ensure
      timely installation and operation. After a product is installed and operational,
      our service team performs trial runs to test performance and stability to the
      customers’ satisfaction. In addition, we provide training to our end-user
      costumers’ operators. For large-format machines, we often keep staff at
      distributor sites for a period of up to two weeks to assist with fulfilling
      initial orders and simultaneously provide in-depth individualized training.
      We
      provide this staffing upon distributor request.




Our
      products have warranty periods that last between six months to one year. During
      the post-sales periods, we maintain a parts supply distribution network and
      provide post-sales service. Our representative offices act as local distribution
      points for replacement parts and by producing our own key parts, we can offer
      end-users a 24-hour response time. We have a multi-tiered post-sales service
      process, where common problems are handled by our distributors, more
      sophisticated problems are handled by local representatives, and the most
      complex problems are handled from our Beijing headquarters. We also provide
      regular overhaul and upgrade services. This post-sales end-user focus is an
      integral part in determining the dynamics of the printing industry as it relates
      to market needs and changing demands.


10





As
      of
      June 30, 2008, we had more than 200 sales and service employees, providing
      customer service and support in over 60 cities and 28 provinces in China. Of
      these employees, 24 were maintenance technicians.





*Manufacturing*





We
      emphasize precision and quality in our production and assembly. Our Langfang
      facility is ISO 9001 and ISO 14001 certified, while our Hunan facility is ISO
      9001 certified.





Our
      products are manufactured at our Langfang Duoyuan and Hunan Duoyuan facilities.
      Langfang Duoyuan focuses on small-format offset presses and pre-press and
      post-press products, while Hunan Duoyuan focuses on large-format offset presses.
      Both Langfang Duoyuan and Hunan Duoyuan are equipped with advanced and
      high-precision processing machines, tools and measuring devices. Both plants
      are
      staffed with skilled and experienced workers and apply quality assurance and
      quality control measures.





We
      source
      raw materials and parts from third-party suppliers and do not rely on any single
      primary supplier. We apply just-in-time in inventory management to improve
      quality and lower costs. Hunan Duoyuan has its own foundry plant to produce
      casting for its offset presses. We currently produce approximately 70% of our
      key parts in-house, while sourcing other more common off-the-shelf parts from
      suppliers.





We
      produce both standardized products and products with customization. Small-format
      presses are a relatively standard product and are kept at an optimum inventory
      level. Most large-format presses are built when ordered, with sub-systems that
      can be added later if desired. Langfang Duoyuan created the first production
      line in China to produce small-format offset presses. As a result, we realize
      flexible production ability to produce different models based on the standard
      platform to meet changing market demands and reduce production
      costs.





*Competition*





*Sheet-fed
      Offset Presses.* We
      believe there are three tiers of products in PRC’s small-format sheet-fed offset
      press manufacturing sector: (i) top tier, (ii) middle tier and (iii) bottom
      tier. Top tier products generally have the following characteristics: advanced
      structural/mechanical designs, advanced automation levels, high printing
      efficiency, and high print quality. We believe companies manufacturing top
      tier
      products value research and development efforts and have strong internal
      research and development capacities. As the market demand for advanced machinery
      and products increases, the market share occupied by manufacturers of top tier
      products will also increase. Manufacturers of top tier products include: the
      Company, Liaoning Dazu Guanhua Printing Equipment Co. Ltd., Shandong Weifang
      Huaguang Printing presses Co. Ltd., Shandong Weihai Hamada Printing presses
      Co.
      Ltd., and Shandong Weihai Printing presses Co. Ltd.




Among
      our
      international competitors, Heidelberger Druckmaschinen AG is the only German
      press producer that still produces multi-color small-format presses. Japanese
      producers supply most of the small-format presses in the international markets,
      both single-color and multi-color models. Major Japanese small-format press
      suppliers include Hamada Printing Press Co., Ltd. and Ryobi, Ltd. Major Japanese
      large-format press producers include Komori Corporation, Mitsubishi Heavy
      Industries, Ryobi Limited, Sakurai Graphic Systems Corp, Shinohara Machinery
      Company, and Akiyama International Corp.





*Large-format
      Presses.*  There
      are
      a few domestic PRC companies producing single-color large-format presses and
      of
      these many are not capable of producing multi-color large-format offset presses.
      Competition is mainly from overseas companies for domestic market share. Major
      domestic producers in this sector include Beiren Printing presses Holdings
      Limited, Shanghai Electric Group Printing & Packaging Machinery Co., Ltd.,
      and Zhongjing Group.


11





German
      and Japanese companies have dominated the multi-color large-format press sector.
      German and Japanese companies represent the top five suppliers in the world,
      including Heidelberger Druckmaschinen AG, MAN Roland Druckmaschinen AG, Koenig
      & Bauer Group (KBA), Mitsubishi Heavy Industries, Ltd., and Komori
      Corporation. Other important producers include Shinohara Machinery Company,
      Sakurai Graphic Systems Corp, and Ryobi Limited from Japan, and Adast from
      Eastern Europe.





These
      German and Japanese producers possess stronger research and development
      capabilities and established recognition in the global market. Their products
      are more user-friendly to serve sophisticated needs of certain high-end
      customers. However, ** their
      products are typically priced three to four times as much as our
      products.


*Seasonality*
 
 Our
          third
          fiscal quarter from January to March each year typically has the lowest
          revenue
          due to the Chinese Lunar New Year holiday, when our factories close for
          one
          week. Our distributors, who are mainly in China, also take their holidays
          during
          this time of the year. Typically our fourth fiscal quarter, following the
          Chinese Lunar New Year holiday, is our strongest quarter of the year because
          most Chinese businesses make planned purchases of capital goods to start
          the
          Chinese Lunar New Year.
 
 *Inflation*
  Inflationary
          factors, such as increases in our production costs and overhead costs,
          could
          impair our operating results. Until recently, China has not experienced
          significant inflation, and thus inflation has not had a material impact
          on our
          results of operations to date. According to the National Bureau of Statistics
          of
          China, the change in China’s Consumer Price Index was 1.8%, 1.5% and 4.8% in the
          years 2005, 2006 and 2007, respectively. The change in China’s Consumer Price
          Index increased to 7.7% in May 2008, but by August 2008 this change has
          decreased to 4.9%. Although we do not believe that inflation has had a
          material
          impact on our financial position or results of operations to date, rising
          inflation in the future may have an adverse effect on our ability to maintain
          current levels of gross profit and selling, general and administrative
          expenses
          as a percentage of revenue if the selling prices of our products do not
          increase
          with these increased costs.


*Marketing,
      Sales and Services*





*Sales
      Network.* We
      have
      integrated sales, marketing, and service capabilities, with more than 200
      employees as of June 30, 2008. At our headquarters, sales and service staff
      are
      divided into seven regional teams, covering Northeast China, North China, East
      China, Southeast China, Middle China, South China and Southwest China markets.
      We have established sales channels that we developed through our 18 local
      representative offices in 18 provinces with over 80 distributors in over 60
      cities. All of our sales are accomplished through our distributors. As our
      local
      distribution network matures, some distributors have begun to assume
      responsibility for regional sales, thereby reducing the need for as many local
      representative offices in those areas. Our representatives are responsible
      for
      supporting our distributors’ sales efforts and providing sales service to our
      customers. Our sales network provides us with established access to end-user
      customers throughout China, enables us to respond to local market demand, allows
      us to effectively diversify our customer base and enhances our ability to
      further penetrate the market within a short period of time.





*Exclusive
      Distributorship Agreements.* We
      manage
      our distributors through distributor arrangements and provide incentives in
      the
      form of a performance-based year-end rebate system. We sign local distributor
      agreements for each local market and may also designate multiple distributors
      for various models in a single market. We have made conscious efforts to prevent
      a single distributor from covering too large a distribution territory, thus
      maintaining balance and variety between different distributors. Distributors
      of
      our single-color presses typically sell exclusively for us, while some
      distributors of our multi-color presses also sell offset presses of other
      suppliers. Our local representatives develop key local customers who in turn
      are
      referred to local distributors at the time of purchase. We do not extend credit
      for small-format press purchases. For large-format presses, distributors must
      pay in full or sign a definitive installment schedule before shipment.
      Installment schedules are usually six months. The maximum amount of credit
      that
      we may grant to a distributor is three times the monthly average sales we
      realized from that distributor during the previous year. Distributors may have
      a
      variety of payment arrangements with their end-user customers, but those
      arrangements do not affect our installment schedules. We assess each
      distributor’s credit worthiness on an individual basis depending on the
      relationship and credit history and lend products accordingly for display and
      demonstration purposes. The lending period typically varies from one to three
      months.





We
      enter
      into annual agency agreements with distributors. We regularly evaluate the
      performance of our distributors and terminate distributors that fail to meet
      their sales targets at the end of their agreement term so as to maximize our
      penetration of target markets and our sales opportunities. Our service staff
      calls our distributors weekly and senior management visits them annually to
      assist with their business strategy and strengthen the relationship.





*Advertising
      and Exhibitions.* We use
      advertisements and exhibitions to promote products to new customers and
      reinforce existing market positions. We advertise in industrial journals and
      publications to develop new markets and at the local level to support our local
      distributors. Industrial exhibitions are the most important means to promote
      our
      products and corporate image and provide opportunities for demonstration and
      new
      product offerings.





*Pre-sales
      Service.* Our
      sales
      and marketing efforts are closely integrated with pre-sales service activities.
      We provide several types of product brochures and materials to our distributors
      and potential and existing end-user customers in an effort to familiarize them
      with specific products and the benefits of our product offerings. We also
      regularly hold seminars and training programs focused on the latest developments
      in printing technologies, product implementation and related skills. Potential
      and existing distributors and long-term end-user customers can send staff to
      these seminars and training programs to learn how to master these technologies
      and skills and to practice on our demo products. These types of efforts help
      us
      to convert these potential end-user customers into buyers. We have also found
      that allowing potential end-user customers to test machines at our facilities
      leads to additional sales.


12





*Customers*





Our
      customers are local distributors who sell our products to printing companies
      as
      end-users. We have over 80 distributors. We have a diverse group of end-user
      customers throughout China for our products, and our sales are not concentrated
      in one or a few major distributors. In fiscal 2008, no single distributor
      accounted for more than 5% of our sales revenue, and our top five distributors
      accounted for less than 18% of our sales revenue. The change in the composition
      of our customer base each year has not been significant.





*Financial
      Information about Products & Geographic Areas*





*Revenue
      breakdown by products*





The
      following table summarizes the percentage of revenue generated by each product
      category:




**Year
                  ended June 30,****2006**
              
              **2007**
              
              **2008**Pre-pressComputer-to-plate
                  system
              
              
              5.3
              %
              
              5.5
              %
              
              3.5
              %Press
              
              
              —
              
              
              —
              
              
              —Single-color
                  Small-format
              
              
              18.1
              %
              
              8.8
              %
              
              5.0
              %Single-color
                  Large-format
              
              
              18.0
              %
              
              14.3
              %
              
              11.8
              %Multi-color
                  Small-format
              
              
              19.4
              %
              
              25.6
              %
              
              28.6
              %Multi-color
                  Large-format
              
              
              39.2
              %
              
              45.8
              %
              
              51.1
              %Post-
                  Press
              
              
              —
              
              
              —
              
              
              —Total
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %




Our
      sales
      of single-color presses as a percentage of revenue have been consistently
      declining while our sales of multi-color presses as a percentage of revenue
      have
      been consistently increasing. Sales of multi-color large-format presses as
      a
      percentage of revenue have been increasing particular fast.


13





*Financial
      Information about Geographic Areas*





The
      following table summarizes the percentage of revenue generated in our key
      regional markets:





**Year
                ended June 30,****2006**
            
            **2007**
            
            **2008**North
                China
            
            
            12.4
            %
            
            13.0
            %
            
            8.1
            %South
                China
            
            
            20.0
            %
            
            18.0
            %
            
            25.9
            %Middle
                China
            
            
            20.0
            %
            
            22.0
            %
            
            19.2
            %East
                China
            
            
            10.7
            %
            
            13.7
            %
            
            14.5
            %Northeast
                China
            
            
            6.4
            %
            
            7.4
            %
            
            8.0
            %Northwest
                China
            
            
            13.8
            %
            
            14.2
            %
            
            8.6
            %Southwest
                China
            
            
            15.5
            %
            
            10.6
            %
            
            14.2
            %Outside
                China
            
            
            1.2
            %
            
            1.1
            %
            
            1.5
            %Total
            
            
            100
            %
            
            100
            %
            
            100.0
            %




Almost
      all of our revenue has been generated within China. Overseas sales currently
      only represented about 1.5% of our net revenue. South China is our single
      largest and a fast-growing market, representing 25.9% of our revenue for the
      year ended June 30, 2008.





*Intellectual
      Property*





As
      of
      June 30, 2008, we had four patents registered with the China Patent Bureau:
      (1)
      a vacuum chamber paper sheet lifting and advancing device, with a duration
      of
      ten years starting from the date of application, May 22, 2003; (2) a
      single-fiber field pattern used in multi-color press imaging systems, with
      a
      duration of ten years starting from the date of application, May 22, 2003;
      (3)
      an offset print appearance design, with a duration of ten years starting from
      the date of application, January 31, 2005 and (4) an automatic offset press
      printing oil supply quick cleaning device, with a duration of ten years starting
      from the date of application, September 25, 2000. We have additional four
      patents pending acceptance by the China Patent Bureau. Over the past 13 years,
      we have received approximately 30 technology awards from the Chinese government,
      various industry association and consumer interest associations for our
      technology achievement and the quality and reliability of our products. In
      addition, our offset presses are endorsed by the China Consumer Protection
      Fund
      as reliable products. None of these associations are affiliated with us or
      compensated by us for such awards.





*Environmental
      Regulations*




Our
      manufacturing processes may generate noise and other industrial waste. We are
      subject to a variety of Chinese national and local environmental laws and
      regulations related to our operations, including regulations governing the
      storage, discharge and disposal of hazardous substances in the ordinary course
      of our manufacturing processes. The major environmental regulations applicable
      to us include the *Environmental
      Protection Law* ,
      the *Prevention
      and Control of Air Pollution Law* and
      related *Implementation
      Rules* ,
      the *Prevention
      and Control of Solid Waste Pollution Law* and the *Prevention
      and Control of Noise Pollution Law* .


14





As
      of
      June 30, 2008, we were not a party to any legal proceedings involving PRC
      environmental laws and regulations.





*Employees*





As
      of
      June 30, 2008, we had 1,325 employees. All employees are based in China and
      are
      full-time employees, and most have executed employment agreements with us,
      which
      are governed by Chinese law. All of our employment contracts are for a fixed
      period of one year and may be renewed upon notice from an employee and with
      our
      consent. We will adopt a new form of employment contract pursuant to the PRC
      Labor Contract Law after the current employment contracts expire. After ten
      years of employment, an employee may enter into an employment agreement with
      us
      for an indefinite period of time. We may terminate an employment agreement
      for
      cause, without notice or severance. If we lay off an employee because of an
      economic downturn or terminate an employee because the employee is not suitable
      for the job or is not able to work due to sickness or injury, we are obligated
      to give 30-days advance notice or pay one month's salary in lieu of notice.
      In
      addition, we must pay such employee severance in the amount of one month’s
      salary for each year that he or she has served with us, subject to a maximum
      severance amount of 12 months’ salary. An employee may terminate his/her
      employment agreement without cause upon one month’s notice, or for cause without
      notice. The labor union of Duoyuan China has always maintained a cooperative
      relationship with us, and we are not a party to any collective bargaining
      agreement.




**Item
                1A.**
            **Risk
                Factors.**





*Investment
      in our common stock involves risks. You should carefully consider the risks
      we
      describe below before deciding to invest. The market price of our common stock
      could decline due to any of these risks, in which case you could lose all or
      part of your investment. In assessing these risks, you should also refer to
      the
      other information included in this Annual Report, including our consolidated
      financial statements and the accompanying notes. You should pay particular
      attention to the fact that we are a holding company with substantial operations
      in China and are subject to legal and regulatory environments that in many
      respects differ from that of the United States. Our business, financial
      condition or results of operations could be affected materially and adversely
      by
      any of the risks discussed below and any others not foreseen. This discussion
      contains forward-looking statements.*





**Risks
      Related to Our Business**





***We
      conduct substantially all of our operations through our subsidiaries, and our
      performance will depend upon the performance of our subsidiaries.***





We
      have
      no operations independent of those of Duoyuan China and its subsidiaries. As
      a
      result, we are dependent upon the performance of Duoyuan China and its
      subsidiaries and will be subject to the financial, business and other factors
      affecting such subsidiaries as well as general economic and financial
      conditions. As substantially all of our operations are conducted through our
      subsidiaries, we are dependent on the cash flow of our subsidiaries to meet
      our
      obligations.





Because
      virtually all of our assets are held by our operating subsidiaries, the claims
      of our stockholders will be structurally subordinate to all existing and future
      liabilities and obligations, and trade payables of such subsidiaries. In the
      event of a bankruptcy, liquidation or reorganization of the Company, our assets
      and those of our subsidiaries’ will be available to satisfy the claims of our
      stockholders only after all of Duoyuan China’s and its subsidiaries’ liabilities
      and obligations have been paid in full.





***The
      market for offset presses is very competitive and if we are unable to compete
      successfully, our business may be harmed.***





The
      printing equipment industry is extremely competitive and is characterized by
      rapid technological changes. Our printing presses compete against several
      top-tier domestic companies and international companies, particularly German
      and
      Japanese companies. We believe the main competitive advantages of our overseas
      competitors are in their branding, financial capability, quality, design and
      functionalities.


15





·
            ***Small-Format
                Press Producers****.*Our competition in the small-format offset press sector includes
                local
                companies such as Yingkou Gronhi Printing presses Co., Ltd., Yingkou
                Saxin
                Printing Machine Co., Ltd, Shandong Weifang Huaguang Printing presses
                Co.,
                Ltd., Shandong Weihai Hamada (JV) Printing presses Co., Ltd. and
                Shandong
                Weihai Printing presses Co., Ltd. Our international competition
                includes Heidelberger Druckmaschinen AG, the only German press producer
                that still produces multi-color small-format presses, and Hamada
                Printing
                Press Co., Ltd. and Ryobi, Ltd., two major Japanese small-format
                press
                suppliers.




·
            ***Large-Format
                Press Producers.***Our
                competition for domestic market share in the large-format offset
                press
                sector is mainly from overseas companies including Beiren Printing
                presses
                Holdings Limited, Shanghai Electric Group Printing & Packaging
                Machinery Co., Ltd., and Zhongjing Group. Our international
                competitors are German and Japanese companies including Heidelberger
                Druckmaschinen AG, MAN Roland Druckmaschinen AG, Koenig & Bauer Group
                (KBA), Mitsubishi Heavy Industries, Ltd., and Komori Corporation. 
                Other important producers include Shinohara Machinery Company, Sakurai
                Graphic Systems Corp, and Ryobi Limited from Japan, and Adast, the
                largest
                manufacturer of printing press from Eastern
                Europe.





Some
      competitors, particularly international competitors, have significantly greater
      financial, technical, manufacturing, sales, marketing and other resources than
      we do and have achieved greater name recognition for their products and
      technologies than we have. Because of this, we may not be able to successfully
      increase our market penetration or our overall share of the printing equipment
      market in China or internationally. In addition, companies not currently in
      direct competition with us may introduce competing products in the future.
      Although we attempt to develop and support innovative products that our
      customers demand, products or technologies developed by competing suppliers
      could render our products or technologies obsolete or noncompetitive. Customers
      may defer their purchasing decisions in anticipation of the introduction of
      new
      products or the actual introduction of new products by us and our
      competitors.





Increased
      competition may result in price reductions, increased sales incentive offerings,
      lower gross margins, and loss of market share which could require increased
      investments in inventory, research and development, sales expenses, marketing
      programs and expenditures to expand channels to market. Our competitors may
      offer products with better market acceptance, better price or better
      performance. We may be adversely affected if we are unable to maintain current
      product cost reductions, or achieve future product cost reductions, including
      warranty costs.




We
      may be
      adversely affected if we are unable to time new product introductions in a
      way
      that minimizes the economic impact of customers delaying purchases of existing
      products in anticipation of new product releases.





If
      we
      fail to address any of these competitive challenges, there could be a material
      adverse effect on our business, financial condition and operating
      results.





***We
      face risks and difficulties due to our recent growth.***




We
      will
      continue to encounter risks and difficulties frequently experienced by companies
      at a similar stage of development and experiencing significant growth, including
      our potential failure to:




·
            implement
                our business model and strategy, and adapt and modify them as
                needed;


·
            manage
                our investments into new businesses and expanding or building new
                facilities, including the factory for corrugated packaging equipment
                we
                are currently preparing for
                construction;


·
            maintain
                our current, and develop new, relationships with
                distributors;


·
            manage
                our expanding operations and product
                offerings;


·
            maintain
                adequate control of expenses and inventory and receivables
                levels;


·
            attract,
                retain and motivate qualified
                personnel;




16




·
            protect
                our reputation and enhance customer loyalty;


·
            implement
                additional and improve existing administrative, financial and operations
                systems, procedures and controls;
                and


·
            anticipate
                and adapt to changing conditions in the offset printing industry
                as well
                as the impact of any changes in government regulation, technological
                developments and other significant competitive and market
                dynamics.




If
      we
      fail to successfully deal with these risks and difficulties, we could fail
      to
      achieve our revenue targets and could experience disruptions in our business,
      any of which could materially affect our business, financial condition and
      results of operation.




***We
      may expand into new business areas in the future, such as expanding the
      post-press line of our business by entering the corrugated packing machine
      business, for which we have limited experience. If we fail to manage and grow
      our new businesses, our financial condition and results of operations may be
      materially and adversely affected.*** **




We
      may
      expand into other business areas in the future for which we do not have
      significant experience and we may face additional risks and uncertainties if
      we
      fail to successfully enter into and manage these new businesses. One area of
      planned expansion is the corrugated packing machine business, for which we
      have
      designed and manufactured certain products but have yet to begin distribution
      and sales. Many factors, some of them beyond our control, could materially
      and
      adversely affect our ability to turn this business into a profitable business,
      including:




·
            our
                limited experience in these new
                businesses;


·
            the
                existence of larger more established
                competitors;


·
            the
                potential inability to sell new products to existing customers or
                to
                locate new customers; and


·
            any
                unexpected expenses and costs related to the
                expansion.




In
        addition, if we fail to manage and grow our post-press line of business or
        any
        other new businesses that we undertake, our business, financial condition
        and
        results of operations may be materially and adversely affected.





***We
      typically do not have long term purchase contracts with our distributors, and
      they have in the past and could at any time in the future reduce or cease
      purchasing products from us, thereby harming our business, financial condition
      and operating results.***





We
      typically do not have long-term volume purchase contracts with our distributors,
      and they are not obligated to purchase products from us. Accordingly, they
      could
      at any time reduce their purchases from us or cease purchasing our products
      altogether. In addition, any decline in demand for our products and any other
      negative development affecting our major distributors or the printing industry
      in general, would likely harm our operating results. If any significant
      customers should simply elect to purchase products from another manufacturer
      for
      whatever reason, our operating results could be harmed through, among other
      things, decreased sales volumes and write-offs of accounts receivables and
      inventory related to products we have manufactured for these
      distributors.





A
      substantial portion of our backlog is scheduled for delivery within 90 days
      or
      less, and our customers may cancel orders and change volume levels or delivery
      times for products they have ordered from us without penalty. In addition,
      a
      significant portion of our operating expenses are fixed in advance based on
      projected sales levels and margins, sales forecasts from our customers and
      product development programs. Accordingly, if sales are below expectations
      in
      any given quarter, the resulting impact on our financial results will be more
      significant given our inability to adjust spending in the short term to
      compensate for this shortfall.




17


***If
        the market for printing equipment does not grow at the rate we expect or
        at all,
        including due to a decrease in the demand for commercial printing services,
        our
        revenue and profitability may be materially and adversely
        affected.***
 
 We
        derive
        substantially all of our revenue from sales of our products in China. Our
        business’ development depends, in large part, on continued growth in the demand
        for quality printing equipment in China, including demand driven by providers
        of
        commercial printing services in China. Although this market has grown rapidly,
        the growth may not continue at the same rate. According to PIRA, the market
        for
        printing presses in China is projected to grow at a CAGR of 5.9% from 2007
        to
        2012 to reach $2.6 billion, which makes it the third largest printing presses
        market in the world. However, developments in our industry are, to a large
        extent, outside of our control.
 
 A
        variety
        of factors, including economic, regulatory, political and social instability
        could contribute to a slowdown in the demand for quality printing equipment
        or
        commercial printing services with demand for commercial printing services
        highly
        correlated with general economic activities. In addition, we believe the
        average
        price charged for regular and low-end commercial printing services has been
        on
        the downward trend and the average selling price of offset presses, particularly
        less sophisticated single-color presses, has also been on the downward trend.
        As
        a result, if there is a decrease in demand for printing equipment, including
        as
        a result of decreased demand for commercial printing services, our overall
        sales
        revenue and operating results could materially suffer.
 
 ***If
        we cannot obtain sufficient raw materials and components that meet our
        production standards at a reasonable cost or at all, then our ability to
        produce
        and market our products, and thus our business, could
        suffer.***
  The
        key
        raw materials and components used in the manufacturing of our products are
        steel
        and pig iron. With exception to some of our electrical component requirements,
        all of our raw materials and components are purchased from suppliers in
        China.
  For
        the
        fiscal years ended June 30, 2006, 2007, and 2008 purchases from our largest
        supplier accounted for 13.3%, 9.5% and 12.0%, respectively, of our total
        of raw
        materials and component purchases. For the same periods, our five largest
        suppliers combined accounted for 48.0%, 40.0% and 34.0%, respectively, of
        our
        total raw materials and component purchases. If any supplier is unwilling
        or
        unable to provide us with high-quality raw materials and components in required
        quantities and at acceptable costs, we may not be able to find alternative
        sources on satisfactory terms in a timely manner, or at all. Our inability
        to
        meet the qualifications and standards required by our customers or inability
        to
        find or develop alternative supply sources could result in delays or reductions
        in manufacturing and product shipments. The prices of required raw materials
        and
        components could also increase, and we may not be able to pass these price
        increases on to our customers. For example, steel prices in China increased
        significantly during fiscal 2005, but dropped during fiscal 2006, lowering
        our
        materials costs as a percentage of revenue. If any of these events occur
        from
        time to time, our competitive position, reputation and business could
        suffer.
 
 ***We
        may be unable to effectively manage our distribution network, and our business,
        prospects and brand may be materially and adversely affected by our
        distributors’ actions.***
 
 Our
        ability to manage the activities of our independent distributors is limited.
        Our
        distributors could take one or more of the following actions, any of which
        may
        have a material adverse effect on our business, prospects and
        brand:
 ·
                sell
                    products that compete with our products, including possibly counterfeit
                    products utilizing the “Duoyuan”
name;
 ·
                sell
                    our products outside their designated territory, possibly in
                    violation of
                    the distribution rights of other
                    distributors;
 ·
                fail
                    to adequately promote our products;
 ·
                fail
                    to provide proper training and service to our end-user customers;
                    or
 ·
                violate
                    the anti-corruption laws of China, the United States or other
                    countries.
 Failure
        to adequately manage our distribution network, or non-compliance by distributors
        with our distribution agreements could harm our corporate image among our
        end-user customers and disrupt our sales, which could result in a failure
        to
        meet our sales goals. Furthermore, we could be liable for actions taken by
        our
        distributors, including any violations of applicable law in connection with
        the
        marketing or sale of our products, including China’s anti-corruption laws and
        the U.S. Foreign Corrupt Practices Act, or the FCPA. In particular, we may
        be
        held liable for actions taken by our distributors even though all of our
        distributors are non-U.S. companies that are not subject to the FCPA. Our
        distributors may violate these laws or otherwise engage in illegal practices
        with respect to their sales or marketing of our products. If our distributors
        violate these laws, we could be required to pay damages or fines, which may
        materially and adversely affect our business, financial condition and results
        of
        operations. In addition, our brand and reputation, our sales activities or
        the
        price of our shares could be adversely affected if we become the target of
        any
        negative publicity as a result of actions taken by our
        distributors.
  18
 
 ***We
        are exposed to potential product liability claims that may be costly and
        for
        which***  ***we
        have no insurance coverage.***
 
 As
        a
        manufacturer of printing equipment, our business exposes us to product liability
        risks. Claims against us may also result from actions taken by our
        subcontractors over whom we exercise little to no control. Claims, including
        product liability claims, may be expensive to defend and may potentially
        result
        in large financial judgments being made against us. Moreover, we do not maintain
        liability insurance so we are responsible for any claims-related expenses
        we
        might incur, the result of which could adversely affect our financial
        performance. Even if a product liability or other claim is not successful,
        the
        adverse publicity and time and expense of defending such a claim may interfere
        with, or negatively impact, our business and materially and adversely impact
        our
        results of operations and financial condition.
 
 Our
        products consist of hardware and software developed by us and others. Although
        we have strict quality control over our products and we have not in the past
        discovered any material software and hardware errors resulting in significant
        warranty expense or other expenses, our products might contain undetected
        errors. Errors could also be found in new versions of our products after
        commencement of commercial shipment and any such errors could result in a
        loss
        or delay in market acceptance of such products and thus harm our reputation
        and
        revenues. In addition, errors in our products, including errors in licensed
        third party software, detected prior to new product releases could result
        in
        delays in the introduction of new products and our incurring additional
        expenses, which could harm our operating results.
 
 ***We
        operate in an industry characterized by fast technological change and evolving
        industry standards.***
 
 The
        printing equipment industry is characterized by evolving technological change,
        frequent new product developments, periodic product obsolescence, high industry
        standards, changing information technologies and evolving distribution channels.
        We must adapt quickly to changing technological, application and solutions
        needs, and the introduction of new technologies and products offering improved
        features and functionality. We could incur substantial cost to keep pace
        with
        the technological changes, and may fail to adapt to these changes.
 
 Our
        future success largely depends upon our ability to continuously develop new
        products with the quality levels our customers demand, and develop new services
        to support them. Notwithstanding investment in our research and development,
        in
        spite of our efforts, we may fail to develop new products. Our new products
        may
        not achieve market acceptance or be manufactured at competitive costs or
        in
        sufficient volume. Our failure to enhance our existing products and services
        or
        to develop and introduce new products and services that meet changing customer
        requirements and evolving technological standards would adversely impact
        our
        ability to sell our products and would have an adverse effect on our financial
        condition and operating results.
  ***Third
        party use of our trademarks and the “Duoyuan” name may dilute their value and
        materially and adversely affect our reputation, goodwill and
        brand.***
  Our
        Duoyuan-related trademarks are owned by Duoyuan Investments Limited, our
        majority stockholder, which is wholly-owned by Mr. Guo, our chairman. Duoyuan
        Investments Limited may use our trademarks for other non-printing related
        products, which may create confusion regarding our brand. In addition, some
        of
        our distributors use the Chinese characters of our name, “Duoyuan”, in their
        company name and we may be unable to prevent such use. The use of “Duoyuan” in
        their legal names by these distributors may confuse our end-user customers
        who
        may associate our name with the distributor and incorrectly believe our
        distributors are our affiliates. Due to ambiguities in Chinese intellectual
        property law, the cost of enforcement and our prior lack of enforcement,
        we may
        be unable to prevent third parties from using the Duoyuan trademark and our
        name, Duoyuan.
  19
  ***We
        may undertake acquisitions, which may have a material adverse effect on our
        ability to manage our business, and may end up being
        unsuccessful.***
 
 Our
        growth strategy may involve the acquisition of new technologies, businesses,
        products or services or the creation of strategic alliances in areas in which
        we
        do not currently operate. These acquisitions could require that our management
        develop expertise in new areas, manage new business relationships and attract
        new types of customers. Furthermore, acquisitions may require significant
        attention from our management, and the diversion of our management’s attention
        and resources could have a material adverse effect on our ability to manage
        our
        business. We may also experience difficulties integrating acquisitions into
        our
        existing business and operations. Future acquisitions may also expose us
        to
        potential risks, including risks associated with:
  ·
              the
                  integration of new operations, services and
                  personnel;
 ·
              unforeseen
                  or hidden liabilities;
 ·
              the
                  diversion of resources from our existing businesses and
                  technologies;
 ·
              our
                  inability to generate sufficient revenue to offset the costs of
                  acquisitions; and
 ·
              potential
                  loss of, or harm to, relationships with employees or
                  customers;
  any
        of
        which may have a material adverse effect on our ability to manage our
        business.
 
 ***We
        face risks associated with our efforts to expand into international
        markets.***
 
 Our
        long-term business strategy relies in part on the expansion of our international
        distribution network by targeting distributors outside of China, such as
        in
        Africa, the Middle East and other parts of Asia. Risks affecting our
        international expansion include challenges caused by geographic distance,
        language and cultural differences and the burdens of complying with a wide
        variety of laws and regulations which are different than those to which we
        are
        accustomed, including:
  ·
              international
                  import and export legislation;
 ·
              the
                  financial condition, expertise and performance of our international
                  distributors;
 ·
              foreign
                  tax consequences;
 ·
              trade
                  and tariff restrictions;
 ·
              quotas;
                  and
 ·
              inability
                  to effectively enforce contractual or other legal rights.
 
 These
        risks could result in increased and unbudgeted costs associated with servicing
        international markets, which could in turn materially and adversely affect
        our
        business and financial condition.
 
 ***Our
        business is capital intensive and our growth strategy may require additional
        capital which may not be available on favorable terms or at
        all.***
  We
        believe that our current cash and cash flow from operations will be sufficient
        to meet our present and reasonably anticipated cash needs. We may, however,
        require additional cash resources due to changed business conditions,
        implementation of our strategy to expand our manufacturing capacity and product
        offerings (for example, our plans to expand on our existing property to build
        a
        packaging equipment factory) or other investments or acquisitions we may
        decide
        to pursue. If our own financial resources are insufficient to satisfy our
        capital requirements, we may seek to sell additional equity or debt securities
        or obtain additional credit facilities. The sale of additional equity securities
        could result in dilution of your holdings. The incurrence of indebtedness
        would
        result in increased debt service obligations and could require us to agree
        to
        operating and financial covenants that would restrict our operations. Financing
        may not be available in amounts or on terms acceptable to us, if at all.
        Any
        failure by us to raise additional funds on terms favorable to us, or at all,
        could limit our ability to expand our business operations and could harm
        our
        overall business prospects.
  20
 
 ***Any
        interruption in our production process could impair our financial performance
        and negatively affect our relationships with our
        distributors.***
  Our
        manufacturing operations are complicated and integrated, involving the
        coordination of raw materials and components (some sourced from third parties),
        internal production processes and external distribution processes. While
        these
        operations are modified on a regular basis in an effort to improve manufacturing
        and distribution efficiency and flexibility, we may experience difficulties
        in
        coordinating the various aspects of our manufacturing processes, thereby
        causing
        downtime and delays. For example, due to increased demand for our multi-color
        presses, we transferred certain employees from single-color to multi-color
        production, which involves a more complicated manufacturing process that
        required additional training and ultimately resulted in some delays in
        production. We manufacture, assemble and store almost all of our products,
        as
        well as conduct some of our primary research and development activities,
        at two
        principal facilities located in China. We do not maintain back-up facilities,
        so
        we depend on these facilities for the continued operation of our business.
        A
        natural disaster or other unanticipated catastrophic events, including power
        interruptions, water shortage, storms, fires, earthquakes, terrorist attacks
        and
        wars, could significantly impair our ability to manufacture our products
        and
        operate our business, as well as delay our research and development activities.
        Our facility and certain equipment located in this facility would be difficult
        to replace and could require substantial replacement lead-time. Catastrophic
        events may also destroy any inventory located in our facility. The occurrence
        of
        such an event could materially and adversely affect our business. In addition,
        any stoppage in production, even if temporary, or delay in delivery to our
        customers could severely affect our business or reputation. We currently
        do not
        have business interruption insurance to offset these potential losses and
        an
        interruption of our business operations could have a materially adverse effect
        our business, financial condition and operating results.
 
 ***We
        have sustained losses in the past and cannot guarantee profitability in the
        future.***
 
 Although
        Duoyuan China and Langfang Duoyuan have been profitable since the fiscal
        year
        ended June 30, 2004 and Hunan Duoyuan has been profitable since the fiscal
        year
        ended June 30, 2005, there is no assurance that we will remain profitable
        in the
        future. A variety of factors may cause our operating results to decline and
        financial condition to worsen, including:
 ·
                  Competitors
                      offering comparable products at cheaper prices;
 
 ·
                  Continuing
                      downward pressure on the average selling prices of our products
                      caused by
                      intense competition in our industry and other reasons;
 
 ·
                  Superior
                      product innovations by competitors;
 
 ·
                  Rising
                      raw materials cost;
 
 ·
                  Changes
                      to management and key personnel; and
 
 ·
                  Increased
                      operating expenses relating to research and development, sales
                      and
                      marketing efforts and general and administrative expenses as
                      we seek to
                      grow our business.
  As
        a
        result of these and additional factors, we could fail to achieve our revenue
        targets or experience higher than expected operating expenses, or both. As
        a
        result, we cannot assure you that we will remain profitable in the future.
 
 ***Our
        limited operating history may not serve as an adequate basis to judge our
        future
        prospects and operating results.***
 
 We
        have a
        limited operating history with respect to our current business, which may
        not
        provide a sufficient basis on which to evaluate our business or future
        prospects. Although our sales have grown rapidly in recent years, we cannot
        assure you that we will maintain profitability or that we will not incur
        net
        losses in the future. We expect that our operating expenses will increase
        as we
        expand. Significant failure to realize anticipated sales growth could result
        in
        significant operating losses. We will continue to encounter risks and
        difficulties frequently experienced by companies at a similar stage of
        development, including our potential failure to:
  21
 ·
                  Implement
                      our business model and strategy and adapt and modify them as
                      needed;
 
 ·
                  Maintain
                      our current, and develop new, relationships with customers;
 
 ·
                  Manage
                      our expanding operations and product offerings, including the
                      integration
                      of any future acquisitions;
 
 ·
                  Maintain
                      adequate control of expenses;
 
 ·
                  Attract,
                      retain and motivate qualified personnel;
 
 ·
                  Protect
                      our reputation and enhance customer loyalty; and
 
 ·
                  Anticipate
                      and adapt to changing conditions in the offset printing industry
                      and other
                      markets in which we operate as well as the impact of any changes
                      in
                      government regulation, mergers and acquisitions involving our
                      competitors,
                      technological developments and other significant competitive
                      and market
                      dynamics.
  If
        we are
        not successful in addressing any or all of these risks, our business may
        be
        materially and adversely affected.
 
 ***We
        may be unable to sustain our recent profitability and growth
        rates.***
 
 Our
        revenue grew from $26.5 million in fiscal 2005 to $43.7 million in fiscal
        2006,
        to $67.8 million in fiscal 2007 and $89.6 million in fiscal 2008, and we
        only
        became profitable in fiscal 2005. Although our sales have grown rapidly in
        recent years, we expect that our operating expenses will increase as we expand
        and we may not maintain or grow our profitability. A variety of factors may
        cause our operating results to decline and financial condition to worsen,
        including:
 ·
                competitors
                    offering comparable products at cheaper
                    prices;
 ·
                downward
                    pressure on the average selling prices of our products, particularly
                    our
                    single-color presses, caused by intense industry competition
                    and other
                    reasons;
 ·
                superior
                    product innovations by competitors;
 ·
                rising
                    raw materials and manufacturing
                    costs;
 ·
                changes
                    to management and key personnel;
                    and
 ·
                increased
                    operating expenses relating to research and development, sales
                    and
                    marketing efforts, and general and administrative expenses as
                    we seek to
                    grow our business.
 As
        a
        result of these and additional factors, we may experience lower revenue,
        higher
        expenses and fail to maintain our profitability and recent growth rates,
        achieve
        our revenue targets, experience higher than expected operating expenses and
        may
        not remain profitable in the future.
 
 ***We
        do not have insurance coverage to protect us against
        losses.***
  We
        do not
        maintain insurance coverage for our equipment or manufacturing facilities,
        and
        we do not have any business liability, loss of data or business interruption
        insurance coverage for our operations in China. If any claims for injury
        are
        brought against us, or if we experience any business disruption, litigation
        or
        natural disaster, we might incur substantial costs and diversion of resources,
        which would materially and adversely affect our business, financial condition
        and operating results.
  22
 
 ***Environmental
        claims or failure to comply with any present or future environmental regulations
        may require us to spend additional funds and may harm our results of
        operations.***
 
 We
        are
        subject to environmental laws and regulations that affect our operations,
        facilities and products in China. Any failure to comply with any present
        or
        future environmental laws and regulations could result in the assessment
        of
        damages or imposition of fines against us, suspension of production, cessation
        of our operations or even criminal sanctions. New laws and regulations could
        also require us to acquire costly equipment or to incur other significant
        expenses. Our failure to control the use of, or adequately restrict the
        discharge of, hazardous substances could subject us to potentially significant
        monetary damages and fines or suspension of our business operations, which
        may
        harm our results of operations.
 
 In
        connection with the construction of our Langfang Duoyuan manufacturing
        facilities, which became operational in October 2000, we obtained the required
        environmental protection assessment. We were required, however, to obtain
        a
        pollutant discharging permit from the governmental authorities in connection
        with the discharge of certain pollutants prior to commencing operations.
        We have
        not received this permit yet. Pursuant to the Regulations of Hebei Province
        on
        the Administration and Supervision of Environmental Pollution Prevention,
        effective March 1, 2008, our failure to timely obtain this permit may result
        in
        us being reprimanded by the relevant governmental authorities, which may
        result
        in a monetary fine in an amount equal to three times any illegal gains, or
        RMB5,000 to RMB10,000, if we have no illegal gains, subject to the discretion
        of
        the governmental authorities. If we are deemed to have materially violated
        the
        regulation regarding the discharge of pollutants, the governmental authorities
        may order us to rectify the situation of noncompliance within a time limit.
        If
        more stringent regulations are adopted in the future, the related compliance
        costs could be substantial. Any failure by us to control the use of or to
        adequately restrict the discharge of hazardous substances could subject us
        to
        potentially significant monetary damages and fines or suspensions in our
        business operations.
 
 ***The
        loss of key personnel, the failure to attract or retain specialized technical
        and management personnel, and the recent replacements of our chief executive
        officer and chief financial officer could impair our ability to grow our
        business.***
 
 We
        rely
        heavily on the services of our key employees, in particular our senior
        management and engineers and other key technical personnel who are a significant
        asset and the source of our technological and product innovations. We believe
        our future success will depend upon our ability to retain these key employees
        and attract and retain other skilled managerial, engineering, technical and
        sales and marketing personnel. The competition for such personnel, particularly
        technical personnel, is intense in the printing equipment industry. We may
        not
        be successful in attracting and retaining sufficient numbers of technical
        personnel to support our anticipated growth. Despite the incentives we provide,
        our current employees may not continue to work for us, and if additional
        personnel were required for our operations, we may not be able to obtain
        the
        services of additional personnel necessary for our growth.
 
 We
        appointed Ms. Baiyun Sun interim chief financial officer in May 2008 after
        our
        previous chief financial officer, Mr. Milewski, resigned. We are actively
        seeking to hire a permanent chief financial officer, and will make the required
        announcement when the process is completed. Before we hired a permanent chief
        financial officer in March 2008 to replace a prior chief financial officer
        who
        resigned in December 2007, and for a transition period even after that, certain
        of our projects were subject to delay or put on hold which may have a material
        adverse effect on our financial condition and operating results.
 
 We
        do not
        maintain “key person” life insurance for any of our senior management or other
        key employees. The loss of key employees or the inability to attract or retain
        qualified personnel, including engineers, could delay the development and
        introduction of, and has an adverse effect on our ability to sell our products
        as well as our overall growth.
 
 In
        addition, if any other members of our senior management or any of our other
        key
        personnel join a competitor or form a competing company, we may not be able
        to
        replace them easily and we may lose customers, business partners, key
        professionals and staff members as a result. All of our senior executives
        and
        key personnel have entered into employment agreements with us, which include
        confidentiality and non-disclosure provisions. In the event of a dispute
        with
        senior executives or key personnel, these provisions may not be enforceable
        in
        China due to uncertainties in the Chinese legal system.
  23
 
 ***We
        may be unsuccessful in developing and selling new products or in penetrating
        new
        markets required to maintain or expand our business.***
 
 Our
        revenue growth has been primarily from sales of our offset presses. Our future
        success depends, in part, on our ability to develop successful new offset
        presses in a cost-effective and timely manner. We continually evaluate
        expenditures for planned product developments and choose among alternatives
        based upon our expectations of future market trends. The development of our
        offset printers is highly complex, and successful product development and
        market
        acceptance of our products depends on a number of factors,
        including:
 ·
                  our
                      accurate prediction of the changing requirements of our
                      customers;
 
 ·
                  our
                      timely completion and introduction of new
                      designs;
 
 ·
                  the
                      quality, price and performance of our products and those of
                      our
                      competitors;
 
 ·
                  our
                      management of our sales channels;
                      and
 
 ·
                  our
                      customer service capabilities and
                      responsiveness.
 Failure
        to effectively manage these factors may result in our inability to successfully
        develop new products and expand into new markets, which could materially
        and
        adversely affect our financial condition and results of operations, and result
        in a loss of business opportunities.
 
 ***Failure
        to protect our proprietary technologies or maintain the right to certain
        technologies may negatively affect our ability to
        compete.***
 
 We
        believe that the protection of our intellectual property rights will continue
        to
        be important to the success of our business. We rely on a combination of
        patent,
        copyright, trademark and trade secret laws and restrictions on disclosure
        to
        protect our intellectual property rights. We have also entered into
        confidentiality or license agreements with our employees, business partners
        and
        other third parties, and have implemented procedures to control access to
        and
        distribution of our documentation and other proprietary information. These
        efforts may fail to adequately protect our intellectual property rights.
        Further, these agreements do not prevent others from independently developing
        technologies that are equivalent to or superior to our technology. In addition,
        unauthorized parties may attempt to copy or otherwise obtain and use our
        proprietary technology. Monitoring unauthorized use of technology is difficult,
        particularly in the PRC, where the laws may not protect our proprietary rights
        as fully as do the laws of the United States.
 
 We
        currently have four patents registered and four patent applications pending
        in
        China. Patents might not be issued for our pending applications and any issued
        patents may not protect or benefit us or otherwise give us adequate protection
        from competing products. For example, issued patents may be circumvented
        or
        challenged and declared invalid or unenforceable or provide only limited
        protection for our technologies. We also cannot be certain that others will
        not
        design around our patented technology, independently develop our unpatented
        proprietary technology or develop effective competing technologies on their
        own.
 
 ***We
        will incur increased costs as a result of being a public company.***
 
 As
        a
        public company, we incur significant legal, accounting and other expenses
        that a
        private company does not incur. In addition, the Sarbanes-Oxley Act of 2002,
        as
        well as new rules subsequently implemented by the SEC and stock exchanges
        have
        required changes in corporate governance practices of public companies. We
        expect that these new rules and regulations will increase our legal and
        financial compliance costs and will make some activities more time-consuming
        and
        costly. For example, as a result of becoming a public company, we added
        independent directors, created additional board committees and intend to
        adopt
        additional policies regarding internal control and disclosure controls and
        procedures. We will incur additional costs associated with public company
        reporting requirements and compliance with the internal control of Section
        404
        of the Sarbanes-Oxley Act of 2002. We also expect these new rules and
        regulations will make it more difficult and more expensive for us to obtain
        directors’ and officers’ liability insurance. As a result, our general and
        administrative expenses will likely increase and it may be more difficult
        for us
        to attract and retain qualified persons to serve on our board of directors
        or as
        executive officers. We are currently evaluating and monitoring developments
        with
        respect to these new rules, and we cannot predict or estimate the amount
        of
        additional costs we may incur or the timing of such costs.
  24
 
 ***We
        have not held any annual stockholder meetings before we acquired Duoyuan
        China
        in 2006.***
 
 We
        have
        not held an annual meeting of stockholders since inception. Under Wyoming
        law,
        the district court of the county where a corporation's principal office may
        summarily order a meeting to be held upon application of any member or other
        person entitled to participate in an annual or regular meeting, if an annual
        meeting was not held within fifteen months after its last annual meeting.
        Because we have not held regular stockholders' meetings, our stockholders
        ability to exercise their voting rights may be limited. As a Section 12(g)
        registrant, we plan to call a stockholder meeting as soon as practicable
        after
        this Annual Report is filed with the SEC.
 
 ***Mr.
        Wenhua Guo, our Chief Executive Officer, controls approximately 70.4% of
        our
        outstanding common shares and his interests may not be aligned with the
        interests of our other stockholders.***
 
 Mr.
        Wenhua Guo, our Chief Executive Officer, beneficially owns approximately
        70.4%
        of the outstanding shares of our common stock. As a result, he has significant
        influence over our business, including decisions regarding the approval of
        transactions that might not maximize stockholders’ value, and has the ability to
        prevent entry into any of them. This could delay, defer or prevent a change
        in
        control, impede a merger, consolidation, takeover or other business combination
        involving us, or discourage a potential acquirer from attempting to obtain
        control of us. In addition, he can control the election of members of our
        board
        of directors, has the ability to appoint new members to our management team
        and
        can control the outcome of matters submitted to a vote of our stockholders.
        The
        interests of Mr. Wenhua Guo may at times conflict with the interests of our
        other stockholders.
 
 ***We
        may be exposed to potential risks relating to our internal control over
        financial reporting and our ability to have those controls over financial
        reporting and our ability to have those controls attested to by our independent
        auditors.***
 
 We
        are
        required by the SEC to include a report of management on the company’s internal
        control over financial reporting its annual reports. In addition, the
        independent registered public accounting firm auditing a company’s financial
        statements must also attest to and report on management’s assessment of the
        effectiveness of the company’s internal control over financial reporting as well
        as the operating effectiveness of the company’s internal control. Our management
        has concluded that our internal control over our financial reporting are
        not
        effective and have material weaknesses. Our independent registered public
        accounting firm is not yet required to attest to our management’s assessment,
        but once it is required to do so next year it may issue a report that is
        qualified if it is not satisfied with our controls at that time or the level
        at
        which our controls are documented, designed, operated or reviewed, or if
        it
        interprets the relevant requirements differently from us. We have identified
        significant deficiencies or material weaknesses in our internal control that
        we
        may not be able to remediate in a timely manner, and investors and others
        may
        lose confidence in the reliability of our financial statements. We can provide
        no assurance that will be in compliance with all of the requirements imposed
        by
        SOX 404, that we will be able to rectify the material weaknesses we have
        identified, or that we will receive a positive attestation from our independent
        auditors in the future. Any of these possible outcomes could result in an
        adverse reaction in the financial marketplace due to a loss of investors’
confidence in the reliability of our reporting processes, which could adversely
        affect the trading price of our shares.
 
 ***The
        termination and expiration or unavailability of preferential tax treatments
        once
        available to us may have a material adverse effect on our business, financial
        condition and operating results.***
 
 Prior
        to
        January 1, 2008, enterprises established in China were generally subject
        to 30%
        state and 3% local enterprise income tax rate. However, enterprises that
        satisfied certain conditions enjoyed preferential tax treatments. For example,
        in accordance with the Foreign Invested Enterprise Income Tax Law, or FIE
        Income
        Tax Law, which was effective until December 31, 2007, a foreign-invested
        manufacturing enterprise scheduled to operate for a period not less than
        ten
        years would be exempted from paying income tax in its first and second years
        of
        generating profit, followed by a 50% reduction in its tax rate in the third,
        fourth and fifth years subject to the approval of relevant tax authorities.
        Duoyuan China, which we believe qualifies as a manufacturing enterprise
        scheduled to operate more than ten years, enjoyed an income tax exemption
        for
        its first two profitable years (2004 and 2005) and a 50% income tax reduction
        for the next three years (2006 through 2008). Since the definition of
        manufacturing enterprise is unclear and subject to discretionary interpretation
        and enforcement by the PRC authorities, if Duoyuan China is deemed not qualified
        for such preferential tax treatment in the prior periods by relevant tax
        authorities, it may be required to refund prior tax benefits received.
  25
 
 Effective
        January 1, 2008, the PRC National People’s Congress enacted the PRC Enterprise
        Income Tax Law, or the new EIT law. The new EIT law generally imposes a single
        uniform income tax rate of 25% on all Chinese enterprises, including
        foreign-invested enterprises, and eliminates or modifies most of the tax
        exemptions, reductions and preferential treatments available under the previous
        tax laws and regulations, subject to the State Council’s further regulation.
        According to the new EIT law and relevant implementation rules, the specific
        foreign invested enterprises which used to enjoy a tax holiday in accordance
        with the state laws, regulations or the relevant rules will continue to enjoy
        it
        under the new tax law until the expiration of such tax holiday. As a result,
        on
        the condition that Duoyuan China is deemed to be qualified for the preferential
        tax treatments discussed above by the relevant tax authority, Duoyuan China
        will
        continue to enjoy the 50% tax reduction for the calendar year 2008 with an
        applicable income tax rate of 12.5%. Beginning in January 1, 2009, Duoyuan
        China
        will be subject to the 25% income tax rate. Our another two subsidiaries,
        Langfang Duoyuan and Hunan Duoyuan, were both granted five-year income tax
        eliminations beginning with their first profitable year, by the relevant
        local
        governments. However, these tax preferential treatments granted by the local
        governments were not supported by relevant state laws and regulations, thus
        Langfang Duoyuan and Hunan Duoyuan may be ordered by relevant authorities
        to
        refund these tax benefits. Langfang Duoyuan became subject to the 25% income
        tax
        rate beginning January 1, 2008. Pursuant to the tax preferential treatments
        granted by the local government, Hunan Duoyuan will become subject to the
        25%
        income tax rate beginning January 1, 2010. See “Management’s Discussion and
        Analysis of Financial Condition and Results of Operations—Taxes and
        Incentives.”.
 
 ***The
        newly enacted PRC tax law affects tax exemptions on dividends received by
        us and
        increases the enterprise income tax rate applicable to
        us.***
 
 We
        are a
        company incorporated in Wyoming. We conduct substantially all of our business
        through our Chinese subsidiaries and we derive all of our income from these
        subsidiaries. According to the PRC enterprise income tax law applicable prior
        to
        January 1, 2008, dividends derived by foreign legal persons from business
        operations in China were exempted from the Chinese enterprise income tax.
        However, such tax exemption may cease after January 1, 2008, when the new
        PRC
        Enterprise Income Tax Law and its implementation rules became effective.
        Under
        the new EIT law, if we are not deemed to be a resident enterprise for Chinese
        tax purposes, a 10% withholding tax rate would be applicable to any dividends
        paid by our Chinese subsidiaries to us. However, if we are deemed to have
        a “de
        facto management organization” in China, we would be categorized as a resident
        enterprise for Chinese tax purposes and thus would be subject to a 25%
        enterprise income tax rate on all of our income. According to the Implementing
        Rules of PRC Enterprise Income Tax Law, “de facto management organization” means
        organizations implementing substantive and comprehensive management and control
        over the production and business operations, staff, accounts and property
        of an
        enterprise. As substantially all members of our management are located in
        China,
        we may be considered a Chinese tax resident enterprise and therefore subject
        to
        an enterprise income tax rate of 25% on our worldwide income, excluding
        dividends received directly from another Chinese tax resident. As a result
        of
        such changes, our historical tax rates will not be indicative of our tax
        rates
        for future periods and the value of our common stock may be adversely
        affected.
 
 ***We
        may be unable to ensure compliance with United States economic sanctions
        laws,
        especially when we sell our products to distributors over which we have limited
        control.***
 
 The
        U.S.
        Department of the Treasury’s Office of Foreign Assets Control, or OFAC,
        administers certain laws and regulations that impose penalties upon U.S.
        persons
        and, in some instances, foreign entities owned or controlled by U.S. persons,
        for conducting activities or transacting business with certain countries,
        governments, entities or individuals subject to U.S. economic sanctions,
        or U.S.
        Economic Sanctions Laws. We will not use any proceeds, directly or indirectly,
        from sales of our common stock, to fund any activities or business with any
        country, government, entity or individual with respect to which U.S. persons
        or,
        as appropriate, foreign entities owned or controlled by U.S. persons, are
        prohibited by U.S. Economic Sanctions Laws from conducting such activities
        or
        transacting such business. However, we sell our products through independent
        non-U.S. distributors which are responsible for interacting with the end-users
        of our products. Although none of these independent non-U.S. distributors
        are
        located in or conduct business with countries subject to U.S. economic sanctions
        such as Cuba, Sudan, Iran, Syria and Myanmar, we may not be able to ensure
        that
        such non-U.S. distributors comply with any applicable U.S. Economic Sanctions
        Laws. As a result of the foregoing, actions could be taken against us that
        could
        materially and adversely affect our reputation and have a material and adverse
        effect on our business, financial condition, results of operations and
        prospects.
  26
 
 **Risks
        Related to Doing Business in China**
 
 ***Because
        our operations are all located outside of the United States and are subject
        to
        Chinese laws, any change of Chinese laws may adversely affect our
        business.***
 
 All
        of
        our operations are outside of the United States and in China, which exposes
        us
        to risks, such as exchange controls and currency restrictions, currency
        fluctuations and devaluations, changes in local economic conditions, changes
        in
        Chinese laws and regulations and exposure to possible expropriation or other
        Chinese government actions. These factors may have a material adverse effect
        on
        our operations, results of operations and financial condition.
 
 ***Recent
        Chinese regulations relating to the establishment of offshore special purpose
        companies by Chinese residents may subject our Chinese resident stockholders
        to
        personal liability and limit our ability to acquire Chinese companies or
        inject
        capital into our Chinese subsidiaries, limit our Chinese subsidiaries’ ability
        to distribute profits to us, or otherwise materially and adversely affect
        us.***
 
 The
        SAFE
        issued the Notice on Issues Relating to the Administration of Foreign Exchange
        in Fund-Raising and Reverse Investment Activities of Domestic Residents
        Conducted via Offshore Special Purpose Companies in October 2005, which became
        effective in November 2005, and an implementing rule in May 2007, collectively
        the SAFE Rules. According to the SAFE Rules, Chinese residents, including
        both
        legal persons and natural persons and Chinese citizens and foreign citizens
        who
        reside in China, are required to register with the SAFE or its local branch
        before establishing or controlling any company outside China, referred to
        in the
        SAFE rules as an “offshore special purpose company,” for the purpose of
        financing that offshore company with their ownership interests in the assets
        of
        or their interests in any Chinese enterprise. In addition, a Chinese resident
        that is a stockholder of an offshore special purpose company is required
        to
        amend its SAFE registration with the local SAFE branch with respect to that
        offshore special purpose company in connection with the injection of equity
        interests or assets of a Chinese enterprise in the offshore company or overseas
        fund raising by the offshore company, or any other material change in the
        capital of the offshore company, including any increase or decrease of capital,
        transfer or swap of share, merger, division, long-term equity or debt investment
        or creation of any security interest. The SAFE Rules apply retroactively.
        As a
        result, Chinese residents who have established or acquired control of offshore
        companies that have made onshore investments in China in the past were required
        to complete the relevant registration procedures with the competent local
        SAFE
        branch. If any resident of China failed to file its SAFE registration for
        an
        existing offshore entity, any dividends remitted by the onshore entity to
        its
        overseas parent since April 21, 2005 will be considered to be an evasion of
        foreign exchange purchase rules, and the payment of the dividend will be
        illegal. As a result of any illegal action of this type, both the onshore
        entity
        and its actual controlling person(s) can be fined. In addition, failure to
        comply with the registration procedures may result in restrictions on the
        relevant onshore entity, including prohibitions on the payment of dividends
        and
        other distributions to its offshore parent or affiliate and capital inflow
        from
        the offshore entity. Chinese resident stockholders of the offshore entity
        may
        also be subject to penalties under Chinese foreign exchange administration
        regulations.
 
 Our
        majority stockholder, Duoyuan Investments Limited, is wholly-owned by Wenhua
        Guo, who is our chairman and chief executive officer, a PRC citizen as defined
        in the SAFE Rules. We have asked Mr. Guo, and will ask our future stockholders
        and beneficial owners who are Chinese residents, to make the necessary
        applications and filings as required under Notice 75 and other related rules.
        Mr. Guo has submitted the application and the review process is underway
        but not
        yet complete as he has not yet received his registration certificate, so
        we
        cannot provide any assurances that he can obtain such SAFE registration.
        Moreover, due to uncertainty concerning the reconciliation of Notice 75 with
        other approval or registration requirements, it remains unclear how Notice
        75,
        and any future legislation concerning offshore or cross-border transactions,
        will be interpreted, amended and implemented by the relevant government
        authorities. We will attempt to comply, and attempt to ensure that Mr. Guo
        and
        our future stockholders and beneficial owners who are subject to these rules
        comply, with the relevant requirements. However, we cannot provide any
        assurances that all of our stockholders and beneficial owners who are Chinese
        residents will comply with our request to make or obtain any applicable
        registrations or comply with other requirements required by Notice 75 or
        other
        related rules. The failure or inability of our Chinese resident stockholders
        or
        beneficial owners to register with the SAFE in a timely manner pursuant to
        the
        SAFE Rules, or the failure or inability of any future Chinese resident
        stockholders or beneficial owners to make any required SAFE registration
        or
        comply with other requirements under the SAFE Rules, may subject these
        stockholders or beneficial owners to fines or other sanctions and may also
        limit
        our ability to contribute additional capital into or provide loans to our
        Chinese subsidiaries, limit our Chinese subsidiaries’ ability to pay dividends
        to us, repay stockholder loans or otherwise distribute profits or proceeds
        from
        any reduction in capital, share transfer or liquidation to us, or otherwise
        adversely affect us.
  27
 
 ***Our
        international expansion plans subject us to risks inherent in doing business
        internationally.***
 
 Our
        long-term business strategy relies on the expansion of our international
        sales
        by targeting markets outside of China, such as the United States. Risks
        affecting our international expansion include challenges caused by distance,
        language and cultural differences, conflicting and changing laws and
        regulations, foreign laws, international import and export legislation, trading
        and investment policies, foreign currency fluctuations, the burdens of complying
        with a wide variety of laws and regulations, protectionist laws and business
        practices that favor local businesses in some countries, foreign tax
        consequences, higher costs associated with doing business internationally,
        restrictions on the export or import of technology, difficulties in staffing
        and
        managing international operations, trade and tariff restrictions, and variations
        in tariffs, quotas, taxes and other market barriers. These risks could harm
        our
        international expansion efforts, which could in turn materially and adversely
        affect our business, operating results and financial condition.
 
 Because
        Chinese law governs almost all of our material agreements, we may not be
        able to
        enforce our legal rights in 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. There is no assurance 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 future agreements could result in a significant
        loss of business, business opportunities or capital.
 
 Additionally,
        substantially all of our assets are located outside of the United States
        and
        most of our officers and directors 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 the 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
        has
        historically 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. We may have difficulty in hiring and retaining
        a sufficient number of qualified employees to work in China in these areas.
        As a
        result, we may experience difficulty in establishing management, legal and
        financial controls, collecting financial data and preparing financial
        statements, books of account and corporate records and instituting business
        practices that meet U.S. standards, making it difficult for our management
        to
        forecast our needs and to present the operating results of accurately at
        all
        times.
  28
 
 ***If
        relations between the United States and China deteriorate, our share price
        may
        decrease and we may have difficulty accessing U.S. capital
        markets.***
 
 At
        various times during recent years, the United States and China have had
        disagreements over political and economic issues. Controversies may arise
        in the
        future between these two countries. Any political or trade controversies
        between
        the United States and China could adversely affect the market price of our
        common stock and our ability to access U.S. capital markets.
 
 ***The
        Chinese government could change its policies toward private enterprises,
        which
        could adversely affect our business.***
 
 Our
        business is subject to political and economic uncertainties in China and
        may be
        adversely affected by its political, economic and social developments. Over
        the
        past several years, the Chinese government has pursued economic reform policies
        including the encouragement of private economic activity and greater economic
        decentralization. The Chinese government may not continue to pursue these
        policies or may alter them to our detriment from time to time. Changes in
        policies, laws and regulations, or in their interpretation or the imposition
        of
        confiscatory taxation, restrictions on currency conversion, restrictions
        or
        prohibitions on dividend payments to stockholders, devaluations of currency
        or
        the nationalization or other expropriation of private enterprises could have
        a
        material adverse effect on our business. Nationalization or expropriation
        could
        result in the total loss of our investment in China.
  ***Economic,
        political and social conditions in China could affect our
        business.***
 
 All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including government involvement, level of development, growth rate, control
        of
        foreign exchange, and allocation of resources. The economy of China has been
        transitioning from a planned economy to a more market-oriented economy. Although
        the Chinese government has recently 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 productive assets
        in China is still owned by the Chinese government. In addition, the Chinese
        government continues to play a significant role in regulating industry by
        imposing industrial policies. It also exercises significant control over
        China’s
        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. Therefore,
        the
        Chinese government’s involvement in the economy could adversely affect our
        business, financial condition or operating results. The Chinese government
        has
        implemented various measures from time to time to control the rate of economic
        growth. Some of these measures benefit the overall economy of China, but
        may
        have a negative effect on your business, financial condition and operating
        results.
 
 ***Government
        control of currency conversion in exchange rate fluctuations may adversely
        affect our operations and financial results.***
 
 Substantially
        all of our revenue and expenses are denominated in Renminbi, the currency
        of
        China. A portion of such revenue may be converted into other currencies to
        meet
        our foreign currency obligations. In addition, we incur approximately 1%
        of our
        expenses in foreign currencies, mostly for professional services such as
        auditors, attorneys and other intermediaries. Foreign exchange transactions
        under our capital account, including principal payments in respect of foreign
        currency-denominated obligations, continue to be subject to significant foreign
        exchange controls and require the approval of the SAFE in China. These
        limitations could affect our ability to obtain foreign exchange through debt
        or
        equity financing, or to obtain foreign exchange for capital
        expenditures.
 
 The
        value
        of our common stock will be indirectly affected the foreign exchange rate
        between U.S. dollars and the Renminbi and between those currencies and other
        currencies in which our revenue may be denominated. The
        Renminbi is reported to be measured against a basket of currencies determined
        by
        the People’s Bank of China. The Renminbi may appreciate or depreciate
        significantly in value against the U.S. dollar in the long term, depending
        on
        the fluctuation of the basket of currencies against which it is currently
        valued, or it may be permitted to enter into a full float, which may also result
        in a significant appreciation or depreciation of the Renminbi against the
        U.S.
        dollar. Because
        substantially all of our earnings and cash assets are denominated in Renminbi
        and our financial reporting is denominated in U.S. dollars, fluctuations
        in the
        exchange rates between the U.S. dollar and the Renminbi will affect our
        financial results reported in U.S. dollar terms without giving effect to
        any
        underlying change in our business, financial condition or results of operations.
        Fluctuations in the exchange rate will also affect the relative value of
        any
        dividend we issue that will be exchanged into U.S. dollars and earning from,
        and
        the value of, any U.S. dollar denominated investments we make in the
        future.
  29
 
 Historically,
        we have not engaged in exchange rate hedging activities. Although we may
        implement hedging strategies to mitigate this risk, these strategies may
        not
        eliminate our exposure to foreign exchange rate fluctuations and may involve
        costs and risks of their own, such as ongoing management time and expertise,
        external costs to implement the strategy and potential accounting
        implications.
 
 ***Uncertainties
        with respect to the Chinese legal system could limit the protections available
        to you and us.***
 
 The
        Chinese legal system is based on written statutes and their interpretation
        by
        the Supreme People’s Court. Although the Chinese government has introduced new
        laws and regulations to modernize its business, securities and tax systems,
        China does not yet possess a comprehensive body of business law. Because
        Chinese
        laws and regulations are relatively new, interpretation, implementation and
        enforcement of these laws and regulations involve uncertainties and
        inconsistencies and it may be difficult to enforce contracts. These
        uncertainties, including the inability to enforce our contracts, could
        materially and adversely affect our business, financial condition and operating
        results. In addition, as the Chinese legal system develops, changes in such
        laws
        and regulations, their interpretation or their enforcement may have a material
        adverse effect on our business operations. Moreover, interpretative case
        law
        does not have the same precedential value in China as in the United States,
        so
        legal compliance in China may be more difficult or expensive. These
        uncertainties could limit the legal protections available to us and other
        foreign investors, including you.
 
 ***It
        may be difficult to serve us with legal process or enforce judgments against
        us
        or our management.***
 
 We
        are
        incorporated in the state of Wyoming, U.S., our operating subsidiaries are
        formed under Chinese law and all of our assets are located in China. In
        addition, all of our officers, and all but two of our directors, are
        non-residents of the United States, and all or substantial portions of the
        assets of such non-residents are located outside the United States. As a
        result,
        it may not be possible to effect service of process within the United States
        upon such persons to originate an action in the United States. Moreover,
        there
        is uncertainty that the courts of China would enforce judgments of United
        States
        courts against us or our directors and officers based on the civil liability
        provisions of the securities laws of the United States or any state, or
        entertain an original action brought in China based upon the securities laws
        of
        the United States or any state. Furthermore, an original action may be brought
        in China against our assets and our subsidiaries, our directors and executive
        officers and experts named in this prospectus only if the actions are not
        required to be arbitrated by Chinese law and only if the facts alleged in
        the
        complaint give rise to a cause of action under Chinese law. In connection
        with
        any such original action, a Chinese court may award civil liability, including
        monetary damages.
  ***We
        may be exposed to infringement or misappropriation claims by third parties,
        which, if determined adversely against us, could disrupt our business and
        subject us to significant liability to third parties.***
  We
        rely
        upon certain proprietary confidential information, trademarks, unpatented
        know-how, unpatented trade secrets and improvements and continuing technological
        innovation to develop and maintain our competitive position. In addition,
        we
        currently have four patents that we use in our business and four patent
        applications pending. Competitors may claim that one or more of our products
        or
        our various processes infringe upon their patents or other intellectual
        property. A successful claim of patent or other intellectual property
        infringement could subject us to significant damages or an injunction preventing
        the manufacture, sale or use of our affected products or otherwise limit
        our
        freedom to operate. The legal protection of intellectual property in China
        is
        significantly more limited than in the United States and many other countries
        and may afford us little or no effective protection.
  30
 
 There
        may
        also be technologies licensed to and relied on by us that are subject to
        infringement or other corresponding allegations or claims by others which
        could
        damage our ability to rely on such technologies. In addition, although we
        endeavor to ensure that companies that work with us possess appropriate
        intellectual property rights or licenses, we cannot fully avoid the risks
        of
        intellectual property rights infringement created by suppliers of components
        used in our products or by companies with which we work in cooperative research
        and development activities. Our current or potential competitors, many of
        which
        have substantial resources and have made substantial investments in competing
        technologies, may have obtained or may obtain patents that will prevent,
        limit
        or interfere with our ability to make, use or sell our products in China
        or
        other countries. The defense of intellectual property claims, including patent
        infringement suits, and related legal and administrative proceedings can
        be both
        costly and time consuming, and may significantly divert the efforts and
        resources of our technical and management personnel. Furthermore, an adverse
        determination in any such litigation or proceeding to which we may become
        a
        party could cause us to:
 ·
                  pay
                      damage awards;
 
 ·
                  seek
                      licenses from third parties;
 
 ·
                  pay
                      additional ongoing royalties, which could decrease our profit
                      margins;
 
 ·
                  redesign
                      our products; or
 
 ·
                  be
                      restricted by injunctions.
 These
        factors could effectively prevent us from pursuing some or all of our business
        and result in our customers or potential customers deferring, canceling or
        limiting their purchase or use of our products, which could have a material
        adverse effect on our financial condition and results of operations.
 
 ***We
        may be unable to complete a business combination transaction efficiently
        or on
        favorable terms due to complicated merger and acquisition regulations which
        became effect on September 8, 2006.***
 
 The
        new
        M&A Rule also governs the approval process by which a Chinese company may
        participate in an acquisition of assets or equity interests. Depending on
        the
        structure of the transaction, the new regulation will require the Chinese
        parties to make a series of applications to certain government agencies.
        In some
        instances, the application process may require the presentation of economic
        data
        concerning a transaction, including appraisals of the target business and
        evaluations of the acquirer, which are designed to allow the government to
        assess the transaction. Government approvals will have expiration dates by
        which
        a transaction must be completed and reported to the government agencies.
        Compliance with the new regulations is likely to be more time consuming and
        expensive than in the past and the government can now exert more control
        over
        the combination of two businesses. Accordingly, due to the new regulation,
        our
        ability to engage in business combination transactions has become significantly
        more complicated, time consuming and expensive, and we may not be able to
        negotiate a transaction that is acceptable to our stockholders or sufficiently
        protect their interests in a transaction. The new regulation allows Chinese
        government agencies to assess the economic terms of a business combination
        transaction. Parties to a business combination transaction may have to submit
        to
        the Ministry of Commerce and other relevant government agencies an appraisal
        report, an evaluation report and the acquisition agreement, all of which
        form
        part of the application for approval, depending on the structure of the
        transaction. The regulation also prohibits a transaction at an acquisition
        price
        obviously lower than the appraised value of the Chinese business or assets
        and,
        in certain transaction structures, requires that consideration must be paid
        within defined periods, generally not in excess of a year. The regulation
        also
        limits our ability to negotiate various terms of the acquisition, including
        aspects of the initial consideration, contingent consideration, holdback
        provisions, indemnification provisions and provisions relating to the assumption
        and allocation of assets and liabilities. Transaction structures involving
        trusts, nominees and similar entities are prohibited. Therefore, such regulation
        may impede our ability to negotiate and complete a business combination
        transaction on financial terms that satisfy our investors and protect our
        investors’ economic interests.
  31
 
 ***The
        new provisions of the PRC Employment Contract Law may substantially increase
        our
        labor-related costs in the future.***
 
 The
        PRC
        Employment Contract Law, which became effective as of January 1, 2008, contains
        many more provisions favorable to employees than existing labor regulations
        in
        effect in China. This may substantially increase our labor-related costs
        in our
        future operations. According to the new law, an employee is entitled to
        terminate his or her employment relationship with his or her employer for
        certain causes, such as delay in payment of wages or social insurance
        contribution or dissatisfactory labor protection, and under such circumstances
        the employer is liable to pay compensation to the employee. The amount of
        such
        compensation payment shall be one month's salary for each year that the employee
        has served the employer, subject to a cap of twelve months' salary. An employer
        shall also be liable to compensate an employee when the employer decides
        not to
        renew an existing employment contract that is about to expire, unless the
        employee refuses to renew the employment contract even though the employer
        offers equal or more favorable terms than those in the existing employment
        contract. In addition, an employer is obligated to conclude an open-ended
        employment contract with an employee after two consecutive terms of fixed-term
        employment, which means the employer will be liable to pay damages to an
        employee if it terminates this employee without cause, until the employee
        reaches an age at which he or she is eligible for pension payment. We may
        have
        greater difficulty terminating underperforming employees and may incur higher
        level of labor costs in order to comply with the provisions of the new law,
        which may have a material adverse effect on our business, financial condition
        and operating results.
 
 ***The
        Chinese government could change its policies toward private enterprises,
        which
        could adversely affect our business.***
 
 Our
        business is subject to political and economic uncertainties in China and
        may be
        adversely affected by its political, economic and social developments. Over
        the
        past several years, the Chinese government has pursued economic reform policies
        including the encouragement of private economic activity and greater economic
        decentralization. The Chinese government may not continue to pursue these
        policies or may alter them to our detriment from time to time. Changes in
        policies, laws and regulations, or in their interpretation or the imposition
        of
        confiscatory taxation, restrictions on currency conversion, restrictions
        or
        prohibitions on dividend payments to stockholders, devaluations of currency
        or
        the nationalization or other expropriation of private enterprises could have
        a
        material adverse effect on our business. Nationalization or expropriation
        could
        result in the total loss of our investment in China.
 
 ***Economic,
        political and social conditions in China could affect our
        business.***
 
 All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including government involvement, level of development, growth rate, control
        of
        foreign exchange, and allocation of resources. The economy of China has been
        transitioning from a planned economy to a more market-oriented economy. Although
        the Chinese government has recently 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 productive assets
        in China is still owned by the Chinese government. In addition, the Chinese
        government continues to play a significant role in regulating industry by
        imposing industrial policies. It also exercises significant control over
        China’s
        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. Therefore,
        the
        Chinese government’s involvement in the economy could adversely affect our
        business, financial condition or operating results. The Chinese government
        has
        implemented various measures from time to time to control the rate of economic
        growth. Some of these measures benefit the overall economy of China, but
        may
        have a negative effect on your business, financial condition and operating
        results.
  32
  ***Because
        Chinese law governs almost all of our material agreements, we may not be
        able to
        enforce our legal rights in China or elsewhere, which could result in a
        significant loss of business, business opportunities, or
        capital.***
 
 While
        we
        are incorporated in the State of Wyoming, U.S., substantially all of our
        operations are in China. As a result, most of our material agreements are
        governed by Chinese law. Since substantially all of our revenue will be derived
        from our operations in China, our business, financial condition and our results
        of operations are subject to the legal developments in China. There is no
        assurance that we will be able to enforce any of our material agreements
        or that
        remedies will be available outside of China in respect of the same. 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
        future
        agreements could result in a significant loss of business, business
        opportunities or capital.
 
 Additionally,
        all of our assets are located outside of the United States and all of our
        officers ** and
        directors 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
        the 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 of the United States.
 
 ***The
        contractual arrangements entered into between our Chinese subsidiaries may
        be
        subject to audit or challenge by the Chinese tax authorities. A finding that
        our
        PRC subsidiaries owe additional taxes could substantially reduce our net
        earnings and the value of your investment.***
 
 Under
        Chinese laws and regulations, arrangements and transactions among affiliated
        parties may be subject to audit or challenge by the Chinese tax authorities.
        We
        could face material and adverse tax consequences if the Chinese tax authorities
        determine that the contractual arrangements between our Chinese subsidiaries
        do
        not represent arm’s-length prices and as a result, adjust any of the income in
        the form of a transfer pricing adjustment. A transfer pricing adjustment
        could,
        among other things, result in a reduction of expense deductions for Chinese
        tax
        purposes recorded by our Chinese subsidiaries or an increase in taxable income,
        all of which could increase our tax liabilities. In addition, the Chinese
        tax
        authorities may impose late payment fees and other penalties on our Chinese
        subsidiaries for under-paid taxes.
 
 ***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
        has
        historically 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. We may have difficulty in hiring and retaining
        a sufficient number of qualified employees to work in China in these areas.
        As a
        result, we may experience difficulty in establishing management, legal and
        financial controls, collecting financial data and preparing financial
        statements, books of account and corporate records and instituting business
        practices that meet U.S. standards, making it difficult for our management
        to
        forecast our needs and to present the operating results of accurately at
        all
        times.
  ***We
        rely principally on dividends and other distributions on equity paid by our
        operating subsidiaries to fund cash and financing requirements, and limitations
        on the ability of our operating subsidiaries to pay dividends to us could
        have a
        material adverse effect on our ability to conduct our
        business.***
  We
        are a
        holding company, and we rely principally on dividends and other distributions
        on
        equity paid by our two Chinese subsidiaries for our cash and financing
        requirements, including the funds necessary to pay dividends and other cash
        distributions to our stockholders, service any debt we may incur and pay
        our
        operating expenses. If either of our operating subsidiaries incurs debt on
        its
        own behalf, the instruments governing the debt may restrict its ability to
        pay
        dividends or make other distributions to us. Furthermore, relevant Chinese
        laws
        and regulations permit payments of dividends by each of our operating
        subsidiaries only out of its retained earnings after tax, if any, determined
        in
        accordance with Chinese accounting standards and regulations.
  33
 
 Under
          Chinese laws and regulations, each of our operating subsidiaries is required
          to
          set aside a portion of its net income each year to fund certain statutory
          reserves. These reserves, together with the registered equity, are not
          distributable as cash dividends. As of June 30, 2008, we had statutory
          reserves
          of $6.0 million and total stockholder equity in the amount of 93.8 million.
          As a
          result of these Chinese laws and regulations, each of our operating subsidiaries
          is restricted in its ability to transfer a portion of its net assets to
          us
          whether in the form of dividends, loans or advances. Limitations on the
          ability
          of our operating subsidiaries to pay dividends to us could adversely limit
          our
          ability to grow, make investments or acquisitions that could be beneficial
          to
          our businesses, pay dividends, or otherwise fund and conduct our
          business.
 
 **Risks
        Associated with Our Common Stock**
  ***Our
        stock is not traded and stockholders may not be able to liquidate their
        investment at all, or may only be able to liquidate the investment at a price
        less than the Company’s value.***
  Our
        common stock currently is not traded on any securities market or
        over-the-counter quotation system, and the price of our common stock if traded
        in the future or transferred in privately negotiated transactions may not
        reflect the value of our company. Consequently, investors may not be able
        to
        liquidate their investment at all, or if they are able to liquidate it may
        only
        be at a price that does not reflect the value of the business. Because the
        securities price for our stock, if traded, may be low, many brokerage firms
        may
        not be willing to effect transactions in the securities. Even if an investor
        finds a broker willing to effect a transaction in our stock, the combination
        of
        brokerage commissions, transfer fees, taxes, if any, and any other selling
        costs
        may exceed the selling price. Further, many lending institutions will not
        permit
        the use of common stock like ours as collateral for any loans.
 
 ***Because
        we are subject to the Penny Stock Rules, sale of our stock by investors may
        be
        difficult.***
  We
        are
        subject to the SEC’s “penny stock” rules. Penny stocks generally are equity
        securities with a price of less than $5.00. The penny stock rules require
        broker-dealers to deliver a standardized risk disclosure document required
        by
        the SEC which provides information about penny stocks and the nature and
        level
        of risks in the penny stock market. The broker-dealer must also provide the
        customer with current bid and offer quotations for the penny stock, the
        compensation of the broker-dealer and its salesperson, and monthly account
        statements showing the market value of each penny stock held in the customer’s
        account. The bid and offer quotations, and the broker-dealer and salesperson
        compensation information must be given to the customer orally or in writing
        prior to completing the transaction and must be given to the customer in
        writing
        before or with the customer’s confirmation.
  In
        addition, the penny stock rules require that prior to a transaction, the
        broker
        and/or dealer must make a special written determination that the penny stock
        is
        a suitable investment for the purchaser and receive the purchaser’s written
        agreement to the transaction. The penny stock rules are burdensome and may
        reduce purchases of any offerings and reduce the trading activity for our
        common
        stock. As long as our common stock is subject to the penny stock rules, the
        holders of such common stock may find it more difficult to sell their
        securities.
  ***Our
        stock prices could decrease if a substantial number of shares are sold under
        Rule 144.***
  A
        substantial majority of our outstanding shares of common stock are “restricted
        securities” within the meaning of Rule 144 under the Securities Act. As
        restricted shares, these shares may be resold only pursuant to an effective
        registration statement or under the requirements of Rule 144 or other applicable
        exemptions from registration under the Securities Act and as required under
        applicable state securities laws. Rule 144 provides in essence that an affiliate
        who has held restricted securities for a period of at least six months may,
        under certain conditions, sell every three months, in brokerage transactions,
        a
        number of shares that does not exceed the greater of 1.0% of our outstanding
        common stock. There is no limit on the amount of restricted securities that
        may
        be sold by a non-affiliate after the restricted securities have been held
        by the
        non-affiliate for at least six months, provided current public information
        about
        us is available, and after one year, the non-affiliate is entitled to sell
        an
        unlimited number of the shares without restriction. If a substantial number
        of
        shares of our stock are sold under Rule 144 or other exemption, it could
        cause
        the price of our stock to go down.
  34
 
 ***The
        conversion of outstanding derivative securities could cause your ownership
        to be
        diluted and may decrease the value of your
        investment.***
 
 Outstanding
        derivative securities and current and future obligations to issue our securities
        to various parties may dilute the value of your investment. We have issued
        warrants to Roth Capital Partners, LLC to purchase 613,260 shares with a
        strike
        price equal to $4.21, a term of five years starting from July 1, 2008 and
        exercisable at any time after June 30, 2008 on cashless or net exercise basis.
        In addition, in January 2008 we issued to 25 of our investors warrants to
        purchase a total of 576,425 shares of common stock. The warrants have a strike
        price equal to $5.76 per share, a term of five years starting on June 30,
        2008
        and are exercisable at any time after June 30, 2008 on a cashless basis at
        all
        times. For the length of time these warrants are outstanding and exercisable,
        the warrant holder will have an opportunity to profit from a rise in the
        market
        price of our common stock without assuming the risks of ownership. This may
        have
        an adverse effect on the terms upon which we can obtain additional capital.
        It
        should be expected that the warrant holder would exercise the warrants at
        a time
        when we would be able to obtain equity capital on terms more favorable than
        the
        exercise prices provided by the warrants. Holders of our common stock do
        not
        have pre-emptive rights.
  ***We
        do not intend to pay dividends in the foreseeable
        future.***
  As
        a
        result, a return on an investment in shares of our common stock may be realized
        only through a sale of such shares if at all. Our board of directors does
        not
        intend to pay any dividends in the foreseeable future. We do not plan on
        making
        any cash distributions in the manner of a dividend or otherwise. Our board
        of
        directors presently intends to follow a policy of retaining all earnings,
        if
        any, for use in our business operations. The holders of our common stock
        are
        entitled to receive dividends when, as and if declared by our board of directors
        out of funds legally available therefor. To date, we have paid no
        dividends.
 
 ***We
        have the right to issue additional shares of our common stock and preferred
        stock without the consent of our stockholders. This would have the effect
        of
        diluting your ownership in us and could decrease the value of your
        stock.***
  As
        of
        September 22, 2008, we had 100,000,000 common stock authorized for issuance,
        among which only 25,000,050 shares of common stock were issued and outstanding.
        Approximately 74,999,950 authorized shares of common stock are available
        for
        issuance for any purpose without stockholder approval that would dilute
        stockholder’s percentage ownership of us. We have outstanding warrants to
        acquire 1,226,973 shares of our common stock.
  In
        addition, our articles of incorporation authorize the issuance of shares
        of
        preferred stock, the rights, preferences, designations and limitations of
        which
        may be set by our board of directors. While no preferred stock is currently
        outstanding or subject to be issued, our articles of incorporation have
        authorized issuance of up to 1,000,000 shares of preferred stock in the
        discretion of our board of directors. Such preferred stock may be issued
        upon
        filing of amended articles of incorporation and the payment of required fees;
        no
        further stockholder action is required. If issued, the rights, preferences,
        designations and limitations of such preferred stock would be set by our
        board
        of directors and could operate to the disadvantage of the outstanding common
        stock. Such terms could include, among others, preferences as to dividends
        and
        distributions on liquidation.
 
 **Item
                  2.**
              **Properties.**
 
 Duoyuan
        China leases 3,079.86 square meters of space, located at No. 3 Jinyuan Road,
        Daxing District Industrial Development Area, Beijing, China, from Duoyuan
        Clean
        Water Technology Industries (China) Co., Ltd. (“Duoyuan Water”), a company owned
        by Mr. Wenhua Guo. The property is used as an office building and research
        and
        development center. The lease had an initial five-year term from January
        1, 2003
        to December 31, 2007 and which has been extended for a one-year term. The
        minimum rent commitment as of June 30, 2008 was $82,007.
  35
 
 Langfang
        Duoyuan was granted land use rights from the Chinese government for 133,333
        square meters of land located to the east of Jinzhiguang Electronic Company,
        Langfang Economic-Technological Development Area, Langfang, Hebei Province,
        China. The land use rights have a 50-year term and will expire on September
        29,
        2052. In addition to the land use rights, Langfang Duoyuan also has ownership
        of
        9,333 square meters of office building and 21,593 square meters of production
        facilities located at this site. Langfang Duoyuan currently does not have
        an
        outstanding mortgage or pledge on the properties located at this
        site.
 
 Hunan
        Duoyuan was granted land use rights from the Chinese government for 231,241
        square meters of land for industrial use located at No. 362 Baoqing Xi Road
        Shaoyang, Hunan Province, China. The land use rights have a 50-year term
        and
        will expire on May 19, 2044. In addition to the land use rights, Hunan Duoyuan
        also has ownership of 70,052 square meters of office building and production
        facilities located at this site. All of Hunan Duoyuan’s land and buildings have
        been mortgaged under a Maximum Amount Mortgage Contract (which will expire
        in
        July 2010) to China Agricultural Bank as security interests of Duoyuan China’s
        debt obligations.
  We
        believe our properties and facilities have been adequately maintained, are
        generally in good condition, and are suitable and adequate for our
        business.
 
 We
        are
        also in the planning stages of building a plant to manufacture cold-set
        corrugated printing presses. The plant will be located in the premises of
        our Langfang facility, located at No. 12, Yaohua Road, Langfang
        Economy & Technology Development Zone, Hebei Province,
        China.  The plant will be part of our post-press offering with equipment
        that we believe can provide greater efficiency and energy savings to our
        customers than traditional corrugating machines. We
        have started the planning process for the factory including, designing workshops
        and production lines and procuring equipment, however construction and material
        commitments will not begin until we enter into definitive agreements relating
        to
        the acquisition of technology necessary to undertake this project .
        We are
        currently in negotiation for the acquisition of such technology.
 
 **Item
                  3.**
              **Legal
                  Proceedings.**
 
 Neither
        we nor any of our direct or indirect subsidiaries is a party to, nor is any
        of
        our property the subject of, any legal proceedings other than ordinary routine
        litigation incidental to our respective businesses. There are no proceedings
        pending in which any of our officers, directors, promoters or control persons
        are adverse to us or any of our subsidiaries in which they are taking a position
        or have a material interest that is adverse to us. There are no proceedings
        pending in which any of the officers, directors, promoters or control persons
        of
        ours are adverse to us.
 We
        are not a party to any administrative or judicial proceeding arising under
        federal, state or local environmental laws or their Chinese
        counterparts.
 
 **Item
                  4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 None
        applicable.
  36
 
 **PART
        II**
  **Item
                  5.**
              **Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity
                  Securities.**
 
 Currently
        there is no public trading market for our common stock. No dividends have
        been
        declared or paid on our common stock. As of September 22, 2008, we had
        approximately 89 holders of our common stock of record.
 
 **Item
                  6.**
              **Selected
                  Financial Data.**
 
 The
        following summary of consolidated financial data should be read in conjunction
        with “Management's Discussion and Analysis of Financial Condition and Results of
        Operations” and our consolidated financial statements and the notes thereto that
        are included elsewhere in this Annual Report. Historical results are not
        necessarily indicative of the results that may be expected for any future
        period. Certain factors that affect the comparability of the information
        set
        forth in the following table are described in the notes to those financial
        statements. When you read this historical selected financial data, it is
        important that you read along with it the historical financial statements
        and
        related notes and “Management's Discussion and Analysis of Financial Condition
        and Results of Operations” included elsewhere in this Annual Report.
 
 **Year
                    Ended June 30,****2004**
                
                **2005**
                
                **2006**
                
                **2007**
                
                **2008**(dollar
                    in thousands, except for per share amount)**Statement
                    of operations data:**Revenue
                
                $
                12,891
                
                $
                26,469
                
                $
                43,747
                
                $
                67,812
                
                $
                89,628Cost
                    of sales
                
                
                8,924
                
                
                16,887
                
                
                22,478
                
                
                37,694
                
                
                44,462Gross
                    profit
                
                
                3,967
                
                
                9,582
                
                
                21,269
                
                
                30,118
                
                
                45,166Research
                    and development expenses
                
                
                0
                
                
                680
                
                
                1,037
                
                
                1,046
                
                
                1,683Selling,
                    general and administrative expenses
                
                
                4,364
                
                
                5,431
                
                
                6,649
                
                
                10,905
                
                
                13,177Income
                    (Loss) from operations
                
                
                (397
                )
                
                3,471
                
                
                13,583
                
                
                18,167
                
                
                30,306Liquidated
                    damage income (expenses), net of settlement
                
                
                0
                
                
                0
                
                
                0
                
                
                (2,119
                )
                
                235Change
                    in fair value of derivative instruments
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                73Other
                    income (expense), net
                
                
                36
                
                
                492
                
                
                (239
                )
                
                (21
                )
                
                (535
                )Income
                    before minority interests and provision for income taxes
                
                
                (361
                )
                
                3,963
                
                
                13,344
                
                
                16,027
                
                
                30,079Minority
                    interest
                
                
                4
                
                
                86
                
                
                187
                
                
                241
                
                
                382Provision
                    for income taxes
                
                
                0
                
                
                0
                
                
                261
                
                
                1,807
                
                
                3,238Net
                    income (loss)
                
                
                (365
                )
                
                3,877
                
                
                12,896
                
                
                13,979
                
                
                26,459Foreign
                    currency translation adjustment
                
                
                0
                
                
                0
                
                
                426
                
                
                1,834
                
                
                8,200Comprehensive
                    income (loss)
                
                $
                (365
                )
                $
                3,877
                
                $
                13,322
                
                $
                15,813
                
                $
                34,659EPS
                    - basic and diluted
                
                $
                (0.02
                )
                $
                0.21
                
                $
                0.68
                
                $
                0.61
                
                $
                1.06Weighted
                    average number of shares outstanding - basic and diluted
                
                
                17,562,353
                
                
                18,867,436
                
                
                18,867,436
                
                
                23,041,021
                
                
                25,000,050
  37
 
 Year
                  Ended June 30,Consolidated
                  Balance Sheets
              
              2004
              
              2005
              
              2006
              
              2007
              
              2008Total
                  Current Assets
              
              $
              16,706,040
              
              $
              22,001,699
              
              $
              34,906,390
              
              $
              51,267,370
              
              $
              72,017,168Total
                  Assets
              
              $
              30,144,508
              
              $
              37,467,181
              
              $
              50,544,359
              
              $
              80,279,865
              
              $
              112,904,557Total
                  Current Liabilities
              
              $
              25,046,847
              
              $
              28,406,269
              
              $
              27,961,760
              
              $
              20,332,147
              
              $
              16,430,553Total
                  Liabilities
              
              $
              25,288,189
              
              $
              28,733,264
              
              $
              28,489,006
              
              $
              21,132,913
              
              $
              19,098,220Total
                  Stockholder's equity
              
              $
              4,856,319
              
              $
              8,733,917
              
              $
              22,055,353
              
              $
              59,146,952
              
              $
              93,806,337
  *Exchange
        Rate Information*
 
 The
        following table sets forth the noon
        buying rates for U.S.
        dollars in effect in New York City for cable transfers of Renminbi as certified
        for customs purposes by the Federal Reserve Bank of New York, for the periods
        indicated.
  Period
                
                Period
                    End
                
                Average
                
                High
                
                Low2003
                
                
                8.2767
                
                
                8.2772
                
                
                8.2800
                
                
                8.27652004
                
                
                8.2765
                
                
                8.2768
                
                
                8.2774
                
                
                8.27642005
                
                
                8.0702
                
                
                8.1940
                
                
                8.2765
                
                
                8.07022006
                
                
                7.8041
                
                
                7.9723
                
                
                8.0702
                
                
                7.80412007
                
                
                7.2946
                
                
                7.6072
                
                
                7.8127
                
                
                7.29462008
                    (as of June 30, 2008)
                
                
                6.8540
                
                
                7.2627
                
                
                7.6278
                
                
                6.8540
 
 As
        of
        September 22, 2008, the exchange rate between Renminbi and U.S. dollars is
        6.8306.
  38
 **Item
                  7.**
                **Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations.**


This
      Annual Report on Form 10-K for the annually period ended June 30, 2008 contains
      “forward-looking statements” within the meaning of Section 27A of the Securities
      Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange
      Act. Generally, the words “believes”, “anticipates,” “may,” “will,” “should,”
“expect,” “intend,” “estimate,” “continue,” and similar expressions or the
      negative thereof or comparable terminology are intended to identify
      forward-looking statements which include, but are not limited to, statements
      concerning the Company's expectations regarding its working capital
      requirements, financing requirements, business prospects, and other statements
      of expectations, beliefs, future plans and strategies, anticipated events or
      trends, and similar expressions concerning matters that are not historical
      facts. Such statements are subject to certain risks and uncertainties, including
      the matters set forth in this Annual Report or other reports or documents the
      Company files with the SEC from time to time, which could cause actual results
      or outcomes to differ materially from those projected. Undue reliance should
      not
      be placed on these forward-looking statements which speak only as of the date
      hereof. The Company undertakes no obligation to update these forward-looking
      statements. In addition, the forward-looking statements in this Annually Report
      on Form 10-K for the annually period ended June 30, 2008 involve known and
      unknown risks, uncertainties and other factors that could cause the actual
      results, performance or achievements of the Company to differ materially from
      those expressed in or implied by the forward-looking statements contained
      herein. Please see the discussion on risk factors in Item 1A of Part II of
      this
      Annual Report on Form 10-K.


GENERAL
          OVERVIEW
 
 *Corporate
          Restructuring and Private Placement of Our Common
          Stock*
 
 We
          were
          originally organized under the laws of the State of Nevada on August 10,
          1998.
          On July 27, 2005, we merged with Asian Financial, Inc., a Wyoming corporation,
          for the purpose of changing our domicile from Nevada to Wyoming. On August
          31,
          2006, we entered into an Equity Transfer Agreement with Duoyuan
          Investments, a British Virgin Islands company with operating subsidiaries
          in the
          PRC. In accordance with the Equity Transfer Agreement, Asian Financial
          purchased
          all of the equity interest of Duoyuan China by issuing Duoyuan Investments
          shares of its common stock. As a result, Duoyuan China became our wholly-owned
          subsidiary, and Wenhua Guo, the sole stockholder of Duoyuan Investments,
          became
          our controlling stockholder. Since our inception and prior to the 2006
          Equity
          Transfer, pursuant to which we acquired the printing press business (namely
          100%
          of Duoyuan China and its subsidiaries), we were a shell company without
          operations, revenues and employees, other than officers and directors.
          Our
          primary activity before the 2006 Equity Transfer was seeking merger or
          acquisition candidates.
 
 On
          November 2, 2006, we closed the transactions contemplated in the Purchase
          Agreement dated October 24, 2006 by and among us and certain unrelated
          investors. In accordance with the Purchase Agreement, we issued an aggregate
          of
          6,132,614 shares (post-split) of our common stock for a per share purchase
          price
          of approximately $3.84 (post-split price) or an aggregate purchase price
          of
          $23.5 million. This private equity financing was made pursuant to the exemption
          from the registration provisions of the Securities Act provided by Section
          4(2)
          of the Securities Act and Rule 506 of Regulation D promulgated thereunder,
          for
          issuances not involving a public offering.
  *Business
          Overview*
  We
          are a
          leading offset printing equipment provider in China. Through our two principal
          operating subsidiaries headquartered in Beijing, China, we design and
          manufacture offset printing equipment used in the three stages of the offset
          printing process: (i) “pre-press”, with the manufacture of a printing plate as
          the end result; (ii) “press”, which involves the transfer of an image by
          applying pressure to an inked surface resting upon a media, the areas which
          print absorb ink while all other areas repel ink; and (iii) “post-press”, which
          refers to peripheral equipment used to cut, fold, bind and collate printed
          materials. We currently commercially produce and sell pre-press and press
          products, and plan to begin commercial production and sales of our post-press
          products in 2010. We produce single-color and multi-color presses which
          are
          available in both small-format and large-format. We combine technical innovation
          and precision engineering to offer a broad range of quality and durable
          offset
          printing equipment at competitive prices. For the fiscal year ended June
          30,
          2008, we generated revenue of $89.6 million and net income of $26.5 million.
          Our
          net cash flow provided by operating activities was $16.8 million for the
          fiscal
          year ended June 30, 2008.
 
 *Our
          Principal Operating Subsidiary* .
          Duoyuan
          China is our operating headquarter for strategic planning, management,
          financing, research and development, sales and marketing, after-sales service
          and other administration functions. Duoyuan China was originally established
          in
          the PRC in 2001 by Duoyuan Industries. Prior to the 2006 Equity Transfer,
          Duoyuan China was controlled by entities formed and owned by Mr. Wenhua
          Guo, our
          controlling shareholder and chairman.
  Duoyuan
          China’s origin in offset press manufacturing can be traced back to 1994 when
          Beijing Duoyuan Electric Co. Ltd (“Duoyuan Electric”), a company established by
          Mr. Guo, produced its first generation of single-color small-format offset
          presses. Besides printing press, Duoyuan Electric also manufactured water
          treatment equipment and fax machines. As the printing industry in China
          developed, Duoyuan Electric’s management took a long-term view on our printing
          press business and decided to spin off the printing business into a new
          entity.
          On June 21, 2001, Duoyuan China was established to focus on the development,
          manufacturing and marketing of printing equipment. Duoyuan China
          acquired only the relevant intellectual property and know-how relating
          to the production of printing presses from Duoyuan Electric, with the remaining
          assets and liabilities retained by Duoyuan Electric (which continued to
          operate
          as a separate entity manufacturing water treatment equipment and fax machines).
          Duoyuan Electric operates in different industry sectors from Duoyuan China
          and
          does not compete with Duoyuan China.
 
 *Our
          Manufacturing Subsidiaries and Facilities.* Duoyuan
          Digital Printing Technology Industries (China) Co., Ltd. (“Langfang Duoyuan”),
          established in 2002, is our manufacturing base for pre-press and post-press
          products, as well as small-format press products. Duoyuan China first acquired
          a
          5% capital interest in Langfang Duoyuan in 2002, then in 2005 acquired
          an
          additional 90% capital interest in Langfang Duoyuan. In both cases, the
          equity
          transfer was made by and the consideration was paid to entities controlled
          by
          Mr. Guo. Currently, the remaining 5% capital interest of Langfang Duoyuan
          is
          owned by an entity formed and controlled by Mr. Guo, Beijing Yinghang Yinlu
          Advertisement Co. Ltd., (“Huiyuan Duoyuan”), an original shareholder of Langfang
          Duoyuan.




39




Hunan
        Duoyuan Printing Equipment Manufacturer Co., Ltd. (“Hunan Duoyuan”) is our
        manufacturing base for large-format offset presses. Duoyuan China acquired
        Hunan
        Duoyuan in March 2004, in which Duoyuan China and Langfang Duoyuan acquired
        88%
        and 12% of Hunan Duoyuan’s capital interest, respectively. Prior to this
        acquisition, Hunan Duoyuan was known as Hunan Printing presses Co., Ltd.
        and was
        formerly a state-owned enterprise founded in 1969. Hunan Duoyuan was
        historically one of three major large-format offset press manufacturers in
        China
        and was designated to produce multi-color presses. Duoyuan China acquired
        Hunan
        Duoyuan to acquire the customer base and production capacity for large-format
        offset press.





None
        of
        the entities formed or controlled by Mr. Guo involved in the foregoing
        transactions engages in the same industry sector as Duoyuan China or competes
        with Duoyuan China.





We
        believe we are one of the leaders in the design and development of offset
        printing equipment and solutions in China. We have research and development
        centers located in Langfang Duoyuan and Hunan Duoyuan that are staffed by
        nearly
        200 highly talented engineers, which enables us to continuously launch new
        products with improved quality and functionality into the market. Our sales
        and
        distribution network consists of over 200 sales professionals in over 60
        cities
        and 23 provinces throughout China. We believe we have one of the largest
        sales
        and distribution network among our competitors in China. Our operations in
        the
        PRC give us cost advantages, enabling us to offer our products at one-quarter
        to
        one-third the price of our international competitors.


40


COMPONENTS
          OF REVENUE AND EXPENSES
  *Revenue*
  We
          historically derived all **** our
          revenue from pre-press and press sales. In fiscal 2008, these two product
          categories accounted for 3.5% and 96.5% of our revenue, net of VAT,
          respectively. We began our research and test production of multi-color
          presses
          in 2000, and in 2003, we began small scale production and sales of multi-color
          presses. After our acquisition of Hunan Duoyuan in 2004, we increased our
          capability to manufacture multi-color large-format presses. Since then,
          we have
          launched a series of multi-color large-format press products. The majority
          of
          our multi-color large-format presses are manufactured at Hunan Duoyuan,
          which
          was historically one of three major large-format offset press manufacturers
          in
          China and was designated to produce multi-color presses. Hunan Duoyuan’s
          manufacturing capacities ensure the quality and output quantity of our
          multi-color press products. Because of the increasing market demand for
          multi-color large-format presses in China, which typically have higher
          profit margins than single-color and small-format presses, we will continue
          focusing on expanding our multi-color large-format press production
          capacities, product offerings, and sales network.
  Sales
          to
          distributors accounted for all of our revenue. We
          use an
          extensive distribution network to reach a broad customer base. We generally
          generate sales on a purchase order and short-term agreement basis. We do
          not
          have long-term contracts with any of our distributors or end-user customers. No
          single
          distributor accounted for more than 5% of our revenue in fiscal years 2006,
          2007
          or 2008.
  We
          expect
          annual revenue adjustments of between 1% and 2%. These adjustments
          reflect sales rebates we pay to our distributors who exceed their
          annual sales targets. Such sales rebates are paid at the end of each calendar
          year.
  *Cost
          of Sales*
  Our
          cost
          of sales consists primarily of direct costs to manufacture our products,
          including component and raw material costs, salaries and related manufacturing
          personnel expenses, production plant and equipment depreciation, shipment
          and
          handling costs, and warranty-based repair and maintenance costs. **** The
          direct costs of manufacturing a new product are generally highest when
          a new
          product is first introduced due to (i) start-up costs associated with
          manufacturing a new product and (ii) generally higher raw material and
          component
          costs due to lower initial production volumes. As production volumes increase,
          we typically improve our manufacturing efficiencies and are able to strengthen
          our purchasing power by producing certain key components in-house and buying
          raw
          materials and components in greater quantities, which decreases raw materials
          and components costs.
  We
          purchase substantially all of our raw materials and components from China-based
          suppliers or those manufactured in China. Our principal raw materials are
          steel
          and electronic components.
  *Gross
          Profit*
  Our
          gross
          profit margins are affected by our products’ average selling prices, our product
          mix and cost of sales. The average selling prices for our products may
          decline
          if competitors lower their prices and we respond by reducing prices for
          some of
          our products to compete more effectively, or if we choose to lower our
          prices to
          gain market share or because of decreased cost of sales. Alternatively,
          we are
          able to increase our average selling prices in certain circumstances, such
          as when we introduce new or enhanced products into the
          market.
  Our
          more
          sophisticated and technologically advanced products, such as our multi-color
          presses and pre-press equipment, generally have higher gross profit margins
          than
          our less sophisticated and technologically advanced products, such as our
          single-color small-format presses. Therefore, product mix impacts our overall
          gross profit margins.
  *Research
          and Development Expenses*
  Our
          research and development expenses consist primarily of costs associated
          with
          product design, development and testing, including employee subsidies and
          benefits for our research and development staff, related supply and raw
          material
          purchases, depreciation expenses related to equipment used for research
          and
          development and other related costs. The two primary focus of our research
          and
          development efforts are upgrading existing products and designing new products,
          such as our multi-color presses and post-press products.
  *Selling,
          General and Administrative Expenses*
 
 Our
          selling expenses consist primarily of employee subsidies and benefits for
          our
          sales and marketing staff and marketing, sales, advertising, travel and
          entertainment activities expenses .
  Our
          general and administrative expenses consist primarily of employee compensation
          and benefits for our general management, finance and administrative staff,
          depreciation and amortization with respect to equipment used for general
          corporate purposes, consultancy fees and other expenses incurred for general
          corporate purposes. We expect our general and administrative expenses to
          increase, as we add management staff and other professionals such as
          attorneys and consultants as our business expands.


*Liquidated
        Damages Expenses*





As
        a
        result of our failure to register the resale of the securities acquired from
        us
        in our October 2006 private placement and to timely settle our related party
        balances, we recorded liquidated damages totaling $2.1 million for the fiscal
        year ended June 30, 2007. In November 2007, we reached a settlement with
        investors who agreed to waive all penalties due in exchange for warrants
        or cash
        payments. We settled all liquidated damages claims in the third quarter of
        fiscal 2008, therefore, we reversed the accrual and recognized a liquidated
        damages gain of $0.9 million for fiscal 2008. See “Critical Accounting
        Policies—Liquidated Damages.”




*Other
        Income/(Expense)*





Other
        income (expense) is comprised primarily of interest expenses, interest income
        and rental income.


41


**
 **Minority
          Interests**
 
 Minority
          interests refer to the 5% direct capital interest of Langfang Duoyuan and
          0.6%
          indirect capital interest of Hunan Duoyuan held by the Huiyuan Institute.
          For a
          summary of Huiyuan Institute’s equity ownership, see “Business—Acquisition of
          Duoyuan.”
 
 *Provision
          for Income Tax*
 
 Our
          effective tax rate was 0.0%, 16.5% and 10.9% for the fiscal years ended
          June 30,
          2006, 2007 and 2008, respectively. See Note 2 to our Consolidated Financial
          Statements.
 
 *Foreign
          Currency Translation Adjustment*
 
 We
          use
          USD in our financial reporting, while substantially all of our revenues
          and
          expenses are denominated in RMB. Our results of operations and cash flow
          are
          calculated based on the average exchange rate during the relevant periods.
          Our
          assets and liabilities are calculated based on the uniform exchange rate
          announced by the People’s Bank of China at the end of the relevant periods. Our
          share capital is calculated based on historical exchange rates. This practice
          is
          in compliance with U.S. GAAP.
  CRITICAL
          ACCOUNTING POLICIES
 
 We
          prepare our financial statements in accordance with U.S. GAAP, which requires
          us
          to make estimates and judgments that affect the reported amounts of assets,
          liabilities, revenues and expenses, and related disclosure of contingent
          assets
          and liabilities. We evaluate our estimates and judgments, including those
          related to sales, returns, pricing concessions, bad debts, inventories,
          investments, fixed assets, intangible assets, income taxes and other
          contingencies, based on our historical experience and various other assumptions
          that we believe are reasonable under the circumstances. Actual results
          may
          differ from these estimates under different assumptions or
          circumstances.
 
 We
          believe the following accounting policies are critical to the portrayal
          of our
          financial condition and results of operations, and require difficult, subjective
          or complex management judgments, often as a result of the need to estimate
          the
          effects of matters that are inherently uncertain.
 
 *Revenue
          Recognition*
 
 We
          recognize revenue in accordance with Staff Accounting Bulletin No. 104,
          Revenue Recognition, which specifies that revenue is realized or realizable
          and
          earned when four criteria are met:
  ·
                persuasive
                    evidence of an arrangement exists, such as sales contracts;
 
 ·
                delivery
                    has occurred or services have been
                    rendered;
 
 ·
                the
                    price to the buyer is fixed or determinable;
                    and
 
 ·
                collectability
                    of payment is reasonably
                    assured.
 
 We
          sell
          our products solely to our distributors under master distribution agreements.
          The agreements list the material terms and conditions with the exception
          of
          delivery, price and quantity terms, which are evidenced separately in purchase
          orders. We do not sell to distributors on consignment. Subject to credit
          terms
          discussed below, payment is due before shipment. Title transfers when our
          products are shipped. Our distributors have a right to return within one
          month
          after we have shipped the products, only if our products have manufacturing
          defects that cannot be repaired. We have never had any returns and therefore
          make no allowance for returned products.
 
 We
          typically recognize revenue when the goods are shipped and title has passed.
          Sales revenue represents the invoiced value of goods, net of value-added
          tax, or
          VAT. The products we sell in China are subject to a 17% Chinese VAT based
          on the
          gross sales price. This VAT may be offset by the VAT paid by us on raw
          materials
          and other materials included in the cost of producing the finished product.
          Our
          distributors are able to install our products without our assistance. As
          a
          result, there is no substantial performance required on our part and our
          revenue
          recognition is not impacted.


Purchase
        prices are fixed in purchase orders. Customers may not renegotiate pricing
        after
        signing a purchase order. Our master distribution agreements, which typically
        have a one year term with annual renewal, do not include purchase order
        cancellation or termination clauses.





Our
        master distribution agreements warrant our products for one year and, on
        rare
        occasions, include an obligation to provide spare parts to distributors.
        Warranty costs equaled 1.5% and 0.03% of revenue in fiscal years 2007 and
        2008,
        respectively. There is no statutory product warranty in
        China.





We
        granted sales rebate to distributors based on the percentage of annual cash
        receipt. We accounts for the sales rebate in accordance with Emerging Issues
        Task Force (“EITF”) Issue 01-09, “Accounting for Consideration Given by a Vendor
        to a Customer (Including a Reseller of the Vendor's Products)”. The sales rebate
        is included as a reduction of sales and accounts receivable to be received
        by
        the Company.


42


*Accounts
          Receivable, Trade and Allowance for Doubtful
          Accounts*
 
 During
          the normal course of business, we extend unsecured credit to some of our
          distributors. We assign credit limits to each distributor. As a distributor
          builds a sales history with us, we may adjust the credit limits. Our management
          reviews these credit limits from time to time and make adjustments as it
          deems
          advisable.
 
 For
          single-color presses, distributors must pay 100% of the purchase price
          before
          shipment. For multi-color presses, distributors are required to pay between
          50%
          and 70% of the purchase price before shipment. Our sales representatives
          evaluate the creditworthiness of the end-user customer and the distributor,
          and
          in turn, determine the payment installment schedule for the remaining 30%
          to 50%
          of the multi-color press purchase prices. These payment installment schedules
          generally last for one year or less. The distributor’s payment installment
          schedule is tied to the end-user customer’s payment schedule and payment
          history. Distributors must not exceed the credit maximum and time limit
          we
          impose. These payment installment schedules, while increasing our overall
          receivables level at any time, allow (i) a broader range of end-user customers
          to purchase larger and more advanced multi-color presses and (ii) these
          end-user
          customers to utilize the revenues generated by the new presses to pay the
          related purchase price, which we believe helps increase sales of our multi-color
          presses since 2004. The payment installment schedules are fixed upon signing
          the
          purchase order. If we believe a distributor cannot pay according to its
          payment
          installment schedule, we will not recognize the revenue until we have received
          payment. If payment is received, we recognize revenue upon shipment as
          no
          further performance by us is required.
 
 We
          review
          accounts receivable on a quarterly basis to determine if the allowance
          for
          doubtful accounts is adequate. We record a reserve for doubtful accounts
          when
          collection of the full amount is no longer probable. Our reserves of $0.5
          million as of June 30, 2007 and $1.2 million as of June 30, 2008, are consistent
          with our historical experience and we consider it adequate.
 
 *Inventories*
 
 We
          record
          inventories at the lower of cost or market, using the weighted-average
          method.
          We review our inventory on a regular basis for possible obsolete goods
          by
          examining our products’ shelf life and distributor demand to determine if any
          reserve is necessary for potential obsolescence. However, most of our
          products are manufactured on a purchase order basis. We determined that
          no
          reserves were necessary for the fiscal years ended June 30, 2006, 2007
          and
          2008.
 
 *Liquidated
          Damages*
 
 In
          October 2006, we raised $23.5 million by issuing shares in a private placement
          and agreed to (i) register the resale of those shares with the SEC within
          90
          days of the closing pursuant to a registration rights agreement and (ii)
          terminate identified related party transactions. Our failure to timely
          file the
          registration statement and have it declared effective and to timely terminate
          the related party transactions resulted liquidated damages in the form
          of
          monthly cash penalties. We recorded related liquidated damages and expenses
          of
          $2.1 million in fiscal 2007. In
          November 2007, we reached a settlement with investors who agreed to waive
          all
          penalties due in exchange for warrants or cash payments. We
          settled all liquidated damages claims in the third quarter of fiscal 2008,
          therefore, we reversed the accrual and recognized a liquidated damages
          gain for
          fiscal 2008.
 
 These
          liquidated damages and their settlement are treated in accordance with
          Statement
          of Financial Accounting Standards No. 5, Accounting for Contingencies.
 
 The
          registration penalty meets the definition of a registration payment arrangement
          as defined in Financial Accounting Standards Board’s, or FASB, Staff Position
          No. EITF 00-19-2, Accounting for Registration Payment Arrangements, or
          EITF
          00-19-2. In accordance with EITF 00-19-2, paragraph 7, the contingent obligation
          to make future payments or otherwise transfer consideration under a registration
          payment and related party arrangement is recognized and measured separately.
          In
          accordance with FASB Interpretation No. 14, Reasonable Estimation of the
          Amount
          of Loss, we have recorded an expense and a liability equal to the minimum
          estimated loss. In November 2007, we reached a settlement with our investors
          who
          agreed to waive all penalties due in exchange for warrants or cash payments.
          Therefore, we reversed the accrual and recognized a gain, which is included
          in
          liquidated damages as a credit balance in the accompanying financial
          statements.
 *Impairment
            of Long-Lived Assets, including Intangible Assets and Fixed
            Assets*
 
 We
            review
            our long-lived assets for impairment whenever events or changes in circumstances
            indicate that the carrying amount of an asset may no longer be
            recoverable.
 
 When
            these events occur, we measure impairment by comparing the carrying value
            of the
            long-lived assets to the estimated undiscounted future cash flows expected
            to
            result from the use of the assets and their eventual disposition. If
            the sum of
            the expected undiscounted cash flows is less than the carrying amount
            of the
            assets, we recognize an impairment loss based on the fair value of the
            assets.
            We have not suffered any impairment of long-lived assets.
 
 As
            of
            June 30, 2008, we expect the long-lived intangible assets on our balance
            sheet,
            primarily related to the March 2004 acquisition of Hunan Duoyuan, to
            be fully
            recoverable.


*Income
          Tax*
 
 We
          recognize deferred income taxes for temporary differences between the tax
          basis
          of assets and liabilities and their reported amounts in the financial
          statements, net operating loss carry-forwards and credits, by applying
          enacted
          statutory tax rates applicable to future years.
 
 We
          reduce
          deferred tax assets by a valuation allowance when, in the opinion of management,
          it is more likely than not that some portion or all of the deferred tax
          assets
          will not be realized. We provide for current income taxes in accordance
          with the
          laws of the relevant tax authorities.
 
 RECENT
          ISSUED ACCOUNTING PRONOUNCEMENTS
 
 For
          a
          summary of the recent issued accounting pronouncements, see Note 2 to our
          Consolidated Financial Statements.
  43


RESULTS
          OF OPERATIONS
 
 **Year
                    Ended June 30,****2006**
                
                **2007**
                
                **2008**$
                
                %
                
                $
                
                %
                
                
                
                %**(dollars
                    in thousands)**Revenue
                
                
                43,747
                
                
                100.00
                
                
                67,812
                
                
                100.00
                
                
                89,628
                
                
                100.00Cost
                    of sales
                
                
                22,478
                
                
                51.4
                
                
                37,694
                
                
                55.6
                
                
                44,462
                
                
                49.6Gross
                    profit
                
                
                21,269
                
                
                48.6
                
                
                30,118
                
                
                44.4
                
                
                45,166
                
                
                50.4Selling,
                    general and administrative expenses
                
                
                6,649
                
                
                15.2
                
                
                10,905
                
                
                16.1
                
                
                13,177
                
                
                14.7Research
                    and Development
                
                
                1,037
                
                
                2.4
                
                
                1,046
                
                
                1.5
                
                
                1,683
                
                
                1.9Income
                    from operationsless
                    settled accounts
                
                
                13,583
                
                
                31.0
                
                
                18,167
                
                
                26.8
                
                
                30,306
                
                
                33.8Liquidated
                    damage income (expenses), net of settlement
                
                
                0
                
                
                **--**
                
                
                (2,119
                )
                
                (3.1
                )
                
                235
                
                
                0.3Change
                    of the fair value of derivative instruments
                
                
                0
                
                
                --
                
                
                0
                
                
                **--**
                
                
                73
                
                
                0.1Other
                    income (expense), net
                
                
                (239
                )
                
                (0.5
                )
                
                (21
                )
                
                (0.3
                )
                
                (535
                )
                
                (0.6
                )Income
                    before minority interests and provision for income taxes
                
                
                13,344
                
                
                30.6
                
                
                16,027
                
                
                23.6
                
                
                30,079
                
                
                33.6Minority
                    interest
                
                
                187
                
                
                0.4
                
                
                241
                
                
                0.4
                
                
                382
                
                
                0.4Provision
                    for income taxes
                
                
                261
                
                
                0.6
                
                
                1,807
                
                
                2.7
                
                
                3,238
                
                
                3.6Net
                    income
                
                
                12,896
                
                
                30.2
                
                
                13,979
                
                
                20.6
                
                
                26,459
                
                
                29.5Other
                    comprehensive income
                  Foreign
                    currency translation adjustment
                
                
                426
                
                
                1.0
                
                
                1,834
                
                
                2.7
                
                
                8,200
                
                
                9.1Comprehensive
                    income
                
                
                13,321
                
                
                31.5
                
                
                15,813
                
                
                23.3
                
                
                34,659
                
                
                38.7
  *Comparison
          of the Fiscal Years ended June 30, 2008 and 2007*
 
 *Revenue*
 
 Our
          revenue was $89.6 million for the year ended June 30, 2008, an increase of
          $21.8 million, or 32%, compared to $67.8 million for fiscal 2007. This
          increase
          was primarily due to the continued growth in the sales of our multi-color
          presses, which is attributed to the continued increase in the market demand
          for
          such products and our expanded sales network for multi-color presses. The
          top
          selling models, which represented more than 50% of our total revenues in
          fiscal 2008, were all multi-color presses. We historically derived
          all **** our
          revenue from sales of our pre-press and press products. In fiscal 2008,
          these
          two product categories accounted for 3.5% and 96.5% of our revenue, net
          of VAT,
          respectively, compared to 5.5% and 94.5% in fiscal 2007. In fiscal 2008,
          sales
          of multi-color presses accounted for 79.7% of our revenue, compared to
          71.4% in
          fiscal 2007, and we expect this percentage to increase as we continue to
          expand
          our sales network for multi-color press products in response to changing
          market
          demands.
  *Cost
          of Sales*
 
 Cost
          of
          sales was $44.5 million for the year ended June 30, 2008, an increase of
          $6.8 million, or 18%, compared to $37.7 million in fiscal 2007. Cost of
          sales as a percentage of revenue was 55.6% and 49.6% in fiscal years 2007
          and 2008, respectively. In fiscal 2008, the decrease in cost of sales as
          a
          percentage of revenues was mainly attributable to (i) the increase in sales
          of
          our large-format multi-color presses, which typically have lower costs
          and higher profit margins than our other products, and (ii) Hunan
          Duoyuan began manufacturing certain key components in-house starting in
          May
          2007, which led to a reduction in the unit cost of our products.
 
 *Gross
          Profit*
  G ross
          profit was $45.2 million for the year ended June 30, 2008, an increase
          of $15.1 million, or 50%, compared to $30.1 million in fiscal 2007. Gross
          profit margin was 44.4% and 50.4% for fiscal years 2007 and 2008, respectively.
          This increase in gross profit margin was due to the decrease in cost of
          sales as
          a percentage of revenues as discussed above in “—Cost of Sales”, and also an
          8.3% increase in the sales of our multi-color presses. Our gross profit
          margins
          are affected by our products’ average selling prices, the mix of products sold
          and cost of sales. Given recent market trends and to better offset raw
          material
          prices and maintain our gross profit, we have been adjusting our product
          mix by
          increasing our production and sales of multi-color large-format presses
          while
          decreasing our production and sales of single-color small-format presses.
 
 *Selling,
          General and Administrative Expenses*
 
 Selling,
          general and administrative expenses were approximately $13.2 million for
          the year ended June 30, 2008, an increase of $2.3 million, or 20.8%,
          compared to $10.9 million in fiscal 2007. Most of the increase was due to
          increases of our management and sales personnel salaries, and higher
          advertisement costs and travel and transportation expenses as we attended
          more
          industry exhibitions and conferences to build brand awareness.
          As percentages of revenues, our selling, general and administrative
          expenses were 16.1% and 14.7% for fiscal years 2007 and 2008, respectively.


*Research
          and Development Expenses*
 
 Research
          and development expenses for the year ended June 30, 2008 were $1.7
          million, an increase of $0.6 million, or 61%, compared to $1.0 million in
          fiscal 2007, mainly because of increased expenses associated with the
          increased salaries of research and development employees, as well as cost
          for
          producing automatic paper cutter and automatic booklet maker prototypes.
  44
  *Other
          Income/(Expenses)*
 
 Other
          expenses were $0.5 million for the year ended June 30, 2008, an increase
          of $0.5
          million, compared to $0.02 million in fiscal 2007. This increase was because
          we
          did not have rental income in fiscal 2008, while our rental income in fiscal
          2007 was $0.4 million. See Note 5 to our Consolidated Financial
          Statements.
  *Liquidated
          Damages Expenses*
 
 There
          were no liquidated damages related to the October 2006 private placement
          in
          fiscal 2008 nor do we expect to have any liquidated damages related to
          the
          private placement in the future. For the year ended June 30, 2007, we accrued
          a
          total of $2.1 million for the liquidated damages pursuant to the registration
          rights agreement and the securities purchase agreement. In November 2007,
          we
          reached a settlement with investors who agreed to waive all penalties due
          in
          exchange for warrants or cash payments. During the first half of the year
          ended
          June 30, 2008, we accrued an additional $0.7 million for the liquidated
          damages.
          We settled all liquidated damages claims in the third quarter of fiscal
          2008.
          Therefore, we reversed the accrual and recognized a liquidated damages
          gain $0.9
          million for fiscal 2008. This amount has been included in liquidated damages
          expenses on our financial statements in according with EITF 00-19-2.
 45


*Minority
          Interests*
 
 Minority
          interests for the year ended June 30, 2008 were $0.4 million, an
          increase of $0.2 million compared to $0.2 million in the same period in
          2007.
          The increase in minority interest is mainly due to the increase of net
          income in
          Langfang Duoyuan and Hunan Duoyuan.
  *Provision
          for Income Taxes*
 
 Provision
          for income taxes for the year ended June 30, 2008 was $3.2 million, an
          increase
          of $1.4 million, or 77.8%, compared to $1.8 million in fiscal 2007. Duoyuan
          China began paying income tax in January 1, 2006. The income tax rate for
          Duoyuan China in first half of fiscal 2008 was 16.5%, and the income tax
          rate
          for Duoyuan China in the second half of fiscal 2008 was 12.5%. Beginning
          January
          1, 2009, the income tax rate for Duoyuan China will increase to 25%. Pursuant
          to
          the tax preferential treatment granted by the local government, Langfang
          Duoyuan
          began paying income tax in January 1, 2008, and it was tax exempted prior
          to
          fiscal 2008. The income tax rate for Langfang Duoyuan was 0% in the first
          half
          of 2008 and 25% in the second half of fiscal 2008. Pursuant to the tax
          preferential treatment granted by the local government, Hunan Duoyuan is
          tax
          exempted through calendar year 2009.
 
 *Net
          Income*
 
 As
          a
          result of the foregoing, n et ** income
          was $26.5 million for the year ended June 30, 2008, an increase of $12.5
          million, or 89%, compared to $14.0 million for the same period in 2007,
          mainly
          due to increase in sales which lead to increase in gross profit of $15.0
          million
          offsetting by increase in selling, general and administrative expense of
          $3.1
          million.
 
 *Foreign
          Currency Translation Adjustment*
 
 The
          foreign currency translation adjustment for fiscal 2008 was $8.2 million,
          an
          increase of $6.4 million compared to $1.8 million in the same period in
          2007.
          The increase in the foreign currency translation adjustment is due to the
          appreciation of RMB against USD. Our assets and liabilities are translated
          at a
          rate of 6.85 RMB to 1.00 USD, our operations results are translated at
          a rate of
          7.26 RMB to 1.00 USD, and our equity accounts are translated at historical
          rates.
 
 *Comparison
          of the Fiscal Years Ended June 30, 2007 and 2006*
 
 *Revenue*
 
 Our
          revenue was $67.8 million for the year ended June 30, 2007, an increase of
          $24.1 million, or 55.1%, compared to $43.7 million in fiscal 2006. This
          increase was mainly attributable to an increase in the number of units
          sold,
          especially multi-color presses. We historically derived all **** our
          revenue from sales of our pre-press and press products. In fiscal 2007,
          these
          two product categories accounted for 5.5% and 94.5% of our revenue, net
          of VAT,
          respectively, compared to 5.3% and 94.7% in fiscal 2006. In fiscal 2007,
          sales of  our multi-color presses accounted for 71.4% of our revenue,
          compared to 58.6% in fiscal 2006, and we expect this percentage to increase
          as
          we continue to expand our sales network for multi-color press
          products.
 
 *Cost
          of Sales*
 
 Cost
          of
          sales increased to $37.7 million for the year ended June 30, 2007, an increase
          of $15.2 million, or 67.6%, compared to $22.5 million in fiscal 2006.
          As a percentage of revenue, cost of sales increased to 56% in fiscal 2007
          from
          51% in fiscal 2006. The increase in cost of sales as a percentage of revenue
          was
          mainly attributable to lower productivity as some employees were shifted
          to a
          different product category to produce large-format multi-color printing
          presses.
          Increased materials costs, primarily that of steel, higher utilities costs,
          and
          also costs associated with equipment upgrade contributed the increase in
          cost of
          sales.
  *Gross
          Profit*
 
 Gross
          profit was $30.1 million for the year ended June 30, 2007, an increase
          of $8.8
          million, or 41.6%, compared to $21.3 million in fiscal 2006. Gross profit
          margin
          decreased from 48.6% in fiscal 2006 to 44.4% in fiscal 2007. This decrease
          in
          gross profit margin percentage was due to the factors discussed above in
“—Cost
          of Sales.”
 
 *Selling,
          General and Administrative Expenses*
 
 Selling,
          general and administrative expenses were approximately $10.9 million for
          the
          year ended June 30, 2007, an increase of $4.3 million, or 64.0%, compared
          to $6.6 million in fiscal 2006. This increase was primarily due to increased
          expenses related to our attendance at industry exhibitions and
          conventions, advertising and marketing costs, and costs associated with
          the
          expansion of our multi-color press sales network. As percentages of revenues,
          selling, general and administrative expenses were 15.2% and 16.1% for fiscal
          years 2006 and 2007, respectively.
  *Research
          and Development Expenses*
 
 Research
          and development expenses were $1.0 million for each of the years ended
          June 30, 2007 and 2006.
  *Liquidated
          Damages Expenses*
 
 We
          recorded $2.1 million in liquidated damage expenses related to the October
          2006
          private placement in fiscal year ended June 30, 2007. We did not record
          any
          liquidated damages expenses in fiscal 2006.
  *Other
          Income/(Expenses)*
 
 Other
          expenses were $0.02 million for the fiscal year ended June 30, 2007, a
          decrease
          of $0.2 million, compared to $0.2 million in fiscal 2006. This decrease
          was due
          to rental income of $0.4 million in fiscal 2007 offset by interest expenses
          on
          our short-term bank loans.
  46
  *Minority
          Interests*
 
 Minority
          interests for each of the years ended June 30, 2007, and 2006 were $0.24
          million and $0.19 million, respectively.
 
 *Provision
          for Income Taxes*
 
 Provision
          for income taxes was $1.8 million for the year ended June 30, 2007, an
          increase of $1.5 million, compared to $0.3 million in fiscal 2006. Fiscal
          year
          2006 only included six months income tax. The tax exemption for Duoyuan
          China
          ended on December 31, 2006. Duoyuan China was subject to 16.5% income tax
          rate
          for the fiscal year ended June 30, 2007.
 
 *Net
          Income*
 
 As
          a
          result of the foregoing, net income was $14.0 million for the year ended
          June
          30, 2007, an increase of $1.1 million, or 8.4%, compared to $12.9 million
          in
          fiscal 2006. Net income margin decreased to 20.6% for the fiscal year ended
          June 30, 2007 from 29.6% in the fiscal year ended June 30, 2006. This decrease
          was mainly attributed to the accrual of liquidated damages and the related
          party
          transaction penalty, which together was equivalent to over 3% of our revenue
          for
          fiscal 2007.


47


*Foreign
          Currency Translation Adjustment*
 
 Foreign
          currency exchange adjustment for the fiscal year ended June 30, 2007 was
          $1.8
          million, an increase of $1.4 million compared to $0.4 million in fiscal
          2006.
 
 The
          reason for the increase in the foreign currency exchange adjustment is
          RMB’s
          appreciation against USD. For the year ended June 30, 2007, our assets
          and
          liabilities are translated at a rate of 7.60 RMB to 1.00 USD, and our operating
          results are translated at 7.81 RMB to 1.00 USD. For fiscal year 2006, our
          assets
          and liabilities are translated at a rate of 8.01 RMB to 1.00 USD, and our
          operating results are translated at 8.06 RMB to 1.00 USD. Our equity accounts
          are calculated on basis of historical exchange rates.
  *Liquidity
          and Capital Resources*
 
 The
          following table sets forth a summary of our cash flows for the fiscal years
          ended June 30, 2006, 2007 and 2008.
 
 Year
                    ended June 30,2006
                2007
                2008**(Dollars
                    in thousands)**Net
                    cash provided by (used in) operating activities
                4,933
                (4,200)
                16,801Net
                    cash used in investing activities
                (1,563)
                (11,081)
                (10,524)Net
                    cash provided by (used in) financing activities
                0
                19,171
                (1,092)
  As
          of
          June 30, 2008, we had cash and cash equivalents of $14.2 million, accounts
          receivable of $33.2 million and inventories of $24.0 million. Our working
          capital was $55.6 million and our equity was $93.8 million. We believe
          that we
          have sufficient working capital resources for our present requirements.
          Our
          internally generated funds are dependent on the continued profitability
          of our
          business.
 
 *Net
          cash provided by (used in) operating activities.* Net cash
          provided by operating activities for the year ended June 30, 2008 was $16.8
          million, compared to net cash used by operating activities of $4.2 million
          in
          fiscal 2007. Operating cash flow increased by $21.0 million during the
          year
          ended June 30, 2008 compared to fiscal 2007. For the year ended June 30,
          2008,
          accounts payable were decreased by $1.3 million. In addition, for the year
          ended
          June 30, 2008, compared to the same period last year, we increased net
          income by
          $12.5 million to $26.5 million, adding to our cash provided by operating
          activities. This increase in net income is offset by the increase of $9.7
          million of accounts receivable, increase of $1.6 million of inventories,
          decrease of $1.3 million of accounts payable and depreciation expenses
          of $2.2
          million.
 
 *Net
          cash provided by (used in) investing activities.* Currently our main uses of cash for investing activities are prepayments
          for
          equipment purchases and payments for construction projects. Net cash used
          in
          investing activities was $10.5 million for the year ended June 30, 2008,
          compared to net cash used in investing activities of $11.1 million in fiscal
          2007. During the year ended June 30, 2008, the investing activities primarily
          include developing infrastructure for Langfang Duoyuan, as well as renovation
          and upgrade of the technology, facility, and equipments at Hunan
          Duoyuan.
 
 *Net
          cash provided by (used in) financing activities.* Net cash
          used in financing activities was $1.1 million for the year ended June 30,
          2008,
          which was a result of our payment for lines of credit exceeding proceeds
          by
          approximately $2.8 million offset by a decrease in restricted cash of $2.1
          million, compared to net cash provided by financing activities of $19.2
          million
          in fiscal 2007.
  48
  As
          of
          June 30, 2008, the maturities for our bank loans were as
          follows:
 
 June
                    30,
                
                June
                    30,2007
                
                2008(dollars
                    in thousands)Loan
                    from Bank of Agriculture, Chongwen branch dueJune
                    29, 2008. Quarterly interest only payment at6.732%
                    per annum, secured by plant and machinery
                
                $
                2,630
                
                $
                0Loan
                    from Bank of Agriculture, Chongwen branch dueJuly
                    12, 2008. Quarterly interest only payment at6.732%
                    per annum, secured by plant and machinery
                
                
                2,630
                
                
                2,918Loan
                    from Bank of Agriculture, Chongwen branch dueJuly
                    19, 2008. Quarterly interest only payment at7.227%
                    per annum, secured by plant and machinery
                
                
                3,682
                
                
                4,085Loan
                    from Bank of Agriculture, Chongwen branch dueJuly
                    26, 2008. Quarterly interest only payment at7.227%
                    per annum, secured by plant and machinery
                
                
                2,630
                
                
                2,918Loan
                    from Bank of Agriculture, Chongwen branch dueMarch
                    13, 2009. Quarterly interest only payment at8.57%
                    per annum, secured by plant and machinery
                
                
                1,315
                
                
                1,459Total
                
                $
                12,887
                
                $
                11,380
 
 As
          shown
          in the above table, we had $11.4 million in loans outstanding as of June
          30,
          2008.  We plan to either repay this debt as it matures or refinance this
          debt with other debt. These loans were made under our RMB 100.0 million
          ($14.3
          million) revolving credit lines. We are allowed to refinance these loans
          by
          entering into new short-term loan agreements. Banks in China are subject
          to
          nation banking regulations and may withdraw the credit line if regulations
          change. If the bank were to withdraw our credit line, we would use cash
          on hand
          or external financings to reply outstanding amounts.




49


*Capital
            Expenditures*
 
 Our
            capital expenditures for the year ended June 30, 2008 were $10.5 million.
            Our
            current planned capital expenditures are in relation to the launch of
            the
            proposed cold-set corrugated printing press business described in “—Net Cash
            Used in Investing Activities,” for which we had incurred related preliminary
            expenses of $4.1 million as of June 30, 2008. We plan to purchase patents
            to
            acquire key technologies for producing the corrugated packing machine.
            We have
            an agreement in principle, subject to final documentation, in which we
            expect
            the total purchase price for such patents to be approximately $1.3 million.
            We
            intend to make capital expenditures of approximately $30.0 million in
            connection
            with the corrugated packing machine business in calendar years 2008 to
            2010.
 
 OFF-BALANCE
            SHEET ARRANGEMENTS
 
 We
            have
            not entered into any off-balance sheet
            arrangements.
  CONTRACTUAL
          OBLIGATIONS
 
 The
          contractual obligations presented in the table below represent our estimates
          of
          future payments under fixed contractual obligations and commitments as
          of June
          30, 2008. Changes in our business needs or interest rates, as well as actions
          by
          third parties and other factors, may cause these estimates to change. Because
          these estimates are complex and necessarily subjective, our actual payments
          in
          future periods are likely to vary from those presented in the
          table.
  **Obligations**
                
                **Total
                    Ending Balance**
                
                **Less**
                  **Than
                    One Year**
                
                **1-3**
                  **Years**
                
                **3-5**
                  **Years**
                
                **More
                    than**
                  **5
                    years****(dollars
                    in thousands)**Long
                    Term Debt Obligations
                
                $
                --
                
                $
                --
                
                
                --
                
                
                --
                
                
                --Capital
                    Lease Obligations
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Operating
                    Lease Obligations
                
                $
                82
                
                $
                82
                
                
                --
                
                
                --
                
                
                --Purchase
                    Obligations
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Repayment
                    Obligations under Line of Credit
                
                $
                11,380
                
                $
                11,380
                
                
                --
                
                
                --
                
                
                --**Total**
                
                $
                11,462
                
                $
                11,462
                
                
                --
                
                
                --
                
                
                --
  Duoyuan
          China has a five years office lease agreement with Duoyuan Water. The lease
          had
          an initial five-year term from January 1, 2003 to December 31, 2007 and
          which
          has been extended for a one-year term. The minimum rent commitment as of
          June
          30, 2008 was $82,007.
 
 We
          plan
          to finance our contractual obligations with cash from operations and from
          the
          recent fund raised.




**Item
              7A.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk.**




*Exchange
      Rate Sensitivity*





We
      maintain our books and records in Renminbi, the functional currency of the
      PRC,
      however, we use the U.S. dollar as the reporting currency of our financial
      statements. The exchange rate between U.S. dollar and Renminbi is subject to
      the
      foreign exchange quotation publicized by the People's Bank of China on the
      specific day. Results of operations and cash flows are translated at
      average exchange rates during the period, assets and liabilities are translated
      at the unified exchange rate as quoted by the People’s Bank of China at the end
      of the period, and equity is translated at historical exchange
      rates.




Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred. Gains and losses from foreign currency
      transactions are included in the results of operation. There were no material
      transaction gains or losses for the year ended June 30, 2008.





Although
      the conversion of the Renminbi is highly regulated in China, the value of the
      Renminbi against the U.S. dollar fluctuates and is affected by, among other
      things, changes in China’s political and economic conditions. On July 2, 2005,
      the Chinese government changed its decade-old policy of benchmarking the value
      of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
      permitted to fluctuate in value within a narrow band against a basket of certain
      foreign currencies. As of June 30, 2008, the exchange rate of the Renminbi
      to
      the U.S. dollar was 6.8540 RMB to 1.00 USD. There remains significant
      international pressure on the Chinese government to further liberalize this
      currency policy, and if such liberalization occurs, the value of the Renminbi
      could appreciate or depreciate against the U.S. dollar. Please see *Risk
      Factors* above
      for details.





Our
      exposure to foreign exchange risk primarily relates to cash and cash equivalents
      denominated in U.S. dollars as a result of our past issuance of common stock
      through a private placement. For example, to the extent that we need to convert
      U.S. dollars received in the private placement into Renminbi for our operations,
      appreciation of the Renminbi against the U.S. dollar would have an adverse
      effect on the Renminbi amount that we receive from the conversion. Conversely,
      if we decide to convert our Renminbi into U.S. dollars for the purpose of making
      dividend payments on our common stock 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. In addition, fluctuations
      in
      the exchange rate would affect our financial results reported in U.S. dollar
      terms without giving effect to any underlying change in our business or results
      of operations.





We
      currently do not hedge our exposure to fluctuations in the Renminbi to U.S.
      dollar exchange rate. In the future, we may choose to reduce our exposures
      through financial instruments (hedges) that provide offsets or limits to our
      exposures when considered appropriate.


50





*Exchange
      Controls*





Chinese
      law allows enterprises owned by foreign investors to remit their profits,
      dividends and bonuses earned in China to other countries, and the remittance
      does not require prior approval by the SAFE regulations formerly required
      extensive documentation and reporting, some of which was burdensome and delayed
      payments. If there is a return to payment restrictions and reporting, the
      ability of a Chinese company to attract investors will be reduced. Also, current
      investors may not be able to obtain the profits of the business which they
      own
      as a result of other restrictions that the Chinese government may impose.
      Relevant Chinese law and regulation permit payment of dividends only from
      retained earnings, if any, determined in accordance with Chinese accounting
      standards and regulations. It is possible that the Chinese tax authorities
      may
      require changes in our reported income that would limit our ability to pay
      dividends and other distributions. Chinese law requires companies to set aside
      a
      portion of net income to fund certain reserves which amounts are to
      distributable as dividends. These rules and possible changes could restrict
      a
      company in China from repatriating funds to us and our stockholders as
      dividends.




*Interest
      Rate Risk*




As
      of
      June 30, 2008, we had RMB78.0 million ($11.4 million) outstanding on our bank
      lines of credit which are subject to interest rate change risk.




**Item
              8.**
            **Financial
                Statements and Supplementary
                Data.**





The
      information required by this item is contained in the consolidated financial
      statements listed in Item 15(a) 1 under the caption “Consolidated Financial
      Statements.”





**Item
              9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure.**





None.





**Item
              9A.**
            **Controls
                and Procedures.**





*Evaluation
        of Disclosure Controls and Procedures*





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our periodic reports is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC’s rules and forms, and that such information is accumulated and communicated
      to our management, including its chief executive officer and interim chief
      financial officer, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating the disclosure controls and procedures,
      our management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives, and our management necessarily is required to apply
      its judgment in evaluating the cost-benefit relationship of possible controls
      and procedures.





As
        of
        June 30, 2008, the end of the fiscal year covered by this Annual Report,
        we
        carried out an evaluation, under the supervision and with the participation
        of
        our management, including our chief executive officer and our interim chief
        financial officer, of the effectiveness of the design and operation of our
        disclosure controls and procedures. Based on the foregoing, our chief executive
        officer and interim chief financial officer concluded that because of the
        material weakness in internal control over financial reporting described
        below,
        our disclosure controls and procedures (as defined in Rules 13a-15(e) and
        15d-15(e) under the Exchange Act) were not effective as of June 30, 2008.




*Management’s
          Annual Report on Internal Control over Financial
          Reporting*
 
 Our
          management is responsible for establishing and maintaining adequate internal
          control over financial reporting, which is designed to provide reasonable
          assurance regarding the reliability of financial reporting and the preparation
          of financial statements for external purposes in accordance with U.S. GAAP.
          Our
          internal control over financial reporting includes those policies and procedures
          that: (i) pertain to the maintenance of records that, in reasonable detail,
          accurately and fairly reflect the transactions and dispositions of our
          assets;
          (ii) provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with U.S. GAAP,
          and
          that our receipts and expenditures are being made only in accordance with
          authorizations of our management and directors; and (iii) provide reasonable
          assurance regarding prevention or timely detection of unauthorized acquisition,
          use or disposition of our assets that could have a material effect on the
          financial statements.


51


Any
          system of internal control, no matter how well designed, has inherent
          limitations, including the possibility that a control can be circumvented
          or
          overridden and misstatements due to error or fraud may occur and not be
          detected
          in a timely manner. Also, because of changes in conditions, internal control
          effectiveness may vary over time. Accordingly, even an effective system
          of
          internal control will provide only reasonable assurance with respect to
          financial statement preparation.
 
 A
          material weakness (within the meaning of PCAOB Auditing Standard No. 5)
          is a
          deficiency, or a combination of deficiencies, in internal control over
          financial
          reporting, such that there is a reasonable possibility that a material
          misstatement of our annual or interim financial statements will not be
          prevented
          or detected on a timely basis.  A significant deficiency is a
          deficiency, or a combination of deficiencies, in internal control over
          financial
          reporting that is less severe than a material weakness, yet important enough
          to
          merit attention by those responsible for oversight of the company's financial
          reporting.
 
 Our
          management assessed the effectiveness of our internal control over financial
          reporting as of June 30, 2008. In making this assessment, our management
          used
          the criteria set forth by the Committee of Sponsoring Organizations of
          the
          Treadway Commission (COSO) in "Internal Control-Integrated Framework."
          During
          its assessment of the effectiveness of internal control over financial
          reporting
          as of June 30, 2008, our management identified material weaknesses related
          to
          the following:
  1.
                *Accounting
                    and Finance Personnel Weaknesses*-
                    We lack accounting and finance personnel with adequate knowledge,
                    skills
                    and training with respect to financial reporting and preparation of
                    financial statements under U.S. GAAP. Our accounting department
                    needs to
                    improve its knowledge in U.S. GAAP by increasing training and
                    supervision
                    of its current staff and/or hiring knowledgeable accounting personnel.
                    A
                    failure to implement this change can have material impact in
                    applying U.S.
                    GAAP in overall financial reporting as well as accounting of
                    certain
                    material accounts including sales (including rebates), cost of
                    sales,
                    accounts receivable, payables and expenses, inventory and other
                    material
                    accounts.
  2.
                *Lack
                    of Internal Audit Function* - We lack sufficient personnel to perform
                    our internal audit functions effectively. In addition, the scope
                    and
                    effectiveness goal of internal audit function have not been identified.
                    Due to this weakness, we may be ineffective in timely prevention
                    or
                    detection of errors in the recording of accounting transactions
                    that can
                    have material impact to the financial statements.
 
 In
          light
          of the foregoing material weaknesses, our management has concluded that our
          internal control over financial reporting was not effective as of June
          30,
          2008.  Our ineffective internal control over financial reporting could
          result in material misstatements in our annual or interim financial statements
          that would not be prevented or detected. However, nothing has come to the
          attention of management that causes them to believe that any material
          inaccuracies or errors exist in our financial statements as of June 30,
          2008.  The reportable conditions and other areas of our internal
          control over financial reporting identified by us as needing improvement
          have
          not resulted in a material restatement of our financial
          statements.  Nor are we aware of any instance where such reportable
          conditions or other identified areas of weakness have resulted in a material
          misstatement or omission in any report we have filed with or submitted
          to the
          SEC.


52




*Remediation
          of Material Weaknesses in Internal Control over Financial
          Reporting*
 
 Our
          management has identified the steps necessary to address the material weaknesses
          described above, as follows:
 
 1.
                We
                    are in the process of hiring a permanent Chief Financial Officer
                    with
                    knowledge and experience in U.S. GAAP. In addition, we intend
                    to expand
                    training and supervision of our accounting staff to ensure timely
                    and
                    accurate recording of financial transactions and reconciliation
                    of certain
                    material accounts as well as preparation of financial statements
                    in
                    accordance with U.S. GAAP. Furthermore, we are working on establishing
                    policies and procedures regarding timing and method of seeking
                    outside
                    counsels with relevant expertise to advise on transactions with
                    complex
                    and non-routine accounting and legal issues.
  2.
                We
                    are evaluating whether we have sufficient resources and qualified
                    personnel to develop an effective internal audit function. Our
                    management
                    is also examining the scope and timing of its work. Specifically,
                    internal
                    audit functions will be instituted in key financial areas as
                    well as key
                    non-financial areas which can have a material impact on our financial
                    statements.
 
 We
          believe that the foregoing steps will remediate the material weaknesses
          identified above, and we will continue to monitor the effectiveness of
          these
          steps and make any changes that our management deems
          appropriate.
  Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements.  Projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies and procedures may deteriorate.


*Auditor
        Attestation*





This
      Annual Report does not include an attestation of our registered public
      accounting firm regarding internal control over financial reporting. Our
      management’s report on internal control was not subject to attestation by our
      registered public accounting firm pursuant to temporary rules of the SEC that
      permit us to provide only our management’s report in this Annual
      Report.





*Changes
      In Internal Control Over Financial Reporting*





There
      were no changes in our internal control over financial reporting (as defined
      in
      Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
      June 30, 2008 that have materially affected, or are reasonably likely to
      materially affect, our internal control over financial reporting.





**Item
              9B.**
            **Other
                Information.**





None.


53





**PART
      III**




**Item
              10.**
            **Directors,
                Executive Officers and Corporate
                Governance.**





The
      following table sets forth information regarding the members of our board of
      directors and executive officers and other significant employees as of September
      22, 2008.  In connection with the closing of the 2006 Equity Transfer,
      AFI’s executive officers and directors resigned and were completely replaced
      with Duoyuan China’s executive officers and directors. All of the executive
      officers and directors were appointed on the closing date of the 2006 Equity
      Transfer.  All directors hold office for one-year term until the election
      and qualification of their successors.  Executive officers are elected
      annually by the board of directors and serve at the discretion of the board.
       There are no family relationships between and among the directors and
      executive officers.





Also
        provided herein are brief descriptions of the business experience of each
        director and executive officer during the past five years and an indication
        of
        directorships held by each director in other companies subject to the reporting
        requirements under the Federal securities laws. The business address of each
        of
        our directors and executive officers is 4/F, No. 3 Jinyuan Road, Daxing District
        Industrial Development Zone, Beijing, People’s Republic of China
        102600.





**Name**
            
            **Age**
            
            **Position****Directors**Wenhua
                Guo
            
            46
            
            Chairman
                of the Board of Directors, Chief Executive OfficerXiqing
                Diao
            
            38
            
            Director,
                Chief Operating OfficerChristopher
                Patrick Holbert
            
            37
            
            DirectorLianjun
                Cai
            
            58
            
            DirectorPunan
                Xie
            
            72
            
            Director**Officers**William
                Milewski
            
            45
            
            Former
                Chief Financial OfficerBaiyun
                Sun
            
            53
            
            Interim
                Financial Officer and ControllerYubao
                Wei
            
            41
            
            Chief
                Technology OfficerWenzhong
                Liu
            
            40
            
            Vice
                President of Marketing and Sales




*Director
      Biographies*





The
      biographies of each director are as follows:





*Wenhua
      Guo, Chairman of the Board of Director and Chief Executive
      Officers* .
      Mr. Guo
      is the founder of Duoyuan China and has served as its chairman and chief
      executive officer since the commencement of Duoyuan China’s operations in
      2001.  Before Mr. Guo founded Duoyuan China, he was a physics teacher at
      Beijing Chemical Institute.  Mr. Guo is also chairman of Duoyuan Electric
      Group, and the founder, chairman and chief executive officer of Duoyuan Global
      Water Inc. Mr. Guo obtained a bachelor’s degree in physics from Beijing Normal
      University.




*Xiqing
      Diao, Director and Chief Operating Officer.* Mr.
      Diao has been a director and chief operating officer since November 2005. 
He was Vice General Manager of Duoyuan Water Environment Technology Co., Ltd.
      from August to November 2005, Assistant to General Manager of Duoyuan Electric
      (Tianjin) Auto Water Pump Co., Ltd. from January to July 2005, and General
      Manager of Operations of Duoyuan Electric Group from January 2003 to December
      2004.  From May 2001 to December 2002, Mr. Diao was General Manager of No.
      1 Division of Duoyuan Water Environment Technology Co., Ltd.  Mr. Diao
      obtained a bachelor’s degree in mechanics from Tianjin Textile Technology
      Institute in July 1993.  He was also an ISO9001:2000 Internal Auditor, ISO
      14000 Internal Auditor and ISO14000 Internal Auditor in 2004.


54





*Christopher
      Patrick Holbert, Director* . **   Mr.
      Christopher Patrick Holbert has been a director since 2007, is the chairman
      of
      our Audit Committee and a member of our Compensation, and Nominating and
      Corporate Governance Committees. Since July 2006, he has been the Chief
      Financial Officer of Techfaith Wireless Technology Limited, a company that
      designs and develops customized handset solutions. From 2005 to 2006, he was
      the
      Director of Finance for CDC Corporation, a company that provides enterprise
      software, online games, mobile services and applications, and internet and
      media
      services. From 2004 to 2005, he was Director of Sarbanes Oxley Compliance at
      Chinadotcom Corporation, the predecessor of CDC Corporation. From 2003 to 2004,
      he was Vice President of Finance of Newpalm China, a subsidiary of Chinadotcom
      Corporation that provides mobile value added application service. From 2001
      to
      2003, he was the founding partner of Expat-CFO Services Limited, a
      Shanghai-based financial consultancy providing advice on doing business in
      China. From 2000 to 2001, he was a consultant with Williams Adley & Co., a
      company providing accounting and management consulting services to U.S.
      companies and government agencies. From 1995 to 2000, he was an auditor and
      consultant with Deloitte Touche Tohmatsu, an international professional services
      company focusing on accounting and auditing services. He is a Certified Public
      Accountant and has 12 years of experience in the field of accounting and
      financial management. Mr. Holbert received a bachelor’s degree in science
      with a concentration in Accounting from Bowie State University in
      Maryland.




*Lianjun
      Cai, Director.* Mr.
      Cai has been a director and chairman of our Compensation Committee since April
      2007. Mr. Cai was a Director of Industrial Committee of Daxing Industrial
      Development Zone Beijing from 2001 to 2004. Before that, he was General Manager
      of Management Committee of Daxing Industrial Development Zone. Mr. Cai received
      a bachelor’s degree in economy management.





*Punan
      Xie, Director.* Mr. Xie
      has been a director and chairman of our Nominating and Corporate Governance
      Committee since April 2007. Mr. Xie taught at Beijing Institute of Printing
      from
      1978 to 2001, was Section Chief of the Research Department, Director of Faculty
      of Printing Faculty and Assistant to  the
      President of the Beijing Institute of Printing from 1985 to 1987 and was Sub
      Decanal at Beijing Institute of Printing from 1987 to 2001. He was also Director
      of the Program of Print Engineering of the National Higher Education Committee,
      Vice Director of the National Standard Committee of Printing Equipment, Vice
      Director of Educational Committee of China Printing Technical Association,
      Technical Committee member of China Printing equipment and Appliance
      Association, Counselor of the Expert Consultative Committee of Beijing
      government, Valuator of the National Science and Technology Achievement Award
      and national expert of evaluation of light-industry products and printing
      equipment import. Mr. Xie received a Bachelor of Science degree in printing
      mechanism from Moscow Institute of Printing.





*Executive
      Officer Biographies*





The
      biographies of each executive officer are as follows:





*Baiyun
      Sun, Interim Chief Financial Officer and Controller* . ** Ms. Sun
      has been our interim chief financial officer since May 21, 2008. She is also
      our
      current Controller. Prior to this, she served as interim chief financial officer
      from December 20, 2007 until March 1, 2008. Prior to that, she was our chief
      financial officer from October 6, 2006 to July 18, 2007, our director and vice
      president between June 2001 to April 2007, and Chief Accountant of Duoyuan
      Electric Group from January 1994 to May 2001.  Ms. Sun received a
      bachelor’s degree in accounting from Beijing Finance and Commerce Institute in
      July 1985.





*Wenzhong
      Liu, Vice President of Sales and Marketing.* Mr. Liu
      has been Vice President of Sales since November 2005.  He was Assistant
      General Manager of Sales of Duoyuan China from July to October 2005, Interim
      General Manager of Sales of Duoyuan China from November 2004 to June 2005,
      and
      sales representative of Duoyuan China from January 2001 to October 2004. 
Mr. Liu received a bachelor’s degree in science from Luoyang Engineering
      Institute in July 1993.


55





*Yubao
      Wei, Chief Technology Officer.*  Mr.
      Wei
      has been our chief technology officer since December 2007. He was General
      Manager of Production of Duoyuan China from July 2004 to December 2007, and
      General Manager of Technology of Duoyuan China from July 2003 to June 2004.
      Mr.
      Wei received a master’s degree in engineering from Tsinghua University July
      1992 .




*Code
      of Ethics*




We
      have
      not adopted a code of ethics applicable to our chief executive officer, chief
      financial officer, or controller or persons performing similar functions. We
      are
      in the process of designing a code of ethics, and will provide the required
      disclosure once it is completed.




*Audit
      Committee*




We
      have
      an Audit Committee, established in accordance with Section 3(a)(58)(A) of
      the Exchange Act, composed of Christopher Patrick Holbert, who serves as chair
      of the Committee, and Lianjun Cai and Punan Xie. The Audit Committee Charter
      provides that its members shall consist entirely of directors who the Board
      determines are “independent” in accordance with NASDAQ listing standards and who
      meet the additional “independence” requirements imposed by NASDAQ for Audit
      Committee membership. The Board determined that each of the members of the
      Audit
      Committee meets the foregoing independence requirements. The Board has
      determined that Mr. Holbert is an “Audit Committee financial expert,” as such
      term is defined by the SEC.




*Involvement
      in Certain Legal Proceedings*





To
      the
      best of our knowledge, during the past five years, none of our directors or
      executive officers was involved in any of the following: (1) any bankruptcy
      petition filed by or against any business of which such person was a general
      partner or executive officer either at the time of the bankruptcy or within
      two
      years prior to that time; (2) any conviction in a criminal proceeding or being
      subject to a pending criminal proceeding (excluding traffic violations and
      other
      minor offenses); (3) being subject to any order, judgment, or decree, not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his/her involvement in any type of business, securities
      or
      banking activities; and (4) being found by a court of competent jurisdiction
      (in
      a civil action), the SEC or the Commodities Futures Trading Commission to have
      violated a federal or state securities or commodities law, and the judgment
      has
      not been reversed,  suspended or vacated. **




**Item
              11.**
            **Executive
                Compensation.**





**Compensation
      Discussion and Analysis**





During
      the year ended June 30, 2008, the compensation committee of our board of
      directors (the “Compensation Committee”) was responsible for setting our
      compensation policies, approving the amount and form of executive compensation
      and administering our benefit plans. The primary objectives of our Compensation
      Committee with respect to executive compensation are to attract and retain
      highly talented and dedicated executives and to align executives’ incentives
      with stockholder value creation. At of June 30, 2008, the Compensation Committee
      consisted of Lianjun Cai (Chairman), Christopher Patrick Holbert and Punan
      Xie.





In
      determining the amounts of compensation paid to our named executive officers
      during fiscal year 2008, the Compensation Committee generally reviewed and
      considered the level of compensation paid to comparable executives at two
      publicly listed companies in China: Bei Ren Printing presses Holdings Limited,
      or Bei Ren, and Shanghai Electric Printing & Package Machinery Co., Ltd., or
      Shanghai Electric, which are Chinese companies of similar size and stage of
      development operating in the printing equipment industry.  In
      addition, the Compensation Committee considers the local compensation practices
      of China. In using similarly situated companies to benchmark compensation,
      we
      continue to take into account our relative performance and our own strategic
      goals.


56





The
      Compensation Committee did not, and has not historically, retained a
      compensation consultant to review our policies and procedures with respect
      to
      executive compensation. The Compensation Committee subjectively considered
      each
      officer’s general performance for the year, our overall performance as compared
      to Bei Ren and Shanghai Electric and our performance as compared to our business
      goals for the year. In addition, the Compensation Committee considers the local
      compensation practices of China.





*Elements
      of compensation*





Our
      executive compensation consists of following elements:




*Mr.
      Guo and Ms. Sun*





The
      amount of base salary that we pay reflects our philosophy that base salary
      should attract experienced individuals who will contribute to the success of
      our
      overall business goals. For Mr. Guo and Ms. Sun, their fiscal year 2008 base
      salaries were primarily determined by the Compensation Committee based on its
      review of (i) the base salaries paid by Bei Ren and Shanghai Electric, as
      discussed above, and (ii) our internal base annual salary amount for each
“category” of executive officers, as supplemented by a “position subsidy” and a
“household subsidy,” which represent a living allowance.





*Comparative
      Compensation Information*





Based
      on
      its review of the compensation paid by Bei Ren and Shanghai Electric for fiscal
      year 2007, the Compensation Committee noted that the reported annualized total
      compensation for the Chairman of Bei Ren was approximately $94,000, and
      approximately $69,100 for the General Manager of Bei Ren. The Compensation
      Committee determined to review the compensation amounts for both such positions
      given Mr. Guo’s duties as Chairman and Chief Executive Officer. Regarding
      Shanghai Electric, the Compensation Committee noted that the fiscal year 2007
      total compensation for the Executive General Manager of Shanghai Electric was
      approximately $86,300. The Compensation Committee also estimated that base
      salaries represented about half of each such officer’s total compensation. Upon
      review of this information, the Compensation Committee determined to increase
      the fiscal year 2008 base salary of Mr. Guo from $25,615 **** to
      $32,020, representing an increase of 25%. The Compensation Committee felt this
      increase was not only consistent with Mr. Guo’s overall performance for fiscal
      2008, but also maintained a consistent ratio of increase compared to other
      Chinese public printing manufacturing companies and consistent with our
      compensation policy described above. Similarly, the Compensation Committee
      noted
      that the fiscal year 2007 total compensation for the Financial Manager of Bei
      Ren was approximately $51,000 and for Shanghai Electric was approximately
      $72,000. Upon review of this information, the Compensation Committee determined
      to increase the fiscal year 2008 base salary of Ms. Sun from $25,615 to $32,020,
      representing an increase of 25%. During fiscal 2008, Ms. Sun served as interim
      chief financial officer from July 1, 2007 until July 17, 2007, from December
      20,
      2007 to February 28, 2008 and again from May 21, 2008 to the
      present.





*Base
      Salary and Subsidy Amounts*





Each
      officer’s initial base salary is increased by a “position subsidy” and a
“household subsidy” which together represent a living allowance. Although not
      required by Chinese law, they represent a typical Chinese practice with respect
      to employees who are categorized as management executives. The Compensation
      Committee has historically utilized a split of approximately 75%, 15% and 10%,
      based on the total base salary to be paid to the executive for the year, for
      the
      basic salary, position subsidy and household subsidy, respectively. The
      Compensation Committee determined that this percentage split is a familiar
      method for employees in China.




**Position**
              
              **Base Salary**
              
              **Position Subsidy**
              
              **Household Subsidy**
              
              **Total**Mr.
                  Guo
              
              $
              24,000
              
              $
              5,620
              
              $
              2,400
              
              $
              32,020Ms.
                  Sun
                (interim
                  CFO)
              
              $
              24,000
              
              $
              5,620
              
              $
              2,400
              
              $
              32,020Mr.
                  Bennett
                (former
                  CFO)1
              
              $
              111,100
              
              
              0
              
              
              0
              
              $
              111,100Mr.
                  Milewski(former CFO)2
              
              $
              50,667
              
              
              0
              
              
              0
              
              $
              50,667




57




Note:


1.
      Mr.
      Bennett was our chief financial officer between July 18, 2007 and December
      20,
      2007. The total compensation paid to Mr. Bennett during fiscal 2008 was $81,100.
      After Mr. Bennett resigned as our chief financial officer on December 20, 2007,
      he continued to serve us as an independent outside consultant for six months,
      for which we paid him $5,000 per month and for a total of $30,000.





2.
      Mr.
      Milewski was our chief financial officer between March 1, 2008 and May 21,
      2008.
      The total compensation paid to Mr. Milewski during fiscal 2008 was $50,667,
      which reflects his monthly salary of $14,000.





*Messrs.
      Bennett and Milewski* ****





Mr.
      Bennett served as our chief financial officer between July 18, 2007 and December
      20, 2007. Mr. Milewski served as our chief financial officer between March
      1,
      2008 and May 21, 2008. In determining the initial base salaries for each of
      our
      former chief financial officers during fiscal year 2008, our Compensation
      Committee used a methodology that differed from that for our other executives
      due to the fact that each such officer had prior work experience outside China
      in developed economies and were familiar with U.S. GAAP. For Messrs. Bennett
      and
      Milewski, the Compensation Committee reviewed and considered the
      publicly-available base salary information for the chief financial officers
      of a
      number of China-based companies listed in the United States, as
      follows:





eLong,
                Dragon Asia
            Fuwei
                Films Holdings Co. Ltd.sohu.com
            Trina
                Solar Ltd.sina.com
            Canadian
                Solar Inc.AsiaInfo
                Holding and Comtech Group Inc.
            Home
                Inns & Hotels Management Inc.Wuxi
                Pharmatech Inc.
            Mindray
                Medical International Ltd.E-House
                (China) Holdings Ltd.
            New
                Oriental Education & Technology GroupPerfect
                World Co., Ltd.
            Verigy
                Ltd.Spreadtrum
                Communications Inc.
            Himax
                Technologies Inc.Yingli
                Green Energy Holding Co. Ltd.
            China
                GrenTech Corp Ltd.LDK
                Solar Hi-tech Co. Ltd.
            Suntech
                Power Holdings Co. Ltd.China
                Sunergy Co., Ltd.
            Actions
                Semiconductor Co Ltd.Acorn
                International, Inc
            Vimicro
                International Corp.Qiao
                Xing Mobile Communication Co., Ltd.
            China
                Medical Technologies Inc.Simcere
                Pharmaceutical Group
            Baidu.com
                Inc.Tongjitang
                Chinese Medicines Co
            Focus
                Media Holding Ltd.Xinhua
                Finance Media Ltd.
            China
                Techfaith Wireless Communication TechJA
                Solar, 3SBio Inc.
            Hurray!
                Holding Co LtdSolarfun
                Power Holdings Co Ltd.





These
      companies are in a wide range of industries and are not restricted to the
      printing industry, but were reviewed in order to give the Compensation Committee
      an idea of companies operating in China that were also listed in the U.S. While
      there are a number of additional China-based companies listed in the U.S.,
      they
      are of a much larger size than we are with significant market capitalization,
      and they mostly have state-owned backgrounds, which the Compensation Committee
      did not consider to be appropriate comparative companies.





Based
      on
      the Compensation Committee’s review of the chief financial officer compensation
      of these companies, it determined that the average base salary for chief
      financial officers was approximately $130,000. Accordingly, the Compensation
      Committee decided to work with a range for chief financial officer
      compensation between $120,000 and $200,000. Within this range, the
      Compensation Committee took a number of factors into consideration in
      determining the compensation of a specific candidate, such as the past
      experiences of the chief financial officer candidate and the personal
      expectations of the candidate. The actual base salary agreed to between the
      Company and each of Messrs. Bennett and Milewski was based on subjective factors
      rather than a mathematical formula, and was subject to the particular
      negotiations with the candidate.


58





Specifically,
      it was the Compensation Committee’s view that a chief financial officer who is
      familiar with U.S. GAAP and is bilingual in English and Chinese should command
      a
      substantially higher salary than domestic candidates who are conversant only
      in
      Chinese GAAP and language and who are unfamiliar with public company reporting
      duties and obligations. Accordingly, the Compensation Committee approved a
      base
      salary of $168,000 for Mr. Milewski  and $132,000 for Mr. Bennett, the
      difference within these primarily due to the fact that Mr. Milewski’s experience
      was more extensive and included working experiences with listed
      companies.





*Discretionary
      Annual Bonus*





Our
      Compensation Committee has the authority to award discretionary annual cash
      bonuses to our executive officers, including each of the named executive
      officers. A total of eight senior executive officers were eligible to receive
      annual discretionary bonuses during the year ended June 30, 2008. Messrs.
      Bennett and Milewski did not receive a bonus during the year ended June 30,
      2008
      due to their short tenure with the Company.





The
      annual discretionary bonuses are intended to compensate officers for their
      individual contributions, as subjectively reviewed and determined by the
      Compensation Committee, to our increased revenue from year-to-year.





Specifically,
      each fiscal year, including for the year ended June 30, 2008, the Compensation
      Committee determines a specific percentage of the increased revenue that will
      be
      set aside for the executive officer discretionary bonus pool. The Compensation
      Committee considers, in its subjective business judgment, several different
      factors each year when determining the bonus pool percentage, including the
      general industry/market conditions, our realized sales and profit growth, our
      realized gross margin and net profit margin, as well as how realized growth
      rates and margins compared to targeted growth rates and margins set at the
      beginning of the fiscal year. In addition, the Compensation Committee conducts
      performance reviews of the top executives who may be entitled to discretionary
      bonuses. Each executive under review will be assigned a score pursuant to the
      results of his or her performance. The Compensation Committee then determines
      the average score of all executives considered, which is then in turn factored
      into a pre-established formula so that the annual bonus rate varies between
      0.5%
      and 1% of the annual increase in revenue. With a very low average performance
      score, the bonus pool will be near 0.5% of the annual increase in revenue,
      and
      with a very high score, the rate will be close to 1% of the annual increase.





For
      the
      year ended June 30, 2008, the bonus pool percentage was 0.85%. This percentage
      takes into consideration various industry and market factors, including a 32.2%
      increase in our revenue and an 89.3% increase in our net income during the
      year
      ended June 30, 2008.





In
      determining each officer’s discretionary bonus amount, if any, the Compensation
      Committee established an internal bonus structure, as described below, based
      on
      objectives which vary depending on the individual executive.




For
      Mr.
      Guo’s potential discretionary bonus during the year ended June 30, 2008, his
      objectives included our overall sales and profit growth (50% of his potential
      bonus) and accomplishment of strategic activities such as major financing,
      acquisitions or strategic corporate alliance activities (50%). Based on his
      significant contributions to the progress of our plan of going public and our
      revenue and profit growth in fiscal 2008, Mr. Guo was awarded a discretionary
      bonus of $ 35,200. Ms. Sun’s discretionary bonus objectives included timely and
      accurate preparation of our financial data (50% of her potential bonus), and
      assisting the chief executive officer in accomplishing strategic activities
      (50%). Upon its review, the Compensation Committee determined that Ms. Sun,
      our
      interim chief financial officer, met both objectives as she contributed to
      the
      timely and accurate preparation of financial data, accordingly, she was awarded
      a discretionary bonus of $ 27,800 for the year ended June 30, 2008. The
      following chart shows the percentage of bonus pool and amounts of discretionary
      bonuses for our named executive officers for the year ended June 30, 2008.




**Position**
            
            **Percentage of**
              **Bonus Pool**
            
            **Amount of Bonus**
              **(USD)**Mr.
                Guo
            
            
            19
            %
            $
            35,200Ms.
                Sun
            
            
            15
            %
            $
            27,800Mr.
                Bennett (former CFO)
            
            
            -
            
            
            -Mr.
                Milewski (former CFO)
            
            
            -
            
            
            -Chief
                Operating Officer
            
            
            15
            %
            $
            27,800Vice
                President
            
            
            15
            %
            $
            27,800


59




*Retirement
      Benefits*





****** Our
      employees in China, including each of the named executive officers, participate
      in defined contribution pension programs organized by Chinese municipal and
      provincial governments. Each employee is required to contribute 8% of his or
      her
      total monthly base salary to the defined contribution pension programs, although
      we withhold and pay such percentage on behalf of the employees. This monthly
      base salary for calculating pension contribution purpose has a range of 60%-300%
      of the average month salary of the last year in a city, surveyed and publicized
      by the city statistics bureau. If an employee’s actual monthly salary falls
      within this range, his/her monthly salary becomes the monthly base salary to
      calculate pension contribution. If an employee’s actual monthly salary is higher
      (lower) than 300% (60%) of the average monthly salary of the last year in a
      city, 300% (60%) of the average monthly salary of the last year in a city
      becomes the monthly base salary to calculate pension contribution. In addition,
      we are required to contribute to the defined contribution pension programs
      20%
      of the employees’ monthly base salary each month before tax. No benefits are
      determined by final compensation and years of service.





*Other
      Compensation*





Other
      than the annual salary for our executive officers, the bonus that may be awarded
      to executive officers at the discretion of our Compensation Committee and
      arrangements with executive officers for the use of a company car, we do not
      have any other benefits and perquisites for our executive officers. However,
      our
      Compensation Committee in its discretion may provide benefits and perquisites
      to
      these executive officers if it deems it advisable.





*Security
        Ownership Guidelines*





We
      do not
      have a stock grant policy or any stock ownership guidelines.





*Accounting
        and Tax Treatment*





Given
      our
      current levels of compensation, the accounting and tax considerations have
      not
      significantly impacted our forms of compensation. Our board of directors
      considers as one factor the impact of accounting and tax treatment on
      compensation in our compensation programs.





**SUMMARY
      COMPENSATION TABLE**





The
      following table sets forth information regarding compensation for the fiscal
      year ended June 30, 2008 received by the individuals who served as our chief
      executive officer and chief financial officer (“Named Executive Officers”). The
      compensation of other executive officers (including Yubao Wei and Xiqing Diao)
      did not exceed $100,000 per year.




**Name**
            
            **Principal**
              **Position**
            
            **Salary****(3)**
            
            **Bonus**
            
            **Stock**
              **Awards**
            
            **Option**
              **Awards**
            
            **Nonequity**
              **Incentive Plan**
              **Compensation**
            
            **Change in**
              **Pension Value &**
              **Nonqualified**
              **Deferred**
              **Compensation**
            
            **All Other**
              **Compensation**
            
            **Total****(1)**Wenhua
                Guo
            
            
            Chief
                Executive Officer
            
            $
            32,020
            
            $
            35,200
            
            
            0
            
            
            
            
            
            0
            
            
            0
            
            $
            1,294
            
            
            0
            
            $
            68,514Baiyun
                Sun
            
            
            Interim
                Chief Financial Officer
            
            $
            32,020
            
            $
            27,800
            
            
            0
            
            
            
            
            
            0
            
            
            0
            
            $
            1,294
            
            
            0
            
            $
            61,114Gene
                Bennett(2)
            
            
            Former
                Chief Executive Officer
            
            $
            111,100
            
            
            
            
            
            0
            
            
            
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            111,100William
                Milewski(2)
            
            
            Former
                Chief Financial Officer
            
            $
            50,667
            
            
            
            
            
            0
            
            
            
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            50,667


60





(1)
      Amounts sent forth in these columns were paid to or received by the director
      in
      RMB and were converted into U.S. dollars based on the conversion rate in effect
      on June 30, 2008.





(2)
      Messrs. Bennett and Milewski resigned on December 20, 2007 and May 21, 2008,
      respectively. No additional amounts are due to the resigned directors and
      officers.





(3)
      The
      amount in the “Salary” column includes the employees’ 8% contribution to the
      defined contribution pension program. We withhold and pay such percentage on
      behalf of the employees. For Mr. Guo and Ms. Sun, their contribution was
      approximately $1,294 and $1,294 in fiscal year 2008, respectively (i.e. RMB
      9,024 x 8% x 9 + RMB 9,966 x 8% x 3 = RMB 8,889 = $1,294).





*Employment
        Contracts and Termination of Employment and Change-In-Control Arrangements*





We
      entered into an employment agreement for the position of chief financial officer
      with Mr. Bennett on July 18, 2007. However, on December 20, 2007, he stepped
      down and executed a letter of resignation and separation agreement, or the
      Separation Agreement. According to the Separation Agreement, he continued to
      serve us as an independent outside consultant for a six-month period until
      June
      20, 2008, during which period we paid him $5,000 per month. Ms. Baiyun Sun
      was
      promoted to our interim chief financial officer, from December 20, 2007 until
      March 1, 2008. Ms. Sun did not enter into any new employment agreement for
      her
      temporary position and she remains bound by her current standard form employment
      agreement.





Mr.
      William Milewski was our chief financial officer from March 1, 2008 to May
      21,
      2008, when he stepped down and executed a letter of resignation and separation
      agreement, or the Milewski Separation Agreement. Pursuant to the Milewski
      Separation Agreement, Mr. Milewski received a bonus equal to one month base
      salary of $14,000 in recognition of the contributions he made during his term
      of
      employment with us. He will also continue to serve us as an independent outside
      consultant for an eight-month period until January 21, 2009, during which period
      we will pay him $3,500 per month. Ms. Baiyun Sun was promoted to interim chief
      financial officer effective May 21, 2008. Ms. Sun did not enter into any new
      employment agreement for her temporary position and she remains bound by her
      current standard form employment agreement.





All
      of
      our employees including our named executive officers have executed standard
      employment agreements with us, which are governed by Chinese law. Other than
      the
      amount of compensation, the terms and conditions of the employment agreements
      with the executive officers are substantially the same as those of our standard
      employment agreements with non-executive employees. Our standard employment
      agreements are for a fixed period of one year and may be renewed upon notice
      from the employee and our consent. After ten years of employment, an employee
      may enter into an employment agreement with us for an indefinite period of
      time.
      We may terminate an employment agreement for cause, without notice or severance.
      We may also terminate an employment agreement upon thirty days’ notice if an
      employee is not suitable for the job due to medical or other reasons. If we
      lay
      off an employee because of an economic downturn or terminates an employee
      because the employee is not suitable for the job or is not able to work due
      to
      sickness or injury, we are obligated to pay up to twelve months’ salary as
      severance. An employee may terminate his or her employment agreement without
      cause upon one month’s notice or for cause, without notice.


*Options/SAR
          Grants*





During
      the year ended June 30, 2008, neither we nor our subsidiaries granted any stock
      options or stock appreciation rights to any executive officers or other
      individuals listed in the table above.


61


*Aggregated
          Option/SAR Exercises and Fiscal Year-End Option/SAR
          Value*


Neither
      our executive officers nor other individuals listed in the tables above
      exercised any options or SARs during the year ended June 30, 2008.


*Long-Term
          Incentive Plan Awards*





We
      currently do not have a stock option plan, stock appreciation rights plan or
      other long-term incentive plans. We may implement a long-term incentive plan
      in
      the future; however because of Chinese tax laws, we currently do not consider
      these types of awards desirable.


*Potential
          Payments Upon Termination*





*Mr.
      Guo and Ms. Sun*





Pursuant
      to our standard form employment, we may terminate an employment agreement for
      cause, without notice or severance. We may also terminate an employment
      agreement upon 30 days’ notice if an employee is not suitable for the job due to
      medical or other reasons. If we lay off an employee because of an economic
      downturn or terminate an employee because the employee is not suitable for
      the
      job or is not able to work due to sickness or injury, we are obligated to pay
      up
      to 12 months salary as severance, as determined by our Compensation Committee.
      An employee may terminate his or her employment agreement without cause upon
      one
      month’s notice or for cause, without notice.





*Mr.
      Bennett*





Pursuant
      to his resignation effective December 20, 2007, Mr. Bennett stepped down as
      chief financial officer and executed a letter of resignation and separation
      agreement (the “Bennett Separation Agreement”). Pursuant to the Bennett
      Separation Agreement, Mr. Bennett continued to serve as an independent outside
      consultant for a six-month period ending June 20, 2008, during which period
      we
      paid him $5,000 per month, for a total of $30,000. ****





*Mr.
      Milewski*





Mr.
      Milewski stepped down as our chief financial officer and executed a letter
      of
      resignation and separation agreement, effective May 31, 2008 (the “Milewski
      Separation Agreement”). Pursuant to the Milewski Separation Agreement, Mr.
      Milewski received a bonus equal to one month of his base salary, or $14,000,
      in
      recognition of the contributions he made during his term of employment with
      us.
      He will also continue to serve us as an independent outside consultant for
      an
      eight-month period until January 21, 2009, during which period we will pay
      him
      $3,500 per month, for a potential total of $28,000.


*Directors
          Compensation*


Each
      of
      our non-employee director received gross pay of $12,000 per year, except that
      Mr. Bennett receives gross pay of $20,000 as director and chairman of our Audit
      Committee. In addition, the non-employee directors receive $1,000 for attending
      each meeting of our board of directors at which there is a quorum, whether
      in
      person or by telephone, up to a maximum of $5,000 per fiscal year. There are
      no
      other fees or reimbursements paid to our directors.


62





The
      following table sets forth the compensation paid during the year ended June
      30,
      2008 to our directors:





**Name of Director**
            
            **Fees**
              **Earned or**
              **Paid in**
              **Cash****(2)**
            
            **Stock**
              **Awards**
            
            **Options**
              **Awards**
            
            **Non-Equity**
              **Incentive Plan**
              **Compensation**
            
            **Change in Pension**
              **Value and**
              **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
            
            **All Other**
              **Compensation**
            
            **Total****(2)**Wenhua
                Guo, Chief Executive Officer and Chairman(1)
            
            $
            67,220
            
            
            
            
            
            
            
            
            
            
            $
            1,294
            
            
            
            
            $
            68,514Lianjun
                Cai
            
            $
            8,734
            
            
            
            
            
            
            
            
            
            
            
            0
            
            
            
            
            $
            8,734Xiqing
                Diao
            
            $
            59,820
            
            
            
            
            
            
            
            
            
            
            $
            1,294
            
            
            
            
            $
            61,114Christopher
                Patrick Holbert
            
            $
            26,000
            
            
            
            
            
            
            
            
            
            
            
            0
            
            
            
            
            $
            26,000Punan
                Xie
            
            $
            13,974
            
            
            
            
            
            
            
            
            
            
            
            0
            
            
            
            
            $
            13,974





(1)
      Mr.
      Guo served as director during fiscal year 2008, however, he did not receive
      any
      compensation for his service as director.





(2)
      Amounts set forth in these columns were paid to or received by the director
      in
      RMB and were converted into U.S. dollars based on the conversion rate in effect
      on June 30, 2008.


*Compensation
        Committee Interlocks and Insider Participation*





None
      of
      our executive officers or the executive officers of Duoyuan China served as
      a
      member of our compensation committee or the equivalent of another entity during
      the years ended June 30, 2006, 2007 or 2008. None of our executive officers
      or
      the executive officers of Duoyuan China served as a director of another entity,
      other than affiliates of Duoyuan China, during the years ended June 30, 2006,
      2007 and 2008.




*Compensation
        Committee Report*
  Our
        Compensation Committee has reviewed and discussed the Compensation Discussion
        and Analysis contained in this Annual Report with management. Based on our
        Compensation Committee’s review of and the discussions with management with
        respect to the Compensation Discussion and Analysis, our Compensation Committee
        recommended to the board of directors that the Compensation Discussion and
        Analysis be included in this Annual Report for filing with the SEC.
  The
        foregoing report is provided by the following directors, who constitute the
        Compensation Committee: Mr. Lianjun Cai, Mr. Christopher Patrick Holbert
        and Mr.
        Punan Xie.


**Item
              12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.**





As
      used
      in this section, the term beneficial ownership with respect to a security is
      defined by Rule 13d-3 under the Exchange Act, as consisting of sole or shared
      voting power (including the power to vote or direct the vote) and/or sole or
      shared investment power (including the power to dispose of or direct the
      disposition of) with respect to the security through any contract, arrangement,
      understanding, relationship or otherwise, subject to community property laws
      where applicable.





As
      of
      September 22, 2008, we had a total of 25,000,050 shares of common stock
      outstanding, which are our only issued and outstanding voting equity securities.





The
      following table sets forth, as of September 22, 2008: (a) the names and
      addresses of each beneficial owner of more than five percent (5%) of our common
      stock known to us, the number of shares of common stock beneficially owned
      by
      each such person, and the percent of our common stock so owned; and (b) the
      names and addresses of each director and executive officer, the number of shares
      our common stock beneficially owned, and the percentage of our common stock
      so
      owned, by each such person, and by all of our directors and executive officers
      as a group. Each person has sole voting and investment power with respect to
      the
      shares of our common stock, except as otherwise indicated. Beneficial ownership
      consists of a direct interest in the shares of common stock, except as otherwise
      indicated.


63





**Name
                and Address of Beneficial Owner**
            
            **Amount
                of**
              **Beneficial**
              **Ownership**
              **(1)**
            
            **Percentage**
              **Ownership**
              **(1)****Directors
                and Executive Officers**Wenhua
                Guo(2)(chairman and CEO)
            
            
            17,562,355
            
            
            70.25
            %(3)Lianjun
                Cai (director)
            
            
            0
            
            
            0
            %Punan
                Xie (director)
            
            
            0
            
            
            0
            %Christopher
                Patrick Holbert (director)
            
            
            0
            
            
            0
            %Xiqing
                Diao (director, COO)
            
            
            0
            
            
            0
            %Baiyun
                Sun (Interim CFO)
            
            
            0
            
            
            0
            %**Principal
                Stockholders**Duoyuan
                Investments Limited(2)
            
            
            17,562,355
            
            
            70.25
            %Barry
                M. Kitt(4)
              4965
                Preston Park Blvd., Ste 240
              Plano,
                TX 75093
            
            
            1,542,295
            
            
            6.17
            %Pinnacle
                China Fund, L.P.
              4965
                Preston Park Blvd., Ste 240
              Plano,
                TX 75093
            
            
            1,300,002
            
            
            5.20
            %**All
                Directors and Executive Officers as a Group (11
                members)**
            
            
            17,600,948
            
            
            70.40
            %


*
      indicates less than 1%





(1)
        Percentage of beneficial ownership of each listed person is based on 25,000,050
        shares outstanding as of September 22, 2008. Beneficial ownership is determined
        in accordance with the rules of the SEC. Unless otherwise indicated, each
        of the
        shareholders named in this table has sole voting and dispositive power with
        respect to the shares of common stock shown as beneficially owned by such
        stockholder. The address for all directors and executive officers of the
        Company
        is c/o Asian Financial, Inc. at 4/F, No. 3 Jinyuan Road, Daxing District
        Industrial Development Zone, Beijing, People’s Republic of
        China.




(2)
      Mr.
      Wenhua Guo is the sole stockholder of Duoyuan Investments, as such he may be
      viewed as having beneficial ownership over all 17,562,355 shares owned by
      Duoyuan Investments.





(3)
      Of
      the 17,562,355 shares of common stock beneficially owned by Mr. Wenhua Guo,
      6,899,177 shares were deposited in escrow according to the Securities Purchase
      Agreement dated October 24, 2006, a copy of which is filed as Exhibit 4.1 to
      the
      registration statement that includes this prospectus and a Make Good Escrow
      Agreement dated October 24, 2006 (Exhibit B to the Securities Purchase
      Agreement), pursuant to which, if we do not meet certain performance benchmarks
      for the fiscal years 2006, 2007 or 2008, 1/3 of the escrow shares will be
      transferred to the investors pursuant to the Securities Purchase Agreement
      for
      each year when the performance benchmarks are not satisfied. Mr. Wenhua Guo
      retains the voting power and dividend rights of the escrow shares before such
      shares are delivered to the investors, if ever. We satisfied the performance
      benchmark for the fiscal year ended June 30, 2006, therefore 1/3 of the escrow
      shares were returned to Mr. Guo. On November 28, 2007, we entered into an
      Amendment to the Securities Purchase Agreement, or the Amendment, with its
      several stockholders that owned in aggregate a majority of our outstanding
      shares, pursuant to which the parties agreed that in computing whether the
      applicable performance benchmarks as defined under the Make Good Escrow
      Agreement have been achieved, we are not required to include any penalties
      accrued under the Securities Purchase Agreement and the Registration Rights
      Agreement dated October 24, 2006 as expenses, charges or any other deductions
      from revenue. In light of the Amendment, the investors deemed our after-tax
      net
      income so computed to have satisfied the performance benchmark for the 2007
      fiscal year, and accordingly a further 1/3 of the escrow shares were released
      to
      Mr. Guo as of January 22, 2008. The Amendment is filed as Exhibit 4.4 to the
      registration statement that includes this prospectus.


64





(4)
      Although Pinnacle China Fund, LP., or Pinnacle China, and The Pinnacle Fund,
      L.P., or the Pinnacle Fund, have the same mailing address, they are different
      entities. Whitebox Intermarket Partners, L.P. and Nite Capital, L.P. each
      entered into a Purchase Agreement with Pinnacle Fund dated January 18, 2008,
      pursuant to which they transferred to the Pinnacle Fund 130,209 and 52,084
      shares of common stock, respectively, that they owned. After the share transfer
      was closed in February 2008, Whitebox Intermarket Partners, L.P. and Nite
      Capital, L.P. do not own any of our shares, while Pinnacle Fund was the owner
      of
      182,293 shares of our common stock.





Pinnacle
      China Advisers, L.P., or Advisers, is the general partner of Pinnacle China.
      Pinnacle China Management, LLC, or Management, is the general partner of
      Advisers. China Management LLC is the manager of Management. Mr. Barry M. Kitt
      is the manager of Kitt China Management LLC. Mr. Kitt may be deemed to be the
      beneficial owner of the shares of our common stock beneficially owned by
      Pinnacle China. Mr. Kitt expressly disclaims beneficial ownership of all shares
      of our common stock beneficially owned by Pinnacle China.





Pinnacle
      Advisers, L.P., or Fund Advisers, is the general partner of the Pinnacle Fund.
      Pinnacle Fund Management, LLC, or Fund Management, is the general partner of
      Fund Advisers. Mr. Kitt is the sole member of Fund Management. Mr. Kitt may
      be
      deemed to be the beneficial owner of the shares of our common stock beneficially
      owned by Pinnacle Fund. Mr. Kitt expressly disclaims beneficial ownership of
      all
      shares of our common stock beneficially owned by Pinnacle Fund.




*Securities
      Authorized for Issuance Under Equity Compensation Plans*




Not
      applicable.





**Item
              13.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence.**




In
          October 2006, we raised approximately $23.5 million by issuing shares in
          a
          private placement and agreed to (i) register the resale of those shares
          with the
          SEC within 90 days of the closing pursuant to a registration rights agreement
          and (ii) terminate identified related party transactions. If we failed
          to timely
          register the resale of the private placement shares or settle these related
          party matters, we were subject to monthly cash liquidated damages, subject
          to a
          cap. We ultimately failed to timely register the resale of the private
          placement
          shares or settle the related party matters and thereby we (and not the
          related
          parties) accrued liquidated damages. As of June 30, 2007, we had reached
          the
          liquidated damages cap and had accrued related unpaid penalties aggregating
          $2.1
          million. There was no interest charge for late payment.
 
 In
          January 2008, we offered to settle with the private placement investors
          the
          respective liquidated damages owed to them either in the form of cash or
          in
          warrants for shares of our common stock. Each private placement investor
          made
          its own election and, accordingly, we distributed to 25 of our investors
          warrants to purchase a total of 576,425 shares of our common stock, and
          we paid
          cash to 10 of our investors in the total amount of 0.4 million. The private
          placement investors agreed that the our issuance of such warrants and our
          payments of such cash constituted the satisfaction in full of our obligations
          to
          pay liquidated damages to each investor with respect to registering their
          resale
          of the purchased shares and related party transactions. During the first
          half of
          the year ended June 30, 2008, we accrued an additional $0.7 million for
          the
          liquidated damages. We settled all liquidated damages claims in the third
          quarter of fiscal 2008, and reached a settlement with investors who agreed
          to
          waive all penalties due in exchange for warrants or cash
          payments.
 
 In
          connection with the private placement, our chairman and chief executive
          officer,
          Mr.Guo entered into a make good escrow arrangement. Pursuant to this
          arrangement, Mr. Guo deposited shares into escrow and if we did not meet
          certain
          after-tax net income performance benchmarks for the fiscal years 2006,
          2007 or
          2008, one-third of the escrow shares would be transferred to the investors
          for
          each year when the performance benchmarks are not satisfied. Mr. Guo retained
          the voting power and dividend rights of the escrow shares before such shares
          are
          delivered to the investors. In November 2007, the Securities Purchase Agreement
          was amended to exclude when determining if the performance benchmark had
          been
          met the liquidated damages accrued as expenses, charges or any other deductions
          from revenue as a result of the failure to timely register the private
          placement
          shares as required under the related registration rights agreement or to
          settle
          the related party matters as required by the Securities Purchase Agreement.
          As
          of June 30, 2008, all performance benchmarks had been
          met.


65





922,205
      shares of our common stock were issued to Dempsey Mork, Norbert L. LeBoeuf
      and
      their affiliates, as compensation and in consideration for their services as
      our
      former executive officers, including 176,463 shares issued on August 20, 1998
      and 745,742 shares issued upon the conversion of convertible notes in the
      aggregate principal amount of $70,000. Pursuant to a five-year convertible
      promissory note with a term that commenced in 1995 and concluded in 1999, we
      accrued $50,000 for management services and other organizational expenses to
      these individuals. This note was non-interest-bearing and convertible at a
      rate
      of $0.05 per share for 1,000,000 shares of our common stock 372,871 shares
      at
      the option of the holder, and the note was converted on September 15, 2006.
      Pursuant to the terms of a separate convertible promissory note, we accrued
      $20,000 during 2003 and 2004 for management services rendered by an affiliate
      of
      our majority stockholder and then President, Millennium Capital. This note
      was
      also non-interest-bearing and convertible at a rate of $0.02 per share for
      372,871 shares at the option of the holder, and was likewise converted on
      September 15, 2006.




Duoyuan
      China leases 3,080 square meters of space, located at No. 3 Jinyuan Road, Daxing
      District Industrial Development Area, Beijing, China, from Duoyuan Water, of
      which Mr. Wenhua Guo, our CEO and 70% stockholder is a sole stockholder. The
      property used as an office building and research and development center. The
      lease had an initial five-year term from January 1, 2003 to December 31, 2007
      and which has been extended for a one-year term. The minimum rent commitment
      as
      of June 30, 2008 was $82,007. The rental payments are inclusive of electricity
      and water utility bills. During the term of the lease, Duoyuan Water paid
      Duoyuan China’s portion of the electricity and water bill associated with the
      office lease. As a consequence, the amount of the electricity and water bills
      became Duoyuan China’s payable to Duoyuan Water. In addition, Duoyuan China
      transferred some of its employees to Duoyuan Water. The social welfare tax
      associated with these employees occurred before their transfer and became
      Duoyuan China’s payable to Duoyuan Water. As of December 31, 2006, Duoyuan China
      had failed to settle this related-party transaction in violation of the
      contractual agreement in the Securities Purchase Agreement in which Duoyuan
      China undertook to end all related-party transactions by that date. Between
      July
      2007 and December 2007, Duoyuan China paid to Duoyuan Water rental payments
      that
      Duoyuan China had accrued during calendar years 2005 to 2007 in the amount
      of
      RMB 2.8 million ($0.4million). By December 31, 2007, all rental payments owed
      from Duoyuan China to Duoyuan Water under the initial lease agreement had been
      settled.





Duoyuan
      China uses the trademark “Duoyuan” under a license agreement with Duoyuan Water
      Environmental Protection Technology Industry (China) Co., Ltd., of which Mr.
      Wenhua Guo is a sole stockholder. The trademark license does not have a term.
      As
      the cost of obtaining the trademark is immaterial, the license is provided
      to
      Duoyuan China at no charge.





By
      assignment agreement dated December 26, 2002 with Huiyuan Institute, Duoyuan
      China obtained ownership of a patent it used previously pursuant to a license.
      However, prior to the execution of a Termination of the Letter of Patent Use
      Authorization dated March 11, 2008, Duoyuan China made use of a patent for
“an
      automatic offset press printing oil supply quick clearing device” under a
      license agreement with Huiyuan Institute, of which Mr. Wenhua Guo is the sole
      stockholder. The patent license did not have a term and was provided to Duoyuan
      China at no charge.




Duoyuan
        China previously engaged Tianjin Automobile Water Pump Co., Ltd., Tianjin
        Automobile of which Mr. Wenhua Guo is the sole stockholder, as its supplier
        of
        certain key parts of the offset presses, such as frame panels and rollers.
        Duoyuan China pre-paid Tianjin Automobile for these parts. These pre-payments
        became related party receivables to Duoyuan China. As of December 31, 2006,
        Duoyuan China had failed to settle this related-party receivable account,
        which
        amounted to $38,716. This was in violation of the contractual agreement in
        the
        Securities Purchase Agreement in respect of related-party transactions.
        As of June 30, 2007, the receivable account had been fully settled. We do
        not plan to engage in any further related party transactions with Tianjin
        Automobile in the future.





Following
        the completion of the Langfang Duoyuan plant, there was approximately $442,019
        worth of certain surplus construction materials remaining. When Duoyuan Langfang
        Water Recycle Equipment Manufacturing Co., Ltd., of which Mr. Wenhua Guo
        is the
        sole stockholder, undertook the construction of its own plant, Langfang Duoyuan
        sold these construction materials to us at cost. As of  December 31,
        2006, Duoyuan China had failed to settle this account, in violation of the
        contractual agreement in the Securities Purchase Agreement in respect of
        related-party transactions. As of June 30, 2007, the receivable account in
        respect of this transaction had been fully settled.


66





During
      the construction phase of the Langfang Duoyuan plant, Duoyuan China Information
      Technology Industry Co., Ltd., of which Mr. Wenhua Guo is the sole stockholder,
      paid on behalf of Langfang Duoyuan the municipal infrastructure allocation
      fee
      utilities accounts and other expenses incurred. During the fiscal year ended
      June 30, 2005, Duoyuan China paid off such debt in the amount of
      $1,068,975.





In
      a
      separate transaction, Duoyuan China owed to Huiyuan Institute, the original
      stockholder of Langfang Duoyuan, $4,598,000 as of June 30, 2005 for the unpaid
      purchase price for Huiyuan Institute’s 90% equity interest in Langfang Duoyuan.
      The purchase price was fully paid on May 16, 2006.




Langfang
            Duoyuan leased part of its manufacturing plant to Duoyuan
            Water Treatment Equipment Manufacturing (Langfang) Co., Ltd ,
            a company
            80% owned by Mr. Guo .
            The
            lease is valid from October 1, 2004 to September 30, 2009. On May 25,
            2007,
            pursuant to a termination agreement, Langfang Duoyuan and Duoyuan
            Water Treatment Equipment Manufacturing (Langfang) Co., Ltd terminated
            the lease. Total rental income for the years ended June 30, 2008, 2007
            and 2006
            amounted to $0, $447,247, and $434,697,
            respectively.




During
        2006, Duoyuan China received various short-term loans from Duoyuan Water,
        of
        which Mr. Guo is the sole stockholder. The loans were non-interest bearing
        and
        due on demand. These short-term loans became related-party payables to Duoyuan
        Water. As of December 31, 2006, Duoyuan China had failed to settle this
        account in the amount of $290,308 in violation of the contractual agreement
        in
        the Securities Purchase Agreement in respect of related-party transactions.
        As
        of June 30, 2007, the payable account in respect of this transaction had
        been
        fully settled.





Also
        during 2006, Duoyuan China made various short-term loans to Duoyuan Water.
        The
        loans were non-interest bearing and due on demand. These short-term loans
        became
        related party receivables to Duoyuan China. As of December 31, 2006,
        Duoyuan China had failed to settle this receivable account in violation of
        the
        contractual agreements in the Securities Purchase Agreement on related party
        transactions in the amount of $3,390,198. As of June 30, 2007, the receivable
        account in respect of this transaction had been fully
        settled.





*Indebtedness
      of Management*




None.





*Review,
      Approval or Ratification of Transactions with Related
      Persons*





As
      provided in our Audit Committee’s charter, all related party transactions
      going-forward must be approved by our Audit Committee. As such, we will conduct
      a review of all related party transactions for potential conflict of interest
      situations on an ongoing basis and all such transactions relating to executive
      officers and directors must be approved by the Audit Committee. While there
      are
      no written policies and procedures regarding review of related party
      transactions in the charter of our Audit Committee, the independent directors
      who are members of the Audit Committee follow state fiduciary laws and have
      approved and may approve the related party transactions if they believe they
      are
      in our best interests.





*Director
      Independence*





Management
      has reviewed the directors’ responses to a questionnaire inquiring about their
      transactions, relationships and arrangements with us, as well as those of their
      immediate family members. The questionnaire also canvassed other potential
      conflicts of interest. After reviewing this information, the board of directors
      determined that our board of directors is comprised of a majority of
“independent directors”, as such term is defined in the NASDAQ rules and Rule
      10A-3 of the Exchange Act. Our independent directors are not engaged in any
      transaction, relationship or arrangement with us in this respect. Among our
      current five directors, Messrs. Christopher Patrick Holbert, Lianjun Cai and
      Punan Xie meet the NASDAQ and the Exchange Act standards for independent
      directors. The remaining two directors, Wenhua Guo and Xiqing Diao are executive
      officers and are not independent directors. Our Audit Committee is currently
      comprised of three independent directors, Messrs. Christopher Patrick Holbert
      (chairman), Lianjun Cai and Punan Xie. Our compensation Committee is comprised
      of three independent directors, Messrs. Lianjun Cai (chairman), Messrs.
      Christopher Patrick Holbert, and Messrs. Punan Xie. Our nomination and corporate
      governance committee is comprised of three independent directors, Punan Xie
      (chairman), Christopher Patrick Holbert and Lianjun Cai.


67





As
      provided in our Audit Committee’s charter, all related party transactions
      going-forward must be approved by our Audit Committee. As such, we will conduct
      a review of all related party transactions for potential conflict of interest
      situations on an ongoing basis and all such transactions relating to executive
      officers and directors must be approved by the Audit Committee. While there
      are
      no written policies and procedures regarding review of related party
      transactions in the charter of our Audit Committee, the independent directors
      who are members of the Audit Committee follow state fiduciary laws and have
      approved and may approve the related party transactions if they believe they
      are
      in our best interests.





**Item
              14.**
            **Principal
                Accountant Fees and
                Services.**





In
        connection with the audit during the year ended June 30, 2008, for the audits
        of
        our annual financial statements and review of our quarterly financial
        statements, the Company entered into an engagement agreement with for
        professional services rendered by our principal accountant, Moore Stephens
        Wurth
        Frazer and Torbet, LLP (“Moore Stephens”). The description of the fees
        billed to the Company by Moore Stephens for the years ended June 30, 2007
        and 2008 is set forth below.




**2007**
              
              **2008**Audit
                  Fees(1)
              
              $
              220,000
              
              $
              220,000Audit
                  Related Fees
              
              
              —
              
              
              —Tax
                  Fees(2)
              
              $
              6,000
              
              $
              5,000All
                  Other Fees
              
              
              —
              
              
              —Total
                  Fees
              
              $
              226,000
              
              $
              225,000





(1)
            Audit
                Fees were for the audits of our annual financial statements and review
                of
                our quarterly financial statements.





(2)
            Tax
                Fees were for professional services rendered for tax compliance,
                tax
                advice, and tax planning for the year ended June 30,
                2008.




Our
      Audit
      Committee has a policy for the pre-approval of all audit and non-audit services
      provided by our independent registered public accounting firm. Each year, the
      Audit Committee approves the proposed services, including the type and nature
      of
      such services. Audit Committee pre-approval is also required for engagements
      that may arise during the course of the year that are outside the scope of
      the
      initial services and fees pre-approved by the Audit Committee.





All
      audit
      and related services are approved by the board of directors, the acting Audit
      Committee, prior to the rendering of services.


68





**PART
      IV**




**Item
              15.**
            **Exhibits
                and Financial Statement Schedules.**




(a) 
      The following documents are filed as part of this report:




(1)  
      Financial Statements. The financial statements required to be filed as part
      of
      this Annual Report and the Report of Independent Registered Public Accounting
      Firm are included beginning on page F-1.




(2) 
       Financial Statement Schedules. All Schedules are either included in the
      Notes to Consolidated Financial Statements or are omitted because they are
      not
      applicable.




(3)  
      Exhibits (numbered in accordance with Item 601 of Regulation S-K). The exhibits
      listed on the accompanying Exhibit Index filed or incorporated by references
      as
      part of this Annual Report and such Exhibit Index is incorporated herein by
      reference. On the Exhibit Index, a “±” identifies each management contract or
      compensatory plan or arrangement required to be filed as an exhibit to this
      Annual Report, and such listing is incorporated herein by
      reference.


69





**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.




**Asian
                Financial, Inc.**
              **(Registrant)**Date:
                September 26, 2008
            
            By:
            /s/
                Wenhua GuoWenhua
                Guo
              Chairman
                of the Board and Chief Executive Officer****Date:
                September 26, 2008
            
            By:
            /s/
                Baiyun SunBaiyun
                Sun
              Interim
                Chief Financial Officer****




**POWER
      OF ATTORNEY**




KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Wenhua Guo, his or her attorney-in-fact, with the
      power
      of substitution, for him or her in any and all capacities, to sign any
      amendments to this Report on Form 10-K, and to file the same, with exhibits
      thereto and other documents in connection therewith with the Securities and
      Exchange Commission, hereby ratifying and confirming all that each of said
      attorney-in-fact, or his or her substitute or substitutes may do or cause to
      be
      done by virtue hereof.




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




**Signature**
              
              **Title**
              
              **Date**/s/
                  Wenhua Guo
                **Name:**Wenhua
                    Guo
              
              Chairman
                  of the Board and Chief Executive Officer and Director
                (Principal
                  Executive Officer)
              
              September
                  26, 2008/s/
                  Baiyun Sun
                **Name:**Baiyun
                    Sun
              
              Interim
                  Chief Financial Officer
                (Principal
                  Financial and Accounting Officer)
              
              September
                  26, 2008/s/
                  Lianjun Cai
              
              Director
              
              September
                  26, 2008**Name:**Lianjun
                  Cai/s/
                  Xiqing Diao
              
              Director
              
              September
                  26, 2008**Name:**Xiqing
                  Diao/s/
                  Christopher Patrick Holbert
              
              Director
              
              September
                  26, 2008**Name:**Christopher
                  Patrick Holbert/s/
                  Punan Xie
              
              Director
              
              September
                  26, 2008**Name:**Punan
                  Xie




70





**EXHIBIT
      INDEX**








**Number**
              
              **Description**2.1
              
              Equity
                    Transfer Agreement dated August 31, 2006 between Asian Financial,
                    Inc. and
                    Duoyuan Investments Limited (Incorporated by reference to Exhibit
                    2.1 to
                    Current Report on Form 8-K (File No.000-27129) filed with the
                    Securities
                    and Exchange Commission on September 6, 2006).3.1
              
              Articles
                  of Incorporation, as amended of Asian Financial, Inc. (Incorporated
                  by
                  reference to Exhibit 3.1 to Amendment No. 1 to Registration Statement
                  on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on July 5, 2007).3.2
              
              Amended
                  and Restated Bylaws of Asian Financial, Inc. (Incorporated by reference
                  to
                  Exhibit 3.2 to Amendment No. 4 to Registration Statement on Form
                  S-1 (File
                  No. 333-141507) filed with the Securities and Exchange Commission
                  on
                  February 11, 2008).4.1
              
              Securities
                  Purchase Agreement dated October 24, 2006 between Asian Financial,
                  Inc.
                  and certain Investors indentified therein (Incorporated by reference
                  to
                  Exhibit 4.1 to Amendment No. 1 to Registration Statement on Form
                  S-1 (File
                  No. 333-141507) filed with the Securities and Exchange Commission
                  on July
                  5, 2007).4.2
              
              Amendment
                  to Securities Purchase Agreement dated November 28, 2007 between
                  Asian
                  Financial, Inc. and certain Investors identified therein (Incorporated
                  by
                  reference to Exhibit 4.4 to Amendment No. 4 to Registration Statement
                  on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on February 11, 2008).4.3
              
              Warrant
                  issued to Roth Capital Partners, LLC dated November 2, 2006 (Incorporated
                  by reference to Exhibit 4.2 to Amendment No. 4 to Registration
                  Statement
                  on Form S-1 (File No. 333-141507) filed with the Securities and
                  Exchange
                  Commission on February 11, 2008).4.4
              
              Form
                    of Warrant dated December 31, 2007 issued to certain investors
                    party to
                    the Securities Purchase Agreement dated October 24, 2006 (filed
                    as exhibit
                    4.1 hereto) in satisfaction of related party penalties in relation
                    thereto
                    (Incorporated by reference to Exhibit 4.3 to Amendment No. 4
                    to
                    Registration Statement on Form S-1 (File No. 333-141507) filed
                    with the
                    Securities and Exchange Commission on February 11,
                    2008)4.5
              
              Form
                  of Certificate representing the common stock, par value $0.001,
                  of the
                  Company. *10.1
              
              Lease
                  Agreement between Duoyuan Clean Water Technology Industries (China)
                  Co.,
                  Ltd. and Duoyuan Digital Printing Technology Industry (China) Co.
                  Ltd.
                  (Incorporated by reference to Exhibit 10.7 to Amendment No. 5 to
                  Registration Statement on Form S-1 (File No. 333-141507) filed
                  with the
                  Securities and Exchange Commission on March 14, 2008).10.2
              
              English
                  Summary of Form of Employment Agreement (Incorporated by reference
                  to
                  Exhibit 10.8 to Amendment No. 4 to Registration Statement on Form
                  S-1
                  (File No. 333-141507) filed with the Securities and Exchange Commission
                  on
                  February 11, 2008). ±10.3
              
              Share
                  Transfer Agreement, dated October 16, 2005, between Beijing Huiyuan
                  Duoyuan Digital Printing Technology Research Institute and Duoyuan
                  Digital
                  Printing Technology Industry (China) Co., Ltd. (Incorporated by
                  reference
                  to Exhibit 10.9 to Amendment No. 4 to Registration Statement on
                  Form S-1
                  (File No. 333-141507) filed with the Securities and Exchange Commission
                  on
                  February 11, 2008).




71




10.4
              
              Property
                  Lease Agreement, dated December 25, 2002 between Duoyuan Water
                  Environmental Protection Technology Industry (China) Co. Ltd. And
                  Duoyuan
                  Digital Printing Technology Industry (China) Co. Ltd. (Incorporated
                  by
                  reference to Exhibit 10.12 to Amendment No. 1 to Registration Statement
                  on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on July 5, 2007).10.5
              
              Letter
                  of Trademark Use Authorization dated June 30, 2001, from Duoyuan
                  Water
                  Environmental Protection Technology Industry (China) Co., Ltd.
                  to Duoyuan
                  Technology Industry (China) Co., Ltd. (Incorporated by reference
                  to
                  Exhibit 10.13 to Amendment No. 1 to Registration Statement on Form
                  S-1
                  (File No. 333-141507) filed with the Securities and Exchange Commission
                  on
                  July 5, 2007).10.6
              
              Letter
                  of Patent Use Authorization, dated June 30, 2001, from Beijing
                  Huiyuan
                  Duoyuan Digital Printing Technology Research Institute to Duoyuan
                  Digital
                  Technology Industry (China) Co. Ltd. (Incorporated by reference
                  to Exhibit
                  10.14 to Amendment No. 1 to Registration Statement on Form S-1
                  (File No.
                  333-141507) filed with the Securities and Exchange Commission on
                  July 5,
                  2007).10.7
              
              Framework
                  Agreement on Cooperation in Research and Development of Stability
                  Technology for Offset Printing Machines and New Technologies, dated
                  May
                  16, 2005, between Duoyuan Digital Printing Technology Industry
                  (China) Co.
                  Ltd and Beijing Aeronautic Manufacturing Technology Research Institute
                  (Incorporated by reference to Exhibit 10.15 to Amendment No. 1
                  to
                  Registration Statement on Form S-1 (File No. 333-141507) filed
                  with the
                  Securities and Exchange Commission on July 5, 2007).10.8
              
              Offset
                  Printing Machine Assembly Line Design Research and Development
                  Contract,
                  dated March 11, 2002, between Duoyuan Digital Printing Technology
                  Industry
                  (China) Co. Ltd and Beijing Printing Machinery Research (Incorporated
                  by
                  reference to Exhibit 10.17 to Amendment No. 1 to Registration Statement
                  on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on July 5, 2007).10.9
              
              Assignment
                  of Patent Agreement dated December 26, 2002 between Beijing Huiyuan
                  Duoyuan Digital Technology Institute and Duoyuan Digital Printing
                  Technology Industries (China) Co. Ltd. (Incorporated by reference
                  to
                  Exhibit 10.25 to Amendment No. 5 to Registration Statement on Form
                  S-1
                  (File No. 333-141507) filed with the Securities and Exchange Commission
                  on
                  March 14, 2008).10.10
              
              Registration
                  Rights Agreement dated October 24, 2006 between Asian Financial,
                  Inc. and
                  certain Investors identified therein (Incorporated by reference
                  to Exhibit
                  4.1to Current Report on Form 8-K (File No. 000-27129) filed with
                  the
                  Securities and Exchange Commission on October 25,
                  2006).10.11
              
              Convertible
                  Promissory Note covering the fiscal years ended December 31, 1995
                  through
                  1999 (Incorporated by reference to Exhibit 10.18 to Amendment No.
                  4 to
                  Registration Statement on Form S-1 (File No. 333-141507) filed
                  with the
                  Securities and Exchange Commission on February 11,
                  2008).10.12
              
              Convertible
                  Promissory Note covering the fiscal years ended December 31, 2003
                  through
                  2004 (Incorporated by reference to Exhibit 10.19 to Amendment No.
                  4 to
                  Registration Statement on Form S-1 (File No. 333-141507) filed
                  with the
                  Securities and Exchange Commission on February 11, 2008).10.13
              
              Employment
                  Agreement between Asian Financial, Inc. and Gene Michael Bennett
                  dated as
                  of July 18, 2007 (Incorporated by reference to Exhibit 10.22 to
                  Amendment
                  No. 5 to Registration Statement on Form S-1 (File No. 333-141507)
                  filed
                  with the Securities and Exchange Commission on March 14, 2008).
                  ±10.14
              
              Separation
                    Agreement and Release of All Claims effective December 20, 2007
                    between
                    Asian Financial, Inc. and Gene Michael Bennett (Incorporated
                    by reference
                    to Exhibit 99.1 to Current Report on Form 8-K (File No. 000-27129)
                    filed
                    with the Securities and Exchange Commission on December 27, 2007).
                    ±10.15
              
              Maximum
                    Amount Mortgage Contract dated July 28, 2007 amongAgriculture
                    Bank of China Chongwen Sub-branch, Duoyuan Digital Printing Technology
                    (China) Co. Ltd., and Hunan Duoyuan Printing Machine Co. Ltd.
                    (Incorporated by reference to Exhibit 10.21 to Amendment No.
                    4 to
                    Registration Statement on Form S-1 (File No. 333-141507) filed
                    with the
                    Securities and Exchange Commission on February 11,
                    2008).10.16
              
              Employment
                  Agreement with William Milewski dated as of March 1, 2008 (Incorporated
                  by
                  reference to Exhibit 10.23 to Amendment No. 5 to Registration Statement
                  on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on March 14, 2008).
±




72




10.17
              
              Termination
                  of Letter of Patent Use Authorization, from Beijing Huiyuan Duoyuan
                  Digital Printing Technology Research Institute to Duoyuan Digital
                  Technology Industry (China) Co. Ltd. (see Exhibit 10.11) (Incorporated
                  by
                  reference to Exhibit 10.24 to Amendment No. 5 to Registration Statement on
                  Form S-1 (File No. 333-141507) filed with the Securities and Exchange
                  Commission on March 14, 2008).10.18
              
              Separation
                    Agreement and Release of All Claims effective May 21, 2008 between
                    Asian
                    Financial, Inc. and William Edward Milewski (Incorporated by
                    reference
                    Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-27129)
                    filed
                    with the Securities and Exchange Commission on May 27, 2008).
                    ±21.1
              
              List
                  of Subsidiaries.***23.1
              
              Consent
                  of Moore Stephens Wurth Frazer and Torbet, LLP.*31.1
              
              Chairman
                  of the Board and Chief Executive Officer Certification required
                  by Rules
                  13a-14 and 15d-14 under the Securities Exchange Act of 1934, as
                  amended.*31.2
              
              Interim
                  Chief Financial Officer Certification required by Rules 13a-14
                  and 15d-14
                  under the Securities Exchange Act of 1934, as amended.*32.1
              
              Certification
                  of Chairman of the Board and Chief Executive Officer and Interim
                  Chief
                  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant
                  to Section 906 of Sarbanes Oxley Act of 2002.*








*
      Filed
      herewith.


±
      Management contract or compensatory plan or arrangement.


73




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Director and Stockholders of


Asian
      Financial Inc. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Asian Financial Inc.
      and
      subsidiaries as of June 30, 2008 and 2007, and the related consolidated
      statements of income and other comprehensive income, stockholders’ equity, and
      cash flows for each of the years in the three-year period ended June 30, 2008.
      Asian Financial Inc.’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 on 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, to a test basis, evidence supporting the amounts and disclosures
      in
      the financial statement, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Asian Financial Inc. and
      subsidiaries as of June 30, 2008 and 2007, and the results of its operations
      as
      its cash flows for each of the years in the three-year period ended June 30,
      2008 in conformity with accounting principles generally accepted in the United
      States of America.





/s/
      Moore
      Stephens Wurth Frazer and Torbet, LLP





Walnut,
      California





September
      5, 2008


F-1


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      JUNE 30, 2008 AND 2007





2008
            
            2007ASSETSCURRENT
                ASSETS:Cash
            
            $
            14,199,700
            
            $
            7,816,361Restricted
                cash
            
            
            -
            
            
            2,097,490Accounts
                receivable, net of allowance for doubtful accounts of $1,178,328and
                $498,648 as of June 30, 2008 and 2007, respectively
            
            
            33,184,833
            
            
            21,170,423Inventories
            
            
            23,950,551
            
            
            20,074,605Other
                receivables
            
            
            20,834
            
            
            68,160Deferred
                expense
            
            
            661,250
            
            
            -Other
                assets
            
            
            
            
            
            40,331Total
                current assets
            
            
            72,017,168
            
            
            51,267,370PLANT
                AND EQUIPMENT, net
            
            
            34,130,651
            
            
            25,332,554OTHER
                ASSETS:Intangible
                assets, net
            
            
            4,003,128
            
            
            3,679,941Advances
                on equipment purchases
            
            
            2,753,610
            
            
            -Total
                other assets
            
            
            6,756,738
            
            
            3,679,941Total
                assets
            
            $
            112,904,557
            
            $
            80,279,865




LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIES:Lines
                of credit
            
            $
            11,380,200
            
            $
            12,887,000Accounts
                payable
            
            
            1,489,255
            
            
            2,572,061Accrued
                liabilities
            
            
            1,749,129
            
            
            1,107,591Other
                payables
            
            
            108,983
            
            
            198,000Other
                payables - related parties
            
            
            -
            
            
            369,564Taxes
                payable
            
            
            1,702,986
            
            
            1,078,503Liquidated
                damages payable
            
            
            -
            
            
            2,119,428Total
                current liabilities
            
            
            16,430,553
            
            
            20,332,147DERIVATIVE
                INSTRUMENT LIABILITIES
            
            
            1,374,824
            
            
            -MINORITY
                INTEREST
            
            
            1,292,843
            
            
            800,766COMMITMENTS
                AND CONTINGENT LIABILITIES
            
            
            -
            
            
            -SHAREHOLDERS'
                EQUITY:Preferred
                stock; $0.001 par value; 1,000,000 shares authorized; no shares issued
                and
                outstanding
            
            
            -
            
            
            -Common
                stock; $0.001 par value; 100,000,000 shares authorized;25,000,050
                shares issued and outstanding
            
            
            25,000
            
            
            25,000Additional
                paid-in capital
            
            
            27,263,040
            
            
            27,263,040Statutory
                reserves
            
            
            6,000,090
            
            
            3,282,601Retained
                earnings
            
            
            50,058,176
            
            
            26,316,141Accumulated
                other comprehensive income
            
            
            10,460,031
            
            
            2,260,170Total
                shareholders' equity
            
            
            93,806,337
            
            
            59,146,952Total
                liabilities and shareholders' equity
            
            $
            112,904,557
            
            $
            80,279,865




The
          accompanying notes are integral part of the these consolidated
          statements.
 See
          report of independent registered public accounting
          firm.


F-2


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR
      THE
      YEARS ENDED JUNE 30, 2008, 2007 AND 2006





2008
              
              2007
              
              2006REVENUES
              
              $
              89,627,677
              
              $
              67,811,867
              
              $
              43,746,561COST
                  OF SALES
              
              
              44,461,903
              
              
              37,693,679
              
              
              22,477,905GROSS
                  PROFIT
              
              
              45,165,774
              
              
              30,118,188
              
              
              21,268,656RESEARCH
                  AND DEVELOPMENT EXPENSES
              
              
              1,683,304
              
              
              1,045,543
              
              
              1,036,570SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              13,177,154
              
              
              10,905,809
              
              
              6,649,280INCOME
                  FROM OPERATIONS
              
              
              30,305,316
              
              
              18,166,836
              
              
              13,582,806LIQUIDATED
                  DAMAGES, net of settlement
              
              
              235,492
              
              
              (2,119,428
              )
              
              -CHANGE
                  IN FAIR VALUE OF DERIVATIVE INSTRUMENTS
              
              
              73,112
              
              
              -
              
              
              -OTHER
                  INCOME (EXPENSE), net
              
              
              (535,056
              )
              
              (20,734
              )
              
              (238,974
              )INCOME
                    BEFORE MINORITY INTEREST AND PROVISION FOR INCOME TAXES
              
              
              30,078,864
              
              
              16,026,674
              
              
              13,343,832MINORITY
                  INTEREST
              
              
              381,633
              
              
              240,584
              
              
              187,120INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              29,697,231
              
              
              15,786,090
              
              
              13,156,712PROVISION
                  FOR INCOME TAXES
              
              
              3,237,707
              
              
              1,806,943
              
              
              261,133NET
                  INCOME
              
              
              26,459,524
              
              
              13,979,147
              
              
              12,895,579OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation gain
              
              
              8,199,861
              
              
              1,834,313
              
              
              425,857COMPREHENSIVE
                  INCOME
              
              $
              34,659,385
              
              $
              15,813,460
              
              $
              13,321,436BASIC
                  AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
              
              
              25,000,050
              
              
              23,041,021
              
              
              18,867,436BASIC
                  AND DILUTED EARNING PER SHARE
              
              $
              1.06
              
              $
              0.61
              
              $
              0.68


The
          accompanying notes are integral part of the these consolidated
          statements.
 See
          report of independent registered public accounting
          firm.
 F-3


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY


FOR
      THE
      YEARS ENDED JUNE 30, 2008, 2007 AND 2006





Common Stock
            
            
            
            Retained earnings
            
            AccumulatedNumber of
              shares
            
            Amount
            
            Additionalpaid-incapital
            
            Statutory
              reserves
            
            Unrestricted
            
            othercomprehensiveincome
            
            TotalBALANCE, July
                1, 2005
            
            
            17,562,388
            
            $
            17,562
            
            $
            5,992,339
            
            $
            581,640
            
            $
            2,142,376
            
            $
            -
            
            $
            8,733,917Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,895,579
            
            
            
            
            
            12,895,579Adjustment
                to statutory reserves
            
            
            
            
            
            
            
            
            
            
            
            1,289,558
            
            
            (1,289,558
            )
            
            
            
            
            -Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            425,857
            
            
            425,857BALANCE,
                June 30, 2006
            
            
            17,562,388
            
            $
            17,562
            
            $
            5,992,339
            
            $
            1,871,198
            
            $
            13,748,397
            
            $
            425,857
            
            $
            22,055,353Shares
                due to reorganization on August 31, 2006
            
            
            1,305,048
            
            
            1,305
            
            
            (1,305
            )
            
            
            
            
            13,979,147
            
            
            
            
            
            13,979,147Net
                income
            
            
            
            
            
            
            
            
            
            
            
            1,411,403
            
            
            (1,411,403
            )
            
            
            
            
            -Shares
                issued for cash, $1.43 per share
            
            
            6,132,614
            
            
            6,133
            
            
            21,272,006
            
            
            
            
            
            
            
            
            
            
            
            21,278,139Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,834,313
            
            
            1,834,313BALANCE,
                June 30, 2007
            
            
            25,000,050
            
            $
            25,000
            
            $
            27,263,040
            
            $
            3,282,601
            
            $
            26,316,141
            
            $
            2,260,170
            
            $
            59,146,952Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            26,459,524
            
            
            
            
            
            26,459,524Adjustment
                to statutory reserves
            
            
            
            
            
            
            
            
            
            
            
            2,717,489
            
            
            (2,717,489
            )
            
            
            
            
            -Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,199,861
            
            
            8,199,861BALANCE,
                June 30, 2008
            
            
            25,000,050
            
            $
            25,000
            
            $
            27,263,040
            
            $
            6,000,090
            
            $
            50,058,176
            
            $
            10,460,031
            
            $
            93,806,337


The
          accompanying notes are integral part of the these consolidated
          statements.
 See
          report of independent registered public accounting firm.
 F-4


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED JUNE 30, 2008, 2007 AND 2006





2008
            
            2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            26,459,524
            
            $
            13,979,147
            
            $
            12,895,579Adjustments
                to reconcile net income to cashprovided
                by (used in) operating activities:Minority
                interest
            
            
            381,633
            
            
            240,584
            
            
            187,120Depreciation
            
            
            2,239,063
            
            
            882,842
            
            
            590,635Amortization
            
            
            75,297
            
            
            70,047
            
            
            67,821Loss
                on fixed assets disposal
            
            
            1,458
            
            
            -
            
            
            -Bad
                debt expense
            
            
            589,901
            
            
            322,305
            
            
            -Change
                in fair value of derivative instruments
            
            
            (73,112
            )
            
            -
            
            
            -Liquidated
                damages penalty
            
            
            706,476
            
            
            2,119,428
            
            
            -Gain
                from settlement of liquidated damages
            
            
            (941,968
            )
            
            -
            
            
            -Change
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (9,740,414
            )
            
            (9,452,582
            )
            
            (6,010,258
            )Inventories
            
            
            (1,566,856
            )
            
            (2,440,076
            )
            
            (1,390,188
            )Other
                receivables
            
            
            51,706
            
            
            71,457
            
            
            -Other
                receivables - related parties
            
            
            -
            
            
            913,154
            
            
            5,289Deferred
                expense
            
            
            (661,250
            )
            
            -
            
            
            -Other
                assets
            
            
            42,230
            
            
            (43,198
            )
            
            36,625Accounts
                payable
            
            
            (1,287,681
            )
            
            (10,935,839
            )
            
            4,361,870Customer
                deposits
            
            
            -
            
            
            (19,265
            )
            
            18,653Other
                payables
            
            
            (104,471
            )
            
            (341,354
            )
            
            286,617Other
                payables - related parties
            
            
            (386,960
            )
            
            (455,164
            )
            
            (6,518,709
            )Accrued
                liabilities
            
            
            538,634
            
            
            312,551
            
            
            69,749Taxes
                payable
            
            
            477,886
            
            
            576,025
            
            
            332,069Net
                cash provided by (used in) operating activities
            
            
            16,801,096
            
            
            (4,199,938
            )
            
            4,932,872CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of equipment
            
            
            (7,925,596
            )
            
            (13,314,596
            )
            
            (297,559
            )Advances
                on equipment purchases
            
            
            (2,598,661
            )
            
            2,233,885
            
            
            (1,265,352
            )Net
                cash used in investing activities
            
            
            (10,524,257
            )
            
            (11,080,711
            )
            
            (1,562,911
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from private placement
            
            
            -
            
            
            21,278,139
            
            
            -Proceeds
                from lines of credit
            
            
            10,739,820
            
            
            15,050,400
            
            
            -Payments
                for lines of credit
            
            
            (13,493,620
            )
            
            (15,060,400
            )
            
            -Payments
                for liquidated damages payable
            
            
            (436,000
            )
            
            -
            
            
            -Restricted
                cash
            
            
            2,097,490
            
            
            (2,097,490
            )
            
            -Net
                cash (used in) provided by financing activities
            
            
            (1,092,310
            )
            
            19,170,649
            
            
            -EFFECT
                OF EXCHANGE RATE CHANGES ON CASH
            
            
            1,198,810
            
            
            186,650
            
            
            75,316INCREASE
                IN CASH
            
            
            6,383,339
            
            
            4,076,650
            
            
            3,445,277CASH,
                beginning of year
            
            
            7,816,361
            
            
            3,739,711
            
            
            294,434CASH,
                end of year
            
            $
            14,199,700
            
            $
            7,816,361
            
            $
            3,739,711





The
        accompanying notes are integral part of the these consolidated
        statements.


See
        report of independent registered public accounting firm.


F-5





ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





**Note
      1 – Organization background and principal activities**





**Asian
      Financial, Inc. (“AFI”)** was
      organized under the laws of the State of Nevada on August 10, 1998. On July
      27,
      2005, AFI merged with Asian Financial, Inc. (a Wyoming entity) for the purpose
      of changing its domicile from Nevada to Wyoming. AFI has no operations and
      generated no revenues since inception.





Duoyuan
      Investments Limited (“Duoyuan BVI”) is a British Virgin Islands company that
      owns 100% of the equity interest of Duoyuan Digital Printing Technology Industry
      (China) Co., Ltd. (“Duoyuan China”). Duoyuan China has two subsidiaries, a 99.4%
      ownership in Hunan Duoyuan Printing Machinery Co., Ltd. and 95% ownership in
      Langfang Duoyuan Digital Technology Co., Ltd (collectively referred to as the
      Duoyuan Interest).





On
      August
      31, 2006, Asian Financial, Inc. entered into a definitive Equity Transfer
      Agreement with Duoyuan BVI to acquire the “Duoyuan Interest” in exchange for
      47,100,462 new (pre-split) shares of common stock in Asian Financial. Prior
      to
      the acquisition, Asian Financial, Inc. had 3,500,000 (pre-split) shares of
      outstanding common stock. Accordingly, at the closing, there were 50,600,462
      (pre-split) shares outstanding. The Equity Transfer Agreement became effective
      October 6, 2006. The stock exchange transaction has been accounted as a reverse
      acquisition and recapitalization of the Company whereby Duoyuan BVI is deemed
      to
      be the accounting acquirer (legal acquiree) and the Company to be the accounting
      acquiree (legal acquirer). The historical financial statements for periods
      prior
      to October 6, 2006 are those of Duoyuan BVI, except that the equity section
      and
      earnings per share have been retroactively restated to reflect the reverse
      acquisition. As
      a
      result of the equity transfer, Duoyuan China became Asian Financial, Inc’s
      wholly-owned subsidiary, and Mr. Wenhua Guo, the sole shareholder of Duoyuan
      BVI, became our controlling shareholder.





**Duoyuan
      Digital Printing Technology Industry (China) Co., Ltd. (“Duoyuan
      China”)** was
      originally established and wholly owned by Duoyuan Industries (Holding) Inc.
      (“Duoyuan Industries”), a British Virgin Islands company. In September 2002,
      Duoyuan Industries entered into an Equity Transfer Agreement with Duoyuan BVI,
      whereby Duoyuan BVI acquired 100% of the equity in Duoyuan China from Duoyuan
      Industries. Mr. Wenhua Guo is the sole shareholder of both Duoyuan Industries
      and Duoyuan BVI. Duoyuan China was incorporated in the People’s Republic of
      China (“PRC”) in 2001 with the registered capital $6,000,000. Duoyuan China has
      increased its registered capital to $19,000,000. As of June 30, 2007,
      $18,000,000 was contributed to Duoyuan China from the Company, and the remaining
      $1,000,000 was received in July and August 2007. The capital was raised through
      a private placement to accredited investors, see Note 11. On August 21, 2007,
      Duoyuan China received its business license requiring $25,000,000 registered
      capital. As of June 30, 2008, Duoyuan China owns 95.0% of Langfang Duoyuan
      Digital Technology Co., Ltd. and 88.0% of Hunan Duoyuan Printing Machinery
      Co.,
      Ltd.





**Langfang
      Duoyuan Digital Technology Co., Ltd.** **(“Langfang Duoyuan”)** is
      located in the city of Langfang, China and manufactures digital printing
      products. Langfang Duoyuan was originally called Langfang Duoyuan Digital
      Printing Technology Co., Ltd. when Beijing Huiyuan Duoyuan Research Institute
      Co., Ltd. (“Huiyuan Institute”) owned 95% and Beijing Yinlu Advertising Co.,
      Ltd. (Yinlu) owned 5%. On March 21, 2002, Yinlu transferred its 5% ownership
      to
      Duoyuan China. On October 16, 2005, Huiyuan Institute transferred 90% of the
      equity of Langfang Duoyuan to Duoyuan China whereby Duoyuan China holds 95%
      of
      the equity of Langfang Duoyuan while Huiyuan Institute remains the holder of
      5%
      of the Langfang Duoyuan equity. As of June 30, 2008 Langfang Duoyuan owns 12.0%
      of Hunan Duoyuan Printing Machinery Co., Ltd.





**Hunan
      Duoyuan Printing Machinery Co., Ltd. (“Hunan Duoyuan”)** is
      located in Hunan, China and manufactures printing equipment. Hunan Duoyuan
      was
      established on March 10, 2006, is 88% owned by Duoyuan China and 12% by Langfang
      Duoyuan. The business license expires March 2034.




See
          report of independent registered public accounting
          firm.




F-6


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





**Note
      2 – Summary of significant accounting policies**





The
      reporting entity





The
      consolidated financial statements of Asian Financial Inc. and subsidiaries
      (“the
      Company”) reflect activities of Asian Financial Inc., Duoyuan BVI - 100%,
      Duoyuan China - 100%, Langfang Duoyuan - 95.0%, and Hunan Duoyuan - 99.4%.





Basis
      of presentation





The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      All material inter-company transactions and balances have been eliminated in
      the
      consolidation.





Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the
      consolidated financial statements and accompanying notes. For example, the
      Company estimates the allowance for doubtful accounts as well as the fair value
      of its warrants, carried as derivative instruments, marked to market each
      reporting period. Management believes that the estimates used in preparing
      its
      financial statements are reasonable and prudent. Actual results could differ
      from these estimates.





Foreign
      currency translation




The
      reporting currency of the Company is the US dollar. The Company uses their
      local
      currency RMB, as their functional currency. Results of operations and cash
      flows
      are translated at average exchange rates during the period, assets and
      liabilities are translated at the unified exchange rate as quoted by the
      People’s Bank of China at the end of the period, and equity is translated at
      historical exchange rates.





Translation
      adjustments amounted to $10,460,031 and $2,260,170 as of June 30, 2008 and
      2007,
      respectively. Asset and liability accounts at June 30, 2008, were translated
      at
      6.85 RMB to $1.00 USD as compared to 7.60 RMB at June 30, 2007. Equity accounts
      were stated at their historical rate. The average translation rates applied
      to
      income statements for the years ended June 30, 2008, 2007 and 2006 were 7.26
      RMB, 7.81 RMB and 8.06RMB, respectively.





Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred. Gains and losses from foreign currency
      transactions are included in the results of operation. There were no material
      transaction gains or losses for the years ended June 30, 2008, 2007 and 2006,
      respectively.





Revenue
      recognition





The
      Company recognizes revenue in accordance with SAB 104, which specifies that
      revenue is realized or realizable and earned when four criteria are met:





·
            Persuasive
                evidence of an arrangement exists. (The Company considers its sales
                contracts to be persuasive evidence of an
                arrangement.)


·
            Delivery
                has occurred or services have been rendered.


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


·
            Collectability
                of payment is reasonably assured.




See
        report of independent registered public
        accounting firm.




F-7


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008




In
      accordance with SFAS 48, “Revenue Recognition when Right of Return Exists,”
revenue is recorded net of an estimate of markdowns, price concessions and
      warranty costs. Such reserve is based on management’s evaluation of historical
      experience, current industry trends and estimated costs.




The
      Company sells its products solely to its distributors. Master distribution
      agreements are signed with each distributor. The agreements list all terms
      and
      conditions with the exception of delivery, price and quantity terms, which
      are
      evidenced separately in purchase orders. There are no instances where
      receivables from distributor are not due and payable until goods purchased
      from
      the Company are sold by the distributor. The Company does not sell products
      to
      distributors on a consignment basis. Title transfers when products are shipped.
      Its distributors have a right to return within one month after the Company
      shipped the products, only if the Company’s products have manufacturing defects
      that cannot be repaired. The Company has never experienced any returns and
      therefore made no allowance for sales returns.





The
      Company recognizes revenue when the goods are delivered and title has passed.
      Sales revenue represents the invoiced value of goods, net of a value-added
      tax
      (VAT). All of the Company’s products that are sold in the PRC are subject to a
      Chinese value-added tax at a rate of 17% of the gross sales price or at a rate
      approved by the Chinese local government. This VAT may be offset by the VAT
      paid
      by the Company on raw materials and other materials included in the cost of
      producing their finished product. The Company’s distributors are able to install
      our products without our assistance. As a result, there is no substantial
      performance required on the Company’s part.





Purchase
      prices of our products are fixed and customers are not allowed to renegotiate
      pricing after the contracts are signed. The Company’s agreements with its
      distributors do not include cancellation or termination clauses.





Credit
      limits are assigned to each distributor. As a distributor builds a sales history
      with the Company, the credit limit can be increased. Credit limits are reviewed
      by management and reductions are made if deemed necessary.





Our
      distributors are all equipped to install our products. We are not contractually
      obligated to perform any installation services. As a result, our revenue
      recognition is not impacted. The Company granted sales rebate to distributors
      based on the percentage of annual cash receipt. The Company accounts for the
      sales rebate in accordance with Emerging Issues Task Force (“EITF”) Issue 01-09,
“Accounting for Consideration Given by a Vendor to a Customer (Including a
      Reseller of the Vendor's Products)”. The sales rebate is included as a reduction
      of sales and accounts receivable to be received by the Company.





Shipping
      and handling





Shipping
      and handling costs related to costs of goods sold are included in selling,
      general and administrative costs. Shipping and handling costs amounted to
      $960,147, $1,127,745 and $623,323, respectively, for the years ended June 30,
      2008, 2007 and 2006.





Intangible
      assets





All
      land
      in the People’s Republic of China is owned by the government. However, the
      government grants rights to use the land. Land use rights are valid for a
      limited period of time, depending on their use. Based upon PRC regulations,
      land
      use rights last for 50 years for industrial property. The Company has the right
      to use the land for 50 years and has elected to amortize the cost of rights
      over
      50 years using the straight-line method.





Intangible
      assets consisted of the following:





June 30, 2008
            
            June 30, 2007Intangible -
                land use right
            
            $
            4,439,619
            
            $
            4,001,439Less
                accumulated amortization
            
            
            (436,491
            )
            
            (321,498
            )Total
            
            $
            4,003,128
            
            $
            3,679,941






See
        report of independent registered public accounting
        firm.


F-8


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Total
      amortization expense for the years ended June
      30,
      2008, 2007 and 2006 amounted to $75,297, $70,047 and $67,821, respectively.





Intangible
      assets of the Company are reviewed each reporting period to determine whether
      their carrying value has become impaired. The Company considers assets to be
      impaired if the carrying value exceeds the future projected cash flows from
      related operations. The Company also re-evaluates the periods of amortization
      to
      determine whether subsequent events and circumstances warrant revised estimates
      of useful lives. As of June 30, 2008, the Company expects these assets to be
      fully recoverable.





Plant
      and equipment





Plant
      and
      equipment are stated at cost less accumulated depreciation. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets with 5% residual value. Estimated useful lives of the assets are as
      follows:





Estimated
                Useful LifeBuildings
            
            
            30
            
            
            YearsOffice
                equipment
            
            
            3-10
            
            
            YearsMotor
                vehicles
            
            
            4-10
            
            
            YearsMachinery
                and equipment
            
            
            5-10
            
            
            Years





Construction
      in progress represents the costs incurred in connection with the construction
      of
      buildings or new additions to the Company’s plant facilities. No depreciation is
      provided for construction in progress until such time as the assets are
      completed and are placed into service. Maintenance, repairs and minor renewals
      are charged directly to expenses as incurred. Major additions and betterments
      to
      property and equipment are capitalized.





The
      cost
      and related accumulated depreciation and amortization of assets sold or
      otherwise retired are eliminated from the accounts and any gain or loss is
      included in earnings.





Plant
      and
      equipment consist of the following:





June 30, 2008
            
            June 30, 2007Buildings
            
            $
            13,643,084
            
            $
            8,201,747Office
                equipment
            
            
            924,251
            
            
            797,941Motor
                vehicles
            
            
            322,447
            
            
            292,989Plant
                and machinery
            
            
            20,305,152
            
            
            18,709,322Construction
                in progress
            
            
            4,268,971
            
            
            -Total
            
            
            39,463,905
            
            
            28,001,999Less:
                accumulated depreciation
            
            
            (5,333,254
            )
            
            (2,669,445
            )Plant
                and equipment, net
            
            $
            34,130,651
            
            $
            25,332,554





The
      depreciation expense for the years ended June
      30,
      2008, 2007 and 2006 amounted to $2,239,063, $882,842 and $590,635, respectively.





Interest
      costs totaling $140,949 was capitalized into construction in progress for the
      year ended June 30, 2008; no interest was capitalized in 2007 or
      2006.






See
        report of independent registered public accounting
        firm.





F-9


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Long-lived
      assets of the Company are reviewed each reporting period to determine whether
      their carrying value has become impaired. The Company considers assets to be
      impaired if the carrying value exceeds the future projected cash flows from
      related operations. The Company also re-evaluates the periods of amortization
      to
      determine whether subsequent events and circumstances warrant revised estimates
      of useful lives. As of June 30, 2008, the Company expects these assets to be
      fully recoverable.





Concentration
      of risk





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state-owned banks within the People’s Republic of China and offshore banking
      account with DBS bank. Total cash in state-owned banks and DBS bank at June
      30,
      2008 and June 30, 2007 amounted to $14,192,775 and $7,764,148, respectively,
      none of which are covered by insurance. The Company has not experienced any
      losses in such accounts and believes it is not exposed to any risks on its
      cash
      in bank accounts.





For
      the
      year ended June 30, 2008, one supplier accounted for approximately 12% of the
      Company’s purchases; for the year ended June 30, 2007 four suppliers accounted
      for approximately 59% of the company’s purchases; for the year ended June 30,
      2006, five suppliers accounted for approximately 69% of the Company's purchases.
      These suppliers represent 14% and 40% of the Company's total accounts payable
      as
      of June 30, 2008 and 2007.





The
      Company's operations are carried out in the PRC. Accordingly, the Company's
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the PRC's economy. The Company's operations in the PRC are subject to
      specific considerations and significant risks not typically associated with
      companies in North America and Western Europe. These include risks associated
      with, among others, the political, economic and legal environments and foreign
      currency exchange. The Company's results may be adversely affected by changes
      in
      governmental policies with respect to laws and regulations, anti-inflationary
      measures, currency conversion and remittance abroad, and rates and methods
      of
      taxation, among other things.





Restricted
      cash





Restricted
      cash represents cash held in escrow in connection with the November 2006 private
      placement. As of June 30, 2008 and 2007, a total of $0 and $2,097,490,
      respectively, was held in escrow.





Inventories





Inventories
      are stated at the lower of cost (weighted average method) or market, and consist
      of the following:





June 30, 2008
            
            June 30, 2007Raw
                materials
            
            $
            7,282,772
            
            $
            5,118,566Work
                in process
            
            
            10,984,027
            
            
            9,265,459Finished
                goods
            
            
            5,683,752
            
            
            5,690,580Totals
            
            $
            23,950,551
            
            $
            20,074,605





The
      Company reviews its inventory on a regular basis for possible obsolete goods
      to
      determine if any reserves are necessary. As of June 30, 2008 and 2007, the
      Company determined that no reserves were necessary.





Liquidated
      damages





The
      liquidated damages associated with the registration of the shares and the
      settlement of all outstanding related party balances are treated in accordance
      with FSP EITF 00-19-2, which requires the Company to recognize an expense and
      a
      liability equal to minimum estimated losses.






See
        report of independent registered public accounting
        firm.




F-10


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Financial
      instruments





Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. SFAS 107 defines the fair value
      of
      financial instruments as the amount at which the instrument could be exchanged
      in a current transaction between willing parties. The Company considers the
      carrying amount of cash, accounts receivable, other receivables, accounts
      payable, accrued liabilities, other payables and line of credit to approximate
      their fair values because of the short period of time between the origination
      of
      such instruments and their expected realization and their current market rate
      of
      interest.





Accounts
      receivable, and allowance for doubtful accounts





The
      Company’s business operations are conducted in the People’s Republic of China.
      During the normal course of business, the Company extends unsecured credit
      to
      its customers by selling on various credit terms from three to nine months.
      Management reviews its accounts receivable on a quarterly basis to determine
      if
      the allowance for doubtful accounts is adequate. An estimate for doubtful
      accounts is recorded in the period of the related sales. The Company’s existing
      reserve is consistent with its historical experience and considered adequate
      by
      management.





Accounts
      receivable, net of allowance for doubtful accounts outstanding at June 30,
      2008
      and 2007 amounted to $33,184,833 and $21,170,423, respectively. Management
      monitors accounts receivable aging and customer operating to determine if the
      allowance for doubtful accounts is adequate. The Company has recorded an
      allowance for doubtful accounts for trade accounts receivables aged between
      nine
      months and one year at 15% and currently the Company does not have any
      outstanding balance aged over year. As of June 30, 2008 and 2007, allowances
      for
      doubtful accounts were $1,178,328 and $498,648, respectively.





The
      following represents the changes of allowance for doubtful
      accounts:





June 30, 2008
            
            June 30, 2007Balance,
                beginning of period
            
            $
            498,648
            
            $
            159,725Additional
                reserves
            
            
            589,901
            
            
            322,305Foreign
                currency translation adjustments
            
            
            89,779
            
            
            16,618Balance,
                end of period
            
            $
            1,178,328
            
            $
            498,648





Income
      taxes





The
      Company records income taxes pursuant to SFAS 109, which requires recognition
      of
      deferred income tax liabilities and assets for the expected future tax
      consequences of temporary differences between income tax basis and financial
      reporting basis of assets and liabilities. Provision for income taxes consist
      of
      taxes currently payable plus deferred taxes. Since the Company had no operations
      within the United States, there is no provision for US income taxes and there
      are no deferred tax amounts as of June
      30,
      2008 and 2007.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
      benefit only if it is “more likely than not” that the tax position would be
      sustained in a tax examination, with a tax examination being presumed to occur.
      The amount recognized is the largest amount of tax benefit that is greater
      than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. The adoption had no
      affect on the Company’s financial statements.





The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet date. Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probable that
      taxable profit will be available against which deductible temporary differences
      can be utilized.






See
        report of independent registered public accounting
        firm.




F-11


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when its related to items credited
      or
      charged directly to equity, in which case the deferred tax is also adjusted
      to
      equity. Deferred tax assets and liabilities are offset when they relate to
      income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.





China
      income tax





The
      Company’s subsidiaries are governed by the Income Tax Law of the People’s
      Republic of China (PRC) concerning Foreign Investment Enterprises and Foreign
      Enterprises and various local income tax laws (the Income Tax Laws).





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).


The
      key
      changes are:





a.
            The
                new standard EIT rate of 25% will replace the 33% rate currently
                applicable to both DES and FIEs, except for High Tech companies who
                pay a
                reduced rate of 15%;





b.
            Companies
                established before March 16, 2007 will continue to enjoy tax holiday
                treatment approved by local government for a grace period of either
                for
                the next 5 years or until the tax holiday term is completed, whichever
                is
                sooner. These companies will pay the standard tax rate as defined
                in point
                “a” above when the grace period expires.





The
      Company and its subsidiaries were established before March 16, 2007 and
      therefore are qualified to continue enjoying the reduced tax rate as described
      below.





Prior
        to
        March 16, 2007, upon approval by the PRC tax authorities, FIE's scheduled
        to
        operate for a period of 10 years or more and engaged in manufacturing and
        production may be exempt from income taxes for two years, commencing with
        their
        first profitable year of operations, after taking into account any losses
        brought forward from prior years, and thereafter with a 50% reduction for
        the
        subsequent three years.





Duoyuan
      China has become a wholly foreign-owned enterprise since its inception. This
      entity status allows Duoyuan China a two-year income tax exemption and a 50%
      income tax reduction for the following three years. Duoyuan China also had
      operating losses prior to the calendar year ended December 31, 2003 and started
      to generate a net profit for the calendar year ended December 31, 2004.
      Therefore Duoyuan China has an income tax exemption for the calendar years
      ended
      December 31, 2004 and 2005 and 50% income tax reduction for the calendar years
      ended December 31, 2006, 2007 and 2008. The income tax rate for Duoyuan China
      in
      calendar years ended December 31, 2006 and 2007 was 16.5% and in the calendar
      year ended 2008 were 12.5%. Beginning January 1, 2009, the income tax rate
      for
      Duoyuan China will increase to 25%.





Langfang
      Duoyuan is located in a Special Economic and High Technology Zone and the PRC
      tax authority has offered a special income tax rate to Langfang Duoyuan for
      doing business in the special zone. With the approval of the local government,
      Langfang Duoyuan is exempt from income taxes for five years, commencing with
      their first profitable year of operations. Langfang Duoyuan has operating losses
      prior to the calendar year ended December 31, 2002 and started to generate
      a net
      profit for the calendar year ended December 31, 2003. Therefore Langfang Duoyuan
      has an income tax exemption for the years ended December 31, 2003, through
      December 31, 2007. Langfang Duoyuan is subject to an income tax rate of 25%
      starting January 1, 2008, under the newly unified corporate income tax
      rate.






See
        report of independent registered public accounting
        firm.





F-12


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Prior
      to
      acquiring Hunan Duoyuan, the shareholders negotiated with Hunan Shaoyang
      Treasure Department to obtain an income tax exemption benefit. The Treasure
      Department granted the company a five-year income tax exemption commencing
      with
      the first profitable year of operations. In addition, the Treasure Department
      granted a 50% refund of income taxes based upon the amount of income taxes
      paid
      by Hunan Duoyuan. Hunan Duoyuan suffered an operating loss in the first year
      of
      operations ended December 31, 2004 and started to generate a net profit for
      the
      calendar year ended December 31, 2005. Therefore Hunan Duoyuan has an income
      tax
      exemption for the years ended December 31, 2005, through December 31, 2009.
      We
      believe Hunan Duoyuan will become subject to income tax at a rate of 25%
      starting January 1, 2010, under the newly unified corporate income tax rate.





PRC
      law
      requires that before a foreign invested enterprise can legally distribute
      profits to its partners, it must satisfy all tax liabilities, provide for losses
      in previous years, and make allocations, in proportions made at the discretion
      of the board of directors, after the statutory reserve. The statutory reserves
      include the surplus reserve fund and the common welfare fund and represent
      restricted retained earnings.





During
      the years ended June 30, 2008, 2007 and 2006 the provision for income taxes
      amounted to $3,237,707, $1,806,943 and $261,133, respectively. The estimated
      tax
      savings due to this tax exemption for the years ended June 30, 2008, 2007 and
      2006 amounted to $7,864,995, $4,509,810 and $4,154,255, respectively. The net
      effect on earnings per share had the income tax been applied would decrease
      basic and diluted earnings per share from $1.06 to $0.74, $0.61 to $0.49 and
      $0.68 to $0.46 for the years ended June 30, 2008, 2007 and 2006,
      respectively.





The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the years ended June 30, 2008 and 2007:





2008
            
            2007U.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            29.0
            
            
            33.0China
                income tax exemption
            
            
            (18.1
            )
            
            (16.5
            )Effective
                income tax rates
            
            
            10.9
            %
            
            16.5
            %





Value
      added tax





Enterprises
      or individuals who sell commodities, engage in repair and maintenance or import
      and export goods in the PRC are subject to a value added tax, VAT, in accordance
      with Chinese laws. The VAT standard rate is 17% of the gross sales price. A
      credit is available whereby VAT paid on the purchases of semi-finished products
      or raw materials used in the production of the Company’s finished products can
      be used to offset the VAT due on sales of the finished product.





VAT
      on
      sales and VAT on purchases amounted to $28,937,411 and $20,121,852 for the
      year
      ended June 30, 2008, $19,791,244 and $7,258,360 for the year ended June 30,
      2007, and $12,931,347 and $9,326,775 for the year ended June 30, 2006,
      respectively. Sales
      and
      purchases are recorded net of VAT collected and paid as the Company acts as
      an
      agent because the VAT taxes are not impacted by the income tax
      holiday.





Advertising
      costs





The
      Company expenses the cost of advertising as incurred in selling, general and
      administrative costs. Advertising costs were $1,357,362, $1,118,480 and $597,611
      for the years ended June 30, 2008, 2007 and 2006, respectively.






See
        report of independent registered public accounting
        firm.




F-13


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Research
      and development costs





Research
      and development costs are expensed as incurred. The costs of material and
      equipment acquired or constructed for research and development activities,
      and
      have alternative future uses, either in research and development, marketing,
      or
      sales, are capitalized as property and equipment and depreciated over their
      estimated useful lives.





Recently
      issued accounting pronouncements





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      addresses the measurement of fair value by companies when they are required
      to
      use a fair value measure for recognition or disclosure purposes under GAAP.
      SFAS
      No. 157 provides a common definition of fair value to be used throughout GAAP
      which is intended to make the measurement of fair value more consistent and
      comparable and improve disclosures about those measures. SFAS No. 157 will
      be
      effective for an entity's financial statements issued for fiscal years beginning
      after November 15, 2007. The Company is currently evaluating the effect SFAS
      No.
      157 will have on its consolidated financial position, liquidity, or results
      of
      operations.





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 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that are not currently
      required to be measured at fair value. The objective of SFAS 159 is to provide
      opportunities to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply hedge
      accounting provisions. SFAS 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and liabilities.
      SFAS 159 is effective as of the beginning of the fiscal year that begins after
      November 15, 2007. The Company is evaluating the impact that this
      statement will have on its consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, *“Noncontrolling
      Interests in Consolidated Financial Statements - an amendment of Accounting
      Research Bulletin No. 51”* (“SFAS
      160”), which establishes accounting and reporting standards for ownership
      interests ** in
      subsidiaries held by parties other than the parent, the amount of consolidated
      net income attributable to the parent and to the ** noncontrolling
      interest, changes in a parent’s ownership interest and the valuation of retained
      non-controlling equity investments when ** a
      subsidiary is deconsolidated. The Statement also establishes reporting
      requirements that provide sufficient disclosures that clearly ** identify
      and distinguish between the interests of the parent and the interests of the
      non-controlling owners. SFAS 160 is effective for ** fiscal
      years beginning after December 15, 2008. The Company has not determined the
      effect that the application of SFAS 160 will ** have
      on
      its consolidated financial statements.





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities - An Amendment of SFAS
      No. 133” (“SFAS 161”). SFAS 161 seeks to improve financial reporting for
      derivative instruments and hedging activities by requiring enhanced disclosures
      regarding the impact on financial position, financial performance, and cash
      flows. To achieve this increased transparency, SFAS 161 requires (1) the
      disclosure of the fair value of derivative instruments and gains and losses
      in a
      tabular format; (2) the disclosure of derivative features that are credit
      risk-related; and (3) cross-referencing within the footnotes. SFAS 161 is
      effective on January 1, 2009. The Company is in the process of evaluating
      the new disclosure requirements under SFAS 161.





In
      May
      2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
      Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial
      reporting by identifying a consistent framework, or hierarchy, for selecting
      accounting principles to be used in preparing financial statements that are
      presented in conformity with GAAP for nongovernmental entities. SFAS 162 is
      effective 60 days following the SEC's approval of the Public Company Accounting
      Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly
      in
      Conformity with Generally Accepted Accounting Principles." The Company does
      not
      expect the adoption of this statement to have a material impact on our results
      of operations, financial position or cash flows.






See
          report of independent registered public accounting
          firm.




F-14


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
      an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
      No. 07-5”). This Issue is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those fiscal
      years. Early application is not permitted. Paragraph 11(a) of Statement of
      Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
      Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
      definition of a derivative but is both (a) indexed to the Company’s own
      stock and (b) classified in stockholders’ equity in the statement of
      financial position would not be considered a derivative financial instrument.
      EITF No.07-5 provides a new two-step model to be applied in determining whether
      a financial instrument or an embedded feature is indexed to an issuer’s own
      stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
      This standard triggers liability accounting on all options and warrants
      exercisable at strike prices denominated in any currency other than the
      functional currency in China (Renminbi). The Company is currently evaluating
      the
      impact of adoption of EITF No. 07-5 on the Company’s consolidated financial
      statements.





Reclassifications





Certain
      prior period amounts have been reclassified to conform to current period
      presentation. These reclassifications have no effect on net income or cash
      flows.





**Note
      3 – Earnings per share**





The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, “Earnings Per Share.” SFAS 128 requires presentation of basic and diluted
      earnings per share in conjunction with the disclosure of the methodology used
      in
      computing such earnings per share. Basic earnings per share excludes dilution
      and is computed by dividing income available to common stockholders by the
      weighted average common shares outstanding during the period. Diluted earnings
      per share takes into account the potential dilution that could occur if
      securities or other contracts to issue common stock were exercised and converted
      into common stock.





All
      share
      and per share amounts used in the Company's financial statements and notes
      thereto have been retroactively restated to reflect the 1-for-2.68189924 reverse
      stock split, which occurred on July 17, 2007.





The
      following is a reconciliation of the basic and diluted earnings per share
      computation for the years ended June 30, 2008, 2007 and 2006:





2008
            
            2007
            
            2006For
                the years ended June 30, 2008, 2007 and 2006Net
                income for earnings per share
            
            $
            26,459,524
            
            $
            13,979,147
            
            $
            12,895,579Weighted
                average shares used in basic computationBasic
            
            
            25,000,050
            
            
            23,041,021
            
            
            18,867,436Diluted
            
            
            25,000,050
            
            
            23,041,021
            
            
            18,867,436Earnings
                per share:Basic
            
            $
            1.06
            
            $
            0.61
            
            $
            0.68Diluted
            
            $
            1.06
            
            $
            0.61
            
            $
            0.68





At
      June
      30, 2008, 576,425 warrants, whose exercise price is $5.76, are excluded from
      the
      calculation of diluted earnings per share because of their antidilutive nature.
      At June 30, 2008 and 2007, 613,206 warrants, whose exercise price is $4.21,
      are
      excluded from the calculation because of their antidilutive nature.






See
          report of independent registered public accounting
          firm.


F-15


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





**Note
      4 – Supplemental disclosure of cash flow information**





Interest
      paid, net of capitalized, amounted to $816,735, $750,736 and $721,764 for the
      years ended June 30, 2008, 2007 and 2006, respectively.





Income
      tax paid amounted to $2,831,179, $1,355,095 and $0 for the years ended June
      30,
      2008, 2007 and 2006, respectively.





In
      fiscal
      2008, the Company issued 576,425 warrants to settle the liquidated damages
      and
      the related party penalties; warrants were valued using the black-scholes model
      amounting to $1,377,947.





In
      fiscal
      2006, the Company received land use rights totaling $224,965 that was prepaid
      in
      prior year.




**Note
      5 – Related party transactions**





Mr.
      Wenhua Guo is the Company’s controlling shareholder and chief executive. The
      following is a summary of the amounts due related parties:





Other
                payable - related parties
            
            June 30, 2008
            
            June 30, 2007Duoyuan
                China Water Recycle Technology Industry Co., Ltd. - Mr. Wenhua Guo
                is the
                sole shareholder
            
            $
            -
            
            $
            369,564





The
      Company leases office space from Duoyuan China Water Recycle Technology Industry
      Co., a related party. See Note 9.




In
          addition, the Company leased part of its manufacturing plant located in
          Langfang
          Duoyuan to Duoyuan Water Treatment Equipment Manufacturing (Langfang) Co.,
          Ltd,
          a company 80% owned by Mr. Wenhua Guo, from October 1, 2004 to September
          30,
          2009. Total rental income for the years ended June 30, 2008, 2007 and 2006
          amounted to $0, $447,247, and $434,697, respectively. On May 25, 2007,
          the
          Company and Duoyuan Water Treatment Equipment Manufacturing (Langfang)
          Co., Ltd
          terminated the lease pursuant to a termination
          agreement.




**Note
      6 – Lines of credit**





The
      lines
      of credit represent amounts due to various banks which are due on demand or
      normally within one year. These loans can be renewed with the banks. The Company
      had a total of $11,380,200 and $12,887,000 outstanding on these lines of credit
      as of June 30, 2008 and 2007, respectively. The loans consisted of the
      following:





June
                  30,
              
              June
                  30,2008
              
              2007Loan
                  from Bank of Agriculture, Chongwen branchdue
                  March 13, 2009. Quarterly interest only payment at 8.570% per annum,
                  secured by plant and machinery
              
              $
              1,459,000
              
              $
              1,315,000Loan
                  from Bank of Agriculture, Chongwen branchdue
                  June 29, 2008. Quarterly interest only payment at 6.732% per annum,
                  secured by plant and machinery
              
              
              -
              
              
              2,630,000Loan
                  from Bank of Agriculture, Chongwen branchdue
                  July 12, 2008. Quarterly interest only payment at 6.732% per annum,
                  secured by plant and machinery
              
              
              2,918,000
              
              
              2,630,000Loan
                  from Bank of Agriculture, Chongwen branchdue
                  July 19, 2008. Quarterly interest only payment at 7.227% per annum,
                  secured by plant and machinery
              
              
              4,085,200
              
              
              3,682,000Loan
                  from Bank of Agriculture, Chongwen branchdue
                  July 26, 2008. Quarterly interest only payment at 7.227% per annum,
                  secured by plant and machinery
              
              
              2,918,000
              
              
              2,630,000Totals
              
              $
              11,380,200
              
              $
              12,887,000






See
          report of independent registered public accounting
          firm.


F-16


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Total
      interest expense, net of capitalized interest, for the years ended June 30,
      2008, 2007 and 2006 amounted to $794,485, $750,736 and $721,764, respectively.





The
      loans
      are secured by plant and machinery with a carrying value of $18,351,972 and
      $17,629,450 as of June 30, 2008 and June 30, 2007, respectively.





**Note
      7 – Taxes payable**





Asian
      Financial, Inc. was incorporated in the United States and has incurred net
      operating losses for income tax purposes for the year ended June
      30,
      2008. The net operating loss carry forwards for United States income taxes
      is
      $1,260,426, which may be available to reduce future years’ taxable income. These
      carry forwards will expire, if not utilized, starting in 2027 through 2028.
      Management believes that the realization of the benefits from these losses
      appears uncertain due to the company’s limited operating history and continuing
      losses for United States income tax purposes. Accordingly, the Company has
      provided a 100% valuation allowance on the deferred tax asset benefit to reduce
      the asset to zero. The valuation allowance at June 30, 2008 was $428,545.
      Management reviews this valuation allowance periodically and makes adjustments
      as warranted .





Taxes
      payable consisted of the following:





June 30, 2008
            
            June 30, 2007VAT
                payable
            
            $
            359,725
            
            $
            256,175Income
                tax payable
            
            
            1,253,988
            
            
            751,081Others
            
            
            89,273
            
            
            71,247Total
                taxes payable
            
            $
            1,702,986
            
            $
            1,078,503





**Note
      8 – Statutory reserves and dividends**





The
      laws
      and regulations of the People’s Republic of China require that before a foreign
      invested enterprise can legally distribute profits, it must first satisfy all
      tax liabilities, provide for losses in previous years, and make allocations
      in
      proportions determined at the discretion of the board of directors, after the
      statutory reserve. The statutory reserves include the surplus reserve fund
      and
      the enterprise fund. Additionally, the Chinese government restricts
      distributions of registered capital and the additional investment amounts
      required by a foreign invested enterprise. Approval by the Chinese government
      must be obtained before distributions of these amounts can be returned to the
      shareholders.





Statutory
      surplus reserve fund





The
      Company is required to transfer 10% of its net income, as determined in
      accordance with the PRC accounting rules and regulations, to a statutory surplus
      reserve fund until such reserve balance reaches 50% of the Company’s registered
      capital.






See
          report of independent registered public accounting
          firm.




F-17


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





The
      transfer to this reserve must be made before distribution of any dividends
      to
      shareholders. For the years ended June 30, 2008, 2007 and 2006, the Company
      transferred $2,717,489, $1,411,403 and $1,289,558 to this reserve. The reserve
      represents 10% of the current year’s net income determined in accordance with
      the PRC accounting rules and regulations. The surplus reserve fund is
      non-distributable other than during liquidation and can be used to fund previous
      years’ losses, if any, and may be utilized for business expansion or converted
      into share capital by issuing new shares to existing shareholders in proportion
      to their shareholding or by increasing the par value of the shares currently
      held by them, provided that the remaining reserve balance after such issue
      is
      not less than 25% of the registered capital.





Enterprise
      fund





The
      enterprise fund may be used to acquire fixed assets or to increase the working
      capital to expend on production and operation of the business. No minimum
      contribution is required and the Company has not made any contribution to this
      fund.





**Note
      9 – Operating leases**





The
      Company leases office space from Duoyuan China Water Recycle Technology Industry
      Co., a related party, which Mr. Wenhua Guo is the sole shareholder on a calendar
      year basis. The current lease agreement is from January 1, 2008 to December
      31,
      2008.





Total
      lease expense for the years ended June 30, 2008, 2007 and 2006 was $154,784,
      $143,992 and $136,022, respectively. Total future minimum lease payments at
      June
      30, 2008, are as follows:





Year ended June 30,
            
            Amount2009
            
            $
            82,007Thereafter
            
            
            -





**Note
      10 – Employee pension**





The
      employee pension in the Company generally includes two parts: the first to
      be
      paid by the Company is 20% of the employee’s actual salary in the prior year.
      The other part, paid by the employee, is 8% of the actual salary. The Company
      made $2,327,600 contributions of employment benefits, including pension during
      the year ended June 30, 2008. The Company made $1,111,749 in contributions
      of
      employment benefits, including pension during the year ended June 30, 2007.





**Note
      11 – Shareholders' equity**





On
      October 25, 2006, Asian Financial, Inc. entered into a definitive Security
      Purchase Agreement with unrelated investors (the “Purchase Agreement”). The
      transaction closed November 2, 2006. In accordance with the Purchase Agreement,
      Asian Financial, Inc. issued 6,132,614 (post-split) shares of common stock
      for a
      purchase price of approximately $3.84 (post-split) per share or a total of
      $23,549,200.





As
      of
      June 30, 2007, $2,097,490 of the proceeds was held in the escrow account. After
      the Company appointed a majority of independent directors, the restricted cash
      of $2,097,490 was released to the Company.





The
      financing was conducted through a private placement to accredited investors
      and
      is exempted from registration pursuant to Section 4(2) of the Securities Act
      of
      1933, as amended (the “Securities Act”). In conjunction with the private
      placement, the Company agreed to register the shares with the Securities and
      Exchange Commission within 90 days of the closing. The Company also agreed
      to
      make the registration statement effective no later than the 150th day following
      the closing date or the fifth trading day following the date on which the
      Company is notified by the Securities and Exchange Commission that such
      registration statement will not be reviewed or is no longer subject to further
      review and comments, whichever date is earlier. If the registration statement
      is
      not filed or declared effective pursuant to the above timeline or if the
      registration statement ceases to be effective for more than an aggregate of
      45
      trading days, the Company will be required to pay the investors monthly
      liquidated damages equal to 1% of the aggregate investment amount. The total
      amount of the liquidated damages payable by the Company is capped at 8% of
      the
      total investment amount paid by the investors. Penalties were expensed as
      incurred and totaled $1,883,936 through December 31, 2007. During fiscal 2008,
      the Company paid cash of $436,000 and issued 576,425 warrants valued at
      $1,447,936, and the investors agreed to waive all future penalties under the
      registration rights related to obtaining timely effectiveness of the
      registration statement. The fair value of the warrants was calculated using
      the
      Cox-Ross-Rubinstein binomial model with the following assumptions: market price
      $5.76, 5 years term, volatility of 42%, risk free rate of 3.45% and no
      dividends. Pursuant to SFAS 133 “Accounting for Derivatives”, warrants with
      conversion feature denominated in a currency different in the functional
      currency exposes the Company to foreign exchange risk and triggers liability
      accounting. Therefore, the Company recorded $1,447,936 liability on December
      31,
      2007, the grant date, the Company revalued the warrants on June 30, 2008,
      recording a gain of $73,112 for the changes of fair value.






See
          report of independent registered public accounting
          firm.




F-18


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





Additionally,
      pursuant to the Purchase Agreement, the Company agreed to cease all related
      party transactions and to settle all outstanding balances due to or from related
      parties by December 31, 2006. Failure to terminate the related party
      transactions was to result in a monthly cash penalty of 1% of the proceeds
      with
      a cap of 4%. The Company began accruing costs associated with this penalty
      in
      January 2007. The 4% cap applies only to the penalty for having outstanding
      related party transaction at December 31, 2006. Penalties were expensed as
      incurred and totaled $941,968 through December 31, 2007. In November 2007,
      the
      Company reached a settlement with investors who agreed to waive all penalties
      due. Therefore, the Company reversed the accrual and recognized a gain of
      $941,968 which is included in liquidated damages as a credit balance in the
      accompanying financial statements.





Under
      the
      terms of the Agreement, the Company is required to meet various performance
      targets for the next two years. If the Company fails to meet those targets,
      the
      Company’s controlling shareholder and CEO, agreed to transfer his personal
      shares in the Company stock to each shareholder who is party to a Purchase
      Agreement up to 112% of the number of shares issued to such shareholder in
      the
      private placement. Management determined that the thresholds for the years
      ended
      June 30, 2008, 2007 and 2006 have been met, the CEO does not required to
      transfer his shares in the Company stock to each shareholder.





At
      closing, as part of the compensation to the placement agent, Roth Capital
      Partners, LLC, the Company issued to Roth Capital warrants to acquire 650,547
      (post-split) shares of common stock, exercisable at any time after June 30,
      2008. The warrants have a strike price equal to $1.57, have a term of five
      years
      starting from July 1, 2008 and will permit cashless or net exercise at all
      times. The shares underlying the warrants will have registration rights. The
      warrant contains a standard antidilution provision for stock dividends, stock
      splits, stock combination, recapitalization and a change of control transaction.
      The warrants meet the conditions for equity classification pursuant to FAS
      133
“Accounting for Derivatives” and EITF 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
      Stock”. Therefore, these warrants were classified as equity and accounted as
      common stock issuance cost.





Weighted
            
            AverageWarrants
            
            Warrants
            
            Average Exercise
            
            RemainingOutstanding
            
            Exercisable
            
            Price
            
            Contractual LifeBalance,
                June 30, 2006
            
            
            -
            
            
            -
            
            $
            -
            
            
            -Granted
            
            
            650,547
            
            
            -
            
            
            4.21
            
            
            5.00Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                June 30, 2007
            
            
            650,547
            
            
            -
            
            $
            4.21
            
            
            5.00Granted
            
            
            576,425
            
            
            576,425
            
            
            5.76
            
            
            5.00Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                June 30, 2008
            
            
            1,226,972
            
            
            576,425
            
            $
            4.95
            
            
            5.00






See
          report of independent registered public accounting
          firm.


F-19


ASIAN
      FINANCIAL INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





On
      July
      17, 2007, the Company affected a 1-for-2.68189924 reverse stock split of its
      common stock. All share and per share amounts used in the Company's financial
      statements and notes thereto have been retroactively restated to reflect the
      1-for-2.68189924 reverse stock split.





**Note
      12 – Subsequent Events**





On
      July
      4, 2008, the Company renewed the $2,918,000 bank loan due on June 29, 2008
      from
      Bank of Agriculture, Chongwen branch. The new loan is due on July 3, 2009,
      with
      an interest rate of 8.217% per annum, secured by plant and machinery.





On
      July
      11, 2008, the Company renewed the $2,918,000 bank loan due on July 12, 2008
      from
      Bank of Agriculture, Chongwen branch. The new loan is due on July 10, 2009,
      with
      an interest rate of 8.217% per annum, secured by plant and machinery.





On
      July
      18, 2008, the Company renewed the $4,085,200 bank loan due on July 19, 2008
      from
      Bank of Agriculture, Chongwen branch. The new loan is due on July 17, 2009,
      with
      an interest rate of 8.217% per annum, secured by plant and machinery.





On
      July
      25, 2008, the Company renewed the $2,918,000 bank loan due on July 26, 2008
      from
      Bank of Agriculture, Chongwen branch. The new loan is due on July 24, 2009,
      with
      an interest rate of 8.217% per annum, secured by plant and machinery.






See
        report of independent registered public accounting
        firm.




F-20