UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**FORM
      10-Q**





R QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      Quarterly Period Ended June 30, 2008





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





For
      the
      Transition Period from ______ to ______





Commission
      File Number: 0-9879





**FUDA
      FAUCET WORKS, INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **13-2648442**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification
              No.)**Ge
                Jia Ba, Hua Ting, Yiyang**
              **Jiangxi,
                PRC**
            
            **334400**(Address
                of principal executive offices)
            
            (Zip
                Code)





**86
      793-5887178**


(Registrant’s
      telephone number, including area code)




**None**


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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes R No  ̈





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 ̈
            Smaller
                reporting companyR





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈  No R





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





**Class**
            
            **Outstanding at August 14, 2008**Common Stock,
                $0.001 par
              value
                per share
            
            10,735,968
                shares


**TABLE
        OF CONTENTS**





PART
                I. FINANCIAL INFORMATION
            1ITEM
                1. FINANCIAL STATEMENTS
            1ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                OF OPERATIONS.
            20ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK.
            28ITEM
                4. CONTROLS AND PROCEDURES.
            28PART
                II OTHER INFORMATION.
            29ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
            29ITEM
                6. EXHIBITS.
            29SIGNATURES
            30





**PART
      I.**  **FINANCIAL
      INFORMATION**


**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





**FUDA
      FAUCET WORKS, INC.**


CONSOLIDATED
      BALANCE SHEETS


(US
                  dollars)Item
              
              June
                  30, 2008
              
              December
                  31, 2007(UNAUDITED)
              
              (AUDITED)Restated**ASSETS**Current
                  assetsCash
                  and cash equivalents
              
              
              982,835
              
              
              169,319Accounts
                  receivable
              
              
              6,667,989
              
              
              487,471Due
                  from related parties - trade
              
              
              -
              
              
              6,996,322Prepayments
                  to suppliers
              
              
              935,547
              
              
              14,326Inventories
              
              
              8,444,105
              
              
              8,260,479Other
                  current assets
              
              
              223,505
              
              
              251,619Total
                  current assets
              
              
              17,253,981
              
              
              16,179,536Property,
                  plant and equipmentLand
                  use right
              
              
              2,093,575
              
              
              869,251Buildings
              
              
              4,442,813
              
              
              1,180,427Machinery
                  and equipment
              
              
              5,116,142
              
              
              983,079Automobiles
              
              
              209,717
              
              
              128,495Office
                  equipment
              
              
              29,475
              
              
              14,003Property
                  plant and equipment - total
              
              
              11,891,722
              
              
              3,175,255Less:
                  accumulated depreciation
              
              
              (1,056,323
              )
              
              (777,600
              )Property
                  plant and equipment - net
              
              
              10,835,399
              
              
              2,397,655Construction
                  in progress
              
              
              1,614,792
              
              
              1,867,513Other
                  long-term assets - idle assetsMachinery
                  and equipment - net
              
              
              176,422
              
              
              165,662Land
                  use right - net
              
              
              196,170
              
              
              184,20530,076,764
              
              
              20,794,571**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilitiesShort-term
                  bank loans
              
              
              11,428,513
              
              
              5,252,594Accounts
                  payable
              
              
              854,615
              
              
              686,114Advances
                  from customers
              
              
              64,347
              
              
              -Due
                  to related parties - trade
              
              
              1,509,340
              
              
              1,189,152Due
                  to related parties - non-trade
              
              
              377,501
              
              
              869,802Accrued
                  expenses
              
              
              194,647
              
              
              112,280Other
                  payables
              
              
              132,857
              
              
              81,143Total
                  current liabilities
              
              
              14,561,820
              
              
              8,191,08514,561,820
              
              
              8,191,085Commitments
                  and ContingenciesStockholders’equityPreferred
                  stock, 0.0000001 par value;
                20,000,000
                  shares authorized; 3,090,909 shares
                issued
                  and outstanding on June 30, 2008 and
                December
                  31, 2007
              
              
              -
              
              
              -Common
                  stock - 0.0000001 par value;
                900,000,000
                  shares authorized;
                10,725,440
                  issued and outstanding shares on
                June
                  30, 2008 and December 31, 2007
              
              
              1
              
              
              1Additional
                  paid-in capital
              
              
              7,317,817
              
              
              3,748,785Surplus
                  reserve
              
              
              260,430
              
              
              260,430Retained
                  earnings
              
              
              6,209,409
              
              
              7,753,585Accumulated
                  other comprehensive income
              
              
              1,727,287
              
              
              840,685**Total
                  stockholders’equity**
              
              
              15,514,944
              
              
              12,603,48630,076,764
              
              
              20,794,571




See
      notes
      to consolidated financial statements.


1





**FUDA
      FAUCET WORKS, INC.**


CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


(UNAUDITED)


(US
                  dollars)
              
              (US
                  dollars)Item
              
              Three
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007**Net
                  sales**
              
              
              8,744,070
              
              
              6,861,297
              
              
              18,504,439
              
              
              10,899,232**Cost
                  of sales:**Non-related
                  parties
              
              
              3,712,009
              
              
              2,126,250
              
              
              6,489,145
              
              
              3,578,717Related
                  parties
              
              
              3,383,509
              
              
              3,383,869
              
              
              8,306,588
              
              
              5,194,7497,095,518
              
              
              5,510,119
              
              
              14,795,733
              
              
              8,773,466**Gross
                  margin**
              
              
              1,648,552
              
              
              1,351,178
              
              
              3,708,706
              
              
              2,125,766**Operating
                  expenses:**Selling
                  expenses
              
              
              176,715
              
              
              71,571
              
              
              240,433
              
              
              128,684General
                  and administrative
              
              
              323,239
              
              
              84,827
              
              
              545,965
              
              
              155,436Officers’
                  compensation
              
              
              23,155
              
              
              5,841
              
              
              29,566
              
              
              11,647Depreciation
                  and amortization
              
              
              29,394
              
              
              3,025
              
              
              50,244
              
              
              6,272Consulting
                  and professional fees
              
              
              116,464
              
              
              -
              
              
              169,846
              
              
              -**Total
                  operating expenses**
              
              
              668,967
              
              
              165,264
              
              
              1,036,054
              
              
              302,039**Operating
                  income**
              
              
              979,585
              
              
              1,185,914
              
              
              2,672,652
              
              
              1,823,726**Other
                  income(expense)****Other
                  income**
              
              
              14,419
              
              
              5,841
              
              
              14,419
              
              
              5,841**Interest
                  expense**
              
              
              (184,273
              )
              
              (81,241
              )
              
              (295,185
              )
              
              (169,320
              )**Foreign
                  currency transactions loss**
              
              
              (154,391
              )
              
              -
              
              
              (367,030
              )
              
              -(324,245
              )
              
              (75,400
              )
              
              (647,796
              )
              
              (163,479
              )**Net
                  income before income tax expense**
              
              
              655,340
              
              
              1,110,515
              
              
              2,024,856
              
              
              1,660,247**Income
                  tax expense**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  income**
              
              
              655,340
              
              
              1,110,515
              
              
              2,024,856
              
              
              1,660,247**Other
                  comprehensive income******Foreign currency translation adjustment
              
              
              350,281
              
              
              2,415
              
              
              886,602
              
              
              49,643**Comprehensive
                  income**
              
              
              1,005,621
              
              
              1,112,930
              
              
              2,911,458
              
              
              1,709,890**Earnings
                  per common share**Basic
              
              
              0.06
              
              
              0.11
              
              
              0.19
              
              
              0.16Diluted
              
              
              0.05
              
              
              0.11
              
              
              0.15
              
              
              0.16**Weighted
                  average number of common shares outstanding**Basic
              
              
              10,725,440
              
              
              10,564,647
              
              
              10,725,440
              
              
              10,564,647Diluted
              
              
              13,816,349
              
              
              10,564,647
              
              
              13,940,591
              
              
              10,564,647




See
      notes
      to consolidated financial statements.


2


**FUDA
      FAUCET WORKS, INC.**


CONSOLIDATED
      STATEMENTS & CASH FLOWS


(UNAUDITED)


(US
                  dollars)Item
              
              Six
                  Months Ended June 30,2008
              
              2007**Cash
                  flows from operating activities:**Net
                  income
              
              
              2,024,856
              
              
              1,660,246Adjustments
                  to reconcile net income to
                net
                  cash used in operating activities:
              
              
              
              
              
              -Depreciation
                  and amortization
              
              
              278,723
              
              
              87,975Changes
                  in operating assets and liabilities:
              
              
              
              
              
              -Accounts
                  receivable
              
              
              (6,180,518
              )
              
              216,766Due
                  from related parties - trade
              
              
              6,996,322
              
              
              -Prepayments
                  to suppliers
              
              
              (921,221
              )
              
              95,775Inventories
              
              
              (183,626
              )
              
              (50,930
              )Other
                  current assets
              
              
              28,114
              
              
              74,772Accounts
                  payable
              
              
              168,502
              
              
              186,385Due
                  to related parties-trade
              
              
              320,188
              
              
              (316,528
              )Advances
                  from customers
              
              
              64,347
              
              
              -Accrued
                  expenses
              
              
              82,367
              
              
              77,304Other
                  payables
              
              
              51,714
              
              
              454,934**Net
                  cash provided by operating activities:**
              
              
              2,729,768
              
              
              2,486,699**Cash
                  flows from investing activities:**Purchase
                  of fixed assets
              
              
              (8,563,620
              )
              
              (1,685,955
              )**Net
                  cash used in investing activities**
              
              
              (8,563,620
              )
              
              (1,685,955
              )**Cash
                  flows from financing activities:**Proceeds
                  from short-term bank loans
              
              
              16,530,731
              
              
              3,781,704Repayment
                  of short-term bank loans
              
              
              (10,683,029
              )
              
              (4,600,124
              )Loans
                  from related parties
              
              
              2,895,532
              
              
              504,629Repayment
                  to related parties
              
              
              (3,387,833
              )
              
              (1,489,594
              )Loans
                  from empolyees
              
              
              -
              
              
              690,828**Net
                  cash provided by (used in) financing activities**
              
              
              5,355,401
              
              
              (1,112,557
              )**Effect
                  of exchange rate fluctuation on cash and****cash
                  and equivalents**
              
              
              1,291,967
              
              
              177,417Net
                  increase (decrease) in cash and cash equivalents
              
              
              813,515
              
              
              (134,396
              )Cash
                  and cash equivalents, beginning of period
              
              
              169,319
              
              
              380,714**Cash
                  and cash equivalents, end of period**
              
              
              982,835
              
              
              246,318**Supplemental
                  Disclosures of Cash flow Information:**Cash
                  paid for interest
              
              
              295,185
              
              
              169,320Cash
                  paid for income taxes
              
              
              -
              
              
              -Non-cash
                  investing and financing activities:Increase
                  of paid-in capital of Fuda Yiyang
                with
                  its retained earnings
              
              
              3,569,032
              
              
              -




See
      notes
      to consolidated financial statements.


3


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




**1.**  **Organization
      and Basis of Presentation**




***(1)***  ***Management’s
      Responsibility For Interim Financial Statements***




Management
      acknowledges its responsibility for the preparation of the accompanying interim
      consolidated financial statements. The accompanying unaudited consolidated
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-Q and Rule 8-03 of Regulation
      S-X. In the opinion of management, the consolidated financial statements reflect
      all adjustments (consisting of normal recurring adjustments) considered
      necessary for a fair presentation of the Company’s results of operations and
      financial position as of and for the periods presented. Operating results for
      interim periods are not necessarily indicative of results that may be expected
      for the fiscal year as a whole. These consolidated financial statements should
      be read in conjunction with the summary of significant accounting policies
      and
      notes to consolidated financial statements included in the Company’s Form 10-KSB
      annual report for the year ended December 31, 2007.




***(2)***  ***Organization***




Fuda
      Faucet Works, Inc. (the “Company”) was incorporated in Delaware on June 10, 1969
      under the name Magnum Communications Corp. On December 9, 1980, the Company
      changed its name to Vacation Ownership Marketing, Inc. and was engaged in the
      development and marketing of time-shared condominiums. In 1983, the Company
      ceased operations due to continued financial difficulties and adverse
      litigation. From 1983 until August 29, 2001, the Company was not engaged in
      any
      business. On August 29, 2001, the Company acquired Encore Builders, Inc., a
      construction company, through what was then a subsidiary of the Company.
      Beginning on August 29, 2001, the Company was engaged in the construction of
      Conquistador Plaza Apartments in Miami, Florida, pursuant to a lump sum
      construction contract with Conquistador Plaza. These operations ceased with
      the
      separation of Encore Builders from the Company in the first quarter of 2002.
      On
      May 6, 2004, the Company changed its corporate name to Capital Solutions I,
      Inc.
      Prior to December 3, 2007, the Company was not engaged in any business. On
      January 3, 2008, the Company changed its name to Fuda Faucet Works, Inc. Unless
      the context indicates otherwise, references to the Company include its
      subsidiaries and Jiangxi Yiyang Fuda Copper Co. Ltd. (“Fuda Yiyang”), an
      affiliated company whose financial statements are consolidated pursuant to
      FIN
      46.




On
      December 3, 2007, the Company entered into a buy-back agreement with Richard
      Astrom and Christopher Astrom, who were the Company’s principal stockholders and
      sole directors and Christopher Astrom was the Company’s president, Chief
      Executive Officer and chief financial officer, pursuant to which they sold
      to
      the Company all of the shares of common stock owned by them, which constituted
      75% of the Company’s outstanding common stock, for a purchase price of $625,000.
      Richard and Christopher Astrom resigned from all positions as officers and
      directors simultaneously.




Contemporaneously
      with the purchase of stock from the former principal stockholders, the Company
      executed a share exchange agreement with Jibrin Issa Jibrin Al Jibrin, trustee
      of the Wu Yiting Stock Trust, the sole stockholder of Moral Star Development
      Limited, a British Virgin Islands company (“Moral Star BVI”), pursuant to which
      the trustee transferred to the Company all of the capital stock of Moral Star
      BVI in exchange for 10,564,647 shares of the Company’s common stock,
      approximately 98.5% of the Company’s outstanding common stock, which were issued
      to the Trust and the designees of the Trust. As a result, Moral Star BVI became
      the Company’s wholly-owned subsidiary and the business of Moral Star BVI and its
      affiliated companies became our business. The sole beneficiary of the trust
      is
      Ms. Wu Yiting, who, as a result of the exchange, became the Chief Executive
      Officer, president and a director of the Company. Under generally accepted
      accounting principles, the company accounted this transaction as a reverse
      acquisition.


4


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




On
      January 3, 2008, the Company effected a 3.2-for-one stock distribution pursuant
      to which each share of common stock was converted into 3.2 shares of common
      stock. All references in these financial statements to shares and per share
      information give effect to the stock distribution.




On
      July
      31, 2008, the Company’s certificate of incorporation was amended and restated.
      As a result of this amendment, the par value per share of the Company’s
      preferred stock and common stock was changed from $0.0000001 to $0.001.




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




The
      contractual arrangements among Moral Star China, Fuda Yiyang, its sole owner,
      Wu
      Yiting and related parties are represented by a series of agreements, including
      Management Agreement, Related Transactions Agreement, Purchase Agreement,
      Stockholders’ Voting Proxy Agreement, Shares Pledge Agreement, Exclusive Option
      Agreement, Patent Transfer Agreement, and Trademark Transfer Agreement, pursuant
      to which the Company obtained control over the business and operations of Fuda
      Yiyang, and became the primary beneficiary of Fuda Yiyang operations.




Under
      generally accepted accounting principles, the acquisition by the Company of
      Moral Star BVI is considered to be capital transactions in substance, rather
      than a business combination. That is, the acquisition is equivalent, in the
      acquisition by Moral Star BVI of the Company, then known as Capital Solutions
      I,
      Inc., with the issuance of stock by Moral Star BVI for the net monetary assets
      of the Company. This transaction is accompanied by a recapitalization, and
      is
      accounted for as a change in capital structure. Accordingly, the accounting
      for
      the acquisition is identical to that resulting from a reverse acquisition,
      except that no goodwill is recorded. Under reverse takeover accounting, the
      comparative historical financial statements of the Company, as the legal
      acquirer, are those of the accounting acquirer, Moral Star BVI. Since Moral
      Star
      BVI and Moral Star China did not have any business activities, the Company’s
      financial statements prior to the closing on the reverse acquisition, reflect
      only business of Fuda Yiyang. The accompanying financial statements reflect
      the
      recapitalization of the stockholders’ equity as if the transactions occurred as
      of the beginning of the first period presented. Thus, the 10,564,647 shares
      of
      common stock issued to the trust and its designees are deemed to be outstanding
      from December 31, 2005.


5


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




The
      relationship among the above companies as follows:









***(3)***  ***Business***




The
      Company’s business is presently the business conducted by Fuda Yiyang prior to
      the share exchange, which is the development, manufacturing and distribution
      of
      a wide range of brass faucets and related spouts and fittings. The Company’s
      products include kitchen and bar faucets, bathroom faucets and bathroom
      accessories. The Company produces all of its products in China and exports
      most
      of them into the international marketplace. The Company started doing business
      by focusing on copper re-processing when Fuda Yiyang was initially formed in
      1995. In 2002, the Company began to produce and sell the European style brass
      faucets, spouts and fittings to the Chinese local market, and in 2004, it began
      to sell our products internationally. We sell our products to bathroom supplies
      distributors.




***(4)***  ***Basis
      of Presentation***




The
      consolidated financial statements have been prepared pursuant to the rules
      and
      regulations of the Securities and Exchange Commission (“SEC”) and in accordance
      with generally accepted accounting principles in the United States of America
      (“US GAAP”). The Company’s functional currency is the China Renminbi (RMB);
      however the accompanying consolidated financial statements have been translated
      and presented in United States Dollars (“U.S. dollars” or “US$”).




**Principles
      of consolidation** –
      The Company’s consolidated financial statements include the financial statements
      of its wholly owned subsidiaries, Moral Star BVI and Moral Star China, as well
      as Fuda Yiyang, which is a variable interest entity whose financial statements
      are consolidated with those of the Company pursuant to FASB Interpretation
      No.
      46R “Consolidation of Variable Interest Entities, an Interpretation of
      Accounting Research Bulletin No. 51” (“FIN 46R”). All significant intercompany
      accounts and transactions have been eliminated in the combination.




FIN
      46R
      requires a variable interest entity to be consolidated by a company if that
      company is subject to a majority of the risk of loss for the variable interest
      entity or is entitled to receive a majority of the variable interest entity’s
      residual returns. Variable interest entities are those entities in which the
      Company, through contractual arrangements, bears the risks of, and enjoys the
      rewards normally associated with ownership of the entities, and therefore the
      Company is the primary beneficiary of these entities.


6


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




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




**Use
      of Estimates** –
      The preparation of financial statements in conformity with US GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the
      date of the financial statements, and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates. Significant accounting estimates include bad debt provision,
      impairment of long-lived assets, depreciation and amortization,
      etc.




**Country
      Risk** –
      As the Company’s manufacturing base is located in China and its market is mainly
      located in Middle East, Africa and Russia, the Company is subject to special
      considerations and significant risks not typically associated with companies
      in
      North America and/or Western Europe. These risks include, among others, risks
      associated with the political, economic and legal environments and foreign
      currency exchange limitations encountered in these areas. The Company’s results
      of operations may be adversely affected by changes in the political and social
      conditions in these areas, and by changes in governmental policies with respect
      to laws and regulations, among other things.




In
      accordance with the relevant Chinese rules and regulations on management of
      foreign exchanges, the foreign exchanges generated by Fuda Yiyang and Moral
      Star
      China from sales of our products out of China shall be brought back into China
      and exchanged to RMB in designated banks instead of being deposited out of
      China
      without authorization. The Company also has to buy foreign exchanges from
      designated banks when paying current expenditures with foreign exchanges. Both
      the conversion of RMB into foreign currencies and the remittance of foreign
      currencies abroad require the approval of the Chinese government. In recent
      years, the Chinese government has gradually lost its control over foreign
      exchange, especially on current foreign exchange accounts, for instance,
      canceling of advance examination and approval for the opening of current foreign
      exchange accounts and enhancing of quota of current foreign exchange
      accounts.




**Credit
      Risk** –
The
      Company performs ongoing credit evaluations of its customers and intends to
      establish an allowance for doubtful accounts when outstanding balances are
      not
      considered fully collectable. According to the Company’s credit policy, the
      Company generally provides 100% bad debt provision for the amounts outstanding
      over 180 days after the deduction of the amount subsequently settled after
      the
      balance sheet date, which management believes is consistent with industry
      practice.




The
      Company may require its customers to make a partial payment, based on the
      Company’s credit evaluation. The Company generally requires payment within three
      months. The Company maintains a policy that all sales are final and it does
      not
      allow returns. No returns occurred in the six months ended June 30, 2008. Based
      on industry practice and the credit history of customers, the Company believes
      the accounts receivable shown on its balance sheets are fully
      collectable.




**Foreign
      Currency Translation** –
The
      functional currency of the Company is China RMB, which is the primary medium
      of
      exchange where the Company operates. The Company reports its financial results
      in U.S. dollars.




7


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




The
      Company translates its assets and liabilities into U.S. dollars using the rate
      of exchange prevailing at the balance sheet date, and the statement of
      operations is translated at the average rates over each month during the
      reporting period. Equity items are translated at historical exchange rates.
      Adjustments resulting from the translation from RMB into U.S. dollars are
      recorded in stockholders’ equity as part of accumulated comprehensive income
      (loss). Gains or losses resulting from transactions in currencies other than
      RMB
      are reflected in the statement of operations and comprehensive income. The
      translation rates from RMB to US dollars for the first quarter of 2008 and
      2007
      are as follows:




Translation
                rate for assets and liabilities as of June 30, 2008
            
            
            6.8591:1Translation
                rate for assets and liabilities as of December 31, 2007
            
            
            7.3046:1Translation
                rate for profit and loss items for the three months ended June 30,
                2008
            
            
            6.9355:1Translation
                rate for profit and loss items for the three months ended June 30,
                2007
            
            
            7.7041:1Translation
                rate for equity items of Fuda Yiyang as of June 30, 2008 and December
                31,
                2007
            
            
            8.2875:1Translation
                rate for equity items of Moral Star China as of June 30, 2008 and
                December
                31, 2007
            
            
            7.3938:1




**Revenue
      Recognition** –
The
      Company recognizes sales of its products in accordance with Securities and
      Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101,
“ *Revenue
      Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue
      Recognition.* ”
      Revenues represent the invoiced value of goods, net of value added tax (“VAT”),
      if any, and are recognized upon delivery of goods and passage of title.




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




**Shipping
      and Handling Cost** –
      The Company bears shipping and handling costs from its factory to its customers’
designated location, and does not bill these expenses separately to customers.
      The Company records such costs as delivery expenses, which are accounted for
      as
      part of selling expenses. Delivery expenses for the three months ended June
      30,
      2008 and 2007 were $122,680 and $48,837, respectively, and for the six months
      ended June 30, 2008 and 2007 were $183,173 and $82,475.




**Advertising** - The
      Company expenses all advertising costs as incurred. The advertising cost for
      the
      three months ended June 30, 2008 and 2007 was $758 and $13,583, respectively,
      and for the six months ended June 30, 2008 and 2007 were $1,167 and
      $36,903.




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




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




8


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




With
      the
      approvals of the County Government of Yiyang on July 17, 2007, Fuda Yiyang
      was
      exempt from corporate income taxes for 2008 and 2007. The Local Tax Bureau
      of
      Yiyang County (“Yiyang Tax Authority”) also retroactively confirmed the
      above-said preferential tax treatment on September 30, 2007.




On
      March
      16, 2007, China’s parliament, the National People’s Congress, adopted the
      Enterprise Income Tax Law, which took effect on January 1, 2008. The new income
      tax law sets unified income tax rate for domestic and foreign companies at
      25%
      except a 15% corporate income tax rate for qualified high and new technology
      enterprises. In accordance with this new income tax law, low preferential tax
      rate in accordance with both the tax laws and administrative regulations prior
      to the promulgation of this Law shall gradually transit to the new tax rate
      within five years after the implementation of this law.




Fuda
      Yiyang has filed its income tax return for the first and second quarters of
      2008
      with Yiyang Tax Authortiy, in which the income tax for the first and second
      quarter of 2008 was nil subject to the exemption policy. Yiyang Tax Authority
      accepted it and didn’t put forward any objection to the return. Management
      believes Fuda Yiyang can continue to enjoy the income tax exemption policy
      in
      2008 in accordance with above-mentioned governmental documents.




**Earnings
      per Share** - The
      Company computes net income (loss) per share in accordance with SFAS No. 128,
      “Earnings per Share” (SFAS 128). SFAS 128 requires presentation of both basic
      and diluted earnings per share (“EPS”) on the face of the income statement.
      Basic EPS is computed by dividing net income (loss) available to common
      shareholders (numerator) by the weighted average number of common shares
      outstanding (denominator) during the period. Diluted EPS gives effect to all
      dilutive potential common shares outstanding during the period including
      warrants, using the treasury stock method, and convertible preferred stock,
      using the if-converted method. In computing diluted EPS, the average stock
      price
      for the period is used in determining the number of shares assumed to be
      purchased from the exercise of warrants. Diluted EPS excludes all dilutive
      potential common shares if their effect is antidilutive.




***Effect
      of the restatement to diluted EPS for the three months ended March 31, 2008.*** Diluted
      earnings per share for the three months ended March 31, 2008 was restated due
      to
      the correction of calculation method of the average number of diluted common
      shares. In the correction, the Company (1) excluded 4,121,212 shares issuable
      upon exercise of warrants for which the exercise price ($3.00) was higher than
      the average market price ($2.66) during the first quarter of 2008 and thus
      would
      be anti-dilutive; (2) recalculated the dilutive effect of warrants to purchase
      2,060,606 shares of common stock at $1.80 per share and warrants to purchase
      100,000 shares at $1.60 per share, which resulted in 706,061 shares using the
      treasury stock method, resulting in a decrease of 1,454,545 in the number of
      shares outstanding for computing diluted EPS. As a result, the weighted average
      number of diluted common shares outstanding for the three months ended March
      31,
      2008 was changed from 20,098,167 to 14,522,410 shares, and the diluted EPS
      increased $0.02 to $0.09. This correction has no effect upon the diluted EPS
      reported for corresponding period of fiscal 2007, since there were no dilutive
      equities during 2007.




**Cash
      and Cash Equivalents** –
Highly
      liquid investments with a maturity of three months or less at the time of
      acquisition are considered to be cash equivalents.




**Inventories** –
      Inventories are stated at the lower of cost, determined on a weighted average
      basis, and net realizable value. Work in progress and finished goods are
      composed of direct material, direct labour and a portion of manufacturing
      overhead. Net realizable value is the estimated selling price, in the ordinary
      course of business, less estimated costs to complete and dispose. Management
      believes that there was no obsolete inventory as of June 30, 2008.




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




9


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)





Land
                use rights
            
            
            50
                yearsBuildings
            
            
            30
                yearsMachinery
                and equipment
            
            
            10
                yearsAutomobiles
            
            
            5
                yearsOffice
                equipment
            
            
            5
                years




There
      is
      no private ownership of land in the PRC. All land is owned by the government
      which grants a transferable land use right pursuant to which the holder of
      the
      land use right has the right to use the land for the term of the land use
      rights. The estimated useful life of the land use rights is based on the term
      of
      the land use rights, which is 50 years.




We
      periodically evaluate our investment in long-lived assets, including property
      and equipment, for recoverability whenever events or changes in circumstances
      indicate the net carrying amount may not be recoverable. Our judgments regarding
      potential impairment are based on legal factors, market conditions and
      operational performance indicators, among others. In assessing the impairment
      of
      property and equipment, we make assumptions regarding the estimated future
      cash
      flows and other factors to determine the fair value of the respective assets.
      If
      these estimates or the related assumptions change in the future, we may be
      required to record impairment charges for these assets. From December 2004
      to
      present, fixed assets amounting to $352,844 were left unused, including land,
      workshop building and equipment. ** Since
      value of land in similar sections of the city was increasing, no impairment
      on
      land use right has been charged. The workshop buildings were maintained in
      good
      condition, and most of the equipment will be transported and reinstalled into
      the Company’s new workshop building, which is now under construction. A
      provision for impairment of certain idle assets in the amount of $176,422 was
      made previously when they were turned into idle status.




**Derivative
      Instruments** -
      The
      Company accounts for financial instruments under the provisions of SFAS No.
      133,
“ *Accounting
      for Derivative Instruments and Hedging Activities* ”
and
      EITF 00-19 “ *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ”,
      which
      requires that all derivative financial instruments be recognized in the
      consolidated financial statements and maintained at fair value regardless of
      the
      purpose or intent for holding them.




We
      accounted for our convertible preferred stock and relating freestanding warrants
      as equity. At the same time, we evaluated the fair values of such preferred
      stock, warrants and embedded conversion feature and made the allocation of
      proceeds between the detachable warrants and equity based on their relative
      fair
      values.




**Financial
      Instruments and Fair Value** - SFAS
      No. 107 “ *Disclosures
      about Fair Value of Financial Instruments* ”,
      requires that the Company disclose estimated fair values of financial
      instruments. The carrying amounts for cash and cash equivalents, accounts
      receivable, prepayments, short-term loans, accounts payable, advances, accruals
      and other payables approximate their fair values because of the short maturity
      of those instruments.




**Reclassification
      from Prior Period Financial Statements** - Certain
      prior period comparative figures have been reclassified to conform to the
      current year presentation.




**2.**  **Recent
      Accounting Pronouncements**




In
      March
      2008, the FASB issued SFAS No.161, "Disclosures about Derivative Instruments
      and
      Hedging Activities-an amendment of FASB Statement No. 133." SFAS No. 161 gives
      financial statement users better information about the reporting entity's hedges
      by providing for qualitative disclosures about the objectives and strategies
      for
      using derivatives, quantitative data about the fair value of and gains and
      losses on derivative contracts, and details of credit-risk-related contingent
      features in their hedged positions. SFAS No. 161 is effective for financial
      statements issued for fiscal years beginning after November 15, 2008 and interim
      periods within those years. The Company does not expect the adoption of SFAS
      No.
      161 to have a material effect on the Company's financial
      statements.


10


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” SFAS No. 162 identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with GAAP. SFAS No. 162 directs the GAAP hierarchy
      to
      the entity, not the independent auditors, as the entity is responsible for
      selecting accounting principles for financial statements that are presented
      in
      conformity with GAAP. SFAS No. 162 is effective 60 days following the SEC's
      approval of the Public Company Accounting Oversight Board amendments to remove
      the GAAP hierarchy from the auditing standards. SFAS No. 162 is not expected
      to
      have an impact on the Company's financial statements.




In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts—an interpretation of FASB Statement No. 60.” SFAS No. 163 is
      primarily geared towards financial guarantee insurance contracts by
      insurance enterprises. It is not expected to have any material effect on the
      reporting of the Company’s results of
      operations.




Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force), the AICPA, and the SEC did not or are not believed by
      management to have a material impact on the Company’s present or future
      consolidated financial statements.




**3.**  **Variable
      Interest Entity**




As
      a
      result of the contractual arrangements among Moral Star China, Fuda Yiyang,
      its
      sole shareholder, Wu Yiting, and related parties, the Company was given control
      over the business and operations of Fuda Yiyang and became the primary
      beneficiary of Fuda Yiyang. The consolidated financial statements for the three
      months ended June 30, 2008 and 2007 included the results of operations of Fuda
      Yiyang for the same periods, even though the Company does not own any of Fuda
      Yiyang’s equity.


11


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




Fuda
      Yiyang’s assets and liabilities as of June 30, 2008 and December 31, 2007 are as
      follows:




(US dollars)Item
            
            June 30, 2008
            
            December 31, 2007Cash and
                cash equivalents
            
            $
            971,006
            
            $
            167,148Accounts
                receivable
            
            
            6,667,989
            
            
            7,483,792Prepayments
                to suppliers
            
            
            935,547
            
            
            14,326Inventories
            
            
            8,422,236
            
            
            8,239,944Other
                current assets
            
            
            74,820
            
            
            55,724Property
                plant and equipment - net
            
            
            10,579,161
            
            
            3,832,895Construction
                in progress
            
            
            1,614,792
            
            
            1,867,513Other
                long-term assets
            
            
            372,592
            
            
            515,529Total
                assets
            
            
            29,638,143
            
            
            22,176,871Short-term
                bank loans
            
            
            11,428,513
            
            
            5,252,594Accounts
                payable
            
            
            804,446
            
            
            602,901Advances
                from customers
            
            
            64,347
            
            
            -Due
                to related parties-trade
            
            
            1,509,340
            
            
            1,189,152Due
                to related parties- non-trade
            
            
            17,495
            
            
            676,559Accrued
                expenses
            
            
            171,080
            
            
            112,280Other
                payables
            
            
            132,857
            
            
            81,143Total
                liabilities
            
            
            14,128,078
            
            
            7,914,629




A
      $1,942,745 intercompany payable on Fuda Yiyang’s books was not included in the
      above table, since this balance had been eliminated during
      consolidation.




As
      of
      June 30, 2008 and December 31, 2007, 100% of the equity of Fuda Yiyang owned
      by
      Wu Yiting, who is the Company’s chief executive officer.




**4.**  **Accounts
      Receivable**




As
      of
      June 30, 2008 and December 31, 2007, the balance of accounts receivable,
      excluding receivables from related parties, was $6,667,989 and $487,471,
      respectively. All the balance as of June 30, 2008 was within 180 days. The
      Company believes that these receivables are fully collectible and has not
      established bad debt provision.




As
      of
      December 31, 2007, the balance due from Al Jibrin General Trading Co., Ltd.
      (“Jibrin Company”), a related party, was $6,996,322. During the first quarter of
      2008, this outstanding balance was collected, and there were no sales to the
      Jibrin Company or any other related party during the six months ended June
      30,
      2008.




**5.**  **Inventories**




Inventories
      consisted of the following as of June 30, 2008 and December 31,
      2007:




**Inventories**
            
            June 30, 2008
            
            December 31, 2007Work in progress
            
            $
            5,208,621
            
            $
            2,098,383Finished
                goods
            
            
            2,108,122
            
            
            2,317,199Raw
                materials
            
            
            1,127,362
            
            
            3,844,897Total
            
            $
            8,444,105
            
            $
            8,260,479




Management
      believes that no inventory was obsolete on each balance sheet
      date.


12


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)







**6.**  **Prepayments
      to Suppliers**




As
      of
      June 30, 2008 and December 31, 2007, the balance of prepayments to suppliers
      was
      $935,547 and $14,326, respectively.




**7.**  **Property,
      Plant and Equipment-Net**




Total
      cost of property, plant and equipment was $11,891,722 and $3,175,255 as of
      June
      30, 2008 and December 31, 2007, respectively. The increase $8,716,467 in gross
      amount of property, plant and equipment was mainly attributable to Fuda Yiyang’s
      establishment of new manufacturing facilities during the first half of 2008,
      including (1) purchase of new equipment; (2) completion of new workshop
      buildings; and (3) purchase of the use right of one block of land from Wu
      Yiting, a related party (See Note 12), on which the new factory buildings are
      located.




In
      China,
      all land is owned by the government and there is no private ownership of land.
      The government issues a certificate of land use right, which is transferable,
      and permits the holder to use the land. Under four “State-owned Land Use Right
      Certificates,” the Company owns the land use right for three blocks of
      industrial-use land (covering 491,372 square feet) for the term of 50 years,
      beginning from issuance date of the certificates, which were 1999, 2001 and
      2003.




Depreciation
      expense was $179,796 and $49,532 for the three months ended June 30, 2008 and
      2007, respectively, and $278,723 and $87,975 for the six months ended June
      30,
      2008 and 2007, respectively.




The
      land
      use right for one parcel of land and 10 workshop buildings are used as
      collateral pursuant to a mortgage agreement with a commercial bank. The mortgage
      agreement initially has a term from September 6, 2004 to September 5, 2007,
      and,
      on September 6, 2007, was replaced by a mortgage agreement that expires on
      September 5, 2010. The net book value of this collateral as of June 30, 2008
      and
      December 31, 2007 was $1,545,853 and $1,517,483, respectively. Under the terms
      of the mortgage agreement, the Company may borrow from time to time up to the
      maximum amount provided in the mortgage agreement, which is $1.7
      million.




**8.**  **Construction
      in Progress**




As
      of
      June 30, 2008 and December 31, 2007, the balance of construction in progress
      was
      $1,614,792 and $1,867,513, respectively. The construction in progress was owned
      by Fuda Yiyang. We made progress payments to the contractor in accordance with
      the actual construction progress, thus the balance was in line with those
      already paid.




The
      balance $1,867,513 of construction in progress as of December 31, 2007
      represented the construction of new workshop buildings to expand current
      production capability in a new location, which started in the early part of
      2007. In the second quarter of 2008, with the completion of these workshop
      buildings, this balance together with the new investment occurred during the
      first half of 2008 was entirely transferred to the property, plant and
      equipment.




The
      balance $1,614,792 as of June 30, 2008 represented the upgrade or betterment
      of
      the original manufacturing facilities and also construction of a new warehouse,
      which started in the early of 2008 and plan to finish at the third quarter
      of
      2008.




**9.**  **Other
      long-term Assets,Net**




As
      of
      June 30, 2008 and December 31, 2007, other long-term assets were $372,592 and
      $349,867 **,** respectively. The increase was due to appreciation of value of the RMB against
      U.S. dollars. These other long-term assets include one block of land and a
      workshop building and equipment, which have not been used since 2004. Since
      value of land in similar sections of the city was increasing, no impairment
      on
      land use right has been charged. The workshop buildings were maintained in
      good
      condition, and most of the equipment has been transported and reinstalled into
      the Company’s new workshop buildings and in the process of trial run. A
      provision for impairment of certain idle assets in the amount of $176,422 was
      made previously when they were turned into idle status.


13


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)




**10.**  **Short-term
      Bank Loans**




The
      balance of short-term bank loans as of June 30, 2008 and December 31, 2007
      was
      $11,428,513 and $5,252,594, respectively as follows:





Loan Bank
                
                Main Terms
                
                June 30, 2008
                
                December 31, 2007Principal
                
                Interest rate
                  (per annum)
                
                Principal
                
                Interest rate
                  (per annum)Industrial
                    and Commercial Bank of China Ltd., YiYang Branch
                
                
                Two
                    or three-month-term loans, bearing benchmark interest rate announced
                    by
                    People's Bank of China
                
                $
                -
                
                
                -
                
                $
                444,925
                
                
                7.776
                %-
                
                
                -
                
                
                521,589
                
                
                8.07
                %-
                
                
                -
                
                
                2,349,205
                
                
                8.42
                %4,491,843
                
                
                8.54
                %
                
                383,320
                
                
                8.54
                %-
                
                
                -
                
                
                130,055
                
                
                9.13
                %Subtotal
                
                $
                4,491,843
                
                
                
                
                
                3,829,094Bank
                    of China, YiYang Branch(1)
                
                
                Two
                    or three-month-term secured loans, bearing benchmark interest
                    rate
                    announced by People's Bank of China
                
                $
                -
                
                
                -
                
                $
                57,000
                
                
                6.25
                %-
                
                
                -
                
                
                140,000
                
                
                6.44
                %-
                
                
                -
                
                
                960,000
                
                
                7.00
                %1,823,000
                
                
                8.69
                %
                
                266,500
                
                
                8.69
                %Subtotal
                
                $
                1,823,000
                
                
                
                
                $
                1,423,500China
                    Construction Bank
                
                
                Two
                    or three-month-term unsecured loans.
                
                
                120,000
                
                
                LIBOR+2.5
                %
                
                -
                
                
                -260,000
                
                
                LIBOR+3.0
                %
                
                -
                
                
                -$
                4,325,453
                
                
                6.57
                %
                $
                -
                
                
                -Subtotal
                
                $
                4,705,453
                
                
                
                
                $
                -Agricultural
                    Bank of China
                
                
                One-year-term
                    unsecured loans.
                
                $
                408,217
                
                
                8.5905
                %
                $
                -
                
                
                -Subtotal
                
                $
                408,217
                
                
                
                
                $
                -Total
                
                $
                11,428,513
                
                
                
                
                $
                5,252,594




(1)  The
      loans
      from Bank of China, Yiyang Branch, were secured by the land use right for one
      block of land and 10 workshop buildings under a mortgage agreement with the
      bank
      dated September 6, 2004, and on September 6, 2007, this mortgage contract was
      replaced by a mortgage which will expire on September 5, 2010. See Note
      7




**11.**  **Accounts
      Payable**




The
      balance of accounts payable was $854,616 and $686,114 as of June 30, 2008 and
      December 31, 2007, respectively, which included payables to material suppliers
      and professional service providers.


14





**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)







**12.**  **Related
      Party Transactions**




The
      transactions between the Company and related parties are classified into two
      categories: non-trade and trade.




***(1)***  ***Ms.
      Wu Yiting***




*(i)*  *Non-trade
      transactions*




Ms.
      Wu
      Yiting is the Company’s Chief Executive Officer and Chairman of the Board. She
      is also the sole stockholder of Fuda Yiyang. See Paragraph (2) of Note 1 and
      Notes 7 and 8 for information relating to the relationship between the Company
      and and Fuda Yiyang.




From
      time
      to time the Company has borrowed money from Ms. Wu for its operations. As of
      December 31, 2007, the amount due to Ms. Wu Yiting was $869,802. During six
      months ended June 30, 2008, Ms. Wu Yiting advanced $2,895,232 to the Company,
      and the Company repaid $3,387,533. As of June 30, 2008, the amount due to Ms.
      Wu
      Yiting was $377,501. The loans from Ms. Wu are non-interest
      bearing.




*(ii)*  *Trade
      transaction*




In
      April
      2008, Ms. Wu Yiting transferred to Fuda Yiyang the use right of one block of
      land (covering 229,703 square feet), on which its new workshop buildings are
      located. Pursuant to the Report of Land Use Right Appraisal, the consideration
      was $1,167,866, which was paid in full.




***(2)***  ***Trade
      transactions with Yiyang KunPeng Worn Metal Recycling Co.,
      Ltd.***




Ms.
      Wu
      Yiting holds 80% equity of, and is the chairman of, Yiyang KunPeng Metal
      Recycling Co., Ltd. (“KunPeng”). Mr. Yang Kun, Vice-President of Fuda Yiyang,
      holds the remaining 20% equity of KungPeng.




The
      Company purchases a significant percentage of copper from KunPeng. During the
      six months ended June 30, 2008 and 2007, the Company purchased copper in the
      amount of $9,297,018 and $3,410,893 from KunPeng , representing 66.4% and 34.6%
      of the total raw material purchased by the Company, respectively,.




As
      of
      June 30, 2008 and December 31, 2007, the amount due to Kunpeng in connection
      with the Company’s purchase of copper was $1,509,340 and $1,189,152,
      respectively.




**13.**  **Accrued
      Expenses**




As
      of
      June 30, 2008 and December 31, 2007, the accrued expenses were $194,647 and
      $112,280, respectively. Accrued expenses mainly consist of accrued salaries
      and
      welfare.




**14.**  **Equity-based
      Transactions**




***(1)***  ***Authorized
      shares***




At
      June
      30, 2008, the Company’s authorized capital stock consisted of 20,000,000 shares
      of preferred stock, par value $.0000001 per share, and 900,000,000 shares of
      common stock, par value $.0000001 per share.




In
      December 2007, the Company’s board of directors and the holders of a majority of
      its capital stock approved a restated certificate of incorporation which changes
      the authorized capital stock to 130,000,000 shares, of which 20,000,000 are
      shares of preferred stock, par value $.001 per share, and 110,000,000 are shares
      of common stock, par value $.001 per share. The change in authorized capital
      and
      par value was effective on July 31, 2008.


15


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)





***(2)***  ***Common
      Stock***




As
      of
      June 30, 2008 and December 31, 2007, the Company had 10,725,440 shares of common
      stock issued and outstanding, respectively.




***(3)***  ***Preferred stock and Warrants***




As
      of
      June 30, 2008 and December 31, 2007, the Company had 3,090,909 shares of series
      A preferred stock issued and outstanding, which were issued on December 3,
      2007
      pursuant to a securities purchase agreement and an escrow agreement with three
      investors. At the same time the Company also issued to the three investors
      warrants to purchase 2,060,606 shares of common stock at $1.80 per share and
      4,121,212 shares of common stock at $3.00 per share. On July
      18, 2008, one of the investors exercised its warrants to purchase 30,000 shares
      of the Company’s common stock at $1.80 per share and the Company received the
      proceeds $54,000. In addition, 3,000,000 shares of series A preferred stock
      are
      held in escrow for issuance in the event that the Company does not meet target
      levels of earnings before interest and taxes as defined (“EIBT”) are less than
      specified levels. The 3,000,000 shares that are held in escrow are not treated
      as outstanding since the condition which would result in the delivery of the
      shares from escrow has not occurred. The target level was met for 2007. The
      target numbers, which are expressed in RMB, for 2008 are as
      follows:




RMB¥2.6152
      ($0.381) per share if all of the $1.80 warrants are exercised by June 30, 2008
      and 50% of the $3.00 warrants are exercised by September 30, 2008.




RMB¥3.0653
      ($0.447) per share if all of the $1.80 Warrants are exercised by June 30, 2008
      and all of the $3.00 Warrants are exercised by September 30, 2008.




RMB¥2.3152
      ($0.338) per share if neither of the conditions listed above is
      met.




The
      dollar equivalent is based on the exchange rate in effect on June 30, 2008,
      which was RMB¥6.8591 to $1.00.




If
      the
      targets are not met, the number of shares to be delivered to the investors
      is
      determined by a formula by which the 3,000,000 is multiplied by a percentage
      determined by the following formula: (1/(1-P)) - 1), where P is the percentage
      shortfall.




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




For
      purpose of determining EBIT per share on a fully-diluted basis, all shares
      of
      common stock issuable upon conversion of convertible securities and upon
      exercise of warrants and options (whether or not vested) shall be deemed to
      be
      outstanding, regardless of whether (i) such shares are treated as outstanding
      for determining diluted earnings per share under GAAP, (ii) such securities
      are
“in the money,” or (iii) such shares may be issued as a result of a 4.9%
      limitation; provided, however, that none of the 3,000,000 shares of series
      A
      preferred stock held in escrow nor the shares of common stock issuable upon
      conversion of such series A preferred stock shall be deemed
      outstanding.


16


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)





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




The
      Company and the investors entered into a registration rights agreement pursuant
      to which the Company is required to have a registration statement filed with
      the
      SEC by February 1, 2008 and declared effective by the SEC not later than June
      29, 2008. We are required to pay liquidated damages at the rate of 1,000 shares
      of series A preferred stock for each day after June 29, 2008 that the
      registration statement is not declared effective or for any period that we
      fail
      to keep the registration statement effective, up to a maximum of 370,000 shares.
      The number of shares of series A preferred stock issuable pursuant to the
      liquidated damages provision is subject to reduction based on the maximum number
      of shares that can be registered under the applicable SEC guidelines. The
      registration statement was declared effective on June 17, 2008 and no liquidated
      damage incurred.




**15.**  **Retained
      Earnings**




As
      of
      June 30, 2008 and December 31, 2007, the retained earnings was $6,209,409 and
      $7,753,585, respectively. The decrease of $1,544,176 was due to: (1) net income
      $2,024,856 realized
      during the six months ended June 30, 2008; (2) allocation of retained earnings
      of $3,569,032 (RMB 25 million) to increase registered capital of Fuda Yiyang
      in
      April 2008, which resulted in the increase of Fuda Yiyang’s registered capital
      from $603,321 (RMB 5 million) to $4,172,353 (RMB 30 million).




**16.**  **Earnings
      per Share**




Basic
      earnings per share (EPS) are calculated based on the weighted average shares
      outstanding during the period. Diluted earnings per share include the dilutive
      effect of warrants and convertible preferred stock. There were warrants to
      purchase 6,281,818 and 4,121,212 common shares that were outstanding during
      the six
      and
      three months ended June 30, 2008 which had an exercise price which is greater
      than the average market price, respectively. These warrants were not included
      in
      the calculation of diluted earnings per share. There were no dilutive securities
      for the same period of 2007.





The
      computation of basic and diluted EPS is as follows:





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Basic
                EPS:**Net
                income
            
            $
            655,340
            
            $
            1,110,515
            
            $
            2,024,856
            
            $
            1,660,246Weighted
                average shares outstanding
            
            
            10,725,440
            
            
            10,564,647
            
            
            10,725,440
            
            
            10,564,647Basic
                EPS
            
            $
            0.06
            
            $
            0.11
            
            $
            0.19
            
            $
            0.16**Diluted
                EPS:**Net
                income
            
            $
            655,340
            
            $
            1,110,515
            
            $
            2,024,856
            
            $
            1,660,246Weighted
                average number of common shares outstanding
            
            
            10,725,440
            
            
            10,564,647
            
            
            10,725,440
            
            
            10,564,647Dilutive
                warrants
            
            
            -
            
            
            -
            
            
            124,242
            
            
            -Dilutive
                convertible preferred stock
            
            
            3,090,909
            
            
            -
            
            
            3,090,909
            
            
            -Dilutive
                weighted average shares
            
            
            13,816,349
            
            
            10,564,647
            
            
            13,940,591
            
            
            10,564,647Diluted
                EPS
            
            $
            0.05
            
            $
            0.11
            
            $
            0.15
            
            $
            0.16


17


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)





**17.**  **Concentration
      of Suppliers and Customers**






The
      largest supplier accounted for 66.0% of the Company’s raw material purchases for
      the three months ended June 30, 2008. Two suppliers accounted for 47.2% and
      45.0% for the comparable period of 2007. No other supplier accounted for more
      than 10% of our purchases for either period. KunPeng was the largest supplier
      for the three months ended June 30, 2008 and 2007. Wu Yiting, the Company’s
      chief executive officer, is the 80% stockholder and chief executive officer
      of
      KunPeng. (See Note 12).




Two
      suppliers accounted for 66.5% and 15.1% of the Company’s raw material purchases
      for the six months ended June 30, 2008, of which KunPeng was the largest
      supplier. Two suppliers accounted for 58.8% and 34.6% for the comparable period
      of 2007, with KunPeng being the second largest one. No other supplier accounted
      for more than 10% of our purchases for either period.




The
      following tables set forth information as to sales to each customer that
      accounted for 10% or more of the Company’s sales in the three and six months
      ended June 30, 2008 and 2007.





Three Months Ended June 30,2008
            
            2007Amount ($)
            
            Percentage
            
            Amount ($)
            
            PercentageSuper Way General Trading L.L.C
            
            
            6,787,408
            
            
            77.6
            %
            
            -
            
            
            0.0
            %Isabella
                Hardware Trading L.L.C
            
            
            1,146,534
            
            
            13.1
            %
            
            4,495,952
            
            
            65.5
            %Al
                Jaber Building Material Trading L.L.C
            
            
            -
            
            
            0.0
            %
            
            2,074,339
            
            
            30.2
            %




Six Months Ended June 30,2008
            
            2007Amount ($)
            
            Percentage
            
            Amount ($)
            
            PercentageSuper Way
                General Trading L.L.C
            
            
            11,148,237
            
            
            60.2
            %
            
            -
            
            
            0.0
            %Isabella
                Hardware Trading L.L.C
            
            
            5,981,125
            
            
            32.3
            %
            
            7,835,953
            
            
            71.9
            %Al
                Jaber Building Material Trading L.L.C
            
            
            -
            
            
            0.0
            %
            
            2,380,391
            
            
            21.8
            %




**18.**  **Segment
      Reporting**




The
      Company operates in one segment - producing and distributing brass faucets
      and
      related spouts and fittings, no business segment information is presented.
      The
      following table sets forth, by geographic region, information concerning the
      Company’s net sales classified by the major geographic areas in which it sold
      its products:


Three months ended June 30,2008
              
              2007Nation
              
              Amount
              
              Percentage
              
              Amount
              
              PercentageUnited Arab Emirates
              
              $
              8,010,578
              
              
              91.6
              %
              $
              6,800,434
              
              
              99.1
              %Russia
              
              
              733,492
              
              
              8.4
              %
              
              60,864
              
              
              0.9
              %Total
              
              $
              8,744,070
              
              
              100
              %
              $
              6,861,298
              
              
              100.0
              %


18


**FUDA
      FAUCET WORKS, INC.**


Notes
      to
      Consolidated Financial Statements


(Unaudited)





Six
                  months ended June 30,2008
              
              2007Nation
              
              Amount
              
              Percentage
              
              Amount
              
              PercentageUnited
                  Arab Emirates
              
              $
              17,205,997
              
              
              93.0
              %
              
              10,663,225
              
              
              97.8
              %Russia
              
              
              1,298,442
              
              
              7.0
              %
              
              60,864
              
              
              0.6
              %Turkey
              
              
              -
              
              
              0.0
              %
              
              24,272
              
              
              0.2
              %Spain
              
              
              -
              
              
              0.0
              %
              
              149,824
              
              
              1.4
              %China
              
              
              -
              
              
              0.0
              %
              
              1,048
              
              
              0.0
              %Total
              
              $
              18,504,439
              
              
              100.0
              %
              
              10,899,233
              
              
              100
              %




The
      Company’s products fall within three categories - kitchen and bar faucets,
      bathroom faucets and bathroom accessories. The following table sets forth our
      sales in each product category for the three months ended June 30, 2008 and
      2007.


Three months ended June 30,Category
              
              2008
              
              2007Kitchen
                  and bar faucets
              
              $
              2,800,183
              
              $
              3,437,263Bathroom
                  faucets
              
              
              5,846,995
              
              
              3,373,370Bathroom
                  accessories
              
              
              96,892
              
              
              50,664Total
              
              $
              8,744,070
              
              $
              6,861,297




Six months ended June 30,Category
              
              2008
              
              2007Kitchen
                  and bar faucets
              
              $
              6,614,247
              
              $
              4,863,942Bathroom
                  faucets
              
              
              11,793,300
              
              
              5,755,947Bathroom
                  accessories
              
              
              96,892
              
              
              279,343Total
              
              $
              18,504,439
              
              $
              10,899,232




All
      of
      the Company’s long-lived assets are located in the PRC.




**19.**  **Commitments
      and Contingencies**




The
      Company leases an office in Dubai under an operating lease that expired in
      September 2008 with an aggregate monthly lease payment of approximately $1,458.
      Rent expense under the operating leases was $8,748 for the six months ended
      June
      30, 2008 and 2007 and $4,374 for the three months ended June 30, 2008 and
      2007.




**20.**  **Subsequent
      Event**




On
      July
      18, 2008, one of the investors exercised its warrants to purchase 30,000 shares
      of the Company’s common stock .
      The
      exercise price was $1.80 per share and the Company received proceeds of
      $54,000.


19


**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.** ****




**Overview**




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




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




We
      develop, manufacture, distribute and market high-quality brass faucets and
      related spouts and fittings. We produce all our products in China and export
      most of them to international markets, including Middle East, primarily United
      Arab Emirates, and Russia. In the first half of 2008, we had no sales in China,
      and 93% of our sales were made to distributors in the United Arab Emirates
      and
      7% of sales to distributors in Russia.. We do not have long-term contracts
      with
      any of our customers.




Our
      principal raw material is copper, a significant portion of which we purchase
      from KunPeng, a related party. The price of copper is subject to significant
      fluctuations, and during the past year has been subject to significant
      increases. To the extent that we are not able to pass any price increases to
      our
      customers, we will be unable to maintain our gross margins.




We
      sell
      our products to a small number of customers, each of which is a distributor
      of
      our products. Different customers may account for significant revenue in each
      period. As a result, the loss of any customer could have a material adverse
      effect upon our business if we are not able to replace that customer. The
      following table sets forth information as to each customer that accounted for
      10% or more of our revenue for the three and six three month periods ended
      June
      30, 2008 and 2007 (dollars in thousands).




Three Months Ended June 30,
            
            Six Months Ended June 30,2008
            
            2007
            
            2008
            
            2007Dollars
            
            %
            
            Dollars
            
            %
            
            Dollars
            
            %
            
            Dollars
            
            %Super Way
                General Trading L.L.C
            
            $
            6,787
            
            
            77.6
            %
            $
            -0-
            
            
            0/0
            %
            $
            11,148
            
            
            60.3
            %
            $
            -0-
            
            
            0.0
            %Isabella
                Hardware Trading L.L.C
            
            
            1,147
            
            
            13.1
            %
            
            4,496
            
            
            65.5
            %
            
            5,981
            
            
            32.3
            %
            
            7,836
            
            
            71.9
            %Al
                Jaber Building Material Trading L.L.C
            
            
            -0-
            
            
            0.0
            %
            
            2,074
            
            
            30.2
            %
            
            -0-
            
            
            0.0
            %
            
            2,380
            
            
            21.8
            %




At
      June
      30, 2008, we had accounts receivable of $6.67 million, representing accounts
      receivables from four customers, all of which were between 90 and 120 days
      old.
      These four customers accounted for 65.3%, 20.6%, 10.9% and 3.1% of our accounts
      receivable. Despite the age of the receivables, we believe that these
      receivables are fully collectible. The largest receivables are from our Super
      Way General Trading and Isabella Hardware Trading, respectively.




Our
      growth is dependent on expanding the production capacity, upgrading the
      products, improving quality and expanding our marketing effort to develop a
      larger customer base. In the second quarter 2008, we completed the construction
      of a new factory, which was put into operation in April 2008. As a result of
      this expansion, our production capacity increased to 3.5 million sets, as
      compared to 1.2 million sets at the end of 2007. In addition, we also started
      to
      upgrade and improve our original facilities in the early 2008, which is expected
      to be finished in the third quarter of 2008.


20


Since
      our
      products are generally sold to companies in the construction and home
      improvement segments, any downturn in the housing and renovation market in
      those
      areas where we sell out products could have a material adverse effect upon
      our
      business. During the six months ended June 30, 2008, our sales were made
      primarily to companies in Dubai, United Arab Emerates, and, to a lesser extent,
      in Russia, which are the two markets to which we sold substantially all of
      our
      products.





Our
      operations have been financed largely with short-term bank loans, which
      typically have a two or three-month term and have generally been rolled over
      at
      the end of the term. Although these notes have been rolled over, at the then
      current interest rate, in the past, we cannot assure you that the banks will
      continue to lend us money.




**Significant
      Accounting Estimates and Policies**




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




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




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




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




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


21




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




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




With
      the
      approvals of the County Government of Yiyang on July 17, 2007, Fuda Yiyang
      was
      exempt from corporate income taxes during 2008 and 2007. The Yiyang Tax
      Authority has also confirmed the above said preferential tax treatment on
      September 30, 2007. On March 16, 2007, China’s parliament, the National People’s
      Congress, adopted the Enterprise Income Tax Law, which took effect on January
      1,
      2008. The new income tax law sets unified income tax rate for domestic and
      foreign companies at 25%, except that qualified high and new technology
      enterprises are eligible for a 15% corporate income tax rate. Under the new
      income tax law, the low preferential tax rate shall gradually increase to the
      new tax rate within five years after the implementation of this law. Fuda Yiyang
      had no income tax as a result of the exemption.




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




We
      may
      require our customers to make a partial payment when placing an order, based
      on
      our credit evaluation. We generally require payment within three months. We
      maintain a policy that all sales are final and we do not allow returns. No
      return occurred in the three and six months ended June 30, 2008 and 2007. Based
      on industry practice and the credit history of customers, we believe the
      accounts receivable shown on its balance sheets are fully
      collectable.




**Inventories** -
      Inventories are stated at the lower of cost, determined on a weighted average,
      method, and net realizable value. Work in progress and finished goods are
      composed of direct material, direct labor and a portion of manufacturing
      overhead. Net realizable value is the estimated selling price, in the ordinary
      course of business, less estimated costs to complete and dispose. We believe
      that there was no obsolete inventory as of June 30, 2008 and December 31,
      2007.




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


22




There
      is
      no private ownership of commercial land in China. All land ownership is held
      by
      the government of China, its agencies and collectives. Land use rights are
      obtained from government, and are typically renewable. Land use rights can
      be
      transferred upon approval by the land administrative authorities of China (State
      Land Administration Bureau) upon payment of the required transfer fee. Under
      four “State-owned Land Use Right Certificates,” issued in September 23, 1999,
      November 23, 1999, July 19, 2001 and February 28, 2003 **,** we own
      the use right of three blocks of industrial-use land (covering 491,372 square
      feet) for the term of 50 years, beginning from issuance date of the
      certificates, respectively. The block acquired in 2008 was transferred by Wu
      Yiting to the Company for $1,167,866, which had been fully paid. We record
      the
      property subject to land use rights as property.




**Impairment
      of Long-lived Assets** -
      Our
      long-lived assets consist of property, including the land use rights, and
      equipment. As of June 30, 2008 and December 31, 2007, the net value of property
      and equipment was $12,822,783 and $4,615,035, respectively, which represented
      approximately 43.1% and 22.2% of our total assets.




From
      December 2004 to present, fixed assets, including land use rights, workshop
      buildings and equipment, amounting to $549,014 were unused. Since the value
      of
      land in similar sections of the city was increasing, no impairment on land
      use
      right has been charged. The workshop buildings were maintained in good
      condition, and most of the equipment have been transported and reinstalled
      into
      the Company’s new workshop buildings, which is now in the process of trial run.
      A provision for impairment of certain idle assets in the amount of $176,422
      was
      made previously when they became idle.




**Recent
      Accounting Pronouncements**




See
      Note
      2 to the Condensed Consolidated Financial Statements.


23




**Results
      of Operations**




***Three
      Months ended June 30, 2008 and 2007***




The
      following table sets forth information from our statements of operations for
      the
      three months ended June 30, 2008 and 2007, in thousand U.S. dollars and as
      a
      percentage of net sales.




Item
              
              Three
                  Months Eneded June 30,2008
              
              2007Thousands
                  of U.S. Dollars
              
              Percentage
                  of Net sales
              
              U.S.
                  Dollars
              
              Percentage
                  of Net salesNet
                  sales
              
              
              8,744
              
              
              100.0
              %
              
              6,861
              
              
              100.0
              %Cost
                  of sales (exclusive of items shown separately below)
              
              
              3,712
              
              
              42.5
              %
              
              2,126
              
              
              31.0
              %Cost
                  of sales- related parties
              
              
              3,384
              
              
              38.7
              %
              
              3,384
              
              
              49.3
              %**Cost
                  of sales - total**
              
              
              7,096
              
              
              81.2
              %
              
              5,510
              
              
              80.3
              %**Gross
                  profit**
              
              
              1,648
              
              
              18.8
              %
              
              1,351
              
              
              19.7
              %**Operating
                  expenses:**Selling
                  expenses
              
              
              177
              
              
              2.0
              %
              
              72
              
              
              1.0
              %General
                  and administrative
              
              
              323
              
              
              3.7
              %
              
              85
              
              
              1.2
              %Officers’
                  compensation
              
              
              23
              
              
              0.3
              %
              
              6
              
              
              0.1
              %Depreciation
                  and amortization
              
              
              29
              
              
              0.3
              %
              
              3
              
              
              0.0
              %Consulting
                  and professional fees
              
              
              116
              
              
              1.3
              %
              
              -
              
              
              0.0
              %**Total
                  operating expenses**
              
              
              668
              
              
              7.6
              %
              
              166
              
              
              2.4
              %**Operating
                  income**
              
              
              980
              
              
              11.2
              %
              
              1,185
              
              
              17.3
              %**Other
                  income**
              
              
              14
              
              
              0.2
              %
              
              6
              
              
              0.1
              %**Interest
                  expense**
              
              
              (184
              )
              
              -2.1
              %
              
              (81
              )
              
              -1.2
              %**Foreign
                  exchange loss**
              
              
              (154
              )
              
              -1.8
              %
              
              -
              
              
              0.0
              %**Net
                  income**
              
              
              656
              
              
              7.5
              %
              
              1,110
              
              
              16.2
              %**Other
                  comprehensive income******Foreign currency translation adjustment
              
              
              350
              
              
              4.0
              %
              
              2
              
              
              0.0
              %**Comprehensive
                  income**
              
              
              1,006
              
              
              11.5
              %
              
              1,112
              
              
              16.2
              %




**Net
      Sales**




Net
      sales
      were $8,744,070 and $6,861,297 for the three months ended June 30,2008 and
      2007,
      respectively, representing an increase $1,882,773, or 27.4%. The increase is
      mainly due to the success of our marketing efforts in United Arab Emirates
      and
      Russia, where substantially all of our products are sold.




**Cost
      of Sales; Gross Margin**




Cost
      of
      sales was $7,095,518 (of which $3,383,509 represented raw materials purchased
      from KunPeng, a related party) and $5,510,119 (of which $3,383,869 represented
      raw materials purchased from KunPeng ) for the three months ended June 30,
      2008
      and 2007, respectively. The increase of $1,585,399, or 28.8%, was primarily
      due
      to the rapid increase of sales. Cost of sales is the cost of finished goods
      sold, including raw materials, labor costs and manufacturing overhead.
      Manufacturing overhead covers the depreciation of production facilities. We
      treat delivery expenses as a selling expense rather than as an element of cost
      of sales.




As
      a
      result, our gross profit was $1,648,552 for second quarter of 2008, representing
      gross margin of 18.9%, compared with $1,351,178 for the same period of 2007,
      representing a gross margin of 19.7%. The modest decline in the gross margin
      reflected the increased depreciation with the completion of the new factory.




**Selling
      Expenses**




During
      the second quarter of 2008, selling expenses were $176,715, an increase of
      $105,144, or 146.9%, from $71,571 for the same period of 2007. Selling expenses
      include delivery expense, advertising and salaries. This marked increase is
      mainly attributable to significantly increase of sales salaries (from $9,151
      to
      $41,958) and delivery expenses (from $48,837 to $122,680) resulting from both
      the growth in sales volume and the increased shipping rate. Our advertising
      expenses decreased from $13,583to $758.


24




**General
      and administrative**




General
      and administrative expenses were $323,239 and $84,827 for the three months
      ended
      June 30, 2008 and 2007, an increase of $238,412 or 281.1%. General and
      administrative expenses include salaries, insurance premium, business
      entertainment, travel and entertainment, rent, office expense, car expenses
      and
      insurance costs. The significant increase is mainly resulted from the expansion
      of our operating activities in Fuda Yiyang, which led to the increased amount
      of
      salaries, insurance, car expenses, business entertainment, travel, office
      expenses.




**Officers’
      compensation**




Officers’
      compensation, which includes compensation to our independent directors, was
      $23,155 and $5,841 for three months ended June 30, 2008 and 2007, respectively,
      with an increase $17,314 or 296%. The increase was mainly resulted from the
      compensation for four independent directors who were elected at the end of
      April
      2008. During the second quarter of 2008, their compensation was $16,667 in
      total, including monthly fees and amortization of the value of the common stock
      issued to them over a one-year term.




**Depreciation
      and amortization**




Depreciation
      and amortization, excluding depreciation included in cost of sales, increased
      $26,369 or 871.7% from $3,025 of second quarter of 2007 to $29,394 of comparable
      period of 2008. The increase in depreciation and amortization is mainly due
      to
      additional office equipment and automobiles purchased in 2008.




**Consulting
      and professional fees**




We
      did
      not incur any consulting or professional fee in the second quarter of 2007,
      when
      Fuda Yiyang was still a private company only engaging in product development,
      manufacturing and market exploration. After the reverse acquisition, our
      consulting and professional fees increased to $116,464 as a result of our public
      company expenses for the comparable period of 2008.




**Net
      Interest Expense**




Net
      interest expense, offsetting minor interest income, was $184,273 and $81,241
      for
      the second quarter of 2008 and 2007, respectively, representing a $103,032,
      or
      126.8%, as a result of both the rapid increase of short-term bank loans to
      finance our growth and increases in the interest rate.




**Foreign
      Exchange Loss**




Net
      foreign exchange loss during second quarter of 2008 was $154,391. We did not
      incur any foreign significant exchange loss during the second quarter of 2007.
      The foreign exchange loss in 2008 reflected a foreign exchange loss on accounts
      receivable from the customers out of China, offsetting minor foreign exchange
      gain, which generated from loans of United States dollars




**Net
      Income**




Principally
      as a result of the increases in selling expenses, general and administrative
      expenses and consulting and professional fees, as described above, combined
      with
      the decline in gross margin, our net income for the second quarter of 2008
      was
      $655,340, or $0.06 per share (basic) and $0.05 per share (diluted), compared
      with and $1,110,515, or $0.11 per share (basic and diluted), representing a
      decrease of $455,175, or 41.0%.


25




***Six
      Months ended June 30, 2008 and 2007***




The
      following table sets forth information from our statements of operations for
      the
      six months ended June 30, 2008 and 2007, in dollars and as a percentage of
      net
      sales (dollars in thousands).





Six
                  Months Ended June 30,Item
              
              2008
              
              2007Thousands
                  of U.S. Dollars
              
              Percentage
                  of Net sales
              
              Thousands
                  of U.S. Dollars
              
              Percentage
                  of Net salesNet
                  sales
              
              
              18,504
              
              
              100.0
              %
              
              10,899
              
              
              100.0
              %Cost
                  of sales (exclusive of items shown separately below)
              
              
              6,489
              
              
              35.1
              %
              
              3,579
              
              
              32.8
              %Cost
                  of sales- related parties
              
              
              8,307
              
              
              44.9
              %
              
              5,195
              
              
              47.7
              %**Cost
                  of sales - total**
              
              
              14,796
              
              
              80.0
              %
              
              8,774
              
              
              80.5
              %**Gross
                  profit**
              
              
              3,708
              
              
              20.0
              %
              
              2,125
              
              
              19.5
              %0.0
              %
              
              
              
              
              0.0
              %**Operating
                  expenses:**
              
              
              
              
              
              0.0
              %
              
              
              
              
              0.0
              %Selling
                  expenses
              
              
              240
              
              
              1.3
              %
              
              129
              
              
              1.2
              %General
                  and administrative
              
              
              546
              
              
              3.0
              %
              
              155
              
              
              1.4
              %Officers’
                  compensation
              
              
              30
              
              
              0.2
              %
              
              12
              
              
              0.1
              %Depreciation
                  and amortization
              
              
              50
              
              
              0.3
              %
              
              6
              
              
              0.1
              %Consulting
                  and professional fees
              
              
              170
              
              
              0.9
              %
              
              -
              
              
              0.0
              %**Total
                  operating expenses**
              
              
              1,036
              
              
              5.6
              %
              
              302
              
              
              2.8
              %0.0
              %
              
              
              
              
              0.0
              %**Operating
                  income**
              
              
              2,672
              
              
              14.4
              %
              
              1,823
              
              
              16.7
              %0.0
              %
              
              
              
              
              0.0
              %**Other
                  income**
              
              
              14
              
              
              0.1
              %
              
              6
              
              
              0.1
              %**Interest
                  expense**
              
              
              (295
              )
              
              -1.6
              %
              
              (169
              )
              
              -1.6
              %**Foreign
                  exchange loss**
              
              
              (367
              )
              
              -2.0
              %
              
              -
              
              
              0.0
              %**Net
                  income**
              
              
              2,024
              
              
              10.9
              %
              
              1,660
              
              
              15.2
              %**Other
                  comprehensive income**
              
              
              
              
              
              0.0
              %
              
              
              
              
              0.0
              %****Foreign currency translation adjustment
              
              
              887
              
              
              4.8
              %
              
              -
              
              
              0.0
              %**Comprehensive
                  income**
              
              
              2,911
              
              
              15.7
              %
              
              1,660
              
              
              15.2
              %




**Net
      Sales**




Net
      sales
      were $18,504,439 and $10,899,232 for the six months ended June 30,2008 and
      2007,
      respectively, representing an increase $7,605,207, or 69.8%. The increase is
      mainly due to the success of our marketing efforts in United Arab Emirates
      and
      Russia, where substantially all of our products are sold.




**Cost
      of Sales; Gross Margin**




Cost
      of
      sales was $14,795,733 (of which $8,306,588 represented raw materials purchased
      from KunPeng, a related party) and $8,773,466 (of which $5,194,749 represented
      raw materials purchased from KunPeng ) for the six months ended June 30, 2008
      and 2007, respectively. The increase of $6,022,267, or 68.6%, was primarily
      due
      to the rapid increase of sales. Cost of sales is the costs of finished goods
      sold, including raw materials, labor costs and manufacturing overhead.
      Manufacturing overhead covers the depreciation of production facilities. We
      treat delivery expenses as a selling expense rather than as an element of cost
      of sales.




As
      a
      result, our gross margin was $3,708,706 for the first half of 2008, representing
      gross profit margin of 20.0%, compared with $2,125,764 for the same period
      of
      2007, representing a gross margin of 19.5%.




**Selling
      Expenses**




During
      the first half of 2008, selling expenses were $240,433, an increase of $111,749,
      or 86.8%, from $128,684 for the same period of 2007. Selling expenses include
      delivery expense, advertising and salaries. This marked increase is mainly
      attributable to significantly increase of sales salaries (from $9,306 to
      $41,958) and delivery expenses (from $82,475 to $183,173) resulting from both
      the growth in sales volume and the increased shipping rate. Our advertising
      expenses decreased from $36,903 to $1,167.


26




**General
      and administrative**




General
      and administrative expenses were $545,965 and $155,436 for the six months ended
      June 30, 2008 and 2007, an increase of $390,529 or 251.2%. General and
      administrative expenses include salaries, insurance premium, business
      entertainment, travel and entertainment, rent, office expense, car expenses
      and
      insurance costs. The significant increase is mainly resulted from the expansion
      of our operating activities in Fuda Yiyang, which led to the increased amount
      of
      salaries, insurance, car expenses, business entertainment, travel, office
      expenses.




**Officers’
      compensation**




Officers’
      compensation, which includes compensation to our independent directors, was
      $29,556 and $11,647 for the first half of 2008 and 2007, respectively, with
      an
      increase $17,909 or 153.8%. The increase was mainly resulted from the
      compensation for four independent directors who were elected at the end of
      April. During the first half of 2008, their compensation was $16,667 in total,
      including monthly fees and amortization of the value of common stock to be
      issued to them over a one-year term.




**Depreciation
      and amortization**




Depreciation
      and amortization, excluding depreciation included in cost of sales, increased
      $43,972 or 701.1% from $6,272 during the first half of 2007 to $50,244 of
      comparable period of 2008. The increase in depreciation and amortization is
      mainly due to additional office equipment and automobiles purchased in
      2008.




**Consulting
      and professional fees**




We
      did
      not incur any consulting or professional fee in the second quarter of 2007,
      when
      Fuda Yiyang was still a private company only engaging in product development,
      manufacturing and market exploration. After the reverse acquisition, our
      consulting and professional fees increased to $169,846 as a result of our public
      company expenses for the comparable period of 2008.




**Net
      Interest Expense**




Net
      interest expense, offsetting minor interest income, was $295,185 and $169,320
      for the second quarter of 2008 and 2007, respectively, representing a $125,865,
      or 74.3%, as a result of the rapid increase of short-term bank
      loans.




**Foreign
      Exchange Loss**




Net
      foreign exchange loss during the first half of 2008 was $367,030. We did not
      incur any foreign exchange loss during the same period of 2007. The foreign
      exchange loss in 2008 reflected a foreign exchange loss on accounts receivable
      from the customers out of China, offsetting minor foreign exchange gain, which
      generated from loans of United States dollars.




**Net
      Income**




As
      a
      result of the factors described above, our net income for the first half of
      2008
      was $2,024,856, or $0.19 per share (basic) and $0.15 per share (diluted)
      compared with $1,660,246, or $0.16 per share (basic and diluted), representing
      an increase of $364,610, or 22.0%.




**Liquidity
      and Capital Resources**




At
      June
      30, 2008, we had working capital of $2,692,161, reflecting a current ratio
      of
      1.2:1 and quick ratio of 0.6:1, compared to working capital of $7,988,451,
      reflecting a current ratio 2.0:1 and quick ratio of 1.0:1 as of December 31,
      2007.


27




As
      of
      June 30, 2008 and December 31, 2007, we had cash of 982,835 and $169,319,
      respectively.




During
      first half of 2008, our operations provided cash of $2,729,767 as compared
      with
      cash generated by operating activities of $2,486,699 for the same period of
      2007. The improvement of our cash position in operating activities was
      attributable to the increase of sales and better collection of accounts
      receivable.




During
      the six months ended June 30, 2008, accounts receivable increased from $487,471
      to $6,667,989, representing receivables from four customers which were 90 to
      120
      days old. At December 31, 2007, most of our receivables ($6,996,322) were from
      a
      related party and are shown on the December 31, 2007 balance sheet as “due from
      related party - trade.” This amount was paid in full.




During
      the first half of 2008, we utilized $8,563,620 in purchasing fixed assets,
      principally equipment, as compared to $1,685,955 for the same period during
      2007.




During
      six months ended June 30, 2008, our financing activities provided $5,355,401
      as
      compared with net cash outflow of $1,112,557 for the same period of 2007. We
      received $16,530,731 from short-term loans from several banks, which was partly
      offset by repayment of $10,683,029 to the banks. Loan proceeds from Ms Wu
      Yiting, a related party were $2,895,532, which was offset by repayment to
      related parties of $3,387,833 in first half of 2008. In the first half of 2007,
      we raised short-term loans $3,781,704 from banks with repayment of $4,600,124;
      advances $504, 629 from related parties with repayment of $1,489,594 and loans
      $690,828 from employees. All of our bank loans are short-term loans, which
      are
      typically due in two to three months. The loans are made to Fuda
      Yiyang.




**Off-Balance
      Sheet Arrangements**




At
      June
      30, 2008, we did not have any relationships with unconsolidated entities or
      financial partnerships, such as entities often referred to as structured finance
      or special purpose entities, which would have been established for the purpose
      of facilitating off-balance sheet arrangements or other contractually narrow
      or
      limited purposes.




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.** ****




**Foreign
      Currency Exchange Rate Risk**




We
      produce all our products in China and export most of them to international
      markets. The export prices on the selling contracts were all dominated in United
      States dollars. Thus, most of our revenues and operating results may be impacted
      by exchange rate fluctuations between RMB and United States dollars. We have
      not
      reduced our exposure to exchange rate fluctuations by using hedging
      transactions. While we may choose to do so in the future, the availability
      and
      effectiveness of any hedging transactions may be limited and we may not be
      able
      to successfully hedge our exchange rate risks. Accordingly, we may experience
      economic losses and negative impacts on earnings and equity as a result of
      foreign exchange rate fluctuations. For the second quarter ended June 30, 2008,
      the foreign exchange losses were approximately $154,391 and the foreign currency
      translation adjustments to our comprehensive income were $430,059 primarily
      as a
      result of the appreciation of the RMB against the United States
      dollar.




**ITEM
      4. CONTROLS AND PROCEDURES.** ****




Our
      principal executive officer and principal financial officer, conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), within 90 days of the filing date of this report.
      In designing and evaluating the Company’s disclosure controls and procedures,
      management recognized that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving their
      objectives and management necessarily applied its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. Based on this
      evaluation, the Company’s chief executive officer and chief financial officer
      concluded that as of June 30, 2008, the Company’s disclosure controls and
      procedures were (1) designed to ensure that material information relating to
      the
      Company, including its consolidated subsidiaries, is made known to the Company’s
      chief executive officer and chief financial officer by others within those
      entities, particularly during the period in which this report was being prepared
      and (2) effective, in that they provide reasonable assurance that information
      required to be disclosed by the Company in the reports that it files or submits
      under the Exchange Act is recorded, processed summarized and reported within
      the
      time periods specified in the SEC’s rules and forms.


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It
      is the
      responsibility of management to establish and maintain adequate internal
      controls over financial reporting. We believe that our internal controls over
      financial reporting are effective. However, management does not expect that
      our
      disclosure controls and procedures or our internal control over financial
      reporting will necessarily prevent all fraud and material errors. An internal
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Further, the design of a control system must reflect the fact that
      there are resource constraints, and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations on all internal
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. Because of the inherent limitations in a cost effective internal
      control system, financial reporting misstatements due to error or fraud may
      occur and not be detected on a timely basis.





There
      were no changes in the Company’s internal control over financial reporting
      during the quarter ended June 30, 2008 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II**   **OTHER
      INFORMATION.** ****




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




On
      December 4, 2007, the holders of more than a majority of our outstanding common
      stock approved our restated certificate of incorporation and we filed a
      preliminary Schedule 14C regarding this issue with SEC on February 19, 2008
      and
      then a definitive Schedule 14C on July 11, 2008. The restated certificate of
      incorporation has been filed with the Secretary of State of the State of
      Delaware and the restatement became effective on July 31, 2008.





**ITEM
      6. EXHIBITS.** ****




31.1
            Certification
                by Chief Executive Officer pursuant to Sarbanes Oxley Act of 2002
                Section
                302.31.2
            Certification
                by Chief Financial Officer pursuant to Sarbanes Oxley Act of 2002
                Section
                302.32.1
            Certification
                by chief executive officer and chief financial officer pursuant to
                Sarbanes-Oxley Act of 2002 Section
                906.


29




**SIGNATURES**




Pursuant
      to the requirements 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.





**Fuda
                Faucet Works, Inc.**(Registrant)August
                14, 2008
            /s/
                Wu
                YitingWu
                Yiting, Chief Executive OfficerAugust
                14, 2008
            /s/
                Wu
                YaxuWu
                Yaxu, Chief Financial Officer




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