UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 
 **FORM
        10-Q**
 
 (Mark
        One)
 
 (X)
        Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934
 For
        the
        quarterly period ended **December
        31, 2006**
 or
 
 (
        )
        Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934
 For
        the
        transition period from to
 
 Commission
        file number 000-23039
 
 **CHINA
                  PRECISION STEEL, INC.**(Exact
                  name of registrant as specified in
                  charter)
  Colorado
              
              
              14-1623047(State
                  or other jurisdiction
                of
                  incorporation)
              
              
              (IRS
                  Employer
                Identification
                  No.)
  8th
                  Floor, Teda Building, 87 Wing Lok Street, Sheungwan
                Hong
                  Kong, The People’s Republic of China(Address
                  of principal executive offices)
  86-21-5994-8500Registrant’s
                  telephone number, including area
                  code:
  OraLabs
                  Holding Corp.
                18685
                  East Plaza Drive
                Parker,
                  Colorado 80134
                December
                  31(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 þ No £
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 
 Large
        accelerated filer £  Accelerated
        filer £   Non-accelerated
        filer þ
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act).
 Yes £ No þ
 
 As
        of
        February 12, 2007, there were 26,981,916  shares
        of
        the Company’s common stock outstanding.
 
 **China
        Precision Steel, Inc.**
 **Index
        to Quarterly Report**
 **on
        Form 10-Q**
 
 **Quarter
        Ended December 31, 2006**
 **Part
                    I - Financial Information****Page**Item
                    1.
                Financial
                    Statements.Condensed
                    Consolidated Balance Sheets at December 31, 2006 (unaudited)
                    and June 30,
                    2006 (audited)
                3Unaudited
                    Condensed Consolidated Statements of Operations for the three and six
                    months ended December 31, 2006 and 2005
                4Unaudited Condensed
                    Consolidated Statements of Cash Flows for the six months ended
                    December
                    31, 2006 and 2005
                5Notes
                    to Condensed Consolidated Financial Statements.
                7Item
                    2.
                Management's
                    Discussion and Analysis of Financial Condition and Results of
                    Operations.
                20Item
                    3.
                Quantitative
                    and Qualitative Disclosures About Market Risk.
                30Item
                    4.
                Controls
                    and Procedures.
                31**Part
                    II - Other Information**Item
                    1.
                Legal
                    Proceedings.
                31Item
                    1A.
                Risk
                    Factors.
                32Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds.
                40Item
                    3.
                Defaults
                    Upon Senior Securities.
                41Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders.
                41Item
                    5.
                Other
                    Information.
                42Item
                    6.
                Exhibits.
                42Signatures
                
                44
 
 2


**China
                Precision Steel, Inc.****Condensed
                Consolidated Balance Sheets**




**December
                31,****2006**
            
            **June
                30,****(Unaudited)**
            
            **2006****Assets****Current
                assets**Cash
                and equivalents
            
            $
            1,173,975
            
            $
            186,955Accounts
                receivableTrade
            
            
            9,383,527
            
            
            13,399,003Other
            
            
            25,575
            
            
            69,913Inventory
            
            
            14,491,575
            
            
            6,283,910Deposits
            
            
            79,236
            
            
            75,575Advances
                to suppliers
            
            
            7,549,582
            
            
            3,138,759**Total
                current assets**
            
            
            32,703,470
            
            
            23,154,115**Property
                and equipment**Property
                and equipment, net
            
            
            18,363,959
            
            
            8,664,417Construction-in-progress
            
            
            13,671,544
            
            
            13,752,95432,035,503
            
            
            22,417,371**Total
                assets**
            
            $
            64,738,973
            
            $
            45,571,486**Liabilities
                and Stockholders' Equity****Current
                liabilities**Accounts
                payable
            
            $
            6,423,862
            
            $
            1,801,466Advances
                from customers
            
            
            4,778,897
            
            
            1,859,773Other
                taxes payables
            
            
            680,282
            
            
            862,914Current
                income taxes payable
            
            
            1,496,104
            
            
            -Deferred
                income taxes payable
            
            
            1,455,636
            
            
            1,535,204Amounts
                due to directors
            
            
            2,240,599
            
            
            5,896,943Current
                portion of long-term debt
            
            
            9,841,091
            
            
            8,918,939Notes
                payable
            
            
            14,132,427
            
            
            9,862,672**Total
                current liabilities**
            
            
            41,048,898
            
            
            30,737,911**Long-term
                debt, net of current portion shown above**
            
            
            6,128,599
            
            
            3,152,415**Stockholders'
                equity:**Preferred
                stock: $0.001 per value, 8,000,000 sharesauthorized,
                no shares outstanding atDecember
                31, 2006 or June 30, 2006
            
            
            -
            
            
            -Ordinary
                stock: $0.001 par value, 62,000,000 sharesauthorized,
                26,981,916 issued and outstanding
            
            
            26,982
            
            
            26,982st
                December 31, 2006 and June 30, 2006Additional
                paid-in capital
            
            
            1,373,018
            
            
            1,373,018Accumulated
                other comprehensive income
            
            
            1,400,568
            
            
            745,583Retained
                earnings
            
            
            14,760,908
            
            
            9,535,577**Total
                stockholders' equity**
            
            
            17,561,476
            
            
            11,681,160**Total
                liabilities and stockholders' equity**
            
            $
            64,738,973
            
            $
            45,571,486


The
      accompanying notes are an integral part of these financial
      statements.


3


**China
                Precision Steel, Inc.****Condensed
                Consolidated Statements of Operations****(Unaudited)**




**Three
                Months Ended:**
            
            **Six
                Months Ended:****December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenues**Sales
                revenues
            
            $
            15,007,582
            
            $
            9,902,359
            
            $
            25,510,930
            
            $
            17,605,248Cost
                of goods sold
            
            
            11,594,852
            
            
            7,109,245
            
            
            18,394,950
            
            
            12,287,788**Gross
                profit**
            
            
            3,412,730
            
            
            2,793,114
            
            
            7,115,980
            
            
            5,317,460**Operating
                expenses**Selling
                expenses
            
            
            64,693
            
            
            20,296
            
            
            104,390
            
            
            42,378Administrative
                expenses
            
            
            498,737
            
            
            445,927
            
            
            684,925
            
            
            510,400Depreciation
                and amortization expense
            
            
            10,845
            
            
            10,174
            
            
            21,262
            
            
            18,645**Total
                operating expenses**
            
            
            574,275
            
            
            476,397
            
            
            810,577
            
            
            571,423**Income
                from continuing operations**
            
            
            2,838,455
            
            
            2,316,717
            
            
            6,305,403
            
            
            4,746,037**Other
                income (expense)**Other
                revenues
            
            
            -
            
            
            318,774
            
            
            -
            
            
            318,774Interest
                and finance costs
            
            
            (114,743
            )
            
            (206,464
            )
            
            (318,082
            )
            
            (352,662
            )**Total
                other income (expense)**
            
            
            (114,743
            )
            
            112,310
            
            
            (318,082
            )
            
            (33,888
            )**Net
                income from continuing operations****before
                income tax**
            
            
            2,723,712
            
            
            2,429,027
            
            
            5,987,321
            
            
            4,712,149**Provision
                for (benefit from) income tax**Current
            
            
            (34,057
            )
            
            -
            
            
            895,313
            
            
            -Deferred
            
            
            389,604
            
            
            -
            
            
            (85,405
            )
            
            -Total
                income tax expense
            
            
            355,547
            
            
            -
            
            
            809,908
            
            
            -**Net
                income before discontinued operations**
            
            
            2,368,165
            
            
            2,429,027
            
            
            5,177,413
            
            
            4,712,149**Net
                income from discontinued operations**
            
            
            519,879
            
            
            258,601
            
            
            639,072
            
            
            112,582**Net
                income**
            
            $
            2,888,044
            
            $
            2,687,628
            
            $
            5,816,485
            
            $
            4,824,731**Basic
                and diluted earnings per share**From
                continuing operations
            
            $
            0.09
            
            $
            0.09
            
            $
            0.19
            
            $
            0.17From
                discontinued operations
            
            $
            0.02
            
            $
            0.01
            
            $
            0.03
            
            $
            0.01Total
            
            $
            0.11
            
            $
            0.10
            
            $
            0.22
            
            $
            0.18**Basic
                and diluted weighted average shares outstanding**
            
            
            26,981,916
            
            
            26,981,916
            
            
            26,981,916
            
            
            26,981,916**The
                Components of comprehensive income:**Net
                income
            
            $
            2,888,044
            
            $
            2,687,628
            
            $
            5,816,485
            
            $
            4,824,731Foreign
                currency translation adjustment
            
            
            557,213
            
            
            76,402
            
            
            654,985
            
            
            405,877**Comprehensive
                income**
            
            $
            3,445,257
            
            $
            2,764,030
            
            $
            6,470,970
            
            $
            5,230,608


The
      accompanying notes are an integral part of these financial
      statements.


4




**China
                  Precision Steel, Inc.****Condensed
                  Consolidated Statements of Cash Flows****(Unaudited)**
  **For
                  the Six Months Ended:****December
                  31,**
              
              **December
                  31,****2006**
              
              **2005****Cash
                  flows from operating activities****Net
                  Income**
              
              $
              5,816,485
              
              $
              4,824,149**Adjustments
                  to reconcile net income to net cash provided by****(used
                  in) operating activities**Depreciation
              
              
              617,405
              
              
              403,630Less
                  income from discontinued operations - Oralabs, Inc
              
              
              (639,072
              )
              
              (112,582
              )**Net
                  changes in assets and liabilities:**Accounts
                  receivable, net
              
              
              4,059,814
              
              
              (3,558,798
              )Inventories
              
              
              (8,207,665
              )
              
              (2,315,178
              )Advances
                  to suppliers
              
              
              (4,410,823
              )
              
              (774,381
              )Deposits
              
              
              (3,661
              )
              
              -Accounts
                  payable and accrued expenses
              
              
              4,622,396
              
              
              (266,168
              )Advances
                  from customers
              
              
              2,919,124
              
              
              646,278Deferred
                  income taxes
              
              
              (85,405
              )
              
              -Current
                  income taxes
              
              
              937,307
              
              
              -Other
                  taxes payable
              
              
              (152,086
              )
              
              285,493**Net
                  cash provided by (used in) operating activities**
              
              
              5,473,819
              
              
              (866,975
              )**Cash
                  flows from investing activities**Purchases
                  of fixed assets including construction in progress
              
              
              (10,212,328
              )
              
              (7,012,465
              )**Net
                  cash (used in) investing activities**
              
              
              (10,212,328
              )
              
              (7,012,465
              )**Cash
                  flows from financing activities**Advances
                  from directors, net
              
              
              (3,237,243
              )
              
              931,984Long-term
                  loan proceeds
              
              
              3,898,336
              
              
              -Notes
                  payable proceeds
              
              
              3,850,654
              
              
              4,190,030Capital
                  and restructuring contributions
              
              
              558,797
              
              
              -**Net
                  cash provided by financing activities**
              
              
              5,070,544
              
              
              5,122,014**Effect
                  of exchange rate**
              
              
              654,985
              
              
              402,716**Net
                  increase (decrease) in cash**
              
              
              987,020
              
              
              (2,354,710
              )**Cash
                  and cash equivalents, beginning of year**
              
              
              186,955
              
              
              3,133,326**Cash
                  and cash equivalents, end of year**
              
              $
              1,173,975
              
              $
              778,616


The
      accompanying notes are an integral part of these financial
      statements.


5




**China
                  Precision Steel, Inc.****Condensed
                  Consolidated Statements of Cash Flows****(Unaudited)**
  **For
                  the six months ended:****December
                  31,**
              
              **December
                  31,****2006**
              
              **2005****Supplemental
                  disclosure of cash flow information**Interest
                  paid
              
              $
              318,082
              
              $
              352,662Taxes
                  paid
              
              $
              -
              
              $
              -


The
      accompanying notes are an integral part of these financial
      statements.


6


**China
      Precision Steel, Inc.**


**Notes
        to Condensed Consolidated Financial Statements**


**1.**
            **Description
                of Business**




On
      December 28, 2006, China Precision Steel, Inc. (the “Company”) under its former
      name, OraLabs Holding Corp., issued 25,363,002 shares of its common stock in
      exchange for 100% of the registered capital of Partner Success Holdings Limited,
      a British Virgin Islands Business Company (“PSHL”), pursuant to a Stock Exchange
      Agreement, dated March 31, 2006. Subsequent to the closing of that transaction,
      on December 28, 2006, the Company redeemed 3,629,350 shares of its common stock
      in exchange for all of the common stock of OraLabs, Inc., a wholly-owned
      operating subsidiary. The Company issued 100,000 shares of its common stock
      to
      OraLabs, Inc. in exchange for $450,690, and received additional cash payments
      in
      the aggregate amount of $108,107 in payment of an estimated $558,797 tax
      liability to be incurred by the Company in connection with the spin off of
      OraLabs, Inc. and the supplemental payment received. The Company then changed
      its name to China Precision Steel, Inc.





These
      transactions were treated for financial reporting purposes as a
      recapitalization, with prior OraLabs, Inc. operating activities reflected on
      the
      statements of operations as income (loss) from discontinued operations. The
      $558,797 estimated tax liability incurred in connection with the spin off of
      OraLabs, Inc. was treated as a transaction cost for financial reporting purposes
      and was treated as a reduction in additional paid in capital to the extent
      of
      the additional cash received, which was also $558,797 See Note 15 of Notes
      to
      Condensed Consolidated Financial Statements.





PSHL,
      registered on April 30, 2002 in the Territory of the British Virgin Islands,
      had
      registered capital of $50,000 as of June 30, 2006 and 2005. It has one
      wholly-owned subsidiary, Shanghai Chengtong Precision Strip Company Limited
      (“Chengtong”), which it acquired in a series of transactions. This acquisition
      was recorded using purchase accounting and resulted in an increase of $1,086,262
      in the carrying amount of property and equipment for financial reporting
      purposes.





Chengtong
      was registered on July 2, 2002 in Shanghai, in the People’s Republic of China
      (“PRC”) with a registered capital of $3,220,000 and a defined period of
      existence of 50 years from July 2, 2002 to July 1, 2052. Chengtong was
      classified as a Sino-foreign joint venture enterprise with limited liabilities.
      On August 22, 2005, the authorized registered capital was increased to
      $15,220,000. Pursuant to the document issued by the District Council to Xuhang
      Town Council on June 28, 2004, the equity transfers from China Chengtong Metal
      Group Limited and Eastreal Holdings Company Limited to PSHL was approved and
      the
      transformation of Chengtong from a Sino-foreign joint investment enterprise
      to a
      wholly foreign owned enterprise (WFOE) was granted.


As
      used
      herein, the “Group” refers to the Company, PSHL and Chengtong on a consolidated
      basis.





The
      Company’s principal activities are conducted through its principal
      subsidiary, Chengtong. Chengtong is a niche precision steel processing company
      principally engaged in the manufacture and sales of cold-rolled and hot-rolled
      precision steel products and plates for down stream applications in the
      automobile industry (components and spare parts), kitchen tools and functional
      parts of electrical appliances. Raw materials, hot-rolled de-scaled (pickled)
      steel coils, will go through certain cold reduction processing procedures to
      give steel rolls and plates in different cuts and thickness for deliveries
      in
      accordance with customers’ specifications. Specialty precision steel offers
      specific control of thickness, shape, width, surface finish and other special
      quality features that compliment the emerging need for highly engineered end
      use
      applications. Precision steel pertains to the precision of measurements and
      tolerances of the above factors, especially thickness tolerance.





**2.**
            **Basis
                of Preparation of Financial
                Statements**





The
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States of America. The financial statements
      are
      prepared under the historical cost convention. This basis of accounting differs
      from that used in the preparation of the Company’s statutory financial
      statements, prepared on a cash basis, are prepared in accordance with generally
      accepted accounting principles and the relevant financial regulations applicable
      to enterprises in the PRC.





7


**China
      Precision Steel, Inc.**


**Notes
        to Condensed Consolidated Financial Statements**


**3.**
            **Summary
                of Significant Accounting
                Policies**





The
      following is a summary of significant accounting policies:





**Cash
      and Equivalents -** The **** Company
      considers all highly liquid debt instruments purchased with maturity periods
      of
      three months or less to be cash equivalents. The carrying amounts reported
      in
      the accompanying consolidated balance sheet for cash and cash equivalents
      approximate their fair value.





**Accounts
      Receivable -** The
      Company provides an allowance for doubtful accounts equal to the estimated
      uncollectible amounts. It is reasonably possible that the Company’s estimate of
      the allowance will change. At December 31, 2006 and 2005, the Company had
      allowance for doubtful accounts of $138,837 and $0, respectively.





**Inventory** **-** **** Inventory
      is stated at the lower of cost or market. Cost is determined using the weighted
      average method. Market value represents the estimated selling price in the
      ordinary course of business less the estimated costs necessary to complete
      the
      sale.





The
      cost
      of inventories comprises all costs of purchases, costs of conversion and other
      costs incurred in bringing the inventories to their present location and
      condition. The costs of conversion of inventories include fixed and variable
      production overhead, taking into account the stage of completion.





**Property,
      Plant and Equipment -** Property,
      plant and equipment are stated at cost less accumulated depreciation. The cost
      of an asset comprises its purchase price and any directly attributable costs
      of
      bringing the asset to its present working condition and location for its
      intended use.





Depreciation
      is computed on a straight-line basis over the estimated useful lives of the
      related assets for financial reporting purposes. The estimated useful lives
      for
      significant property and equipment are as follows:





Buildings
            25
                yearsOffice
                equipment
            5
                yearsMotor
                vehicles
            5
                yearsMachinery
            10
                years





Repairs
      and maintenance costs are normally charged to the statement of operations in
      the
      year in which they are incurred. In situations where it can be clearly
      demonstrated that the expenditure has resulted in an increase in the future
      economic benefits expected to be obtained from the use of the asset, the
      expenditure is capitalized as an additional cost of the asset.





Property,
      plant and equipment are evaluated annually for any impairment in value. Where
      the recoverable amount of any property and equipment is determined to have
      declined below its carrying amount, the carrying amount is reduced to reflect
      the decline in value. There were no property and equipment impairments
      recognized during the three and six months periods ended December 31, 2006
      and
      2005.





**Capitalized
      Interest -** The
      Company capitalizes interest cost on borrowings incurred during the new
      construction or upgrade of qualified assets. Capitalized interest is added
      to
      the cost of the underlying assets and is amortized over the useful lives of
      the
      assets. During the fiscal years ended June 30, 2006 and 2005, the Company
      capitalized $749,914 and $0, respectively, of interest to construction in
      progress. During the six months ended December 31, 2006 and 2005, the Company
      capitalized $497,686 and $0, respectively, of interest to
      construction-in-progress.





8


**China
        Precision Steel, Inc.**
 **Notes
          to Condensed Consolidated Financial Statements**
 **3.**
                  **Summary
                      of Significant Accounting Policies
                      (Continued)**
 **Construction-in-Progress** -
            Properties currently under development are accounted for as
            construction-in-progress. Construction-in-progress is recorded at acquisition
            cost, including land rights cost, development expenditure, professional
            fees and
            the interest expenses capitalized during the course of construction for
            the
            purpose of financing the project. Upon completion and readiness for use
            of the
            project, the cost of construction-in-progress is to be transferred to
            properties
            held for sale.





Construction-in-progress
      is valued at the lower of cost or market. Management evaluates the market value
      of its properties on a quarterly basis by comparing selling prices of its
      properties with those of other equivalent properties in the vicinity offered
      by
      other developers reduced by anticipated selling costs and associated taxes.
      In
      the case of construction in progress, management takes into consideration the
      estimated cost to complete the project when making the lower of cost or market
      calculation.





**Contingent
      Liabilities and Contingent Assets**  **-** A
      contingent liability is a possible obligation that arises from past events
      and
      whose existence will only be confirmed by the occurrence or non-occurrence
      of
      one or more uncertain future events not wholly within the control of the
      Company. It can also be a present obligation arising from past events that
      is
      not recognized because it is not probable that outflow of economic resources
      will be required or the amount of obligation cannot be measured
      reliably.





A
      contingent liability is not recognized but is disclosed in the notes to the
      financial statements. When a change in the probability of an outflow occurs
      so
      that outflow is probable, they will then be recognized as a
      provision.





A
      contingent asset is a possible asset that arises from past events and whose
      existence will be confirmed only by the occurrence or non-occurrence of one
      or
      more uncertain events not wholly within the control of the Company.





Contingent
      assets are not recognized but are disclosed in the notes to the financial
      statements when an inflow of economic benefits is probable. When inflow is
      virtually certain, an asset is recognized.





**Advances
      from customers**  **-** Revenue
      from the sale of goods or services is recognized at the time that goods are
      delivered or services are rendered. Receipts in advance for goods to be
      delivered or services to be rendered in the subsequent year are carried forward
      as deferred revenue.





**Revenue
      Recognition** **-** **** Revenue
      from the sale of goods and services is recognized on the transfer of risks
      and
      rewards of ownership, which generally coincides with the time when the goods
      are
      delivered to customers and the title has passed and services have been rendered
      and invoiced. Revenue is reported net of all VAT taxes. Other income is
      recognized when it is earned.





**Foreign
      Currencies** - The
      Company’s principal country of operations is in the PRC. The financial position
      and results of operations of the Company are determined using the local currency
      ("Renminbi" or "Yuan") as the functional currency. The results of operations
      denominated in foreign currency are translated at the average rate of exchange
      during the reporting period. Assets and liabilities denominated in foreign
      currencies at the balance sheet date are translated at the market rate of
      exchange ruling at that date. The registered equity capital denominated in
      the
      functional currency is translated at the historical rate of exchange at the
      time
      of capital contribution. All translation adjustments resulting from the
      translation of the financial statements into the reporting currency (“US
      Dollars”) are dealt with as an exchange fluctuation reserve in shareholders’
equity.





9


****China
      Precision Steel, Inc.****


**Notes
          to Condensed Consolidated Financial Statements**
 **3.**
                  **Summary
                      of Significant Accounting Policies
                      (Continued)**
 **Taxation
            -** Taxation
            on overseas profits has been calculated on the estimated assessable profits
            for
            the year at the rates of taxation prevailing in the country in which
            the Company
            operates.




Provision
      for the PRC enterprise income tax is calculated at the prevailing rate based
      on
      the estimated assessable profits less available tax relief for losses brought
      forward **.** The
      Company does not accrue taxes on unremitted earnings from foreign operations
      as
      it is the Company’s intention to invest these earnings in the foreign operations
      indefinitely **.**





*Enterprise
      income tax*





Under
      the
      Provisional Regulations of the People’s Republic of China Concerning Income Tax
      on Enterprises promulgated by the State Council which came into effect on
      January 1, 1994, income tax is payable by enterprises at a rate of 33% of their
      taxable income. Preferential tax treatment may, however, be granted pursuant
      to
      any law or regulations from time to time promulgated by the State Council.
      Specialty state companies’ enterprise income tax rate was reduced to 27%. The
      Group is currently enjoying a 50% reduction in the statutory rates due to the
      classification of Chengtong as a “Wholly Foreign Owned Enterprise”. This reduced
      rate applies to the fiscal years ending June 30, 2007, 2008, and 2009.
      Subsequent to June 30, 2009, Chengtong will be subject to enterprise income
      taxes at the prevailing statutory rates. The PRC is currently reviewing its
      tax
      rate differential between domestic and Wholly Foreign Owned Enterprises and
      it
      is possible that these rates may change in the future.





Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets, including tax loss and credit carry forwards, and liabilities are
      measured using enacted tax rates 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.
      Deferred income tax expense represents the change during the period in the
      deferred tax assets and deferred tax liabilities. The components of the deferred
      tax assets and liabilities are individually classified as current and
      non-current based on their characteristics. Deferred tax assets are reduced
      by a
      valuation allowance when, in the opinion of management, it is more likely than
      not that some portion or all of the deferred tax assets will not be
      realized.




*Value
      added tax*





The
      Provisional Regulations of the People’s Republic of China Concerning Value Added
      Tax promulgated by the State Council came into effect on January 1, 1994. Under
      these regulations and the Implementing Rules of the Provisional Regulations
      of
      the People’s Republic of China Concerning Value Added Tax, value added tax is
      imposed on goods sold in or imported into the PRC and on processing, repair
      and
      replacement services provided within the PRC.





Value
      added tax payable in the PRC is charged on an aggregated basis at a rate of
      13%
      or 17% (depending on the type of goods involved) on the full price collected
      for
      the goods sold or, in the case of taxable services provided, at a rate of 17%
      on
      the charges for the taxable services provided, but excluding, in respect of
      both
      goods and services, any amount paid in respect of value added tax included
      in
      the price or charges, and less any deductible value added tax already paid
      by
      the taxpayer on purchases of goods and services in the same financial
      year.





10


**China
        Precision Steel, Inc.**
 **Notes
          to Condensed Consolidated Financial Statements**




**3.**
                **Summary
                    of Significant Accounting Policies
                    (Continued)**





**Retirement
      Benefit Costs** -
      According to the PRC regulations on pension, Chengtong contributes to a defined
      contribution retirement scheme organized by municipal government in the province
      in which Chengtong was registered and all qualified employees are eligible
      to participate in the scheme. Contributions to the scheme are calculated at
      23.5% of the employees’ salaries above a fixed threshold amount and the
      employees contribute 2% to 8%, while Chengtong contributes the balance
      contribution of 21.5%% to 15.5%. The Group has no other material obligation
      for
      the payment of retirement benefits beyond the annual contributions under this
      scheme.





For
      the
      three and six month periods ended December 31, 2006, the Company’s pension cost
      charged to the statements of operations under the plan amounted to $39,466
      and
      $74,163, respectively, all of which have been paid to the State Pension Fund.
      For the three and six month periods ended December 31, 2005, the Company’s
      pension cost charged to the statements of operations under the plan amounted
      to
      $10,592 and $21,185, respectively, all of which have been paid to the State
      Pension Fund.





**Fair
      Value of Financial Instruments -** The
      carrying amounts of certain financial instruments, including cash, accounts
      receivable, other receivables, accounts payable, accrued expenses, and other
      payables approximate their fair values as at December 31, 2006 and June 30,
      2006
      because of the relatively short-term maturity of these instruments.





**Adjustments** -
      In the
      opinion of management, all adjustments that are necessary for a fair
      presentation for the periods presented have been reflected as required by
      Regulation S-X, Rule 10-01. All such adjustments are of a normal, recurring
      nature.





**Use
      of Estimates**  **-** The
      preparation of financial statements in accordance with generally accepted
      accounting principles require management to make estimates and assumptions
      that
      affect reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the financial statements and reported
      amounts of revenues and expenses during the reporting period. Actual results
      could differ from those estimates.





**Reclassifications
      -** Certain
      reclassifications have been made to the prior years' financial statements to
      conform to the current year presentation. These reclassifications had no effect
      on previously reported results of operations or retained earnings.





**Recent
      Accounting Pronouncements** - In
      November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment
      of
      ARB No. 43, Chapter 4. SFAS No. 151 requires that certain abnormal costs
      associated with the manufacturing, freight, and handling costs associated with
      inventory be charged to current operations in the period in which they are
      incurred. The adoption of SFAS 151 had no impact on the Group's financial
      position, results of operations, or cash flows.





In
      December 2004, the FASB issued a revision of SFAS No. 123, Share-Based Payment.
      The statement establishes standards for the accounting for transactions in
      which
      an entity exchanges its equity investments for goods and services. It also
      addresses transactions in which an entity incurs liabilities in exchange for
      goods or services that are based on the fair value of the entity's equity
      instruments or that may be settled by the issuance of those equity instruments.
      The statement does not change the accounting guidance for share-based payments
      with parties other than employees.





The
      statement requires a public entity to measure the cost of employee service
      received in exchange for an award of equity instruments based on the grant-date
      fair value of the award (with limited exception). That cost will be recognized
      over the period during which an employee is required to provide service in
      exchange for the award (usually the vesting period). A public entity will
      initially measure the cost of employee services received in exchange for an
      award of liability instrument based on its current fair value; the fair value
      of
      that award will be re-measured subsequently at each reporting date through
      the
      settlement date. Changes in fair value during the requisite service period
      will
      be recognized as compensation over that period.





11


****China
      Precision Steel, Inc.****


**Notes
            to Condensed Consolidated Financial Statements**
 **3.**
                        **Summary
                            of Significant Accounting Policies
                            (Continued)**


The
      grant-date for fair value of employee share options and similar instruments
      will
      be estimated using option-pricing models adjusted for the unique characteristics
      of these instruments. The statement is effective for the quarter beginning
      January 1, 2006.





In
      December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
      Assets-amendment of APB Opinion No. 29. Statement 153 eliminates the exception
      to fair value for exchanges of similar productive assets and replaces it with
      a
      general exception for exchanged transactions that do not have a commercial
      substance, defined as transactions that are not expected to result in
      significant changes in the cash flows of the reporting entity. This statement
      was effective for exchanges of non-monetary assets occurring after June 15,
      2005.





In
      May
      2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
      - a
      replacement of APB Opinion No. 20 and FASB Statement No. 3. Statement 154
      requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. The
      statement is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005.





SFAS
      No.
      152 “Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB
      Statements No. 66 and 67”, SFAS No. 155 “Accounting for Certain Hybrid Financial
      Instruments - an amendment of FASB Statements No. 133 and No. 140”, SFAS No. 156
“Accounting for Servicing of Financial Assets - an amendment of FASB Statement
      No. 140”, SFAS
      No.
      157 “Fair Value Measurement”, and SFAS 158 “Employer’s Accounting for Defined
      Benefit and Other Postretirement Plans” were recently issued .
      SFAS
      No. 152, 155, 156, and 158 have no current applicability to the Group and have
      no significant effect on the consolidated financial statements.





Management
      is currently assessing the effect, if any, that the adoption of SFAS 157 “Fair
      Value Measurement” will have on the reporting of future operations.





In
      June
      of 2006, the Financial Accounting Standards Board issued FASB Interpretation
      No.
      48 “Accounting for Uncertainty in Income Taxes”. This interpretation clarifies
      the accounting and reporting of uncertainty in income taxes recognized in an
      enterprise’s financial statements. This Interpretation will be effective for
      fiscal years beginning after December 15, 2006. The Company is currently
      assessing the effect this Interpretation will have on the reporting of future
      operations.


In
        September 2006, the Securities and Exchange Commission issued Staff
        Accounting Bulletin No. 108 (“SAB No. 108”).
        SAB No. 108 addresses how the effects of prior year uncorrected
        misstatements should be considered when quantifying misstatements in current
        year financial statements. SAB No. 108 requires companies to quantify
        misstatements using a balance sheet and income statement approach and to
        evaluate whether either approach results in quantifying an error that is
        material in light of relevant quantitative and qualitative factors. When
        the
        effect of initial adoption is material, companies will record the effect
        as a
        cumulative effect adjustment to beginning of year retained earnings and disclose
        the nature and amount of each individual error being corrected in the cumulative
        adjustment. SAB No. 108 is effective beginning January 1,
        2007 and it is anticipated that the initial adoption of SAB No. 108
        will not have a material impact on the Company’s financial position, results of
        operations, or cash flows.





**4.**
            **Concentrations
                of Business and Credit
                Risk**





Substantially
      all of the Group’s bank accounts are in banks located in the PRC and are not
      covered by any type of protection similar to that provided by the FDIC on funds
      held in U.S. banks.





Chengtong
      provides credit in the normal course of business. Chengtong performs ongoing
      credit evaluations of its customers and clients and maintains allowances for
      doubtful accounts based on factors surrounding the credit risk of specific
      customers and clients, historical trends, and other information. Trade accounts
      receivable totaled $9,383,527 and $13,399,003 as of December 31, 2006 and June
      30, 2006, respectively.





12


****China
      Precision Steel, Inc.****


**Notes
            to Condensed Consolidated Financial Statements**
 **4.**
                **Concentrations
                    of Business and Credit Risk
                    (Continued)**


Chengtong’s
      list of customers whose purchases exceeded 10% of total sales during the six
      months ended December 31, 2006 and 2005 were as follows:





***Customers***
            
            *2006*
            
            *%
                to sales*
            
            *2005*
            
            *%
                to sales*Shanghai
                Ruixuefeng Metals Co. Ltd
            
            
            9,254,127
            
            
            36
            
            
            -
            
            
            -Sinosteel
                Company Limited
            
            
            3,219,796
            
            
            13
            
            
            -
            
            
            -Shanghai
                Yiyi Industrial Limited
            
            
            -
            
            
            -
            
            
            3,052,223
            
            
            17Jiangsu
                Kaiteer Industrial Stove Limited
            
            
            -
            
            
            -
            
            
            5,051,922
            
            
            29




**5.**
            **Inventory**





As
      of
      December 31, 2006 and June 30, 2006, inventory consisted of the
      following:





December
                31,
              2006
            
            June
                30,
              2006Raw
                materials
            
            $
            10,779,186
            
            $
            3,688,773Work
                in progress
            
            
            602,832
            
            
            573,465Finished
                goods
            
            
            3,109,557
            
            
            2,021,672$
            14,491,575
            
            $
            6,283,910


**6.**
              **Property,
                    Plant and Equipment**


Property,
      plant and equipment, stated at cost less accumulated depreciation, consisted
      of
      the following:





December
                31,
              2006
            
            June
                30,
              2006Plant
                and machinery
            
            $
            17,513,971
            
            $
            7,526,395Buildings
            
            
            3,070,377
            
            
            2,755,157Motor
                vehicles
            
            
            288,095
            
            
            239,219Office
                equipment
            
            
            70,524
            
            
            51,28120,942,967
            
            
            10,572,052Less:
                Accumulated depreciation
            
            
            (2,579,008
            )
            
            (1,907,635
            )$
            18,363,959
            
            $
            8,664,417





As
      of
      December 31, 2006, property, plant and equipment at a net book value of
      $18,144,798, along with all construction-in-progress, had been pledged as
      securities on loans with combined outstanding balances of $24,219,764.





Depreciation
      expense related to manufacturing is included as a component of cost of goods
      sold. During the three and six month periods ended December 31, 2006,
      depreciation totaling $345,669 and $596,143, respectively, was included as
      a component of cost of goods sold. During the three and six month periods ended
      December 31, 2005, depreciation totaling $183,085 and $384,985, respectively,
      was included as a component of cost of goods sold.





**7.**
            
            **Construction-In-Progress**





As
      of
      December 31, 2006 and June 30, 2006, construction-in-progress consisted of
      the
      following:





December
                31,
              2006
            
            June
                30,
              2006Construction
                costs of plant and machinery
            
            $
            8,424,401
            
            $
            7,059,943Construction
                on factory building (Phase 2)
            
            
            5,247,143
            
            
            6,693,011$
            13,671,544
            
            $
            13,752,954





Construction-in-progress
      represents construction and installations of the new plant and machinery and
      administration and factory buildings.


13


**China
        Precision Steel, Inc.**
 **Notes
            to Condensed Consolidated Financial Statements**


**8.**
            **Advances
                from Customers**




Advances
      from customers represent advance cash receipts from new customers and for which
      goods have not been delivered as of the balance sheets dates. Advances from
      customers for goods to be delivered or services to be rendered in the subsequent
      year are carried forward as deferred revenue. As of December 31, 2006 and June
      30, 2006 there were advances from customers of $4,778,897 and $1,859,773,
      respectively.





**9.**
            **Transactions
                with Related Parties**





Amounts
      due to directors as of December 31, 2006 and June 30, 2006 are as
      follows:





Name
            
            December
                31,
              2006
            
            June
                30,
              2006Li
                Wo Hing
            
            $
            1,798,066
            
            $
            5,464,907Chen
                Hai Sheng
            
            
            442,533
            
            
            432,036$
            2,240,599
            
            $
            5,896,943





Amounts
      due are unsecured, non-interest bearing and have no fixed repayment terms.
      As of
      December 31, 2006 and June 30, 2006, Li Wo Hing had advanced an aggregate of
      $8,840,990 and $5,435,842, respectively, for construction costs incurred for
      Chengtong’s production facilities on land to which the land rights are owned by
      another company under his control. At such time as local governmental approval
      is received for the transfer of the land rights and the related properties
      to
      Chengtong, the related costs paid by Li Wo Hing will be reflected on the Group’s
      consolidated financial statements as a payable to him. See Note 18 of Notes
      to
      Condensed Consolidated Financial Statements.




**10.**
            **Short-Term
                Loans**





Short-term
      loans consisted of the following:


December
                31,
              2006
            
            June
                30,
              2006Bank
                loan, dated July 27, 2006, rolling over previous notes, due July
                25, 2007,
                with a interest rate of 5.85%, guaranteed by a related
                company
            
            $
            2,557,545
            
            $
            -Bank
                loan, dated July 27, 2006, rolling over previous notes, due June
                25, 2007,
                with a interest rate of 5.85%, guaranteed by a related
                company
            
            
            1,790,281
            
            
            -Bank
                loan, dated July 27, 2006, rolling over previous notes, due May 25,
                2007,
                with a interest rate of 5.85%, guaranteed by a related
                company
            
            
            1,534,527
            
            
            -Bank
                loan, dated September 22, 2005, due December 31, 2006, with a interest
                rate of 15% over the standard market rate set by the People’s Bank of
                China for Renminbi loans, secured by land, buildings and
                machinery
            
            
            8,250,074
            
            
            4,119,850Bank
                loan, dated December 14, 2004, rolled over October 21, 2005, due
                in one
                year with a interest rate of 5.58%, guaranteed by a related
                company
            
            
            -
            
            
            1,248,439





14


**China
          Precision Steel, Inc.**
 **Notes
            to Condensed Consolidated Financial Statements**
  **10.**
                    **Short-Term
                        Loans
                        (Continued)**


Bank
                loan, dated December 14, 2004, rolled over November 11, 2005, due
                in one
                year with a interest rate of 5.58%, guaranteed by a related
                company
            
            
            -
            
            
            1,248,439Bank
                loan, dated December 12, 2005, due in one year with a interest rate
                of
                5.58%, guaranteed by a related company
            
            
            -
            
            
            1,747,815Bank
                loan, dated May 19, 2006, due in one year with a interest rate of
                5.85%,
                guaranteed by a related company
            
            
            -
            
            
            1,498,129$
            14,132,427
            
            $
            9,862,672




**12.**
            **Long-Term
                Debts - Secured**





December
                31,
              2006
            
            June
                30,
              2006Long-term
                debts:Bank
                loan dated October 14, 2004, due July 31, 2007, at an interest rate
                of 3%
                over the 10% of the standard market rate set by the People’s Bank of China
                for Renminbi loans, secured by land, buildings and
                machinery
            
            $
            7,798,225
            
            $
            7,973,215Bank
                loan dated September 22, 2005, payable over 4 years ending August
                31,
                2009, at an interest rate of 15% the standard market rate set by
                the
                People’s Bank of China for Renminbi loans, secured by land, buildings and
                machinery
            
            
            8,171,465
            
            
            4,098,139Total
                long-term debt
            
            
            15,969,690
            
            
            12,071,354Less:
                Current portion of long-term debts
            
            
            9,841,091
            
            
            8,918,939Long-term
                debts
            
            $
            6,128,599
            
            $
            3,152,415





Maturities
      on long-term debt for each of the next five years and thereafter are as
      follows:





2007
            
            $
            9,841,0912008
            
            
            2,042,8662009
            
            
            2,042,8662010
            
            
            2,042,8672011
            
            
            —$
            15,969,690





15


****China
        Precision Steel, Inc.****
 **Notes
            to Condensed Consolidated Financial Statements**


**14.**
            **Income
                Tax**





For
      EIT
      reporting purposes, the Company reports income and expenses on a tax basis
      and
      is required to compute a 10% salvage value when computing depreciation expense.
      For financial reporting purposes, the Company reports income and expenses on
      the
      accrual basis and does not take into account a 10% salvage value when computing
      depreciation expense.





No
      accrual for deferred taxes was required for the fiscal year ended June 30,
      2005
      as the Group benefited from Chengtong’s 100% tax holiday during the two fiscal
      years ended June 30, 2006 and all material timing differences would reverse
      within one year with the exception of depreciation which resulted in a small
      deferred tax asset which was deemed to be immaterial by the Company and was
      not
      recorded at that time.





As
      of
      June 30, 2006, Chengtong had utilized all of its 100% tax holiday; therefore
      any
      timing differences reversing within the next three years will be taxed at 50%
      of
      the statutory rate of 27%. Therefore, it was necessary for the Group to record
      a
      deferred income tax liability and offsetting deferred income tax expense of
      $1,535,204 as of June 30, 2006.





A
      reconciliation of the provision for income taxes with amounts determined by
      applying the statutory U.S. federal income tax rate to income before income
      taxes is as follows:





Year
                Ended June 30,2006
            
            2005Computed
                tax at the federal statutory rate of 34%
            
            $
            3,133,000
            
            $
            2,244,000Less
                adjustment to EIT statutory rate of 27%
            
            
            (645,000
            )
            
            (462,000
            )Benefit
                from tax holiday
            
            
            (952,796
            )
            
            (1,782,000
            )Income
                tax expense per books
            
            $
            1,535,204
            
            $
            -





The
      tax
      holiday resulted in tax savings as follows:





Three
                Months Ended
              December
                31,
            
            Six
                Months Ended
              December
                31,2006
            
            2005
            
            2006
            
            2005Tax
                savings
            
            $
            367,701
            
            $
            655,837
            
            $
            808,288
            
            $
            1,727,280Benefit
                per shareBasic
            
            $
            .01
            
            $
            .02
            
            $
            .03
            
            $
            .06Diluted
            
            $
            .01
            
            $
            .02
            
            $
            .03
            
            $
            .06




As
      explained above, there were not significant deferred tax assets or liabilities
      as of June 30, 2005. Significant components of the Group’s deferred tax assets
      and liabilities as of December 31, 2006 and June 30, 2006 are as
      follows:





16


**China
          Precision Steel, Inc.**
 **Notes
            to Condensed Consolidated Financial Statements**


Deferred
                tax assets:
            
            December
                31,
              2006
            
            June
                30,
              2006Book
                depreciation in excess of tax depreciation
            
            $
            35,828
            
            $
            25,753Deferred
                tax liabilityTiming
                differences resulting from cash basis reporting for tax
                purposes
            
            
            (1,491,464
            )
            
            (1,560,957
            )Net
                deferred income tax (liability)
            
            $
            (1,455,636
            )
            $
            (1,535,204
            )





**15.**
            **Stock
                Exchange Agreement**





On
      March
      31, 2006, the Company entered into a Stock Exchange Agreement (the “Agreement”)
      under which all of the issued and outstanding shares of PSHL would be acquired
      by it in consideration for the issuance to the owner of PSHL and his designees
      (the “PSHL Shareholder”) of common stock representing a 94% ownership interest
      in the Company (the “Share Exchange”).





On
      December 27, 2006, the Company held its annual meeting of shareholders (the
      “Annual Meeting”). At the Annual Meeting, shareholders owning a majority of the
      issued and outstanding shares of the Company approved:





·
            the
                Share Exchange;





·
            the
                Redemption (as defined below);





·
            a
                2006 Directors Option Plan and the issuance to non-employee directors
                of 300,000 shares of the Company’s common
                stock;





·
            the
                issuance of an undetermined number of shares of the Company’s common
                stock, shares of preferred stock convertible into the common stock
                or
                warrants to purchase the common stock, in an aggregate amount of
                up to
                22,600,000 shares of common stock, in connection with potential equity
                financing from time to time;





·
            the
                sale to OraLabs, Inc., the Company’s wholly-owned subsidiary, of up to
                100,000 shares of the Company’s common stock to satisfy a tax indemnity
                obligation of OraLabs, Inc. in connection with the Redemption;




·
            the
                amendment to the Company’s Articles of Incorporation to change its name
                from OraLabs Holding Corp. to China Precision Steel, Inc. and to
                increase
                the number of authorized shares of common stock to
                62,000,000;





·
            the
                Amendment to the Company’s Articles of Incorporation to increase the
                number of authorized shares of preferred stock to
                8,000,000;




17


**China
          Precision Steel, Inc.**
 **Notes
            to Condensed Consolidated Financial Statements**


·
            The
                election of Mr. Wo Hing Li and Mr. Hai Sheng Chen as executive directors
                and Mr. Che Kin Lui, Mr. David Peter Wong, and Mr. Tung Kuen Tsui,
                the
                individuals designated by PSHL, as independent non-executive directors
                of
                the Company;




·
            The
                approval of the Company’s 2006 Omnibus Long-Term Incentive Plan that will
                allow the Company to grant an aggregate of 2,165,220 shares of its
                common
                stock through stock options and restricted stock awards to qualified
                key
                employees; and





·
            The
                ratification of the appointment of Murrell, Hall, McIntosh & Co., PLLP
                as the Company’s independent registered public accounting firm for fiscal
                year 2006.





Pursuant
      to the Agreement, the Company entered into a Redemption Agreement, dated
      December 28, 2006 (the “Redemption Agreement”), with its President, Gary H.
      Schlatter, individually (“Schlatter”), whereby the Company redeemed 3,629,350
      shares of its outstanding common stock owned by Schlatter in exchange for all
      of
      the issued and outstanding shares of OraLabs, Inc., the Company’s wholly owned
      subsidiary. OraLabs, Inc. purchased 100,000 shares of the Company’s common stock
      and paid certain amounts in cash to the Company to satisfy a tax indemnity
      obligation of OraLabs, Inc. in connection with the Redemption.





On
      December 28, 2006, the Company and PSHL closed on the Share Exchange and the
      Company’s name was changed to China Precision Steel, Inc. At the Closing, the
      Company issued to the sole owner of PSHL and his designees an aggregate of
      25,363,002 shares of common stock, which constitutes 94% of its total issued
      and
      outstanding common stock of the Company. Upon the consummation of the Share
      Exchange, each of PSHL and Chengtong became wholly-owned subsidiaries of the
      Company.





Prior
      to
      the closing, the Company issued 300,000 shares to its non-employee directors,
      Mr. Michael I. Friess and Mr. Robert C. Gust, pursuant to the Company’s 2006
      Directors Option Plan. The cost of these 300,000 shares valued at $1,566,000 was
      treated as a transaction cost and taken against additional paid in
      capital.





At
      the
      Closing, Mr. Gary H. Schlatter, Mr. Michael I. Friess and Mr. Robert C. Gust
      resigned as directors of the Company and were replaced by Mr. Wo Hing Li and
      Mr.
      Hai Sheng Chen, as executive directors, and Mr. Che Kin Lui, Mr. David Peter
      Wong, and Mr. Tung Kuen Tsui, as independent non-executive directors.. Further,
      Gary H. Schlatter and Michael I. Friess resigned as officers of the Company
      and
      Wo Hing Li was appointed the President of the Company and Leada Tak Tai Li
      the
      Chief Financial Officer, Secretary and Treasurer of the Company.




See
      Note
      1 of Notes to Condensed Consolidated Financial Statements.





**16.**
            **Discontinued
                Operations**





The
        operations of OraLabs, Inc., prior to December 28, 2006, are shown in the
        financial statements as income from discontinued operations as these operations
        were transferred to a former shareholder in exchange for the redemption of
        his
        common stock as described further in Note 15 of Notes to Condensed Consolidated
        Financial Statements, above. The condensed consolidated financial
        statements have been reclassified to conform to discontinued operations
        presentation for all historical periods presented.
 
 Summarized
        selected financial information for discontinued operations for the three
        and six
        month periods ended December 31, 2006 and 2005 is as follows:
 **Three
                    Months Ended:**
                
                
                **Six
                    Months
                    Ended:****December
                    31,**
                
                
                **December 31,**
                
                
                **December
                    31,**
                
                
                **December
                    31,****2006**
                
                
                **2005**
                
                
                **2006**
                
                
                **2005**Revenues
                
                $
                5,019,000
                
                $
                4,516,000
                
                $
                9,404,000
                
                $
                7,461,000Income
                    before tax
                
                
                676,000
                
                
                399,000
                
                
                831,000
                
                
                184,000Income
                    taxes
                
                
                156,000
                
                
                140,000
                
                
                192,000
                
                
                71,000Income
                    from discontinued operations
                
                $
                520,000
                
                $
                259,000
                
                $
                639,000
                
                $
                113,000
  As
          of
          December 31, 2006, there were no assets or liabilities associated with
          OraLabs,
          Inc.





**17.**
            **Commitments**





As
      of
      December 31, 2006, the Company had $3,116,007, in commitments for capital
      expenditures for contractual commitments of certain construction projects
      related to expansion of Chengtong’s production facilities.




18


**China
        Precision Steel, Inc.**
 **Notes
          to Condensed Consolidated Financial
          Statements**


**18.**
            **Subsequent
                Events**




Li
        Wo
        Hing, a director and the President of the Company, has entered into an agreement
        with the Company and certain other parties, dated as of February 13, 2007,
        such
        that, upon the occurrence of the transfer to Chengtong of certain assets
        under
        his control, he will contribute $3,839,607 as additional paid in capital
        to the
        Company and additional amounts due to him relating to such assets will be
        converted into common stock of the Company at a price equivalent to the greater
        of (i) such price per share as may be paid in connection with, and
        subject to, the consummation of a future private placement by the Company
        of its securities  and (ii) the average closing price of the Company’s
        common stock as reported on The NASDAQ Capital Market for the five (5) trading
        days prior to transfer of the assets. There can be no assurance that the
        transfer will occur at a certain time or ever, as such transfer is dependent
        upon and subject to certain approvals from the Chinese government. Mr. Li
        has also agreed to convert current debt outstanding and payable to him of
        $1,798,066 into shares of the Company's common stock at such equivalent price
        per share as may be paid in connection with, and subject to, the consummation
        of
        a future private placement by the Company of its securities. See
        Note 9 of Notes to Condensed Consolidated
        Financial Statements.




19




Item
      2. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations




*T* *his
      Quarterly Report on Form 10-Q contains statements that constitute “forward
      looking statements” within the meaning of Section 21E of the Securities Exchange
      Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
      amended. The words “may,” “will,” “expect,” “anticipate,” “continue,”
“estimate,” “project,” “intend,” and similar expressions are intended to
      identify forward-looking statements. These statements appear in a number of
      places in this document and include statements regarding the intent, belief
      or
      expectation of the Company, its directors or its officers with respect to
      events, conditions, and financial trends that may affect the Company’s future
      plans of operations, business strategy, operating results, and financial
      position. Persons reviewing this Quarterly Report on Form 10-Q are cautioned
      that any forward-looking statements are not guarantees of future performance
      and
      are subject to risks and uncertainties and that actual results may differ
      materially from those included within the forward-looking statements as a result
      of various factors. More information on these risks and uncertainties, many
      of
      which are beyond the Company’s control, is set forth under Part II, Item 1A,
“Risk Factors,” in this Quarterly Report.*





*While
      these forward-looking statements, and any assumptions upon which they are based,
      are made in good faith and reflect the Company’s current judgment regarding the
      direction of its business, actual results will almost always vary, sometimes
      materially, from any estimates, predictions, projections, assumptions or other
      future performance suggested herein. The Company undertakes no responsibility
      or
      obligation to update publicly these forward-looking statements, but may do
      so in
      the future in written or oral statements. Investors should take note of any
      future statements made by or on behalf of the Company.*





The
      following discussion should be read in conjunction with our unaudited condensed
      consolidated financial statements and the related notes that appear in Part
      I,
      Item 1, “Financial Statements,” of this Quarterly Report. Our unaudited
      condensed consolidated financial statements are stated in United States Dollars
      and are prepared in accordance with United States Generally Accepted Accounting
      Principles. The following discussion and analysis covers the Company’s
      consolidated financial condition at December 31, 2006 (unaudited) and June
      30,
      2006 (audited), the end of its prior fiscal year, and its unaudited consolidated
      results of operation for the three and six months periods ended December 31,
      2006 and 2005.





**Introduction**





Management’s
      discussion and analysis of financial condition and results of operations is
      intended to help provide an understanding of China Precision Steel, Inc. (the
      “Company”) and its subsidiaries’ (together, the “Group”) financial condition,
      changes in financial condition and results of operations. This discussion is
      organized as follows.





·
            **Overview
                of the Company’s Business**-
                This section provides a general description of the Group’s business, as
                well as recent developments that have occurred either during fiscal
                2007
                that are important in understanding the results of operations and
                financial condition or to disclose known
                trends.




·
            **Results
                of Operations**-
                This section provides an analysis of the Company’s results of operations
                for the three and six months ended December 31, 2006 and 2005. This
                discussion includes a brief description of significant transactions
                and
                events that have an impact on the comparability of the results being
                analyzed.




·
            **Liquidity
                and Capital Resources**-
                This section provides an analysis of the Group’s cash flows for the six
                months ended December 31, 2006 and 2005. Included in this section
                is a
                discussion of the Group’s outstanding debt and the financial capacity
                available to fund the Group’s future commitments and
                obligations.




20


**Overview
      of the Group’s Business**





*General*




The
      Company, through its wholly-owned operating subsidiary, Shanghai Chengtong
      Precision Strip Co., Limited, a wholly foreign owned enterprise organized under
      the laws of the People’s Republic of China (“Chengtong”), is a niche precision
      steel processing company principally engaged in the manufacture and sale of
      high
      precision cold-rolled steel products and in the provision of heat treatment
      and
      cutting of medium and high carbon hot-rolled steel strips and chrome series
      stainless steel. Specialty precision steel offers specific control of thickness,
      shape, width, surface finish, and other special quality features that compliment
      the emerging need for highly engineered end use applications. Precision steel
      pertains to the precision of measurements and tolerances of the above factors,
      especially thickness tolerance.





The
      Group’s operations are conducted principally in China. However, the Group
      intends to expand overseas into Japan, Taiwan, Korea, Thailand, the Philippines,
      the European Union and the United States in the future.**Chengtong currently has approximately 280 employees, including 24 senior
      management and technical staff members and leases 20,000 square meters of
      production facilities (including 10,000 square meters of new Phase 2 production
      facilities) in Jiading District, Shanghai, on four acres of property.****





*Products*





Cold-rolled
      specialty precision steel is a relatively new industry in China and
      manufacturers of products that use specialty precision steel products have
      traditionally imported precision steel products from Japan, Korea, the European
      Union and the United States. Cold-rolled steel products represent hot-rolled
      de-scaled (pickled) steel coils which are used as raw materials in the precision
      steel industry which have been processed by cold reduction through a
      cold-rolling mill to the desired thinness. The process does not involve heating
      and the primary feature of cold reduction is to reduce the thickness of the
      steel coils. However, because the cold reduction operation induces very
      high strains (work hardening) into the steel sheet, the precision steel sheet
      not only becomes thinner, but also becomes much harder, less ductile and very
      difficult to form. Thus cold-reduced steel products are annealed (heated to
      high
      temperatures) to become soft and formable. Cold-rolled sheet products are used
      in a wide variety of end applications such as appliances (refrigerators,
      washers, dryers, and other small appliances), automobiles (exposed as well
      as
      unexposed parts), food packaging materials, electric motors and bathtubs.
      Cold-rolled sheet products are used in these and many other areas of
      manufacturing.





Hard-rolled
      steel represents steel products manufactured from cold reduction to the desired
      thinness without annealing. The product is very stiff; it is intended for flat
      work where deformation is very minimal. This type of hard-rolled steel is most
      often applied to further processing for applications such as continuous
      galvanizing. Hard-rolled or cold-rolled steel with low carbon represents
      hard-rolled or cold-rolled steel with carbon content of less than 0.1%.  It
      is a very versatile and useful material, easily machined and worked into complex
      shapes, and has low cost and good mechanical properties. Hard-rolled or
      cold-rolled steel with medium carbon represents hard-rolled or cold-rolled
      steel
      with carbon content of 0.30%. It is a typical engineered steel product.
      Hard-rolled or cold-rolled steel with high carbon represents hard-rolled or
      cold-rolled steel with a carbon content of 0.8% or more. This precision steel
      product is very hard and also quite brittle and much less ductile than low
      carbon steel. High carbon steel has good wear resistance, and is used for
      railways as well as for cutting tools. Acid wash steel is also known as the
      acid
      pickling and refers to the process of using liquid acids, for example
      hydrochloric acid, to remove rust or oxides from the surface of steel. Removing
      rust prepares the surface for a protective coating.





21


Products
      with greater width have more applications and intended uses. Width is an
      important differentiation factor because certain end products such as washers
      and automobiles require materials with a certain minimum width. Although
      materials with smaller width could also be used for these applications through
      jointing, this increases production cost and thus makes wider products more
      flexible and cost efficient.





The
      Company believes that generally, to date, the average quality and standards
      of
      China’s high precision steel industry lags behind the international norm.
      Nonetheless, during the last three years, Chengtong believes that it has begun
      to develop and establish itself as a nationally recognized brand in China.
       Despite exports to Thailand and the Philippines during the six months
      ended December 31, 2006, Chengtong is not yet established as an internationally
      recognized brand for specialty precision steel products. As of December 31,
      2006, Chengtong produced approximately 40 high precision steel products covering
      a range of over one hundred specifications. Currently, Chengtong produces
      precision steel products which can be categorized into five major categories
      of
      products:




**Categories
                  of Precision Steel Products:**
              **Functions**1.
                  Low carbon cold-rolled steel
              Food
                  packaging, dry batteries, electronic devices, kitchen
                  tools2.
                  Low carbon acid wash steel
              Food
                  packaging, dry batteries, electronic devices, kitchen
                  tools3.
                  Low carbon hard-rolled steel
              Food
                  packaging, dry batteries, electronic devices, kitchen
                  tools4.
                  High carbon cold-rolled steel
              Automobile
                  components, saw blades, weaving needles, springs5.
                  High carbon hard-rolled steel
              Automobile
                  components, saw blades, weaving needles,
                  springs


The
      Company currently produces extremely thin cold-rolled precision steel strips
      ranging from 3.0 mm to 0.03 mm. The Company also currently provides heat
      treatment and cutting of medium and high carbon hot-rolled steel strips and
      chrome stainless steel series not exceeding 3.0 millimeters fineness. Currently,
      the Company’s specialty precision products are mainly used in the manufacture of
      automobile parts and components, food packaging materials, saw blades, textile
      needles, microelectronics, packing and containers.




As
      of
      December 31, 2006, Chengtong had an annual production capacity of approximately
      250,000 tons. **** Two
      new
      Phase 2 production facilities, which added approximately 10,000 square meters
      of
      production area, and an office building were completed in August 2006 and
      product trial runs commenced in September 2006. Actual production commenced
      in October 2006. In addition, with the completion of the new production
      facilities, Chengtong installed one 1,400mm width cold mill, adding an
      additional 150,000 tons to the Company’s annual production capacity. The
      installation of a 1,700mm cold roll mill, with an additional 150,000 tons of
      capacity, is expected to be completed and actual production is expected to
      commence prior to the end of the fiscal year ending June 30, 2007. The directors
      of the Company believe that the increased annual production capacity of
      approximately 400,000 tons will be fully utilized within two years after
      commencement of operation.




The
      new
      production facilities will focus on the production of high carbon, high strength
      cold-rolled steel products and the production of more complex precision steel
      products that can not be manufactured in the Company’s current rolling mill. The
      Company’s existing facilities will primarily manufacture low carbon cold-rolled
      steel products.




*Raw
      Materials*





The
      Company is not dependent on any one single supplier for supply of hot-rolled
      de-scaled (pickled) coils and steel sheet. Over 40 steelmakers supply hot-rolled
      de-scaled (pickled) coils and steel sheets to the Company.





22


Based
      upon information obtained by the Company from the China Metallurgical Industry
      Planning and Research Institute (“CMI”), in 2006 the price of steel has
      generally decreased. However, the cost of imported iron ores has increased
      substantially. This apparent anomaly was due to excess supplies arising from
      excess capacities of the steel producers and, as a result of the downward
      pressure on the price of steel, the cost of steel rolls has generally decreased
      in 2005 and 2006. The CMI website may be viewed in English and the website
      URL
      is www.metal.net.cn.





The
      prices of steel rolls are very competitive, very volatile and dependent on
      supplies and demands. To provide some protection from the pressure and
      volatility of the market (i.e., to minimize the amount of purchases that
      Chengtong must make at high prices during the high demand seasons), Chengtong
      makes bulk purchases after taking into account customers’ orders on hand
      whenever steel prices are considered to be lower in the market. As steel rolls
      have an extremely long shelf-life, obsolescence is not a major concern and
      Chengtong may build up its inventory during such periods when prices are
      low.





When
      sales orders are executed between the customers and Chengtong, the
      agreed selling price is based on the cost of raw material at that date,
      effectively allowing Chengtong to pass incremental cost in raw materials to
      its
      customers.    The
      Group’s high precision steel products are sold directly to the end-users in
      various parts of China and Chengtong’s production is based on confirmed sales
      orders. Generally, an initial deposit (approximately 30% of the aggregate
      contracted sales amount) is pre-paid when a contract is signed.





*Taxes*





As
      a
      wholly foreign owned enterprise, Chengtong is entitled to preferential tax
      advantages, including full tax exemption on the enterprise income tax that
      was
      generated in the first two years after the recoveries of previous losses and
      a
      one-half reduction in the enterprise income tax to a rate of 13.5% for the
      next
      3 years. The full tax exemption for the enterprise income tax expired on
      December 31, 2005 and the right to a one-half reduction on the enterprise income
      tax will expire on December 31, 2008. After such tax holidays, the profits
      generated by Chengtong shall be subject to the full tax rate of
      27%.





*Property*





The
      Company leases for $1 per month the existing 20,000 square meters of production
      and office facilities in Jiading District, Shanghai on four acres of property
      held by a related company, Shanghai Tuorong Precision Steel Company Limited,
      which is expected to become a subsidiary of the Company upon approval from
      the
      relevant governmental authority for the transformation into a wholly foreign
      owned enterprise. There is no formal tenancy agreement between the Company
      and
      Tuorong Precision for this lease. Receipt of the approval for Shanghai Tuorong
      Precision Steel Company Limited to transfer the land-use rights to Chengtong
      is
      a long and involved process which has been under process for some time. The
      Company anticipates the transfer of land use rights will be completed in 2007. **** See
      “Liquidity and Capital Resources—Contractual Obligations” below and Note 9 and
      Note 18 of Notes to Condensed Consolidated Financial Statements in Part I,
      Item 1, “Financial Statements,” for further information.





*Recent
      Business Developments*





Stock
      Exchange Agreement .
      On
      December 28, 2006, the Company issued 25,363,002 shares of its common stock
      in
      exchange for 100% of the registered capital of Partner Success Holdings Limited,
      a British Virgin Islands Business Company (“PSHL”), pursuant to a Stock Exchange
      Agreement, dated March 31, 2006. Subsequent to the closing of that transaction,
      on December 28, 2006, the Company redeemed 3,629,350 shares of its common stock
      in exchange for all of the common stock of Oralabs, Inc., a wholly-owned
      operating subsidiary. The Company issued 100 shares of its common stock to
      Oralabs, Inc in exchange for $450,690, and received additional cash payments
      in
      the aggregate amount of $108,107 in payment of an estimated $588,797 tax
      liability to be incurred by the Company in connection with the spin off of
      Oralabs, Inc. The Company then changed its name to China Precision Steel, Inc.
      This transaction was treated as a recapitalization for financial reporting
      purposes. See Note 15 of Notes to Condensed Consolidated Financial Statements
      in
      Part I, Item 1, “Financial Statements,” for further information on this
      transaction.





23


New
      Production Facilities .
      The
      total cost of the new production facilities discussed above, including the
      plant
      and machinery, is estimated to be approximately $25 million. As of December
      31,
      2006, capital expenditures totalling $23,529,351 had been recorded. The capital
      expenditures already incurred on the new production facility and plant and
      equipment for the 1,400mm and 1,700mm mills were funded internally and through
      external bank borrownings.





The
      Company intends to raise funds privately to fund part of the costs of the new
      production facilites and working capital requirements. If for any reason the
      proposed financing is not consummated, the Company intends to use internally
      generated resources and external borrowings to fund the remainder of the
      construction expenditure.





**Results
      of Operations**





**Summary
                of Condensed Consolidated Statements of
                Operations****(Unaudited)**




**Three
                Months Ended:**
            
            **Six
                Months Ended:****December
                31,**
            
            **December
                31,**
            
            **December
                31,**
            
            **December
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenues**Sales
                revenues
            
            $
            15,007,582
            
            $
            9,902,359
            
            $
            25,510,930
            
            $
            17,605,248Cost
                of goods sold
            
            
            11,594,852
            
            
            7,109,245
            
            
            18,394,950
            
            
            12,287,788**Gross
                profit**
            
            
            3,412,730
            
            
            2,793,114
            
            
            7,115,980
            
            
            5,317,460**Total
                operating expenses**
            
            
            574,275
            
            
            476,397
            
            
            810,577
            
            
            571,423**Income
                from continuing operations**
            
            
            2,838,455
            
            
            2,316,717
            
            
            6,305,403
            
            
            4,746,037**Total
                other income (expense)**
            
            
            (114,743
            )
            
            112,310
            
            
            (318,082
            )
            
            (33,888
            )**Provision
                for (benefit from) income tax**
            
            
            355,547
            
            
            
            
            
            809,908**Net
                income from discontinued operations**
            
            
            519,879
            
            
            258,601
            
            
            639,072
            
            
            112,582**Net
                income**
            
            $
            2,888,044
            
            $
            2,687,628
            
            $
            5,816,485
            
            $
            4,824,731**Basic
                and diluted earnings per share**From
                continuing operations
            
            $
            0.09
            
            $
            0.09
            
            $
            0.19
            
            $
            0.17From
                discontinued operations
            
            $
            0.02
            
            $
            0.01
            
            $
            0.03
            
            $
            0.01Total
            
            $
            0.11
            
            $
            0.10
            
            $
            0.22
            
            $
            0.18**Basic
                and diluted weighted average shares outstanding**
            
            
            26,981,916
            
            
            26,981,916
            
            
            26,981,916
            
            
            26,981,916**The
                components of comprehensive income:**Net
                income
            
            $
            2,888,044
            
            $
            2,687,628
            
            $
            5,816,485
            
            $
            4,824,731Foreign
                currency translation adjustment
            
            
            557,213
            
            
            76,402
            
            
            654,985
            
            
            405,877**Comprehensive
                income**
            
            $
            3,445,257
            
            $
            2,764,030
            
            $
            6,470,970
            
            $
            5,230,608








24


***Three
      months ended December 31, 2006 compared to the three months ended December
      31,
      2005***





Net
      income for the three months ended December 31, 2006, was $2,888,044, as compared
      to the three months ended December 31, 2005, which was $2,687,628, resulting
      in
      a increase of 7%. Components of sales and expenses resulting in this increase
      in
      net income are discussed below.





Sales
      Revenues. Sales
      revenues in 2006 increased $5,105,223, or 52%, to $15,007,582 from $9,902,359
      in
      2005. The reasons for the increase in sales revenues for the three months ended
      December 31, 2006, were as follows:





·
            Sales
                volume increased by 8,426 tons, or 75%, to 19,634 tons for the three
                months ended December 31, 2006, compared to 2005 of 11,208 tons when
                Chengtong shifted to cold-rolled high precision steel products balance
                its
                sales mix during the three months ended December 31, 2006, compared
                to the
                same corresponding period in 2005, when hot-rolled high precision
                steel
                products were produced.





·
            Average
                selling price per ton decreased by an average of $119 per ton, or
                13%, to
                $764 per ton for the three months ended December 31, 2006, compared
                to the
                same corresponding period in 2005 of $883 per ton. This decrease
                arose
                from changes to the sales/production mix with high carbon sales accounting
                for 52% of sales compared to 65% in 2005 and an increase of low carbon
                production to 48% compared to 35% in
                2005.





·
            Sales
                revenue generated from low carbon precision steel sales mix increased
                by
                $3,664,681 or 105% to $7,165,526 from December 31, 2005 sales of
                $3,500,845. This was due to increased sales volume of 5,601 tons
                of low
                carbon cold-rolled steel compared to December 31,
                2005.





·
            The
                sales mix in high carbon precision steel switched to high end cold-rolled
                steel products which accounted for 28% of the current mix compared
                to none
                in 2005. Sales of high end cold-rolled steel were $4,201,996 for
                the three
                months ended December 31, 2006 at a average selling price of $13,090
                per
                ton.





·
            International
                sales were $1,503,837 for the three months ended December 31, 2006
                compared to none in 2005.





Cost
      of Goods Sold. Cost
      of
      goods increased by $4,485,607, or 63%, to $11,594,852 for the three months
      ended
      December 31, 2006, from $7,109,245 in 2005. The increase is due in part to
      a 52%
      increase in sales.





·
            Raw
                materials (principally hot-rolled de-scaled (pickled) steel coils)
                consumed increased by $4,552,967, or 75%, quarter-on-quarter to
                $10,618,130 for the quarter ended December 31, 2006 compared to the
                same
                corresponding quarter in 2005 of $6,065,163. This was mainly
                attributable to increases in sales volume by 8,426 tons, or 75%,
                to 19,634
                tons (average cost of raw materials consumed was $541 per ton) for
                the
                three months ended December 31, 2006 compared to 11,208 tons (average
                cost
                of $541 per ton) in 2005.





Gross
      Profit Margin .
      Gross
      profit margin decreased to 23% for the three months ended December 31, 2006,
      compared to the three months ended December 31, 2005 of 28%. This decrease
      is
      due largely to the unfavorable variance in cost of sales by 63% in relation
      to
      the increase in sales revenue by 52%.





25


Expenses .
      Selling
      expenses increased by $44,397, or 219%, to $64,693 for the quarter ended
      December 31, 2006, compared to $20,296 for the quarter ended December 31, 2005.
      The increase was due to increases in transportation expenses of $25,030,
      advertising of $8,132, insurance of $5,118, entertainment expense of $2,224
      and
      travel expense of $1,824.





Administrative
      expenses increased by $52,810, or 12%, to $498,737 for the three months ended
      December 31, 2006, compared to $445,927 for the three months ended December
      31,
      2005. The increase was due to increases in legal and professional expenses
      of
      $50,000. The increase in the legal and professional fees was due to costs
      incurred in connection with the share exchange between the Company and PSHL
      and
      related transactions as discussed above.





Depreciation
      expense, a portion of which is included as a component of cost of goods sold
      increased by $163,255, or 84%, to $356,514 in 2006, from $193,259 in 2005,
      was
      due primarily to an increase in depreciable assets in 2006 when compared to
      2005
      due to the upgrading of the production facilities.





For
      the
      quarters ended December 31, 2006 and 2005, the Company incurred $419,662 and
      $206,464, respectively, in interest and financing costs associated with debts.
      Interest costs of $304,919 incurred during the quarter ended December 31, 2006
      were capitalized as part of the construction-in-progress leaving $114,743 in
      interest expense. This increase was due primarily to increased borrowings to
      finance the construction-in-progress and plant and machinery, specifically
      for
      the purpose of increasing production capacity by 300,000 tons.





Income
      Taxes. The
      provision for income taxes increased to $355,547 for the three months ended
      December 31, 2006 as compared to $0 for the three months ended December 31,
      2005. This increase was due to the expiration of the 100% tax holiday from
      enterprise income taxes imposed in the PRC. During the fiscal year ending June
      30, 2007, the Company will be allowed a 50% reduction in enterprise income
      taxes.





Discontinued
      Operations .
      Included in income from discontinued operations is the income from OraLabs,
      Inc.’s operations prior to its divestiture on December 28, 2006. The income from
      discontinued operations increased by $261,278, or 101%, from $258,601 during
      the
      three months ended December 31, 2005 to $519,879 during the three months ended
      December 31, 2006.




***Six
      months ended December 31, 2006 compared to the six months ended December 31,
      2005***





Net
      income for the six months ended December 31, 2006, was $5,816,485, as compared
      to the six months ended December 31, 2005, which was $4,824,731, resulting
      in an
      increase of 21%. Components of sales and expenses resulting in this increase
      in
      net income are discussed below.





Sales
      Revenues .
      Sales
      revenues in 2006 increased $7,905,682, or 45%, to $25,510,930 from $17,605,248
      in 2005. The reasons for the increase in sales revenues for the six months
      ended
      December 31, 2006, were as follows:





·
              Sales
                  volume increased by 7,525 tons, or 34%, to 29,493 tons for the
                  six months
                  ended December 31, 2006, compared to 2005 of 21,968 tons when Chengtong
                  shifted to balance its sales mix during the six months ended December
                  31,
                  2006, compared to the same corresponding period in 2005, when hot-rolled
                  high precision steel products were
                  produced.





·
            Average
                selling price per ton increased by an average of $64 per ton, or
                8%, to
                $865 per ton for the six months ended December 31, 2006, compared
                to the
                same corresponding period in 2005 of $801 per ton. The average was
                helped
                by increases in three major categories of precision steel products:
                low
                carbon cold-rolled steel, $607 compared to $520; high carbon hot-rolled
                steel, $651 compared to $644; and high carbon cold-rolled steel,
                $2,535
                compared to $2,374. Chengtong also started production of high end
                cold-rolled steel products with a average selling price of $13,599
                for the
                six months ended December 31, 2006.





26


·
            International
                sales increased to $1,165,561 for the six months ended December 31,
                2006
                compared to $329,805 in 2005.





Cost
      of Goods Sold .
      Cost of
      goods increased by $6,107,162, or 50%, to $18,394,950 for the six months ended
      December 31, 2006, from $12,287,788 in 2005. The increase is due in part to
      a
      34% increase in sales.





·
            Raw
                materials (principally hot-rolled de-scaled (pickled) steel coils)
                consumed increased by $5,698,676, or 54%, quarter-on-quarter to
                $16,335,269 for the quarter ended December 31, 2006, compared to
                the same
                corresponding quarter in 2005 of $10,636,593. The increase was mainly
                attributable to increases in sales volume by 7,525 tons, or 34%,
                to 29,493
                tons (average cost of raw materials consumed was $554 per ton) for
                the six
                months ended December 31, 2006 compared to 21,968 tons (average cost
                of
                $484 per ton) in 2005.





Gross
      Profit Margin .
      Gross
      profit margin decreased to 28% for the six months ended December 31, 2006,
      compared to the six months ended December 31, 2005 of 30%. This decrease is
      due
      largely to the unfavorable variance in cost of sales by 50% in relation to
      the
      increase in sales revenue by 45%.





Expenses .
      Selling
      expenses increased by $62,012, or 146%, to $104,390 for the six months ended
      December 31, 2006, compared to $42,378 for the six months ended December 31,
      2005. The increase was due to increases in transportation expenses of $33,940,
      advertising of $8,132, insurance of $4,418, entertainment expense of $4,122
      and
      travel expense of $9,347.





Administrative
      expenses increased by $174,525, or 34%, to $684,925 for the six months ended
      December 31, 2006, compared to $510,400 for the six months ended December 31,
      2005. The increase was due to increases in legal and professional expenses
      of
      $197,165 offset by decreases in various other administrative expenses. The
      increase in the legal and professional fees was due to costs incurred in
      connection with the share exchange between the Company and PSHL and related
      transactions as discussed above.





Depreciation
      expense, a portion of which is included as a component of cost of goods sold,
      increased by $213,649, or 53%, to $617,405 in 2006, from $403,630 in 2005.
      This
      was due primarily to an increase in depreciable assets as a result of upgrading
      the production facilities in 2006.





For
      the
      six months ended December 31, 2006 and 2005, the Company incurred $815,768
      and
      $352,662, respectively, in interest and financing costs associated with debts.
      Interest costs of $497,686 incurred during the six months ended December 31,
      2006 were capitalized as part of the construction-in-progress, leaving $318,082
      in interest expense. This increase was due primarily to increased borrowings
      to
      finance the construction-in-progress and plant and machinery, specifically
      for
      the purpose of increasing production capacity by 300,000 tons.





Income
      taxes. The
      provision for income taxes increased to $809,908 for the six months ended
      December 31, 2006 as compared to $0 for the six months ended December 31, 2005.
      This increase was due to the expiration of the 100% tax holiday from enterprise
      income taxes imposed in the PRC. During the fiscal year ending June 30, 2007,
      the Company will be allowed a 50% reduction in enterprise income
      taxes.





Discontinued
      Operations .
      Included in income form discontinued operations is the income from Oralabs,
      Inc.’s operations prior to its divestiture on December 28, 2006. The income from
      discontinued operations increased by $526,490, or 468%, from $112,582 during
      the
      six months ended December 31, 2005 to $639,072 during the six months ended
      December 31, 2006.





27





**Liquidity
      and Capital Resources**





Net
      cash
      flows provided by operating activities for the six months ended December 31,
      2006, was $5,473,819 as compared with $866,975 used by operating activities
      for
      the six months ended December 31, 2005, for a net increase of $6,453,376. This
      increase was due primarily to a $4,059,814 decrease in accounts receivable
      combined with a $4,622,396 increase in accounts payable and accrued expenses,
      a
      $2,919,124 increase in advances from customers and a $927,307 increase in taxes
      payable offset in part by increases in inventory of $8,207,665 and advances
      to
      suppliers of $4,410,823 during 2006.





Net
      cash
      flows used in investing activities for the six months ended December 31, 2006,
      was $10,212,328 compared to $7,012,465 for the six months ended December 31,
      2005. The increase in investing activity was due to substantial decreases in
      the
      amount spent on construction-in-progress during 2006 relating to the new
      production facilities.





Net
      cash
      flows provided by financing activities for the six months ended December 31,
      2006, was $5,070,544 compared to $5,122,014 provided by financing activities
      for
      the six months ended December 31, 2005. Both years reflect substantial borrowing
      which was incurred for expansion of the operations and to finance the
      construction-in-progress on new facilities. Repayments on advances from
      directors in 2006 partially offset the bank borrowings. During the six months
      ended December 31, 2006, the Company also received $558,767 in stock proceeds
      and restructuring contributions.





Current
      liabilities exceeded current assets by $8,345,428 at December 31, 2006. The
      working capital deficit was incurred primarily due to the short-term nature
      of
      certain construction financing combined with advances from directors used to
      finance working capital needs. See Notes 9 and 18 of Notes to
      Condensed Consolidated Financial Statements for more information on amounts
      due to directors.





**Contractual
      Obligations**





The
      following table is a summary of the Company’s contractual obligations as of
      December 31, 2006:





**Payments
                Due by Period**




Contractual
                Obligations
            Total
            Less
                than 1 Year
            2-3
                Years
            4-5
                YearsNotes
                payable
              (Principal
                and interest)
              Long-term
                debt
              (Principal
                and interest)
              Purchase
                obligation for construction projects
            $
                14,477,427
              
              19,033,990
              
              
              4,747,172
            $
                14,477,427
              
              11,066,811
              
              
              4,747,172
            $
                -
              
              5,617,882
              
              
              -
            $
                -
              
              2,349,297
              
              -$
                38,258,589
            $
                30,291,410
            $
                5,617,882
            $
                2,349,297





Notes
      payable consisted of:




• 
      Bank borrowings, rolled over July 27, 2006, of $5,882,353 with maturity dates
      from May 25, 2007 through July 25, 2007. The interest rate on these borrowings
      is 5.85%. These notes are guaranteed by a related company.





• 
      Bank note, dated September 22, 2005, of $8,250,074 with an interest rate of
      15%
      over the standard market rate set by the People’s Bank of China for Renminbi
      loans, secured by land, buildings and machinery that matured on December 31,
      2006.





28


Long-term
      debt consisted of:





• 
      Bank loan, dated October 14, 2004 of $7,798,225, due July 31, 2007, at an
      interest rate of 3% over the 10% of the standard market rate set by the People’s
      Bank of China for Renminbi loans, secured by land, buildings and
      machinery.





• 
      Bank loan, dated September 22, 2005, payable over 4 years ending August 31,
      2009, at an interest rate of 15% the standard market rate set by the People’s
      Bank of China for Renminbi loans, secured by land, buildings and
      machinery.





Purchase
      obligation for construction projects consists of the amounts obligated on
      Chengtong’s new production facilities.


*Related
        Party Contractual Obligations — Recent Developments*
 
 As
        of
        December 31, 2006, Wo Hing Li, the Company’s President and Chairman, had
        advanced an aggregate of $8,840,990 (based upon exchange rates at December
        31,
        2006 between the U.S. Dollar and Chinese Yuan of 7.804 Yuan to the Dollar),
        for
        construction costs incurred for Chengtong’s production facilities on land to
        which the land rights are owned by another company under his control. At
        such
        time as local governmental approval in China is received for the transfer
        of the
        land rights and the related properties to Chengtong and such assets are then
        transferred to Chengtong, the related costs paid by Wo Hing Li will be reflected
        on the Group’s consolidated financial statements as amounts due to
        him. On February 13, 2007, Wo Hing Li entered into an agreement with the
        Company
        and PSHL such that, upon the occurrence of such asset transfer to Chengtong,
        he
        will contribute $3,839,607 as additional paid in capital to the Company and
        the
        balance due to him in respect of such asset transfer is to be converted into
        common stock of the Company at a price equivalent to the greater of
        (i) such price per share of the Company’s common stock as may
        be paid in connection with, and subject to, the consummation of a
        future private placement by the Company of its securities and (ii) the
        average closing price of the Company’s common stock as reported on The NASDAQ
        Capital Market for the five (5) trading days prior to transfer of the assets.
        There can be no assurance as to when approval from the local governmental
        authorities in China for the transfer of land rights will be forthcoming,
        if at
        all. In addition, Mr. Li has agreed to convert current debt outstanding and
        payable to him of $1,798,066 into shares of the Company's common stock at
        such
        equivalent price per share as may be paid in connection with, and subject
        to,
        the consummation of a future private placement by the Company of its securities.
        See Note 18 of Notes to Condensed Consolidated Financial Statements contained
        in
        Part I, Item I, of this Quarterly Report.




29


**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





The
      Company has exposure to several types of market risk: changes in foreign
      currency exchange rates, interest rates and commodity prices. The Company
      neither holds nor issues financial instruments for trading purposes nor does
      the
      Company make use of derivative instruments to hedge the risks discussed
      below.





The
      following sections provide information on the Company’s exposure to market
      risks. Its use of sensitivity analyses are inherently limited in estimating
      actual losses in fair value that can occur from changes in market
      conditions.





**Foreign
      Currency Exchange Rates**





The
      Group
      conducts operations principally in the Chinese Renminbi. Save for the recent
      exports to Thailand and the Philippines, all of the Company’s local sales
      revenues are collected in and substantially all of its expenses are paid in
      the
      Chinese Renminbi. The Company faces foreign currency rate translation risk
      when
      Chengtong’s results are translated to U.S. Dollars, as well as foreign currency
      rate transaction risk with respect to sales outside of China and with respect
      to
      financial instruments denominated in foreign currencies. The results of
      operations denominated in foreign currency are translated at the average rate
      of
      exchange during the reporting period. Assets and liabilities denominated in
      foreign currencies at the balance sheet date are translated at the market rate
      of exchange ruling at that date. The registered equity capital denominated
      in
      the functional currency is translated at the historical rate of exchange at
      the
      time of capital contribution.





The
      Chinese Renminbi had remained stable against the U.S. Dollar at approximately
      8.28 Yuan to 1.00 U.S. Dollar for several years and it was not until July 21,
      2005 that the Chinese currency regime was altered, with a 2.1% revaluation
      versus the U.S. Dollar. This move initially valued the Renminbi at 8.11 per
      U.S.
      Dollar. In addition, the Renminbi is no longer linked to the U.S. currency
      but
      rather to a basket of currencies with a 0.3% margin of fluctuation. However,
      there remains international pressure on the Chinese government to adopt an
      even
      more flexible currency policy and, as of December 31, 2006, the exchange rate
      was 7.804 Yuan to 1.00 U.S. Dollar. The exchange rate of Renminbi is subject
      to
      changes in China’s government policies which are, to a large extent, dependent
      on the economic and political development both internationally and locally
      and
      the demand and supply of Renminbi in the domestic market. There can be no
      assurance that such exchange rate will continue to remain stable in the future
      amongst the volatility of currencies, globalization and the unstable economies
      in recent years. Since (i) the income and profit of the Company are mainly
      denominated in Renminbi, and (ii) the payment of dividends will be in U.S.
      dollars, if any, any exchange fluctuation of the Renminbi against other foreign
      currencies would adversely affect the value of the shares and dividends payable
      to shareholders, in foreign currency terms.





At
      December 31, 2006, the Group’s outstanding financial instruments with foreign
      currency exchange rate risk exposure had an aggregate fair value of $29 million
      (including the Group’s non-U.S. dollar denominated debt). The potential increase
      in the fair values of these instruments resulting from a 10% adverse change
      in
      quoted foreign currency exchange rates would be approximately $2.9 million
      at
      December 31, 2006.





**Interest
      Rates**





The
      Group
      is subject to interest rate risk on its non-derivative financial instruments.
      The Group does not hedge its interest rate risk. At December 31, 2006, the
      Group’s total bank debt outstanding was $30,102,117, all of which was
      interest-bearing. Approximately 80% of the bank debt was floating-rate debt
      with
      interest rates which vary with changes in the standard rate set by the People’s
      Bank of China. A change in the interest rate or yield of fixed rate debt will
      only impact the fair value of such debt, while a change in the interest rate
      of
      floating rate, or variable rate, debt will impact interest expense as well
      as
      the amount of cash required to service such debt. To the extent interest rates
      increase, the Company will be liable for higher interest payments to its
      lenders. For the current financial year, annual interest on loans is anticipated
      to be approximately $1.8 million. The impact of a 1% increase in interest rates
      will increase interest expense by approximately $240,000. As the Company’s
      short-term borrowings mature, it will be required to either repay or refinance
      these borrowings. An increase in short-term interest rates at the time that
      the
      Company seeks to refinance short-term borrowings may increase the cost of
      borrowings, which may adversely affect the Company’s earnings and cash available
      for distribution to its shareholders.





30


At
      December 31, 2006, the aggregate fair value of the Group’s financial instruments
      with exposure to interest rate risk was $30 million. The potential change in
      fair value for these financial instruments from an adverse 10% change in quoted
      interest rates across all maturities, often referred to as a parallel shift
      in
      the yield curve, would be approximately $3 million at December 31,
      2006.





**Commodity
      Prices**





Steel
      producers, such as Chengtong, require large amounts of raw materials - iron
      ore
      or other iron containing material, steel scrap, coke and coal as well as large
      amounts of energy. Over the last several years, prices for raw materials and
      energy, in particular natural gas and oil, have increased significantly. In
      many
      cases these price increases have been at a greater percentage than price
      increases for the sale of steel products.





The
      Group
      has no open derivative commodity instruments as of December 31, 2006 and does
      not currently hedge its exposure to price fluctuations in the raw materials
      and
      energy required for the manufacture of its products.




**Item
        4.**  **Controls
        and Procedures.**
 
 (a)  **Disclosure
        Controls and Procedures** .
        The
        Company's President and its Chief Financial Officer, after evaluating the
        effectiveness of the Company's disclosure controls and procedures (as defined
        in
        Rules 13a-14(c) and 15d-14(c) under the Exchange Act as of the last day of
        the
        period covered by this Quarterly Report (the "Evaluation Date")), have concluded
        that as of the Evaluation Date, the Company's disclosure controls and procedures
        were adequate and effective to ensure that material information relating
        to the
        Company and its consolidated subsidiaries would be made known to them by
        others
        within those entities, particularly during the period in which this Quarterly
        Report on Form 10-Q was being prepared **.**
 
 (b)  **Changes
        in Internal Control Over Financial Reporting** .
        There
        were no changes in the Company’s internal control over financial reporting (as
        such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange
        Act)
        during the Company’s second quarter of fiscal 2007 that materially affected, or
        are reasonably likely to materially affect, the Company’s internal control over
        financial reporting.


31




**Part
        II - Other Information**
 
 **Item
        1.** **Legal
        Proceedings.**
 
 As
        of the
        date of this Quarterly Report, there is no pending litigation against the
        Company nor was there any litigation initiated by the Company.
 
 **Item
        1A.** **Risk
        Factors.**
 
 The
        realization of any of the risks described below could have a material adverse
        effect on the Company’s business, results of operations and future
        prospects.
 
 **Risks
        Relating to the Company’s Business**
  *Steel
        consumption is cyclical and worldwide overcapacity in the steel industry
        and the
        availability of alternative products has resulted in intense competition,
        which
        may have an adverse effect on profitability and cash flow.*
 
 Steel
        consumption is highly cyclical and generally follows general economic and
        industrial conditions both worldwide and in various smaller geographic areas.
        The steel industry has historically been characterized by excess world supply.
        This has led to substantial price decreases during periods of economic weakness,
        which have not been offset by commensurate price increases during periods
        of
        economic strength. Substitute materials are increasingly available for many
        steel products, which may further reduce demand for steel. Additional
        overcapacity or the use of alternative products could have a material adverse
        effect upon the Company and its results of operations.
 
 *Rapidly
        growing demand and supply in China and other developing economies may result
        in
        additional excess worldwide capacity and falling steel prices.*
 
 Over
        the
        last several years steel consumption in China and other developing economies
        such as India has increased at a rapid pace. Steel companies have responded
        by
        developing plans to rapidly increase steel production capability in these
        countries and entered into long-term contracts with iron ore suppliers in
        Australia and Brazil. Steel production, especially in China, has been expanding
        rapidly and could be in excess of Chinese demand depending on continuing
        demand
        growth rates. Because China is now the largest worldwide steel producer,
        any
        significant Chinese capacity excess could have a major impact on world steel
        trade and prices if excess production is exported to other markets.
  32
 *Increases
        in prices and limited availability of raw materials and energy may constrain
        operating levels and reduce profit margins.*
 
 Steel
        producers require large amounts of raw materials - iron ore or other iron
        containing material, steel scrap, coke and coal as well as large amounts
        of
        energy. Over the last several years, prices for raw materials and energy,
        in
        particular natural gas and oil, have increased significantly. In many cases
        these price increases have been at a greater percentage than price
        increases for the sale of steel products. Steel producers have periodically
        been
        faced with problems in receiving sufficient raw materials and energy in a
        timely
        manner, resulting in production curtailments. These production curtailments
        and
        escalated costs have reduced profit margins and may continue to do so in
        the
        future, which could have a material adverse effect upon the Company and its
        results of operations.
 
 *Environmental
        compliance and remediation could result in substantially increased capital
        requirements and operating costs.*
 
 The
        Company’s operating subsidiary, Shanghai Chengtong Precision Strip Co., Ltd.,
        which we sometimes refer to as Chengtong, is currently subject to numerous
        Chinese provincial and local laws and regulations relating to the protection
        of
        the environment. These laws continue to evolve and are becoming increasingly
        stringent. The ultimate impact of complying with such laws and regulations
        is
        not always clearly known or determinable because regulations under some of
        these
        laws have not yet been promulgated or are undergoing revision. The Company’s
        consolidated business and operating results could be materially and adversely
        affected if the Company were to increase expenditures to comply with any
        new
        environmental regulations affecting its operations.
 
 *The
        Company may require additional capital in the future and we cannot assure
        that
        capital will be available on reasonable terms, if at all, or on terms that
        would
        not cause substantial dilution to stockholdings.*
 
 The
        development of high quality specialty precision steel requires substantial
        funds. Sourcing external capital funds for product development and requisite
        capital expenditures are key factors that have and may in the future constrain
        the Company’s growth, production capability and profitability. For the Company
        to achieve the next phase of its corporate growth, increased production
        capacity, successful product development and additional external capital
        will be
        necessary. There can be no assurance that such capital will be available
        in
        sufficient amounts or on terms acceptable to the Company, if at all. Any
        sale of
        a substantial number of additional shares of common stock or securities
        convertible into common stock will cause dilution to the holders of the
        Company’s common stock and could also cause the market price of its common stock
        to decline.
 
 *The
        Company faces significant competition from competitors who have greater
        resources than the Company, and the Company may not have the resources necessary
        to successfully compete with them.*
 
 The
        Company is one of a few manufacturers of specialty precision steel products
        in
        China. Differences in the type and nature of the specialty precision steel
        products in China’s steel industry are relatively small, and, coupled with
        intense competition from international and local suppliers, to a limited
        extent,
        consumers’ demand is rather price sensitive. Competitors may increase their
        market share through pricing strategies. The Company’s business is in an
        industry that is becoming increasingly competitive and capital intensive,
        and
        competition comes from manufacturers located in China as well as from
        international competition. The Company’s competitors may have financial
        resources, staff and facilities substantially greater than the Company’s and the
        Company may be at a competitive disadvantage compared with larger
        companies.
  33
 *The
        Company produces a limited number of products.*
  Cold-rolled
        specialty precision steel is a relatively new industry in China; manufacturers
        previously relied on imports from Japan, Korea, the European Union and the
        United States. Accordingly, the average quality and standards of China’s high
        precision steel industry lags behind the international norm. During the last
        three years, the Company believes that it has developed a nationally
        recognizable brand, however, it has not yet established an internationally
        recognizable brand for its specialty steel products. As of December 31, 2006,
        the Company offered more than 40 high precision steel products of over 100
        specifications. Currently the Company produces five major categories and
        over
        ten types of high precision steel products. However, there are many other
        specialty precision steel products of similar nature in the market and the
        narrow band of the Company’s precision steel products may negatively impact the
        Company’s financial performance should there be drastic changes in market
        demands and/or competition.
  *Increased
        imports of steel products into China could negatively affect domestic steel
        prices and demand levels and reduce profitability of domestic
        producers.*
  In
        2004,
        China’s total production of cold-rolled steel sheets was approximately 10.55
        million tons, and imports accounted for approximately 6.91 million tons.
        Foreign
        competitors may have lower labor costs, and are often owned, controlled or
        subsidized by their governments, which allows their production and pricing
        decisions to be influenced by political and economic policy considerations
        as
        well as prevailing market conditions. Import levels may also be impacted
        by
        decisions of government agencies, under trade laws. Increases in future levels
        of imported steel could negatively impact future market prices and demand
        levels
        for steel produced by the Company.
 
 *The
        Company has substantial indebtedness with floating interest
        rates.*
 
 At
        December 31, 2006, total outstanding indebtedness, on a consolidated basis,
        was
        $30,102,117 in bank debt (all of which was interest-bearing) and $2,240,599
        due
        to directors. Approximately 80% of the bank debt was floating-rate debt with
        interest rates which vary with changes in the standard rate set by the People’s
        Bank of China. To the extent interest rates increase, the Company will be
        liable
        for higher interest payments to its lenders. For the current financial year,
        annual interest on loans is anticipated to be approximately $1.8 million.
        The
        impact of a 1% increase in interest rates will increase interest expense
        by
        approximately $240,000. As the Company’s short-term borrowings mature, it will
        be required to either repay or refinance these borrowings. An increase in
        short-term interest rates at the time that the Company seeks to refinance
        short-term borrowings may increase the cost of borrowings, which may adversely
        affect the Company’s earnings and cash available for distribution to its
        shareholders.
 
 *The
        Company depends upon its key personnel. The loss of any key personnel or
        its
        failure to attract and retain key personnel could adversely affect its future
        performance, strategic plans and other objectives.*
 
 The
        loss
        or failure to attract and retain key personnel could significantly impede
        the
        Company’s future performance, including product development, strategic plans,
        marketing and other objectives. The Company’s success depends to a substantial
        extent not only on the ability and experience of its senior management, but
        particularly upon the Company’s Chairman, Wo Hing Li; the General Manager of
        Chengtong, Hai Sheng Chen; and Chief Financial Officer, Leada Tak Tai Li.
        The
        Company does not currently have in place key man life insurance on Wo Hing
        Li,
        Hai Sheng Chen or Leada Tak Tai Li. To the extent that the services of these
        officers and directors would be unavailable to the Company, the Company would
        be
        required to recruit other persons to perform the duties performed by Wo Hing
        Li,
        Hai Sheng Chen and Leada Tak Tai Li. We may be unable to employ other qualified
        persons with the appropriate background and expertise to replace these officers
        and directors on terms suitable to us.
  34
 *Termination
        of preferential taxation policy may negatively impact our
        profitability.*
  As
        a
        wholly foreign owned enterprise, Chengtong is entitled to preferential tax
        advantages, including full tax exemption on the enterprise income tax that
        was
        generated in the first two years, after the recoveries of previous losses,
        and a
        one-half reduction in the enterprise income tax, to a rate of 13.5%, for
        the
        next 3 years. The full tax exemption for the enterprise income tax expired
        on
        December 31, 2005 and the one-half reduction on the enterprise profit tax
        will
        expire on December 31, 2008. After such tax holidays, profits generated by
        the
        Company shall be subject to the full tax rate of 27%. In the event that the
        Company no longer receives preferential tax treatment, such a condition would
        have a material adverse effect on the results of its operations.
  *Protection
        and infringement of intellectual property.*
  Except
        for a patent on the Environment-Conscious Mill Bearing with Inner Circular
        Lubrication, the Company has no patents or licenses that protect its
        intellectual property. Unauthorized parties may attempt to copy aspects of
        the
        Company’s products or to obtain and use information that the Company regards as
        proprietary. Policing unauthorized use of the Company’s products is difficult.
        The Company’s experienced key engineers and management staff are
        extensively involved in all facets of research, design, craftwork, styling
        and
        development of the specialty precision products. Potential risks on the
        divulgence of skills and the development of new products increase should
        these
        employees resign, as the Company relies heavily on them. Chengtong has also
        elected to protect internally developed know-how and production processes
        (such
        as system pressure, cleanliness of the lubrication, temperature control,
        appropriate allocation of oil supply and retrieving, which are vital in
        providing a radical solution to the difficulties associated with lubricating
        rolling mills’ backing bearing) by requiring all key personnel (production
        engineers and management staff) to sign non-disclosure and confidentiality
        contracts. However, the Company’s means of protecting its proprietary rights may
        not be adequate. In addition, the laws of some foreign countries do not protect
        the Company’s proprietary rights to as great an extent as do the laws of the
        United States. The Company’s failure to adequately protect its proprietary
        rights may allow third parties to duplicate its products, production processes
        or develop functionally equivalent or superior technology. In addition, the
        Company’s competitors may independently develop similar technologies or design
        around the Company’s proprietary intellectual property.
  *The
        Company depends upon its largest customers for a significant portion of its
        sales revenue, and the Company cannot be certain that sales to these customers
        will continue. If sales to these customers do not continue, then the Company’s
        sales may decline and our business may be negatively impacted.*
 
 The
        Company currently supplies its high precision steel products to 12 major
        customers in the Chinese domestic market. For the years ended June 30, 2006
        and
        2005, sales revenues generated from the top five major customers amounted
        to 50%
        and 88% of total sales revenues, respectively; sales to the largest single
        customer for the same periods amounted to 15% and 28% of total sales revenues,
        respectively. For the six months ended December 31, 2006 and 2005, sales
        to
        Chengtong’s largest customer in each such period amounted to 36% and 29%,
        respectively. The Company does not enter into long-term contracts with its
        customers, and therefore cannot be certain that sales to these customers
        will
        continue. The loss of any of our largest customers would likely have a material
        negative impact on the Company’s sales revenues and business.
 
 *Defects
        in the Company’s products could impair the Company’s ability to sell its
        products or could result in litigation and other significant
        costs.*
 
 Detection
        of any significant defects in the Company’s precision steel products may result
        in, among other things, delay in time-to-market, loss of market acceptance
        and
        sales of its products, diversion of development resources, injury to the
        Company’s reputation or increased costs to correct such defects. Defects could
        harm the Company’s reputation, which could result in significant costs to the
        Company and could impair its ability to sell its products. The costs it may
        incur in correcting any product defects may be substantial and could decrease
        its profit margins.
  35
 *If
        the Company’s production facilities were destroyed or significantly damaged as a
        result of fire or some other natural disaster, the Company would be adversely
        affected.*
 
 All
        of
        the Company’s products are currently manufactured at its existing facilities
        located in the Jiading District in Shanghai, China. Fire fighting and disaster
        relief or assistance in China may not be as developed as in Western countries.
        While the Company maintains property damage insurance aggregating approximately
        $18.5 million covering its raw materials, finished goods, equipment and
        buildings and another $10.5 million insurance against equipment breakdown,
        it
        does not maintain business interruption insurance. Material damage to, or
        the
        loss of, its production factory facilities due to fire, severe weather, flood
        or
        other act of God or cause, even if insured, could have a material adverse
        effect
        on the Company’s financial condition, results of operations, business and
        prospects.
 
 *Judgments
        against the Company and management may be difficult to obtain or enforce.*
 
 The
        Company’s principal executive offices are located in Hong Kong, PRC. Outside the
        United States, it may be difficult for investors to enforce judgments obtained
        against the Company in actions brought in the United States, including actions
        predicated upon the civil liability provisions of federal securities laws.
        In
        addition, most of the Company’s officers and directors reside outside of the
        United States and the assets of these persons are located outside of the
        United
        States. As a result, it may not be possible for investors to effect service
        of
        process within the United States upon these persons, or to enforce against
        the
        Company or these persons judgments predicated upon the liability provisions
        of
        United States federal securities laws.
 
 *The
        Company may not pay dividends in the future.*
 
 The
        Company may not be able to declare dividends or the Board of Directors may
        decide not to declare dividends in the future.
 
 **Risks
        Relating to China**
  *The
        Company faces significant risks if the Chinese government changes its policies,
        laws, regulations, tax structure or its current interpretations of its laws,
        rules and regulations relating to our operations in China.*
 
 Chengtong’s
        manufacturing facility is located in China. As of December 31, 2006, all
        of the
        Company’s assets are located in China and, except for a small volume of exports
        to Thailand and the Philippines, all of its sales revenues are generated
        in
        China. Accordingly, the Company’s results of operations, financial state of
        affairs and future growth are, to a significant degree, subject to China’s
        economic, political and legal development and related uncertainties. Changes
        in
        policies by the Chinese government resulting in changes in laws or regulations
        or the interpretation of laws or regulations, confiscatory taxation, changes
        in
        employment restrictions, restrictions on imports and sources of supply, import
        duties, corruption, currency revaluation or the expropriation of private
        enterprise could materially and adversely affect the Company. Over the past
        several years, the Chinese government has pursued economic reform policies
        including the encouragement of private economic activities and greater economic
        decentralization. If the Chinese government does not continue to pursue its
        present policies that encourage foreign investment and operations in China,
        or
        if these policies are either not successful or are significantly altered,
        then
        the Company’s business could be adversely affected. Chengtong could even be
        subject to the risk of nationalization, which could result in the total loss
        of
        investment. Following the Chinese government’s policy of privatizing many
        state-owned enterprises, the Chinese government has attempted to augment
        its
        revenues through increased tax collection. Continued efforts to increase
        tax
        revenues could result in increased taxation expenses being incurred by the
        Company. Economic development may be limited as well by the imposition of
        austerity measures intended to reduce inflation, the inadequate development
        of
        infrastructure and the potential unavailability of adequate power and water
        supplies, transportation and communications.
  36
 *Fluctuations
        in exchange rates of the Renminbi could adversely affect the value of and
        dividends, if any, payable of shares of the Company’s common
        stock.*
  Save
        for
        the recent exports to Thailand and the Philippines, all of the Company’s local
        sales revenues are collected in and substantially all of its expenses are
        paid
        in the Chinese Renminbi. The Chinese Renminbi had remained stable against
        the
        U.S. Dollar at approximately 8.28 Yuan to 1.00 U.S. Dollar for several years,
        and it was not until July 21, 2005 that the Chinese currency regime was altered,
        with a 2.1% revaluation versus the United States Dollar. This move initially
        values the Renminbi at 8.11 per United States Dollar. In addition, the Renminbi
        will no longer be linked to the U.S. currency but rather to a basket of
        currencies with a 0.3% margin of fluctuation. However, there remains
        international pressure on the Chinese government to adopt an even more flexible
        currency policy, and, as of December 31, 2006, the exchange rate was 7.804
        Yuan
        to 1.00 U.S. Dollar. The exchange rate of Renminbi is subject to changes
        in
        China’s government policies which are, to a large extent, dependent on the
        economic and political development both internationally and locally and the
        demand and supply of Renminbi in the domestic market. There can be no assurance
        that such exchange rate will continue to remain stable in the future amidst
        the
        volatility of currencies, globalization and the unstable economies in recent
        years. Since (i) the income and profit of the Company are mainly denominated
        in
        Renminbi and (ii) the payment of dividends will be in U.S. dollars, if any,
        any
        exchange fluctuation of the Renminbi against other foreign currencies would
        adversely affect the value of the shares and dividends payable to shareholders,
        in foreign currency terms.
  *Uncertainty
        relating to the laws and regulations in China.*
 
 The
        Chinese legal system is a civil law system based on written statutes. Unlike
        common law systems, it is a system in which decided legal cases have little
        precedential value. In 1979, the Chinese government began to promulgate a
        comprehensive system of laws and regulations governing economic matters in
        general. Legislation over the past 25 years has significantly enhanced the
        protections afforded to various forms of foreign investment in China.
        Enforcement of existing laws or agreements may be sporadic and implementation
        and interpretation of laws inconsistent. The Chinese judiciary is relatively
        inexperienced in enforcing the laws that exist, leading to a higher than
        usual
        degree of uncertainty as to the outcome of any litigation. Even where adequate
        law exists in China, it may not be possible to obtain swift and equitable
        enforcement of that law. The legal system in China cannot provide shareholders
        with the same level of protection as in the United States. Chengtong is governed
        by the laws and regulations generally applicable to local enterprises, and
        those
        laws and regulations have been recently introduced, remain experimental in
        nature and are subject to changes and further amendments.
  *Controversies
        affecting China’s trade with the United States could depress the Company’s stock
        price.*
 
 While
        China has been granted permanent most favored nation trade status in the
        United
        States through its entry into the World Trade Organization, controversies
        and
        trade disagreements between the United States and China may arise that have
        a
        material adverse effect upon the Company’s stock price. Political or trade
        friction between the United States and China, whether or not actually affecting
        its business, could also materially and adversely affect the prevailing market
        price of the Company’s common stock.
 
 *Future
        changes in the labor laws in China may result in the continued increase in
        labor
        costs.*
 
 The
        Company has recently experienced an increase in the cost of labor. Any future
        changes in the labor laws in China could result in the Company having to
        pay
        increased labor costs. There can be no assurance that the labor laws will
        not
        change, which may have a material adverse effect upon the Company’s business and
        results of operations.
 
 37
 **Risks
        Relating to Our Common Stock**
 
 *The
        market price for shares of our common stock could be volatile; the sale of
        material amounts of our common stock could reduce the price of our common
        stock
        and encourage short sales.*
  Our
        common stock is listed on The NASDAQ Capital Market under the symbol “CPSL.” The
        market price for the shares of our common stock may fluctuate in response
        to a
        number of factors, many of which are beyond our control. Such factors may
        include, without limitation, the general economic and monetary environment,
        quarter-to-quarter variations in our anticipated and actual operating results,
        future financing activities and the open-market trading of our shares, in
        particular.
  *The
        trading market in our common stock is limited and illiquid and may cause
        volatility in the market price.*
  As
        of
        December 31, 2006, 6% of the issued and outstanding shares of our common
        stock
        was not owned by affiliates, or 1,618,915 shares. Thus, the market price
        for our
        common stock is subject to volatility and holders of common stock may be
        unable
        to resell their shares at or near their original purchase price or at any
        price.
        In the absence of an active trading market:
  ·
            investors
                may have difficulty buying and selling;  ·
            market
                visibility for our common stock may be limited;
                and  ·
            a
                lack of visibility for our common stock may have a depressive effect
                on
                the market for our common stock.  *Our
        common stock price is volatile and could decline in the
        future.*
  The
        stock
        market, in general, has experienced extreme stock price fluctuations. In
        some
        cases, these fluctuations have been unrelated to the operating performance
        of
        the affected companies. Many companies with Chinese operations have experienced
        dramatic volatility in the market prices of their common stock. We believe
        that
        a number of factors, both within and outside of our control, could cause
        the
        price of our common stock to fluctuate, perhaps substantially. Factors such
        as
        the following could have a significant adverse impact on the market price
        of our
        common stock:
  ·
            our
                ability to obtain additional financing and, if available, the terms
                and
                conditions of the financing;  ·
            our
                financial position and results of
                operations;  ·
            period-to-period
                fluctuations in our operating results;  ·
            changes
                in estimates of our performance by any securities
                analysts;  ·
            new
                regulatory requirements and changes in the existing regulatory
                environment;  ·
            the
                issuance of new equity securities in a future
                offering;  ·
            changes
                in interest rates; and  ·
            general
                economic and other national conditions.   38
  *Shares
        eligible for future sale may adversely affect the market price of our common
        stock.*
  From
        time
        to time, certain of our stockholders may be eligible to sell all or some
        of
        their shares of common stock by means of ordinary brokerage transactions
        in the
        open market, pursuant to Rule 144 promulgated under the Securities Act of
        1933,
        as amended (the “Securities Act”), subject to certain limitations. In general,
        pursuant to Rule 144, a stockholder (or stockholders whose shares are
        aggregated) who has satisfied a one-year holding period may, under certain
        circumstances, sell within any three-month period a number of securities
        which
        does not exceed the greater of 1% of the then outstanding shares of common
        stock
        or the average weekly trading volume of the class during the four calendar
        weeks
        prior to such sale. Rule 144 also permits, under certain circumstances, the
        sale
        of securities, without any limitations, by a non-affiliate of our company
        that
        has satisfied a two-year holding period. Any substantial sale of common stock
        pursuant to Rule 144 or pursuant to a resale prospectus may have an adverse
        effect on the market price of our common stock.
  *One
        stockholder exercises significant control over matters requiring shareholder
        approval.*
  Wo
        Hing
        Li, the Company’s President, had voting power as of December 31, 2006, equal to
        approximately 74.6% of our voting securities. As a result, Wo Hing Li, through
        such stock ownership, exercises significant control over all matters requiring
        shareholder approval, including the election of directors and approval of
        significant corporate transactions. This concentration of ownership in Wo
        Hing
        Li may also have the effect of delaying or preventing a change in control
        that
        may otherwise be viewed as beneficial by shareholders other than Wo Hing
        Li.
  *We
        may incur significant costs to ensure compliance with U.S. corporate governance
        and accounting requirements.*
  We
        may
        incur significant costs associated with our public company reporting
        requirements, costs associated with applicable corporate governance
        requirements, including requirements under the Sarbanes-Oxley Act of 2002
        and
        other rules implemented by the SEC and requirements in connection with the
        listing of our common stock on The NASDAQ Capital Market. We expect all of
        these
        applicable rules and regulations to increase our legal and financial compliance
        costs and to make some activities more time-consuming and costly. We also
        expect
        that these applicable rules and regulations may make it more difficult and
        more
        expensive for us to obtain director and officer liability insurance and we
        may
        be required to accept reduced policy limits and coverage or incur substantially
        higher costs to obtain the same or similar coverage. As a result, it may
        be more
        difficult for us to attract and retain qualified individuals to serve on
        our
        board of directors or as executive officers.
  *We
        may be required to raise additional financing by issuing new securities with
        terms or rights superior to those of our shares of common stock, which could
        adversely affect the market price of our shares of common
        stock.*
  We
        may
        require additional financing to fund future operations, including expansion
        in
        current and new markets. We may not be able to obtain financing on favorable
        terms, if at all. If we raise additional funds by issuing equity securities,
        the
        percentage ownership of our current shareholders will be reduced, and the
        holders of the new equity securities may have rights superior to those of
        the
        holders of shares of common stock, which could adversely affect the market
        price
        and the voting power of shares of our common stock. If we raise additional
        funds
        by issuing debt securities, the holders of these debt securities would similarly
        have some rights senior to those of the holders of shares of common stock,
        and
        the terms of these debt securities could impose restrictions on operations
        and
        create a significant interest expense for us. At the Company’s Annual Meeting on
        December 27, 2006, we received approval from shareholders to issue an
        undetermined number of our equity securities in an aggregate amount of up
        to
        22,600,000 shares of our common stock, or approximately 84% of the total
        number
        of shares outstanding as set forth on the cover of this Quarterly Report,
        in
        connection with potential financings on such terms as the Company may determine
        at the time of such financings and in reliance upon available exemptions
        from
        the registration requirements of the Securities Act.
  39
 *We
        may have difficulty raising necessary capital to fund operations as a result
        of
        market price volatility for our shares of common stock.*
  In
        recent
        years, the securities markets in the United States have experienced a high
        level
        of price and volume volatility, and the market price of securities of many
        companies have experienced wide fluctuations that have not necessarily been
        related to the operations, performances, underlying asset values or prospects
        of
        such companies. For these reasons, our shares of common stock can also be
        expected to be subject to volatility resulting purely from market
        forces over which we will have no control. If our business development plans
        are
        successful, we may require additional financing to continue to develop and
        exploit existing and new products and to expand into new markets. The
        exploitation of our products may, therefore, be dependent upon our ability
        to
        obtain financing through debt and equity or other means.
  *Standards
        for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
        and if we fail to comply in a timely manner, our business could be harmed
        and
        our stock price could decline.*
  Rules
        adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
        will require annual assessment of our internal control over financial reporting,
        and attestation of our assessment by our independent registered public
        accountants. The standards that must be met for management to assess the
        internal control over financial reporting as effective are complex, and require
        significant documentation, testing and possible remediation to meet the detailed
        standards and will impose significant additional expenses on us. We may
        encounter problems or delays in completing activities necessary to make an
        assessment of our internal control over financial reporting. In addition,
        the
        attestation process that will be required of our independent registered public
        accountants is new, and we may encounter problems or delays in completing
        the
        implementation of any requested improvements and receiving an attestation
        of our
        assessment by our independent registered public accountants. If we cannot
        assess
        our internal control over financial reporting as effective, or our independent
        registered public accountants are unable to provide an unqualified attestation
        report on such assessment, investor confidence and share value may be negatively
        impacted.
  *We
        do
        not foresee paying cash dividends in the foreseeable future.*
  We
        have
        not paid cash dividends on our stock, and we do not plan to pay cash dividends
        on our stock in the foreseeable future.
 
 **Item
        2.** **Unregistered
        Sales of Equity Securities and Use of Proceeds**
 
 As
        more
        fully disclosed in Item 3.02 of the Company’s Current Report on Form 8-K, filed
        with the Commission on January 4, 2007 and incorporated herein by reference,
        the
        following unregistered issuances of the Company’s Common Stock were made on
        December 28, 2006:
  (i)
        Pursuant to the terms of the Stock Exchange Agreement, as amended, on December
        28, 2006, the Company issued 25,363,002 shares of the Company’s Common Stock to
        accredited investors and other non-U.S. persons, in reliance upon the exemption
        from registration provided by Regulation S, promulgated under the Securities
        Act, and in exchange for all of the issued and outstanding shares of Partner
        Success Holdings Limited, or PSHL.
 
 (ii)
        Pursuant to the terms of the Tax Indemnity Agreement, dated December 28,
        2006,
        the Company issued 100,000 shares of the Company’s common stock to OraLabs,
        Inc., in exchange for a total purchase price of $450,690. These securities
        were
        offered and sold in reliance upon Section 4(2) of the Securities
        Act.
 
 As
        more
        fully described in Item 1.01 of the Company’s Current Report on Form 8-K, filed
        with the Commission on January 4, 2007 and incorporated herein by reference,
        on
        December 28, 2006, pursuant to the Redemption Agreement, dated December 28,
        2006
        (the “Redemption Agreement”), incorporated by reference herein, the Company
        received 3,629,350 shares of Company’s Common Stock from the Company’s former
        President, Gary Schlatter, in exchange for the transfer to Gary Schlatter
        of all
        100 shares of OraLabs, Inc.
 
 40
 **Item
        3.** **Defaults
        Upon Senior Securities**
 
 None.
 
 **Item
        4.** **Submission
        of Matters to a Vote of Security Holders**
 
 The
        Company submitted matters to a vote of its security holders through the
        solicitation of proxies. The content of these matters may be found in the
        Company’s Definitive Proxy Statement issued pursuant to Section 14(a) of the
        Securities Exchange Act of 1934, filed with the SEC on November 22, 2006
        and
        incorporated herein by reference.
 
 The
        annual meeting of the stockholders of the Company was held on December 27,
        2006,
        at the offices of OraLabs, Inc., 18685 E. Plaza Drive, Parker, Colorado.
        The
        results of the voting were as follows:
 
 **Proposal
        1** :
        Approval of the issuance of 94% of the Company’s outstanding shares to PSHL
        shareholders or their designees in exchange for all of the ownership interests
        in PSHL:
 
 For
              Against
              Abstain3,786,319
              14,325
              493
 
 **Proposal
        2** :
        Redemption of all shares of the Company owned individually by Gary H.
        Schlatter in exchange for issuance to him of the entire ownership of the
        operating subsidiary, OraLabs,
        Inc.:
 
 For
              Against
              Abstain3,787,039
              2,930
              1,168
 
 **Proposal
        3** :
        Approval of the 2006 Director Stock Plan:
 
 For
              Against
              Abstain3,784,626
              16,168
              343
 
 **Proposal
        4** :
        Approval of the sale to OraLabs, Inc. of up to 100,000 shares of Company common
        stock to satisfy an indemnity obligation of OraLabs, Inc.:
 
 For
              Against
              Abstain3,785,294
              15,550
              293
  **Proposal
        5** :
        Authorize the Company to issue an undetermined number of shares of Company common
        stock, shares of preferred stock convertible into Company common stock or
        warrants to purchase
        Company common stock, in an aggregate amount of up to 22,600,000 shares of
        common stock
        in
        connection with a potential equity financing:
 
 For
              Against
              Abstain3,785,273
              15,536
              328
 
 **Proposal
        6** :
        Approval of amendment to the Company’s Articles of Incorporation to change company
        name and increase number of authorized shares of common stock:
 
 For
              Against
              Abstain4,545,948
              34,196
              782
 
 41
 **Proposal
        7** :
        Approval of amendment to the Company’s Articles of Incorporation to increase the number
        of
        authorized shares of preferred stock:
 
 For
              Against
              Abstain3,785,329
              15,520
              288
 
 **Proposal
        8** :
        Election of Directors
 
 Name
              For
              AgainstWo
                  Hing Li
              4,522,719
              28,207Hai
                  Sheng Chen
              4,552,719
              28,207Che
                  Kin Lui
              4,552,719
              28,207David
                  Peter Wong
              4,552,669
              28,257Tung
                  Kuen Tsui
              4,552,719
              28,207
 
 **Proposal
        9** :
        Approval of the China Precision Steel, Inc. 2006 Omnibus Long-Term Incentive Plan:
 
 For
              Against
              Abstain3,785,222
              15,624
              291
 
 **Proposal
        10:** Ratification
        of selection of independent auditors.
 
 For
              Against
              Abstain4,577,666
              2,814
              446
 
 **Item
        5.** **Other
        Information**
 
 (a)  None.
 
 (b)  None.
 
 **Item
        6.** **Exhibits**
 
 (a)  Exhibits
        required to be filed are listed below. Certain of the following exhibits
        are
        hereby incorporated by reference pursuant to Rule 12(b)-32, as promulgated
        under
        the Securities and Exchange Act of 1934, as amended, from the reports noted
        below:
   Exhibit
                  No.
                Exhibits
                  Included Within:3.1
                Amended
                    and Restated Articles of Incorporation (incorporated herein by
                    reference
                    to the Company’s Form 8-K, filed January 4, 2007, Exhibit
                    3.1)3.2
                Second
                    Amended and Restated Bylaws (incorporated herein by reference
                    to the
                    Company’s Form 10-KSB, filed March 31, 1999, Exhibit
                    3.1.II)4
                Specimen
                  Certificate for Common Stock10.1
                Redemption
                    Agreement, dated December 28, 2006 (incorporated herein by reference
                    to
                    the Company’s Form 8-K, filed January 4, 2007, Exhibit
                    10.1)10.2
                Tax
                  Indemnity Agreement, dated December 28, 2006 (incorporated herein
                  by
                  reference to the Company’s Form 8-K, filed January 4, 2007, Exhibit
                  10.2)10.3
                2006
                    Long Term Incentive Plan (incorporated herein by reference to
                    the
                    Company’s Form 8-K, filed January 4, 2007, Exhibit
                    10.3)
 42
 10.4
                  2006
                      Director Stock Plan, dated December 26, 2006 (incorporated
                      herein by
                      reference to the Company’s Definitive Proxy Statement, filed November 22,
                      2006, Annex 3)10.5
                  Equipment
                      Mortgage Agreement between Chengtong and Raisffesien Zentralbank
                      Oesterreich AG, dated January 12, 2005 (incorporated herein
                      by reference
                      to the Company’s Form 8-K, filed January 4, 2007, Exhibit
                      10.4)10.6
                  Mortgage
                      Agreement on Immovables between Shanghai Tuorong Precision
                      Steel Company
                      Limited and Raisffesien Zentralbank Oesterreich AG, dated January
                      12, 2005
                      (incorporated herein by reference to the Company’s Form 8-K, filed January
                      4, 2007, Exhibit 10.5)10.7
                  Letter
                      of Offer between Chengtong and Raisffesien Zentralbank Oesterreich
                      AG,
                      dated October 14, 2004 (incorporated herein by reference to
                      the Company’s
                      Form 8-K, filed January 4, 2007, Exhibit 10.6)10.8
                  Amendment
                      No. 1 to Letter of Offer between Chengtong and Raisffesien
                      Zentralbank
                      Oesterreich AG, dated December 28, 2004 (incorporated herein
                      by reference
                      to the Company’s Form 8-K, filed January 4, 2007, Exhibit
                      10.7)10.9
                  Amendment
                      No. 2 to Letter of Offer between Chengtong and Raisffesien
                      Zentralbank
                      Oesterreich AG, dated May 10, 2005 (incorporated herein by
                      reference to
                      the Company’s Form 8-K, filed January 4, 2007, Exhibit
                      10.8)
  10.10
                Amendment
                    No. 3 to Letter of Offer between Chengtong and Raisffesien Zentralbank
                    Oesterreich AG,  dated July 26, 2005 (incorporated herein by
                    reference to the Company’s Form 8-K, filed January 4, 2007, Exhibit
                    10.9)21
                List
                    of Subsidiaries of the Company
  31(i).1
                Certification
                    of President pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
                    Exchange Act.31(i).2
                Certification
                    of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
                    of the
                    Securities Exchange Act.32
                Certification
                    of President and Chief Financial Officer Pursuant to 18 U.S.C.
                    Section
                    1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                    Act of
                    200299.1
                Report
                    and Certification of Inspector of Elections, dated December 27,
                    200699.2
                Press
                    Release, dated December 28, 2006
                    (incorporated herein by reference to the Company’s Form 8-K, filed January
                    4, 2007, Exhibit 99.3)
 43
 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.
  **China
        Precision Steel, Inc.**
 
 
 Date:
        February 13, 2007 By:
        /s/ Wo Hing
        Li
 Wo Hing Li
 President
  44