**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**


**(Mark
      one)**




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




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





**OR**




o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 (No Fee Required)**




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




**Commission
      File Number 000-23039**





**CHINA
      PRECISION STEEL, INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **14-1623047**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)




**18th
                Floor, Teda Building**
              **87
                Wing Lok Street,****Sheungwan,
                Hong Kong,**
              **People’s
                Republic of China**(Address
                of principal executive offices)





**+1-852-2543-2290**(Registrant’s
                telephone number, including area
                code)





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





**Name
                of Exchange****Title
                of Class**
            
            **On
                Which Registered****Common
                Stock, par value $0.001**
            
            **The
                NASDAQ Capital Market**





**Securities
      registered pursuant to Section 12(g) of the Act: None.**




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




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


Yes
oNo
x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the 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 xNo o









Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any attachment to
      this Form 10-K. x




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




Large
      accelerated filer o      
Accelerated filer x    
      Non-accelerated filer oSmaller reporting
      company o





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




The
      aggregate market value of the 30,347,048 shares of voting stock and non-voting
      common stock held by non-affiliates of the registrant as of December 31, 2007
      was $185,116,993 , based upon the last sale price of the registrant’s common
      stock on December 31, 2007 (the last business day of the registrant’s most
      recently completed second fiscal quarter) of $6.10 per share, as reported by
      the
      NASDAQ Stock Market, Inc. On September 30, 2007, there were 37,378,143 shares
      of
      common stock, par value $.001 per share, issued and outstanding and no shares
      of
      preferred stock, par value $.001 per share, issued and outstanding.




**Annual
      Meeting and Record Dates**




We
      have
      not yet determined the date and record date of our annual meeting of
      shareholders. We will announce these dates as soon as they have been
      determined.




**Our
      Website**




Our
      Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
      on
      Form 8-K and amendments to those reports filed or furnished pursuant to Section
      13(a) or 15(d), as well as reports filed or furnished pursuant to Section 16,
      of
      the Securities Exchange Act of 1934 are available through our website
      ( www.chinaprecisionsteelinc.com under
      the “Investor Relations” caption) free of charge as soon as reasonably
      practicable after we electronically file such material with, or furnish it
      to,
      the Securities and Exchange Commission (“ SEC ”).




Information
      relating to corporate governance at China Precision Steel, Inc., including
      our
      Code of Conduct and information concerning our executive officers, directors
      and
      Board committees (including committee charters), and transactions in our
      securities by directors and officers, is available on or through our website
      at www.chinaprecisionsteelinc.com under
      the “Corporate Governance” caption in the “Investor Relations”
section.





We
      are
      not including any information on our website as part of, or incorporating it
      by
      reference into, our Form 10-K.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s Proxy Statement for its 2008 Annual Meeting are incorporated
      by reference into Part III herein.










**CHINA
      PRECISION STEEL, INC.**




**FORM
      10-K**


**FOR
      THE FISCAL YEAR ENDED JUNE 30, 2008**




**TABLE
      OF CONTENTS**




**PAGE****PART
                I**ITEM
                1.
            BUSINESS
            5ITEM
                1A.
            RISK
                FACTORS
            13ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            25ITEM
                2.
            PROPERTIES
            25ITEM
                3.
            LEGAL
                PROCEEDINGS
            26ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            26**PART
                II**ITEM
                5.
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES
            26ITEM
                6.
            SELECTED
                FINANCIAL DATA
            28ITEM
                7.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            28ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            38ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTARY DATA
            39ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            40ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            40ITEM
                9B.
            OTHER
                INFORMATION
            41**PART
                III**ITEM
                10.
            DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            41ITEM
                11.
            EXECUTIVE
                COMPENSATION
            41ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            41ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            41ITEM
                14
            PRINCIPAL
                ACCOUNTING FEES AND SERVICES
            41**PART
                IV**ITEM
                15
            EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES
            42SIGNATURES
            
            44FINANCIALSTATEMENTS
            F-1




3





**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




This
      Annual Report on Form 10-K and the documents incorporated by reference herein
      include “forward-looking statements” within the meaning of Section 27A of the
      United States Securities Act of 1933, as amended, or the Securities Act, and
      Section 21E of the United States Securities Exchange Act of 1934, as amended,
      or
      the Exchange Act. Any statements about our expectations, beliefs, plans,
      objectives, assumptions or future events or performance are not historical
      facts
      and may be forward-looking. These statements are often, but not always, made
      through the use of words or phrases like “anticipate,” “estimate,” “plans,”
“projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,”
“we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we
      plan,” the negative of those terms, and similar words or phrases. **** We base
      these forward-looking statements on our expectations, assumptions, estimates
      and
      projections about our business and the industry in which we operate as of the
      date of this Form 10-K. These forward-looking statements are subject to a number
      of risks and uncertainties that cannot be predicted, quantified or controlled
      and that could cause actual results to differ materially from those set forth
      in, contemplated by, or underlying the forward-looking statements. Statements
      in
      this Form 10-K and in documents incorporated herein describe factors, among
      others, that could contribute to or cause these differences. Actual results
      may
      vary materially from those anticipated, estimated, projected or expected should
      one or more of these risks or uncertainties materialize, or should underlying
      assumptions prove incorrect, including, but not limited to, our critical
      accounting policies and statements relating to, among others:


§
              plans
                  to expand our exports outside of
                  China;
  §
              plans
                  to increase our production capacity and the anticipated dates that
                  such
                  facilities may commence operations;
  §
              our
                  ability to obtain additional funding for our continuing operations
                  and to
                  fund our expansion;
  §
              our
                  ability to meet our financial projections for any financial
                  year;
  §
              our
                  ability to retain our key executives and to hire additional senior
                  management;
  §
              continued
                  growth of the Chinese economy and industries demanding our
                  products;
  §
              our
                  ability to produce and sell cold-rolled precision steel products
                  at high
                  margins;
  §
              our
                  ability to secure at acceptable prices the raw materials we need
                  to
                  produce our products;
  §
              political
                  changes in China that may impact our ability to produce and sell
                  our
                  products in our target markets;
  §
              general
                  business conditions and competitive factors, including pricing
                  pressures
                  and product development; and
  §
              changes
                  in our relationships with customers and
                  suppliers.


Because
      the factors discussed in this Form 10-K or documents incorporated by reference
      could cause actual results or outcomes to differ materially from those expressed
      in any forward-looking statement made by us or on our behalf, you should not
      place undue reliance on any such forward-looking statement. Further, any
      forward-looking statement speaks only as of the date on which it is made, and
      we
      undertake no obligation to update any forward-looking statement or statements
      to
      reflect events or circumstances after the date on which such statement is made
      or to reflect the occurrence of unanticipated events. New factors emerge from
      time to time, and it is not possible for us to predict which will arise. In
      addition, we cannot assess the impact of each factor on our business or the
      extent to which any factor, or combination of factors, may cause actual results
      to differ materially from those contained in any forward-looking statement.
      Except as required by law, we undertake no obligation to publicly revise our
      forward-looking statements to reflect events or circumstances that arise after
      the date of this Form 10-K or the date of documents incorporated by reference
      herein that include forward-looking statements.




4




**PART
      I**





**ITEM
      1. BUSINESS**




**Overview**




We
      are a
      niche and high value-added 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. We use commodity steel to create a specialty premium steel
      intended to yield above-average industry gross margins. Specialty precision
      steel pertains to the precision of measurements and tolerances of thickness,
      shape, width, surface finish and other special quality features of
      highly-engineered end-use applications.




We
      conduct our operations principally in China through our wholly-owned operating
      subsidiary, Shanghai Chengtong Precision Strip Company Limited, or Chengtong
      and
      Shanghai Blessford Alloy Company Limited, or Shanghai Blessford. Most of our
      sales are made domestically in China; however, during fiscal 2007,
      we began exporting our cold-rolled steel products to Nigeria, Thailand,
      Indonesia and the Philippines. We intend to expand into additional
      overseas markets in the future, subject to suitable market conditions and
      favorable regulatory controls.




We
      produce and sell precision ultra-thin and high strength cold-rolled steel
      products with thicknesses ranging from 7.5 mm to 0.03 mm. We also provide heat
      treatment and cutting and slitting of cold-rolled steel strips not exceeding
      7.5
      mm thickness. Our process puts hot-rolled de-scaled (pickled) steel coils
      through a cold-rolling mill, utilizing our patented systems and high technology
      reduction processing procedures, to make steel coils and sheets in customized
      thicknesses, according to customer specifications. Currently, our specialty
      precision products are mainly used in the manufacture of automobile parts and
      components, steel roofing, plane friction discs, appliances, food packaging
      materials, saw blades, textile needles and microelectronics.




As
      of
      June 30, 2008, we had an annual production capacity of approximately 120,000
      tons. **** Our
      second cold-rolling mill, which has been operating since October 2006 with
      a
      production design capacity of 120,000 tons, has an approximately 50% utilization
      rate as of June 30, 2008, and is expected to reach 80% to 90% capacity by the
      end of calendar year 2009. We plan to commence construction of our third mill
      in
      the last quarter of calendar year 2008, which has an equivalent design capacity.
      Each mill takes approximately three to four years to reach full operating
      capacity. The second and third mills will focus on the production of high
      carbon, high strength cold-rolled steel products and the production of more
      complex precision steel products that cannot be manufactured in our first
      rolling mill. Our first rolling mill, which has an operating capacity of 60,000
      to 70,000 tons depending on the thickness of the steel processed, will continue
      to primarily manufacture low carbon precision cold-rolled steel
      products.




During
      the fiscal years ended June 30, 2008, 2007 and 2006, we earned net income before
      discontinued operations of $18,583,111, $7,472,661, and $7,514,101,
      respectively. The discontinued operations represent those of OraLabs, Inc.
      which
      was spun off from the Company in December of 2006. At June 30, 2008, we had
      total assets of $165,535,370. Chengtong and Shanghai Blessford currently have
      approximately 283 employees, including 45 senior management and technical staff
      members, and leases 20,000 square meters of production facilities in Jiading
      District, Shanghai, on four acres of property.





**Corporate
      History and Structure**




We
      are a
      Delaware company. We became a public company in May 1997 through a reverse
      merger with SSI Capital Corporation. At that time, we changed our name to
      OraLabs Holding Corp. and our principal business was the production and sale
      of
      consumer products relating to oral care and lip care and the distribution of
      nutritional supplements through our wholly-owned subsidiary, OraLabs, Inc.
      In
      December 2006, we merged with Partner Success Holdings Limited, or PSHL, a
      British Virgin Islands business company which owns Chengtong. In connection
      with
      that transaction, we subsequently redeemed all of the shares of our outstanding
      common stock owned by our former President, Gary Schlatter, in exchange for
      all
      of the issued shares of OraLabs, Inc. Thereafter, we renamed ourselves China
      Precision Steel, Inc. to reflect our continuing operations.




Our
      business is conducted principally through Chengtong and through Shanghai
      Blessford in Shanghai, China. Both Chengtong and Shanghai Blessford are Wholly
      Foreign Owned Enterprises, or WFOEs, under Chinese law.




Our
      corporate headquarters are located at 18 th Floor,
      Teda Building, 87 Wing Lok Street, Sheung Wan, Hong Kong, and our telephone
      number is (011) 852-2543-2290. Our agent for service of process in the United
      States is Corporation Service Company, 2711 Centerville Road, Wilmington,
      Delaware 19808. Our common stock is listed on The NASDAQ Capital Market under
      the symbol “CPSL.” Although we maintain a website at www.chinaprecisionsteelinc.com ,
      we do
      not intend that information available on our website be incorporated into this
      filing. As used herein, the “Group” refers to the Company, PSHL, BFI, Chengtong
      and Shanghai Blessford on a consolidated basis.




5




**Growth**  **Strategy**




We
      aim to
      maintain our position as the leading supplier of high strength and ultra-thin
      cold-rolled premium specialty steel products in China, while building brand
      awareness and demand for our products internationally. We have identified six
      factors critical to the achievement of this goal:


§
              *Focus
                  on Rapidly Growing Niche Segment*.
                  We will continue to focus on niche markets. According to publicly
                  available information, the demand for precision cold-rolled steel
                  products
                  has been growing at a rate of 20% annually over the past five years
                  in
                  China. Export demand, coupled with domestic Chinese demand for
                  automobile
                  parts and components, steel roofing, plane friction discs, appliances,
                  food packaging materials, saw blades, textile needles and
                  microelectronics, is expected to continue, thereby increasing demand
                  for
                  high precision steel products. Moreover, new applications of steel
                  products are continually being developed. Our research and development
                  efforts are focused on advancing processing techniques and production
                  of
                  high strength and ultra-thin, cold-rolled precision steel products
                  to
                  enhance our product offerings and expand our market
                  share.
  §
              *Leverage
                  Our Strengths to Compete Effectively with Imports*.
                  Specialty precision steel is a relatively new industry in China
                  with the
                  majority of precision steel imported from Japan, Korea, the European
                  Union
                  and the United States. As a result, the average quality and standards
                  of
                  China’s high precision steel industry lags behind the international norm.
                  We believe that our lower cost base allows us to sell our products
                  at an
                  average of 5 to 10% below our international competitors and our
                  manufacturing in China gives us an advantage of shorter delivery
                  time to
                  users in China. We will leverage our lower operating cost base,
                  our
                  state-of-the-art patented manufacturing system and process, and
                  our
                  strategic relationships with our major suppliers to produce cold-rolled
                  steel products with quality similar to international standards
                  at lower
                  cost than international
                  competitors.
  §
              *Focus
                  on High Margin Products*.
                  We will continue to manufacture products with high sustainable
                  margins. We
                  increased our gross margin from 5.8% in 2004 to 26% in 2008. The
                  average
                  gross margin of our high carbon steel products are 20-40% and 10-30%
                  for
                  our low carbon steel products. We will provide additional services
                  such as
                  heat treatment and cutting and slitting to further enhance our
                  margins. We
                  believe these high gross margins are sustainable despite fluctuations
                  in
                  steel prices because of the specialty of the end product which
                  allows
                  price increases of raw material to be substantially passed directly
                  to our
                  customers.
  §
              *Expand
                  Manufacturing Capacity*.
                  We will increase our production capacity by commencing construction
                  of a
                  third cold-rolling mill with a design capacity of 120,000 tons
                  in calendar
                  year 2008. This will increase our total production capacity to
                  approximately 300,000 tons in four years when all three mills are
                  operating at full capacity.
  §
              *Compete
                  Internationally*.
                  We intend to expand our exports to compete in the international
                  marketplace. We believe we are the only non-Japanese company able
                  to
                  compete in the global marketplace with low carbon precision cold-rolled
                  steel products in the thickness range between 0.1 to 0.2 mm used
                  for steel
                  roofing. In addition, we are not aware of any other company that
                  currently
                  manufactures high strength high carbon cold-rolled steel with a
                  width of
                  1400mm. These products provide us with a unique opportunity to
                  compete in
                  the global marketplace.
  §
              *Retain
                  Key Personnel*.
                  The Chinese market is highly competitive for experienced and talented
                  executives and we will strive to retain our key executives, including
                  our
                  Chairman, Wo Hing Li, and the General Manager of Chengtong, Hai
                  Sheng
                  Chen. Their experience in strategic expansions and in steel manufacturing,
                  respectively, is critical to our continued growth and
                  success.


**Overview
      of the Chinese Steel Industry**




The
      following industry information has been obtained from various publicly available
      sources. We believe it is the most current information available on this
      subject, and that it is widely available and reliable.




According
      to the International Iron and Steel Institute, China is the largest steel
      producing country, producing approximately one-third of the world’s steel. In
      2007, China produced 487 million tons of steel, up 16.3% from 2006. The China
      Iron and Steel Association estimates that China’s steel demand for 2008 will be
      480 million tons and will reach 732 million tons by 2017, while global steel
      demand is projected to be 1,282 million tons and exceeding 2 billion tons,
      respectively.




China
      has
      increased its steel exports from 7 million tons in 2003 to 62.7 million tons
      in
      2007, making it the number one ranked steel exporter globally. However, while
      China is a net exporter of crude steel, it is a net importer of higher value
      precision steel and ultra-thin steel products such as those produced by the
      Company.




6




Steel
      products can be categorized as low-end (long products such as pipes, tubes,
      wires and rods) and high end (flat products such as hot-rolled steel or
      cold-rolled steel strips). Based upon information we obtained from the China
      Metallurgical Industry Planning and Research Institute, or CMI, we believe
      that
      approximately 65% of China’s steel production are low-end long products and
      approximately 35% are high-end high value cold-rolled steel strips. The Company
      operates in the high-end category of this market with its niche precision steel
      processing and produces and sells high precision cold-rolled steel
      products.





The
      Chinese government has historically provided a subsidy by means of a VAT, or
      value added tax, rebate to exporters of steel products. This rebate was reduced
      in April 2007 in response to international pressure on China to curb its
      exports. The subsidy has been eliminated for 83 products, including hot-rolled,
      thin plate, steel wire, section, bar and H-beam, despite which, a 5% tax rebate
      currently applies to the high value-add cold-rolled steel products the Company
      produces.




We
      expect
      that the Chinese government will continue to impose additional controls on
      domestic steel producers in order to reduce pollution and further restrict
      exports. For more information on Chinese regulations, see “Regulation”
below.




**Products**




Cold-rolled
      specialty precision steel is a relatively new industry in China. 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. The Company believes that generally, to date, the average quality
      and standards of China’s high precision steel industry lag behind the
      international norm. Nonetheless, during the last five years, CPSL believes
      that
      it has begun to develop and establish itself as a nationally recognized brand
      in
      China. Despite having exported 18,612 tons of precision cold-rolled steel
      products to Thailand, the Philippines and Nigeria during the year ended June
      30,
      2008, CPSL is not yet an internationally recognized brand for cold-rolled
      precision steel products.




For
      the
      year ended June 30, 2008, the Company sold 89,122 tons of high
      precision steel products covering a range of over one hundred specifications.
      The Company currently produces high strength and ultra-thin cold-rolled
      precision steel coils and sheets with reduced thickness ranging from 7.5 mm
      to
      0.03 mm. The Company also provides heat treatment and cutting and slitting
      of
      high carbon hot-rolled steel strips not exceeding 7.5 mm fineness. CPSL’s
      precision steel products and services can be categorized into four major
      categories:





**Categories**
            
            **Uses**
            
            **Thickness**1.
                Low carbon steel (cold-rolled, hard-rolled)
            
            Steel
                roofing, food packaging, dry batteries, electronic devices, kitchen
                tools
            
            0.03-7.5mm2.
                High carbon steel (cold-rolled, hot-rolled)
            
            Automobile
                parts and components, grinding pieces, saw blades, weaving needles
            
            0.5-6.0mm3.
                Stainless steel
            
            Kitchen
                tools, home appliances automobile components
            
            0.5-2.5mm4.
                Steel services
            
            Heat
                treatment of hot-rolled steel coils; cutting and slitting




In
      2006,
      we made a strategic decision to switch our product mix from a concentration
      in
      low carbon cold-rolled steel products with comparatively lower margins to a
      combination of low carbon and higher end, higher margin, high-carbon cold-rolled
      steel products as a result of continuous research and development and
      accumulated experience. We produce our high strength and ultra-thin cold-rolled
      precision steel strips using a proprietary patented technology process. The
      finished products have a reduced thickness ranging from 7.5 mm to 0.03 mm,
      and a
      width between 1000 mm to 1400 mm. We also provide heat treatment and cutting
      and
      slitting services for high carbon hot-rolled steel coils with thicknesses not
      exceeding 7.5 mm. To the best of our knowledge, we are not aware of any other
      company in China that currently manufactures high carbon high strength
      cold-rolled steel with a width of or exceeding 1400 mm.




Cold-rolled
      steel products are manufactured from hot-rolled de-scaled (pickled) steel coils
      which are processed by cold reduction through a cold-rolling mill to customer
      specified thicknesses. 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. In order to make the cold-reduced steel products soft and
      formable, they are annealed, or heated to high temperatures. 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), steel roofing, food packaging materials,
      electric motors, microelectronics and food packaging.




7




Hard-rolled
      steel represents steel products manufactured from cold reduction to the desired
      thinness without annealing. The product is very stiff and 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 has a carbon content of less than 0.1%.
       It is a very versatile and useful material, easily machined and worked
      into complex shapes, is low in cost and has good mechanical properties.
      Hard-rolled or cold-rolled steel with medium carbon has a carbon content of
      0.3%. It is a typical engineered steel product. Hard-rolled or cold-rolled
      steel
      with high carbon has a carbon content of 0.8% or more. This precision steel
      product is very hard and quite brittle and is 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 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.




Products
      with greater width have more applications and intended uses. Width is an
      important differentiating 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 costs. As a result, wider products are
      more
      flexible and cost efficient which further reduces the end user’s overall
      cost.




**Sales
      and Marketing**




Our
      high
      precision steel products are sold both to components manufactures and directly
      to the end-users in various parts of China and international marketplace such
      as
      Thailand, the Philippines and Nigeria. Due to the nature of the industry and
      our
      ability to process quality high end cold-rolled steel, we do very little formal
      marketing. The majority of new orders come from current customers reducing
      imports and new customers who contact us directly or through trading
      agents.




All
      of
      our production is based on confirmed sales orders. Generally, an initial deposit
      (approximately 30% of the aggregate contracted sales amount) is pre-paid when
      the contract is signed. CPSL has approximately 210 customers with domestic
      customers primarily located in East China and overseas sales reaching Nigeria,
      Thailand and the Philippines. CPSL’s location in Shanghai is particularly
      advantageous for meeting with customers from all over China and Overseas to
      discuss product requirements and design. In addition, the delivery time is
      shorter and our products have lower associated cost than international
      competitors. We intend to increase our customer base by expanding into the
      lucrative markets in Guangdong Province, where there is a heavy concentration
      of
      light industries, and into the Northeastern region of China, where the
      automotive industries are concentrated.




Below
      is
      a list of CPSL’s principal customers during the years ended June 30, 2008, and
      2007 :




***Principal Customers***
            
            ***2008***
            
            ***% to sales***
            
            ***2007***
            
            ***% to sales***Shanghai
                Changshuo Stainless Steel Co., Ltd
            
            
            18,513,819
            
            
            21
            
            
            5,428,110
            
            
            10Shanghai
                Bayou Industrial Co., Ltd.
            
            
            10,494,752
            
            
            12
            
            
            -*
            
            
            -*Shanghai
                Shengdejia Metal Co. Ltd.
            
            
            10,414,545
            
            
            12
            
            
            -*
            
            
            -*Unimax
                and Far Corporation
            
            
            7,695,294
            
            
            9
            
            
            -*
            
            
            -*Baosteel
                Steel Products Trading Co., Ltd.
            
            
            6,758,976
            
            
            8
            
            
            -*
            
            
            -*Shanghai
                Ruixuefeng Metals Co. Ltd.
            
            
            -*
            
            
            -*
            
            
            12,192,219
            
            
            23China
                Railway Materials Shanghai Company
            
            
            -*
            
            
            -*
            
            
            3,498,770
            
            
            6Hangzhou
                Relian Company Limited
            
            
            -*
            
            
            -*
            
            
            3,323,981
            
            
            6Sinosteel
                Company Limited
            
            
            -*
            
            
            -*
            
            
            3,251,450
            
            
            653,877,386
            
            
            62
            
            
            27,694,530
            
            
            51***Others***
            
            
            33,861,940
            
            
            38
            
            
            26,265,713
            
            
            49**Total**
            
            
            87,739,326
            
            
            100
            
            
            53,960,243
            
            
            100




**
      Not
      major customers for the relevant years*




**Production
      Facilities**




*Rolling
      Mills* .
      As of
      June 30, 2008, CPSL had an annual production design capacity of approximately
      120,000 tons, comprised of:


§
              one
                  1100 mm 12-high cold-roll reversing mill, with an operating capacity
                  of
                  60,000 to 70,000 tons, and
  §
              one
                  1400 mm 12-high cold-roll reversing mill, with an operation capacity
                  of
                  120,000 tons and a 50% utilization rate at
                  present.
  8


Construction
      of a third mill, a 1450mm 4-high cold-rolling reversing mill, is expected to
      commence in calendar year 2008. This mill will have a design capacity of 120,000
      tons, increasing our total production design capacity to approximately 300,000
      tons. The production facilities for the second and third mills were completed
      in
      August 2006 and added approximately 10,000 square meters of production area.
      These production facilities will primarily focus on high carbon, high strength
      cold-rolled steel products and more complex precision steel products that cannot
      be manufactured in our first rolling mill, which will primarily dedicate to
      low
      carbon cold-rolled steel products.




Each
      mill
      takes approximately three to four years to reach full operating capacity due
      to
      the break-in and tuning period required for the equipment. Operating capacity,
      or actual tonnage, may differ from design capacity due to modifications required
      to accommodate different production processes, as well as product mix which
      influences processing time. For example, the design capacity of the 1100 mm
      rolling mill is 100,000 tons. However, it is now operating at its full
      production capacity of 60,000 to 70,000 tons since it is manufacturing products
      with a much reduced thickness than those contemplated by the original design.
      The 1400 mm rolling mill, which began production in October 2006, was operating
      at 50% of its 120,000 ton operating capacity at June 30, 2008 and is expected
      to
      reach its full operating capacity in calendar year 2010.




*Hydrogen
      Annealing Furnace* .
      Our
      state-of-the-art annealing furnaces automatically control the complete annealing
      process. The furnace uses pure hydrogen as protective gas to make the steel
      surface very smooth with no carbon-off post-annealing. The furnace also includes
      an oxygen station. In addition to the cold-rolling mills and annealing furnaces,
      we also have a 1250 mm cleaning line, a 1000 mm cutting and slitting line and
      a
      1200 mm tension leveller.




**Raw
      Materials**





We
      are
      not dependent on any one single supplier for supply of hot-rolled coils. Several
      Chinese steelmakers supply hot-rolled coils to CPSL. CPSL’s principal supplier
      is BaoSteel Steel Products Trading Co. Ltd. The principal suppliers of CPSL
      as of June 30, 2008 are as follows:





***Suppliers***
            
            ***2008***
            
            ***2007***BaoSteel
                Steel Products Trading Co. Ltd.
            
            
            16,439,918
            
            
            4,633,054Hangzhou
                Relian Company Limited
            
            
            11,050,813
            
            
            8,598,117Shanghai
                Pinyun Steel Co., Limited
            
            
            10,025,183
            
            
            6,355,445BaoSteel
                Metal Co., Ltd.
            
            
            4,515,089
            
            
            -*Shangahi
                Rongrong Steel Plate Co., Ltd.
            
            
            3,023,084
            
            
            -*Shanghai
                Changshuo Stainless Steel Co., Ltd.
            
            
            -*
            
            
            3,408,301Shanghai
                Bao Gang Dev Co. Ltd.
            
            
            -*
            
            
            2,917,010**Total
                direct materials consumed**
            
            
            55,722,054
            
            
            33,809,809%
                of major suppliers to total consumption
            
            
            81
            %
            
            77
            %




Based
      upon information obtained by us from the CMI, in 2007 the price of steel
      generally decreased. However, the cost of imported iron-ore increased
      substantially. This apparent anomaly was due to excess supplies arising from
      excess capacities of the steel producers and, as a result of the downwards
      pressure on the price of steel, the cost of steel rolls have generally decreased
      in 2005 and 2006. The CMI website may be viewed in English and the website
      URL
      is www.metal.net.cn. As of June 30, 2008, there is a Chinese export tax of
      5% on
      exports of certain steel products, including the hot-rolled de-scaled coils
      used
      by CPSL. This has reduced the price of domestic steel as supply has
      increased.




The
      prices of steel coils are very competitive, very volatile and dependent on
      supply and demand. To provide some protection from the pressure and volatility
      of the market (i.e. to minimize the amount of purchases that CPSL must make
      at
      high prices during the high demand seasons), CPSL makes bulk purchases after
      taking into account customers’ orders on hand whenever steel prices are
      considered to be lower in the market. Prices are negotiated with each order
      we
      place, enabling us to pass on price adjustments to our customers. As steel
      rolls
      have an extremely long shelf-life, obsolescence is not a major concern and
      we
      may build up our inventory during such periods when prices are
      low.




**Competition**




Our
      business is concentrated in the niche low carbon ultra-thin cold-rolled
      precision steel and high-carbon, high strength cold-rolled steel processing
      and
      is not in direct competition with large Chinese steelmakers such as Baosteel
      Group Corporation and Magang Group. China’s large steelmakers concentrate on the
      production of crude steel and hot-rolled steel from iron ore imported from
      Brazil and Australia. Hot-rolled steel coils produced by these steelmakers
      are
      then supplied as raw materials to high precision steel manufacturers, such
      as
      CPSL, for cold reduction processing to the desired thickness and applications.
      Cold-rolled steel products are then sold to manufacturers and other customers
      in
      industries such as automobile and food packaging.




9




Our
      business is becoming increasingly competitive and capital intensive, and
      competition comes primarily from importers. Some of our competitors have
      financial resources, staff and facilities substantially greater than ours and
      we
      may be at a competitive disadvantage compared with larger steel companies.
      Our
      domestic competition in China’s ultra-thin cold-rolled precision steel segment
      mainly comes from Qinghuangdao Longteng Precision Strip Co., Limited. However,
      we understand that Longteng’s production capabilities are for cold-rolled steel
      with widths of approximately 400 mm, whereas our cold-rolled steel mills have
      a
      width of 1000 mm to 1400 mm (or up to 1450 mm with the planned addition of
      the
      third cold-rolling mill). Consequently, Longteng’s products are sold in a
      different market segment than ours and are not considered to be direct
      competition. In the high carbon cold-rolled steel products segment, we mainly
      compete with imports from Shinwha Steel Co., Ltd. in Korea. Further, there
      are
      potential competitors who are currently constructing mills that are expected
      to
      produce precision and specialty steel products both in China and
      internationally.




Although
      there is intense competition in China’s steel industry, this affects mostly
      low-end or long steel products. CPSL is currently the only supplier of high
      carbon, high strength cold-rolled steel products with a thickness up to 6.0
      mm
      in China. We are not aware of any other Chinese manufacturer processing high
      carbon cold-rolled steel products with this specification. In addition, the
      low
      carbon precision cold-rolled steel products in the thickness range between
      0.1
      to 0.2 mm are traditionally dominated by Japanese manufacturers with higher
      production costs. We started exporting low carbon products in this range during
      fiscal 2007. We are not aware of any other manufacturer currently competing
      in
      this specific low carbon segment in the global market that is from a
      non-Japanese background.





**Regulation**




The
      Chinese legal system is based upon a civil law system of written statutes.
      Unlike the common law system in the United States, prior court decisions may
      be
      cited for reference but are not binding on subsequent cases and have limited
      value as precedent. Since 1979, the PRC legislative bodies have promulgated
      laws
      and regulations dealing with economic matters such as foreign investment,
      corporate organization and governance, commerce, taxation and trade. We are
      subject to numerous Chinese provincial and local laws and regulations, which
      may
      be changed from time to time in response to economic or political conditions
      and
      have a significant impact upon overall operations. Changes in these regulations
      could require us to expend significant resources to comply with new laws or
      regulations or changes to current requirements and could have a material adverse
      effect on our operations and financial results.




The
      China
      Central Government has promulgated a series of ongoing macro-control policies
      which focus on the improvement of the country’s investment structure, with the
      goal to secure a fast and sound development of the national economy. Excessive
      investment in certain sectors is placed under stringent control while incentives
      are given to other sectors.




***Currency*** .
      The
      value of the Renminbi, the main currency used in China, fluctuates and is
      affected by, among other things, changes in China’s political and economic
      conditions. The conversion of Renminbi into foreign currencies such as the
      U.S.
      dollar has been generally based on rates set by the People’s Bank of China,
      which are set daily based on the previous day’s interbank foreign exchange
      market rates and current exchange rates on the world financial markets. The
      official exchange rate had remained stable over the past several years. However,
      China has adopted a floating rate with respect to the Renminbi, with a 0.3%
      fluctuation and is expected to appreciate against other currencies, including
      the U.S. dollar.




In
      addition, the Renminbi is not a freely convertible currency at this time. Except
      for export sales revenues in United States dollars, we receive all of our local
      sales revenues in Renminbi. Payments of dividends and other expenditures in
      foreign currencies outside China by us will require the conversion of Renminbi
      into other currencies. We are able to make payments (including dividends) in
      foreign currencies upon presentation of business documents through banks in
      China authorized to conduct foreign currency transactions without the prior
      approval from the PRC State Administration of Foreign Exchange (“SAFE”). The
      Chinese government has indicated that it will consider allowing the free
      conversion of Renminbi into other currencies. However, there is no assurance
      that it will not impose foreign exchange controls on normal transactions in
      the
      future.




***Environment*** .
      We are
      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
      State
      Environmental Protection Administration Bureau is responsible for the
      supervision of environmental protection, the implementation of national
      standards for environmental quality and discharge of pollutants, and supervision
      of the environmental management system in China. Environmental protection
      bureaus at the county level or above are responsible for environmental
      protection within their jurisdictions. The laws and regulations on environmental
      protection require each company to prepare environmental impact statements
      for a
      construction project to the environmental protection bureaus at the county
      level. These must be prepared prior to when the construction, expansion or
      modification commences.




10




The
      Environmental Protection Law requires production facilities that may cause
      pollution or produce other toxic materials to take steps to protect the
      environment and establish an environmental protection and management system.
      The
      system includes the adoption of effective measures to prevent and control
      exhaust gas, sewage, waste residues, dust and other waste materials. Entities
      discharging pollutants must register with the relevant environmental protection
      authorities.




Penalties
      for breaching the Environmental Protection Law include a warning, payment of
      a
      penalty calculated on the damage incurred, or payment of a fine. When an entity
      has failed to adopt preventive measures or control facilities that meet the
      requirements of environmental protection standards, it may be required to
      suspend its production or operations and pay a fine. Material violations of
      environmental laws and regulations causing property damage or casualties may
      also be subject to criminal liabilities.




We
      believe that the current production and operating activities of CPSL are in
      compliance with the environmental protection requirements. We are not subject
      to
      any admonition, penalty, investigations or inquiries imposed by the
      environmental regulators, nor are we subject to any claims or legal proceedings
      to which we are named as defendant for violation of any environmental laws
      and
      regulations. To the best of our knowledge, CPSL’s cold-rolled mills produce no
      impermissible emissions. Our pickling process is outsourced to a local company
      which is wholly-responsible for any failure to comply with applicable law.
      In
      addition, our production facilities in Shanghai are on land formerly used for
      rice farming. We have no reason to believe that such land has been subjected
      to
      any prior contamination.




***Patent
      Protection*** .
      The
      PRC’s intellectual property protection regime is consistent with those of other
      modern industrialized countries, although enforcement of rights may prove
      difficult and complex. China has domestic laws for the protection of rights
      in
      copyrights, patents, trademarks and trade secrets. The PRC is also a signatory
      to most of the world’s major intellectual property conventions,
      including:




§
              Convention
                  establishing the World Intellectual Property Organization (WIPO
                  Convention) (June 4, 1980);
  §
              Paris
                  Convention for the Protection of Industrial Property (March 19,
                  1985);
  §
              Patent
                  Cooperation Treaty (January 1, 1994);
                  and
  §
              The
                  Agreement on Trade-Related Aspects of Intellectual Property Rights
                  (TRIPs)
                  (November 11, 2001).


Patents
      are governed by the China Patent Law and its Implementing Regulations, each
      of
      which went into effect in 1985 and have been amended subsequently. China is
      a
      signatory to the Paris Convention for the Protection of Industrial Property,
      in
      accordance with which any person who has duly filed an application for a patent
      in one signatory country shall enjoy, for the purposes of filing in the other
      countries, a right of priority during the period fixed in the convention (12
      months for inventions and utility models, and 6 months for industrial
      designs).





The
      Patent Law covers three kinds of patents, i.e. patents for inventions, utility
      models and designs. The Chinese patent system adopts the principle of first
      to
      file. This means that, where more than one person files a patent application
      for
      the same invention, a patent can only be granted to the person who first filed
      the application. Consistent with international practice, the PRC only allows
      the
      patenting of inventions or utility models that possess the characteristics
      of
      novelty, inventiveness and practical applicability. For a design to be
      patentable, it should not be identical with or similar to any design which,
      before the date of filing, has been publicly disclosed in publications in the
      country or abroad or has been publicly used in the country and should not be
      in
      conflict with any prior right of another.





PRC
      law
      provides that anyone wishing to exploit the patent of another must conclude
      a
      written licensing contract with the patent holder and pay the patent holder
      a
      fee. One rather broad exception to this, however, is that where a party
      possesses the means to exploit a patent but cannot obtain a license from the
      patent holder on reasonable terms and in a reasonable period of time, the PRC
      State Intellectual Property Office, or SIPO, is authorized to grant a compulsory
      license. A compulsory license can also be granted where a national emergency
      or
      any extraordinary state of affairs occurs or where the public interest so
      requires. SIPO, however, has not granted any compulsory license up to now.
      The
      patent holder may appeal such decision within three months from receiving
      notification by filing a suit in the People’s Court.




PRC
      law
      defines patent infringement as the exploitation of a patent without the
      authorization of the patent holder. A patent holder who believes his patent
      is
      being infringed may file a civil suit or file a complaint with a PRC local
      Intellectual Property Administrative Authority, which may order the infringer
      to
      stop the infringing acts. A preliminary injunction may be issued by the People’s
      Court upon the patentee’s or the interested parties’ request before instituting
      any legal proceedings or during the proceedings. Evidence preservation and
      property preservation measures are also available both before and during the
      litigation. Damages in the case of patent infringement is calculated as either
      the loss suffered by the patent holder arising from the infringement or the
      benefit gained by the infringer from the infringement. If it is difficult to
      ascertain damages in this manner, damages may be reasonably determined in an
      amount in excess of the license fee under a contractual license. The infringing
      party may be also fined by Administration of Patent Management in an amount
      of
      up to three times the unlawful income earned by such infringing party. If there
      is no unlawful income so earned, the infringing party may be fined in an amount
      of up to RMB500,000, or approximately $62,500.




11




***Enterprise
      Income Tax*** .
      The
      Enterprise Income Tax Law was passed on March 16, 2007 and became effective
      on
      January 1, 2008. The new law introduced fundamental changes to the Chinese
      tax
      system for both domestic and foreign-owned entities. A new unified general
      income tax of 25% is now applicable to enterprises in China.





Previously,
      certain entities, such as Chengtong, were entitled to preferential tax
      advantages in China, commonly referred to as “tax holidays”. Under the tax
      holiday regime, entities received a full exemption on the enterprise income
      tax
      generated in the first two years after recovery of previous losses and a
      one-half reduction of the tax rate for the next three years. Entities subject
      to
      a “tax holiday” prior to January 1, 2008, are expected to be able to retain the
      benefits of the reduced rates for the remaining term.





***Labor
      Contract Law*** .
      The new
      Labor Contract Law took effect January 1, 2008, and governs standard terms
      and
      conditions for employment, including termination and lay-off rights, contract
      requirements, compensation levels and consultation with labor unions, among
      other topics. In addition, the law limits non-competition agreements with senior
      management and other employees with knowledge of trade secrets to two years
      and
      imposes restrictions or geographical limits.





**Intellectual
      Property**




On
      December 8, 2004, the State Intellectual Property Office in China granted a
      ten-year patent right to the “Environment-Conscious Mill Bearing with Inner
      Circulation Lubricant” to Shanghai Chengtong Precision Strip Company Limited and
      Shanghai Te’an-Yikai Bearing Co., Limited. The patented bearing is installed in
      the Company’s existing cold-roll mill and, together with the Company’s internal
      know-how complementary to the patented bearing, the Company believes it
      addresses a number of issues associated with the bearing lubrication in
      cold-rolling and ensures smooth and effective operation of the cold-roll mill.
      There is no direct or indirect affiliation between the Company and Shanghai
      Te’an-Yikai Bearing Co, Limited. The Company and Shanghai Te’an-Yikai Bearing
      Co., Limited jointly developed the environment-conscious mill bearing with
      inner
      circular lubrication. Shanghai Te’an-Yikai Bearing Co., Limited retains the
      proprietary right to the technology while the Company has the exclusive right
      to
      the application of the technology.




We
      have
      elected not to register any other patents and internally developed know-how
      because of the uncertainty over the ability to enforce intellectual property
      rights in China. CPSL also protects its internally developed know-how and
      production process (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 members) to sign non-disclosure
      and
      confidentiality contracts.




There
      can
      be no assurance that third parties will not assert infringement or other claims
      against us with respect to any of our existing or future products or processes.
      There can be no assurance that licenses would be available if any of our
      technology was successfully challenged by a third party, or if it became
      desirable to use any third-party technology to enhance our products. Litigation
      to protect our proprietary information or to determine the validity of any
      third-party claims could result in a significant expense and divert the efforts
      of our technical and management personnel, whether or not such litigation is
      determined in our favor.




While
      we
      have no knowledge that we are infringing upon the proprietary rights of any
      third party, there can be no assurance that such claims will not be asserted
      in
      the future with respect to existing or future products or processes. Any such
      assertion by a third party could require us to pay royalties, to participate
      in
      costly litigation and defend licensees in any such suit pursuant to
      indemnification agreements, or to refrain from selling an alleged infringing
      product.




**Research
      and Development**




As
      of
      June 30, 2008, we had three experienced engineers and technicians in the
      Research and Development Department. The Research and Development Department
      focuses on new product development, and the advancement and improvement in
      quality and manufacturing technique of ultra-thin and high-strength cold-rolled
      steel strip. In addition to the traditional research and development activities,
      our engineers frequently interact with customers to detect changes in “patterns”
and customers’ specifications arising from constantly changing industry
      needs.




Further,
      we are working on research and development projects involving coiled springs
      for
      automotive seat belts and steel for igniters in automotive air bag inflation
      devices. The amount spent on research and development activities each year
      is
      approximately 1% of our revenue for such year. We have budgeted 1% of revenues
      to be spent for research and development activities for fiscal
      2009.




12




**Quality
      Control**




Following
      the accreditation of the International Organization for Standardization (“ISO”)
      Technical Standards (“TS”) 16949 on October 8, 2004, CPSL implemented the
      Quality Handbook in October 2004. This Quality Handbook was prepared on the
      basis and standards of the ISO/TS16949 specifications and which ISO Technical
      Specifications are compatible with existing American (QS-9000), German (VDA6.1),
      French (EAQF) and Italian (AVSQ) automotive quality systems standards within
      the
      global automotive industry. Together with ISO 9001:2000, ISO/TS 16949 specifies
      the quality system requirements for the design, development, production,
      installation and servicing of automotive related products.




**Taxes**





As
      a
      wholly foreign-owned enterprise, Chengtong has been entitled to preferential
      tax
      advantages in China, 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.





On
      April
      10, 2007, PSHL purchased for $100,000 Blessford International Limited, a British
      Virgin Islands company. Blessford International Limited does not conduct any
      business, but it owns a single subsidiary, Shanghai Blessford Alloy Company
      Limited, that is a wholly foreign owned enterprise (“WFOE”) chartered in China.
      As a WFOE, Shanghai Blessford is entitled to preferential tax advantages in
      China, 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 for the next 3 years. The full
      tax exemption for the enterprise income tax will expired on December 31, 2009
      and the right to a one-half reduction on the enterprise income tax will expire
      on December 31, 2012.




As
      discussed above under “Regulation,” the Enterprise Tax Law took effect on
      January 1, 2008. Under this law, a unified tax of 25% is applicable to most
      enterprises, including Chengtong and Shanghai Blessford. Chengtong will be
      subject to the 25% tax rate from January 1, 2009 and Shanghai Blessford will
      be
      subject to one-half of the 25% tax rate from December 31, 2009 respectively.




**Employees**




As
      of
      June 30, 2008, we had a total of 283 employees. Our management team is comprised
      of 30 employees overseen by a General Manager and an Assistant General Manager.
      Our production employees are not subject to collective bargaining
      agreements.




Each
      employee must enter into multiple employment contracts, including a
      non-competition agreement, with CPSL which are then filed with the municipal
      government. All employees receive a base monthly salary. Management are entitled
      to a year-end bonus up to 100% of their annual salary based upon our overall
      performance results, seniority and individual performance and contribution
      to
      the Company. Production employees are entitled to a monthly bonus calculated
      on
      the basis of the quality of the products produced, volume, safety, careful
      use
      of equipment and efficient energy saving.




CPSL’s
      employees are currently not entitled to participate in our 2006 Omnibus
      Long-Term Incentive Plan. Benefits are mandated by the Chinese government and
      include social security, pension benefits, and medical insurance. These benefits
      are paid in full by us and equate to approximately 40% of our annual salary
      expenditures.




**Property**




CPSL
      operates in 20,000 square meters of production and office facilities in Jiading
      District, Shanghai, located on four acres of property held by its wholly-owned
      subsidiary, Shanghai Tuorong Precision Strip Company Limited, which became
      a
      wholly-owned subsidiary of the Company in April 2007.




**ITEM
      1A. RISK FACTORS**




***We
      operate in a highly competitive environment in which there are numerous factors
      which can influence our business, financial position or results of operations
      and which can also cause the market value of our common stock to decline. Many
      of these factors are beyond our control and therefore, are difficult to predict.
      The following section sets forth what we believe to be the principal risks
      that
      could affect us, our business or our industry, and which could result in a
      material adverse impact on our financial results or cause the market price
      of
      our common stock to fluctuate or decline.***




13


**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 our 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 our 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, which could
      adversely impact our results.***




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 growth
      rates. Because China is now the largest worldwide steel producer, any
      significant excess in Chinese capacity could have a major impact on domestic
      and
      international steel trade and prices.




***Environmental
      compliance and remediation could result in substantially increased capital
      requirements and operating costs.***




Our
      operating subsidiaries, Chengtong and Shanghai Blessford, are 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. Our consolidated business and operating results could be materially
      and adversely affected if our operating subsidiaries were required to increase
      expenditures to comply with any new environmental regulations affecting its
      operations.




***We
      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
      our growth, production capability and profitability. To achieve the next phase
      of our 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 us, 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 our common stock and could also cause the market
      price of our common stock to decline.




***We
      face significant competition from competitors who have greater resources than
      we
      do, and we may not have the resources necessary to successfully compete with
      them.***




We
      are
      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 can be price sensitive. Competitors may increase their market
      share through pricing strategies that adversely impact our business. Our
      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. Our competitors may have financial resources,
      staff and facilities substantially greater than ours and we may be at a
      competitive disadvantage compared with larger companies.




***We
      produce a limited number of products and may not be able to respond quickly
      to
      significant changes in the market or new market
      entrants.***




Cold-rolled
      specialty precision steel is a relatively new industry in China; Chinese
      manufacturers of durable goods previously relied solely on imports from Japan,
      Korea, the European Union and the United States. We believe the average quality
      and standards of products of China’s high precision steel industry lags behind
      the international norm. During the last three years, we have developed a
      nationally recognizable brand, however, we are not yet an internationally
      recognizable brand for our specialty steel products. Although we offer more
      than
      40 high precision steel products, there are many other specialty precision
      steel
      products of similar nature in the market, even though none currently compete
      directly with our products. If there are significant changes in market demands
      and/or competitive forces, we may not be able to change our product mix or
      adapt
      our production equipment quickly enough to meet customers’ needs. Under such
      circumstances, our narrow band of precision steel products and/or new market
      entrants may negatively impact our financial performance.




14




***Increased
      imports of steel products into China could negatively affect domestic steel
      prices and demand levels and reduce profitability of domestic producers,
      including CPSL.***




Through
      June 2008, China’s total production of cold-rolled steel sheets increased
      approximately 36% over the comparable period in 2007. However, domestic
      production continues to be insufficient to meet demand. As a result, China
      continues to import a significant portion of its steel products. 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 our precision steel products.




***We
      are dependent on our Chinese manufacturing operations to generate the majority
      of our income and profits, and the deterioration of any current favorable local
      conditions may make it difficult or prohibitive to continue to operate or expand
      in China.***





Our
      current manufacturing operations are located in China, our administrative
      offices are in Hong Kong and we have additional establishments in the British
      Virgin Islands. The geographical distances between these facilities create
      a
      number of logistical and communications challenges, including time differences
      and differences in the cultures in each location, which makes communication
      and
      effective cooperation more difficult.  In addition, because of the location
      of the manufacturing facilities in China, our operations in China could be
      affected by, among other things:


§
              economic
                  and political instability in China, including problems related
                  to labor
                  unrest,
  §
              lack
                  of developed infrastructure,
  §
              variances
                  in payment cycles,
  §
              currency
                  fluctuations,
  §
              overlapping
                  taxes and multiple taxation issues,
  §
              employment
                  and severance taxes,
  §
              compliance
                  with local laws and regulatory
                  requirements,
  §
              greater
                  difficulty in collecting accounts receivable,
                  and
  §
              the
                  burdens of cost and compliance with a variety of foreign
                  laws.


Moreover,
      inadequate development or maintenance of infrastructure in China, including
      adequate power and water supplies, transportation, raw materials availability
      or
      the deterioration in the general political, economic or social environment
      could
      make it difficult, more expensive and possibly prohibitive to continue to
      operate or expand our facilities in China.





***Our
      operations are international and we are subject to significant worldwide
      political, economic, legal and other uncertainties that may make it difficult
      or
      costly to collect amounts owed to us or to conduct operations should materials
      needed from certain places be unavailable for an indefinite or extended period
      of time.***





We
      have
      subsidiaries in the British Virgin Islands and China. We manufacture all of
      our
      products in China and substantially all of the net book value of our total
      fixed
      assets is located there. However, we sell our products to customers outside
      of
      China as well as domestically. As a result, we have receivables from and goods
      in transit to locations outside of China. Protectionist trade legislation in
      the
      United States or other countries, such as a change in export or import
      legislation, tariff or duty structures, or other trade policies, could adversely
      affect our ability to sell products in these markets, or even to purchase raw
      materials or equipment from foreign suppliers. Moreover, we are subject to
      a
      variety of United States laws and regulations, changes to which may affect
      our
      ability to transact business with certain customers or in certain product
      categories.





In
      China,
      our operating subsidiaries Chengtong and Shanghai Blessford are subject to
      numerous national, provincial and local governmental regulations, all of which
      can limit our ability to react to market pressures in a timely or effective
      way,
      thus causing us to lose business or miss opportunities to expand our business.
      These include, among others, regulations governing:


§
              environmental
                  and waste management,
  §
              our
                  relationship with our employees, including: wage and hour requirements,
                  working and safety conditions, citizenship requirements, work permits
                  and
                  travel restrictions,
  15
  §
              property
                  ownership and use in connection with our leased facilities in China,
                  and
  §
              import
                  restrictions, currency restrictions and restrictions on the volume
                  of
                  domestic sales.


***The
      end-use markets for certain of our products are highly competitive and customers
      are willing to accept substitutes for our products which could reduce our
      results of operations.***




Buyers
      of
      certain cold-rolled steel products are in highly competitive markets.
      Cold-rolled precision steel competes with other materials, such as aluminum,
      plastics, composite materials and glass, among others, for industrial and
      commercial applications. Customers have demonstrated a willingness to substitute
      other materials for cold-rolled steel. The willingness of our customers to
      accept substitutes for cold-rolled steel products could have a material adverse
      effect on our financial results.




***We
      may not be able to pass on to customers the increases in the costs of our raw
      materials, particularly crude steel***  **.**





We
      require substantial amounts of raw materials in our business, consisting
      principally of steel slabs and strip steel. Any substantial increases in the
      cost of crude steel could adversely affect our financial condition and results
      of operations. The availability and price of crude steel depends on a number
      of
      factors outside our control, including general economic conditions, domestic
      and
      international supply and tariffs. Increased domestic and worldwide demand for
      crude steel has had and will continue to have the effect of increasing the
      prices that we pay for these raw materials, thereby increasing our cost of
      goods
      sold. Generally, there is a potential time lag between changes in prices under
      our purchase contracts and the point when we can implement a corresponding
      change under our sales contracts with our customers. As a result, we can be
      exposed to fluctuations in the price of raw materials, since, during the time
      lag period, we may have to temporarily bear the additional cost of the change
      under our purchase contracts, which could have a material adverse effect on
      our
      profitability. If raw material prices were to increase significantly without
      a
      commensurate increase in the market value of our products, our financial
      condition and results of operations would be adversely affected.





***Although
      we are dependent on a steady flow of raw materials for our operations, we do
      not
      have in place long-term supply agreements for all of our material
      requirements.***




We
      rely
      on several suppliers to provide us with the raw materials used in our
      operations, although a substantial portion of our raw material requirements
      is
      met by BaoSteel Steel Products Trading Co., Ltd. We do not currently have
      long-term supply contracts with any particular supplier, including BaoSteel
      Steel Products Trading Co., Ltd., to assure a continued supply of the raw
      materials we need. While we maintain good relationships with these suppliers,
      the supply of raw materials may nevertheless be interrupted on account of events
      outside our control, which will negatively impact our operations.





***We
      have substantial indebtedness with floating interest rates and the cost of
      our
      borrowings may increase.***




We
      are
      subject to interest rate risk on our non-derivative financial instruments.
      We do
      not hedge our interest rate risk. At June 30, 2008, our total bank debt
      outstanding was $17,465,799, all of which was interest-bearing. Substantially
      all 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, we will be liable
      for higher interest payments to its lenders. We anticipate that annual interest
      on loans for the fiscal year ending June 30, 2009, will be approximately $1.3
      million. The impact of a 1% increase in interest rates will increase interest
      expense by approximately $175,000. As our short-term borrowings mature, we
      will
      be required to either repay or refinance these borrowings. An increase in
      short-term interest rates at the time that we seek to refinance short-term
      borrowings may increase the cost of borrowings, which may adversely affect
      our
      earnings and cash available for distribution to our stockholders.




At
      June
      30, 2008, the aggregate fair value of our financial instruments with exposure
      to
      interest rate risk was approximately $17 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 $0.1 million at June 30,
      2008.




***The
      loss of any key executive or our failure to attract and retain key personnel
      could adversely affect our future performance, strategic plans and other
      objectives.***




The
      loss
      or failure to attract and retain key personnel could significantly impede our
      future performance, including product development, strategic plans, marketing
      and other objectives. Our success depends to a substantial extent not only
      on
      the ability and experience of our senior management, but particularly upon
      our
      Chairman, Wo Hing Li; the General Manager of Chengtong, Hai Sheng Chen; and
      Chief Financial Officer, Leada Tak Tai Li. We do 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
      us, we 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.




16




***We
      may not be able to retain, recruit and train adequate management and production
      personnel. We rely heavily on those personnel to help develop and execute our
      business plans and strategies, and if we lose such personnel, it would reduce
      our ability to operate effectively.***





Our
      continued operations are dependent upon our ability to identify and recruit
      adequate management and production personnel in China. We require trained
      graduates of varying levels and experience and a flexible work force of
      semi-skilled operators. Many of our current employees come from the more remote
      regions of China as they are attracted by the wage differential and prospects
      afforded by Shanghai and our operations. With the economic growth currently
      being experienced in China, competition for qualified personnel is substantial,
      and there can be no guarantee that a favorable employment climate will continue
      and that wage rates we must offer to attract qualified personnel will enable
      us
      to remain competitive internationally. The inability to attract such personnel
      or the increased cost of doing so could reduce our competitive advantage
      relative to other precision steel producers, reducing or eliminating our growth
      in revenues and profits.





***We
      may not be able to protect adequately our intellectual property from
      infringement or unauthorized use by third parties.***




Except
      for a patent on the Environment-Conscious Mill Bearing with Inner Circular
      Lubrication, we have no patents or licenses that protect our intellectual
      property. Unauthorized parties may attempt to copy aspects of our processes
      and
      know-how or to obtain and use information that we regard as proprietary.
      Policing unauthorized use of our processes and know-how is difficult. Our
      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
      we
      rely heavily on them. CPSL has 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, this means of protecting our proprietary
      rights may not be adequate. In addition, the laws of some foreign countries
      do
      not protect our proprietary rights as extensively as do U.S. laws. Our failure
      to protect adequately our proprietary rights may allow third parties to
      duplicate our products, production processes or develop functionally equivalent
      or superior technology. In addition, our competitors may independently develop
      similar technologies or design around our proprietary intellectual
      property.




***We
      are subject to risks associated with changing technology and manufacturing
      techniques, which could place us at a competitive
      disadvantage.***





The
      successful implementation of our business strategy requires us to continuously
      evolve our existing products and services and introduce new products and
      services to meet customers’ needs. Our designs and products are characterized by
      stringent performance and specification requirements that mandate a high degree
      of manufacturing and engineering expertise. We believe that our customers
      rigorously evaluate our services and products on the basis of a number of
      factors, including, but not limited to:


§
              quality,
  §
              price
                  competitiveness,
  §
              technical
                  expertise and development
                  capability,
  §
              innovation,
  §
              reliability
                  and timeliness of delivery,
  §
              product
                  design capability,
  §
              operational
                  flexibility,
  §
              customer
                  service, and
  §
              overall
                  management.


Our
      success depends on our ability to continue to meet our customers’ changing
      requirements and specifications with respect to these and other criteria. There
      can be no assurance that we will be able to address technological advances
      or
      introduce new designs or products that may be necessary to remain competitive
      within the precision steel industry.




17




***We
      depend upon our largest customers for a significant portion of our sales
      revenue, and we cannot be certain that sales to these customers will continue.
      If sales to these customers do not continue, then our sales may decline and
      our
      business may be negatively impacted.***




We
      currently supply high precision steel products to five major customers in the
      Chinese domestic market. For the years ended June 30, 2008 and 2007, sales
      revenues generated from the top five major customers amounted to 62% and 51%
      of
      total sales revenues, respectively; sales to the largest single customer
      for the same periods amounted to 21% and 23% of total sales revenues,
      respectively. We do not enter into long-term contracts with our 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 our sales revenues and business.





***Defects
      in our products could impair our ability to sell products or could result in
      litigation and other significant costs.***




Detection
      of any significant defects in our 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 our reputation,
      litigation or fines, or increased costs to correct such defects. Defects could
      harm our reputation, which could result in significant costs and could impair
      our ability to sell our products. The costs we may incur in correcting any
      product defects may be substantial and could decrease our profit
      margins.




***Failure
      to optimize our manufacturing potential and cost structure could materially
      increase our overhead, causing a decline in our margins and profitability.***  **





We
      strive
      to utilize the manufacturing capacity of our facilities fully but may not do
      so
      on a consistent basis. Our factory utilization is dependent on our success
      in,
      among other things:


§
              accurately
                  forecasting demand,
  §
              predicting
                  volatility,
  §
              timing
                  volume sales to our customers,
  §
              balancing
                  our productive resources with product mix,
                  and
  §
              planning
                  manufacturing services for new or other products that we intend
                  to
                  produce.


Demand
      for contract manufacturing of these products may not be as high as we expect,
      and we may fail to realize the expected benefit from our investment in our
      manufacturing facilities. Our profitability and operating results are also
      dependent upon a variety of other factors, including, but not limited
      to:


§
              utilization
                  rates of manufacturing lines,
  §
              downtime
                  due to product changeover,
  §
              impurities
                  in raw materials causing shutdowns,
                  and
  §
              maintenance
                  of contaminant-free operations.


Failure
      to optimize our manufacturing potential and cost structure could materially
      and
      adversely affect our business and operating results.




Moreover,
      our cost structure is subject to fluctuations from inflationary pressures in
      China and other geographic regions where we conduct business. China is currently
      experiencing dramatic growth in its economy. This growth may lead to continued
      pressure on wages and salaries that may exceed our budget and adversely affect
      our operating results.








***Our
      production facilities are subject to risks of power shortages which may
      adversely affect our ability to meet our customers’ needs and reduce our
      revenues.***




Many
      cities and provinces in China have suffered serious power shortages since the
      second quarter of 2004. Many of the regional grids do not have sufficient power
      generating capacity to fully satisfy the increased demand for electricity driven
      by continual economic growth and persistent hot weather. Local governments
      have
      occasionally required local factories to temporarily shut down their operations
      or reduce their daily operational hours in order to reduce local power
      consumption levels. To date, our operations have not been affected by those
      administrative measures. However, there is a risk that our operations may be
      affected by those administrative measures in the future, thereby causing
      material production disruption and delay in delivery schedule. In such event,
      our business, results of operation and financial conditions could be materially
      adversely affected. We do not have any back-up power generation system. Although
      we have not experienced any power outages in the past, we may be adversely
      affected by power outages in the future.




18




***Unexpected
      equipment failures may lead to production curtailments or
      shutdowns.***




Interruptions
      in our production capabilities will adversely affect our production costs,
      products available for sales and earnings for the affected period. In addition
      to equipment failures, our facilities are also subject to the risk of
      catastrophic loss due to unanticipated events such as fires, explosions or
      violent weather conditions. Our manufacturing processes are dependent upon
      critical pieces of equipment, such as our various cold-rolling mills, as well
      as
      electrical equipment, such as transformers, and this equipment may, on occasion,
      be out of service as a result of unanticipated failures. We have experienced
      and
      may in the future experience material plant shutdowns or periods of reduced
      production as a result of such equipment failures.




***Our
      insurance may not be adequate if our production facilities were destroyed or
      significantly damaged as a result of fire or some other natural
      disaster.***




All
      of
      our products are currently manufactured at our 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
      we
      maintain property damage insurance aggregating approximately $18.5 million
      covering our raw materials, finished goods, equipment and buildings and another
      $10.5 million insurance against equipment breakdown, we do not maintain business
      interruption insurance. Material damage to, or the loss of, our production
      facilities due to fire, severe weather, flood or other act of God or cause,
      even
      if insured, could have a material adverse effect on our financial condition,
      results of operations, business and prospects.




***Our
      limited operating history may not serve as an adequate basis to judge our future
      prospects and results of operations.***




Our
      limited operating history may not provide a meaningful basis on which to
      evaluate our business. Although our revenues have grown rapidly since inception,
      we might not be able to maintain our profitability or we may incur net losses
      in
      the future. We expect that our operating expenses will increase as we expand.
      Any significant failure to realize anticipated revenue growth could result
      in
      significant operating losses. We will continue to encounter risks and
      difficulties frequently experienced by companies at a similar stage of
      development, including our potential failure to:


§
              Implement
                  our business model and strategy and adapt and modify them as
                  needed;
  §
              Manage
                  our expanding operations and product
                  offerings;
  §
              Maintain
                  adequate control of our expenses;
  §
              Anticipate
                  and adapt to changing conditions in the precision steel markets
                  in which
                  we operate as well as the impact of any changes in government regulation;
                  and
  §
              Anticipate
                  mergers and acquisitions involving our competitors, technological
                  developments and other significant competitive and market
                  dynamics.


Our
      business, business prospects and results of operations will be affected if
      we
      are not successful in addressing any or all of these risks and
      difficulties.




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





We
      are
      subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits
      United States companies from engaging in bribery or other prohibited payments
      to
      foreign officials for the purpose of obtaining or retaining business. In
      addition, we are required to maintain records that accurately and fairly
      represent our transactions and have an adequate system of internal accounting
      controls. Foreign companies, including some that may compete with us, are not
      subject to these prohibitions, and therefore may have a competitive advantage
      over us. Corruption, extortion, bribery, pay-offs, theft and other fraudulent
      practices occur from time-to-time in the PRC, and our executive officers and
      employees have not been subject to the U.S. Foreign Corrupt Practices Act prior
      to the completion of the Stock Exchange Agreement in December 2006. We can
      make
      no assurance that our employees or other agents will not engage in such conduct
      for which we might be held responsible. If our employees or other agents are
      found to have engaged in such practices, we could suffer severe penalties and
      other consequences that may have a material adverse effect on our business,
      financial condition and results of operations.




19




***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based upon U.S. laws,
      including the federal securities laws or other foreign laws against us or our
      management.***





Substantially
      all of our current operations are conducted in China. Moreover, all but one
      of
      our directors and all of our officers are nationals and residents of China
      or
      Hong Kong. All or substantially all of the assets of these persons are located
      outside the United States. As a result, it may not be possible to effect service
      of process within the United States or elsewhere outside of China or Hong Kong
      upon these persons. In addition, uncertainty exists as to whether the courts
      of
      China or Hong Kong would recognize or enforce judgments of U.S. courts obtained
      against us or our officers and/or directors predicated upon the civil liability
      provisions of the securities law of the United States or any state thereof,
      or
      be competent to hear original actions brought in China or Hong Kong against
      us
      or such persons predicated upon the securities laws of the United States or
      any
      state thereof.




**Risks
      Relating to China**




***We
      face 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.***




CPSL’s
      manufacturing facility is located in Shanghai, China. As of June 30, 2008,
      substantially all of our assets are located in China and, except for exports
      which were approximately 18% of sales revenues for the year ended June 30,
      2008,
      all of our sales revenues are generated in China. Our 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. Our operations and results could be materially affected by a
      number of factors, including, but not limited to:


§
              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, and
  §
              the
                  expropriation of private
                  enterprise.




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
      our business could be adversely affected. CPSL could even be subject to the
      risk
      of nationalization, which could result in the total loss of our stockholders’
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 us.
      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.




***Chinese
      laws and regulations governing our current business operations are sometimes
      vague and uncertain. Any changes in such Chinese laws and regulations may have
      a
      material and adverse effect on our business.***




China’s
      legal system is a civil law system based on written statutes, in which system
      decided legal cases have little value as precedents unlike the common law system
      prevalent in the United States. There are substantial uncertainties regarding
      the interpretation and application of Chinese laws and regulations, including
      but not limited to the laws and regulations governing our business, or the
      enforcement and performance of our arrangements with customers in the event
      of
      the imposition of statutory liens, death, bankruptcy and criminal proceedings.
      The Chinese government has been developing a comprehensive system of commercial
      laws, and considerable progress has been made in introducing laws and
      regulations dealing with economic matters such as foreign investment, corporate
      organization and governance, commerce, taxation and trade. However, because
      these laws and regulations are relatively new, and because of the limited volume
      of published cases and judicial interpretation and their lack of force as
      precedents, interpretation and enforcement of these laws and regulations involve
      significant uncertainties. New laws and regulations that affect existing and
      proposed future businesses may also be applied retroactively. We are considered
      a foreign person or foreign funded enterprise under Chinese laws, and as a
      result, we are required to comply with Chinese laws and regulations. We cannot
      predict what effect the interpretation of existing or new Chinese laws or
      regulations may have on our businesses. If the relevant authorities find us
      in
      violation of Chinese laws or regulations, they would have broad discretion
      in
      dealing with such a violation, including, without limitation:




20




§
              levying
                  fines;
  §
              revoking
                  our business and other licenses;
  §
              requiring
                  that we restructure our ownership or operations;
                  and
  §
              requiring
                  that we discontinue any portion or all of our
                  business.


***Our
      business, results of operations and overall profitability are linked to the
      economic, political and social conditions in China.***





Substantially
      all of our business, assets and operations are located in China. The economy
      of
      China differs from the economies of most developed countries in many respects,
      including government involvement, level of development, growth rate, control
      of
      foreign exchange, and allocation of resources. The economy of China has been
      transitioning from a planned economy to a more market-oriented economy. Although
      the Chinese government has implemented measures recently emphasizing the
      utilization of market forces for economic reform, the reduction of state
      ownership of productive assets and the establishment of sound corporate
      governance in business enterprises, a substantial portion of productive assets
      in China is still owned by the Chinese government. In addition, the Chinese
      government continues to play a significant role in regulating industry by
      imposing industrial policies. It also exercises significant control over China’s
      economic growth through the allocation of resources, controlling payment of
      foreign currency-denominated obligations, setting monetary policy and providing
      preferential treatment to particular industries or companies. Therefore, the
      Chinese government’s involvement in the economy may affect our business
      operations, results of operations and our financial condition.




***A
      slowdown or other adverse developments in the Chinese economy may materially
      and
      adversely affect our customers, demand for our services and our
      business.***





All
      of
      our operations are conducted in China and substantially all of our revenues
      are
      generated from sales to businesses operating in China. Although the Chinese
      economy has grown significantly in recent years, such growth may not continue.
      We do not know how sensitive we are to a slowdown in economic growth or other
      adverse changes in Chinese economy which may affect demand for precision steel
      products. A slowdown in overall economic growth, an economic downturn or
      recession or other adverse economic developments in China may materially reduce
      the demand for our products and in turn reduce our results of operations and
      our
      productivity.




***Inflation
      in China could negatively affect our profitability and
      growth.***





While
      the
      Chinese economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. If prices for our products rise at a rate that is insufficient to
      compensate for the rise in the costs of raw materials, it may have an adverse
      effect on our profitability. In order to control inflation in the past, the
      Chinese government has imposed controls on bank credits, limits on loans for
      fixed assets and restrictions on state bank lending. Such an austerity policy
      can lead to a slowing of economic growth. In October 2004, the People’s Bank of
      China, China’s central bank, raised interest rates for the first time in nearly
      a decade and indicated in a statement that the measure was prompted by
      inflationary concerns in the Chinese economy. Repeated increases in interest
      rates by the central bank will likely slow economic activity in China which
      could, in turn, materially increase our costs and also reduce demand for our
      products.





***Controversies
      affecting China’s trade with the United States could depress our 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 our 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 our common stock.




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





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




21




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





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




***There
      can be no guarantee that China will comply with the membership requirements
      of
      the World Trade Organization, which could leave us subject to retaliatory
      actions by other governments and reduce our ability to sell our products
      internationally.***





China
      has
      agreed that foreign companies will be allowed to import most products into
      any
      part of China.  In the sensitive area of intellectual property rights,
      China has agreed to implement the trade-related intellectual property agreement
      of the Uruguay Round. There can be no assurances that China will implement
      any
      or all of the requirements of its membership in the World Trade Organization
      in
      a timely manner, if at all.  If China does not fulfill its obligations to
      the World Trade Organization, we may be subject to retaliatory actions by the
      governments of the countries into which we sell our products, which could render
      our products less attractive, thus reducing our revenues and
      profits.





***Our
      labor costs are likely to increase as a result of changes in Chinese labor
      laws.***




We
      have
      recently experienced an increase in the cost of labor. Recent changes in Chinese
      labor laws that are effective January 1, 2008 are likely to increase costs
      further and impose restrictions on our relationship with our employees. There
      can be no assurance that the labor laws will not change further or that their
      interpretation and implementation will vary, which may have a material adverse
      effect upon our business and results of operations.




***We
      currently receive preferential tax treatment under Chinese law which will expire
      in 2008 and may negatively impact our profitability.***




The
      new
      Enterprise Income Tax Law was passed on March 16, 2007, and took effect on
      January 1, 2008. The new law introduces fundamental changes to the Chinese
      tax
      system for both domestic and foreign-owned entities. A new unified general
      income tax of 25% is now applicable to enterprises in China. Entities subject
      to
      preferential tax treatment prior to January 1, 2008 are able to retain the
      benefits of the reduced rates for the remaining term. As Wholly Foreign Owned
      Enterprises, or WFOEs, Chengtong is currently enjoying a 50% reduction in the
      25% statutory rates that will expire on December 31, 2008, Shanghai Blessford
      is
      currently enjoying a full tax exemption on the enterprise income tax that will
      expire on December 31, 2009 and entitled to a 50% reduction for the three
      subsequent years expiring on December 31, 2012. Subsequent to the expiry of
      the
      tax holiday, Chengtong and Shanghai Blessford will be subject to enterprise
      income taxes at 25% or the prevailing statutory rates. If we are unable to
      increase gross income by an amount greater than that needed to offset the loss
      of this preferential tax treatment, such a condition could have a material
      adverse effect on the results of operations.




***Fluctuations
      in exchange rates of the Renminbi, or RMB, could adversely affect the value
      of
      and dividends, if any, payable on shares of our common stock or otherwise impact
      our operations and profitability.***




We
      collect revenue from operations principally in the Chinese Renminbi. Except
      for
      recent exports to Nigeria, Thailand, Indonesia and the Philippines, all of
      our
      local sales revenues are collected in and substantially all of its expenses
      are
      paid in the Chinese Renminbi. We face foreign currency rate translation risk
      when CPSL’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.




22




The
      Chinese Renminbi remained stable against the U.S. Dollar at approximately 8.28
      RMB to 1.00 U.S. Dollar for several years until July 21, 2005 when 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. 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. As of
      June 30, 2008, the exchange rate was 6.8543 RMB 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)
      our income and profit are mainly denominated in Renminbi, and (ii) the payment
      of dividends, if any, will be in U.S. Dollars, 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.
      For
      example, to the extent that we need to convert U.S. Dollars we receive from
      an
      offering of our securities into Renminbi for our operations, if the Renminbi
      appreciates against the U.S. Dollar, the Renminbi equivalent of the US Dollar
      we
      convert would be reduced. Conversely, if we decide to convert our Renminbi
      into
      U.S. Dollars for the purpose of making payments for dividends on our common
      stock or for other business purposes and the U.S. Dollar appreciates against
      the
      Renminbi, the U.S. Dollar equivalent of the Renminbi we convert would be
      reduced. In addition, appreciation of the Renminbi could make our products
      more
      expensive relative to those of our competitors or increase our profitability
      in
      U.S. Dollar terms.




At
      June
      30, 2008, our outstanding financial instruments with foreign currency exchange
      rate risk exposure had an aggregate fair value of $4.2 million (including our
      non-U.S. Dollar denominated debt). The potential increase in the fair value
      of
      these instruments resulting from a 10% adverse change in quoted foreign currency
      exchange rates would be approximately $0.42 million at June 30,
      2008.




***The
      ability of our Chinese operating subsidiary to pay certain foreign currency
      obligations, including dividends, may be restricted due to foreign exchange
      control regulations of China.***




The
      ability of CPSL to pay dividends may be restricted due to the foreign exchange
      control policies and availability of cash balances. Since substantially all
      of
      our operations are conducted in China and a majority of our revenues are
      generated in China, a significant portion of our revenue earned and currency
      received are denominated in Renminbi.




The
      Chinese government imposes controls on the convertibility of Renminbi into
      foreign currencies and, in certain cases, the remittance of currency out of
      China. Renminbi is currently not a freely convertible currency. Shortages in
      the
      availability of foreign currency may restrict our ability to remit sufficient
      foreign currency to pay dividends, if any, on our common stock or otherwise
      satisfy foreign currency denominated obligations. Under existing Chinese foreign
      exchange regulations, payments of current account items, including profit
      distributions, interest payments and expenditures from the transaction, can
      be
      made in foreign currencies without prior approval from the State Administration
      of Foreign Exchange by complying with certain procedural requirements. However,
      approval from appropriate governmental authorities is required where Renminbi
      is
      to be converted into foreign currency and remitted out of China to pay capital
      expenses such as the repayment of bank loans denominated in foreign
      currencies.




The
      Chinese government may also at its discretion restrict access in the future
      to
      foreign currencies for current account transactions. If the foreign exchange
      control system prevents us from obtaining sufficient foreign currency to satisfy
      our currency demands, we may not be able to pay certain of our expenses as
      they
      come due.





**Risks
      Relating to Our Common Stock**




***The
      market price for shares of our common stock could be volatile and could
      decline.***




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. In some cases, these
      fluctuations may be unrelated to our operating performance. 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;
  §
              substantial
                  sales of our common stock pursuant to Rule 144 or
                  otherwise;
  §
              new
                  regulatory requirements and changes in the existing regulatory
                  environment;
  23
  §
              the
                  issuance of new equity securities in a future
                  offering;
  §
              changes
                  in interest rates; and
  §
              general
                  economic, monetary and other national conditions, particularly
                  in the U.S.
                  and China.


***The
      trading market in our common stock is limited and illiquid and may cause
      volatility in the market price.***




As
      of
      June 30, 2008, 65%, or 30,347,048 shares, of our issued and outstanding common
      stock was not owned by affiliates, of which 24,160,355 were unrestricted and
      free to trade. 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.


***Shares
      eligible for future sale may adversely affect the market price of our common
      stock, as the future sale of a substantial amount of outstanding stock in the
      public marketplace could reduce the 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, subject
      to certain limitations or otherwise. 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, who is our Chief Executive Officer, exercises significant control
      over matters requiring shareholder approval.***




Wo
      Hing
      Li, our Chief Executive Officer, had voting power as of June 30, 2008 equal
      to
      approximately 33% 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 or
      other transactions that may otherwise be viewed as beneficial by
      shareholders other than Wo Hing Li.




***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, develop and exploit
      existing and new products and to expand into 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.




***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.




24




***Our
      officers and directors have limited experience with the regulatory requirements
      for U.S. public companies, which could impair our ability to satisfy public
      company filing requirements and could increase our securities compliance
      costs.***





All
      of
      our officers and most of our directors do not have any prior experience as
      officers and directors of a U.S. publicly traded company, or in complying with
      the regulatory requirements applicable to a U.S. public company. As a result,
      we
      could have difficulty satisfying the regulatory requirements applicable to
      U.S.
      public companies, which could adversely affect the market for our common stock.
      At present, we rely upon outside experts to advise us on matters relating to
      financial accounting and public company reporting. While we believe that it
      will
      be possible to satisfy our public company reporting requirements through the
      use
      of third party experts, our general and administrative costs will remain higher
      until we have developed or acquired internal expertise in these
      matters





***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
      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 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 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
      1B. UNRESOLVED STAFF COMMENTS**




None.





**ITEM
      2. PROPERTIES**




All
      land
      in China is owned by the State. Individuals and companies are permitted to
      acquire rights to use land or land use rights for specific purposes. In the
      case
      of land used for industrial purposes, the land use rights are granted for a
      period of 50 years.  This period may be renewed at the expiration of the
      initial and any subsequent terms. Granted land use rights are transferable
      and
      may be used as security for borrowings and other obligations.





We
      currently have land use rights to approximately 48.38
      acres consisting
      of manufacturing facilities, warehouse and office buildings in Shanghai, China.
      The chart below lists all facilities owned by us.


**Location**
              
              **Type of Facility**
              
              **Size of the Land**
                (acre)Jiading
                  District, Shanghai
              
              Manufacturing
                  facilities, warehouse and office buildings
              
              21.34Jiading
                  District, Shanghai
              
              Manufacturing
                  facilities
              
              27.04





In
      October 2004, Tuorong agreed to purchase a land use right from the Shanghai
      Labor and Economic Development Council with respect to a 20-acre parcel for
      a
      lease period of 50 years at a cost of $472,441. Additionally in November 2005,
      Chengtong agreed to purchase a land use right from the Shanghai Xuhang
      Industrial Development Co., Ltd. with respect to a 27.04-acre parcel for a
      lease
      period of 50 years at a cost of $497,795. In November 2006, Chengtong entered
      into an agreement with the Shanghai Labor and Economic Development Council
      which
      supersedes the aforementioned Tuorong agreement to purchase a total of
      21.34-acre parcel for a lease period of 50 years at an aggregate amount of
      $672,126. In December 2006, Tuorong entered into a Compensation Agreement with
      the Shanghai Jiading Housing, Land and Resource Management Bureau to pay an
      aggregate amount of $637,294 in connection to the two aforementioned
      parcels.




25




**ITEM
      3. LEGAL PROCEEDINGS**




We
      may
      become involved in lawsuits and legal
      proceedings arising from the ordinary course of our business. This may adversely
      affect or harm our business.We are
      currently not aware of any such legal
      proceedings or claims that we believe will have a material adverse affect on
      our
      business, financial condition or operating results.





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




No
      matters were submitted to a vote of the security holders during the fourth
      quarter of the fiscal year ended June 30, 2008.





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**




**Market
      for Common Stock**





Our
      Common Stock has been quoted for trading on the NASDAQ Capital Market under
      the
      symbol “CPSL” since December 29, 2006 and was previously quoted for trading on
      that market under the symbol “OLAB.” The CUSIP number is 16941J106 . The
      following table sets forth, for the periods indicated, the available high and
      low bid quotations for the Common Stock by quarter for the twelve month periods
      ended June 30, 2008 and June 30, 2007, as reported by The NASDAQ Capital Market.
      Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commissions and may not represent actual transactions.





Year******Ended******June******30,******2008*
            
            Year******Ended******June******30,******2007Quarter
                ended
            
            High
            
            Low
            
            High
            
            LowSeptember
                30
            
            $
            12.65
            
            $
            2.81
            
            $
            7.84
            
            $
            2.51December
                31
            
            $
            11.45
            
            $
            4.20
            
            $
            13.73
            
            $
            5.34March
                31
            
            $
            6.22
            
            $
            3.30
            
            $
            16.58
            
            $
            5.68June
                30
            
            $
            8.48
            
            $
            3.50
            
            $
            6.66
            
            $
            2.71


__________________________


*On
      December 29, 2006, our Common Stock began to trade under the symbol “CPSL”
following the consummation of the Stock Exchange Agreement with Partner Success
      Holdings Limited on December 28, 2006.





On
      September 11, 2008, the closing bid price of our Common Stock on The NASDAQ
      Capital Market was $4.96 per share.





**Record
      Holders**





There
      were approximately 16,976 beneficial holders of our Common Stock as of June
      30,
      2008.





**Dividends**





We
      have
      not paid dividends on our Common Stock and do not presently plan to pay
      dividends on our Common Stock for the foreseeable future. We plan to retain
      all
      net earnings, if any, to fund the development of our business. Our Board of
      Directors has sole discretion over the declaration and payment of future
      dividends, subject to the availability of sufficient funds to pay dividends.
      Any
      future dividends will depend upon our profitability, financial condition, cash
      requirements, future prospects, general business condition, the terms of our
      debt agreements which currently restrict the payment of dividends and other
      factors our Board of Directors believes are relevant.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





Plan Category
            
            Number******of
              securities******issued
              upon ******exercise******of
              outstanding
              options,******warrants
              and rights
            
            Weighted-average
              exercise******price******of
              outstanding
              options,******warrants
              and rights
            
            Number******of
              securities
              remaining
              available******for******future
              issuance******under
              equity
              compensation
              plans ******(excluding
              securities******reflected
              in******column******(a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            0
            
            
            N/A
            
            
            2,165,220




26




**Stock
      Performance Graph**





The
      following graph provides a comparison of the cumulative total return on our
      Common Stock for the period beginning at the market close on June 30, 2002,
      through and including June 30, 2008, with the cumulative total return for (i)
      the Nasdaq Stock Market (U.S. Companies) Index (the “Nasdaq Index”) and (ii) a
      peer group selected by us that consists of companies with a similar
      line-of-business and in the same industry. These companies are Steel Dynamics,
      Tarpon Industries, Arcelor Mittel, Nucor Corp., and Olympic Steel (the “Peer
      Index”). Total return values were calculated based on cumulative total return
      assuming the investment, on June 30, 2002, of $100 in each of our Common Stock,
      the NASDAQ Index and the Peer Index and are based on share prices plus any
      dividends paid in cash, with the dividends reinvested on the date they were
      paid. The calculations exclude trading commissions and taxes. Cumulative total
      returns for the period beginning at the market close on June 30, 2002, through
      and including December 28, 2006, relate to our prior operations under our former
      name of OraLabs Holding Corp. We do not believe that such historical information
      prior to December 28, 2006 is relevant to our continuing operations and is
      not
      necessarily indicative of the results to be expected for any future period.
      On
      December 29, 2006, our Common Stock began trading under the symbol
“CPSL”.





**COMPARISON
      OF CUMULATIVE TOTAL RETURN**









The
      information contained in this Item 5 of this Annual Report on Form 10-K under
      “Stock Performance Graph” is not deemed to be “soliciting material” or to be
“filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act
      or to the liabilities of Section 18 of the Exchange Act, and will not be deemed
      to be incorporated by reference into any filing under the Securities Act of
      1933, as amended, or the Exchange Act, except to the extent we specifically
      incorporate it by reference into such a filing.





**Issuer
      Purchases of Equity Securities**





We
      made
      no purchases of our Common Stock in the fourth quarter ended June 30, 2008.




27




**ITEM
      6. SELECTED FINANCIAL DATA**




Selected
      consolidated financial data are set forth below as of June 30, 2008 and for
      the
      years ended June 30, 2008, 2007, 2006, 2005 and 2004 and should be read in
      conjunction with our audited consolidated financial statements and related
      notes
      thereto, and “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations,” which are included elsewhere in this Form 10-K. In
      conjunction with the consummation of the Stock Exchange Agreement on December
      28, 2006, we changed our fiscal year from December 31 to June 30. The historical
      data presented below and in our historical consolidated financial statement
      is
      not necessarily indicative of the results to be expected for any future
      period.





The
      scope
      of our continuing business is substantially different from that conducted by
      us
      prior to January 1, 2007. You should not view our historical consolidated
      financial statements or the financial data derived therefrom as predictive
      of
      our future financial position or results of operations.


**Year
                  Ended June 30,****2008**
              
              **2007**
              
              **2006**
              
              **2005**
              
              **2004****(In
                  thousands, except share and per share amounts)**Statement
                  of Operations DataSales
                  revenues
              
              $
              87,739
              
              $
              53,960
              
              $
              34,881
              
              $
              53,145
              
              $
              17,417Cost
                  of goods sold
              
              
              65,242
              
              
              38,926
              
              
              24,892
              
              
              45,562
              
              
              16,410Gross
                  profit
              
              
              22,497
              
              
              15,034
              
              
              9,989
              
              
              7,583
              
              
              1,007Income(loss)
                  from continuing operations
              
              
              18,583
              
              
              7,473
              
              
              7,514
              
              
              6,366
              
              
              199Net
                  income (loss) from discontinued operations
              
              
              -
              
              
              831
              
              
              900
              
              
              (341
              )
              
              (369
              )Net
                  income (loss)
              
              $
              18,583
              
              $
              8,304
              
              $
              8,415
              
              $
              6,026
              
              $
              (170
              )Income(loss)
                  per share from continuing operationsBasic
              
              $
              0.43
              
              $
              0.26
              
              $
              0.31
              
              $
              0.26
              
              $
              0.01Diluted
              
              $
              0.43
              
              $
              0.26
              
              $
              0.31
              
              $
              0.26
              
              $
              0.01Income(loss)
                  per share from discontinued operationsBasic
              
              $
              -
              
              $
              0.03
              
              $
              0.04
              
              $
              (0.01
              )
              $
              (0.02
              )Diluted
              
              $
              -
              
              $
              0.03
              
              $
              0.04
              
              $
              (0.01
              )
              $
              (0.02
              )Net
                  income(loss)Basic
              
              $
              0.43
              
              $
              0.29
              
              $
              0.35
              
              $
              0.25
              
              $
              (0.01
              )Diluted
              
              $
              0.43
              
              $
              0.29
              
              $
              0.35
              
              $
              0.25
              
              $
              (0.01
              )Shares
                  used in per share calculationBasic
              
              
              43,044,420
              
              
              28,438,313
              
              
              24,283,725
              
              
              24,283,725
              
              
              24,283,725Diluted
              
              
              43,256,434
              
              
              28,759,553
              
              
              24,283,725
              
              
              24,283,725
              
              
              24,283,725Balance
                  Sheet Data (at period end)Current
                  assets
              
              $
              108,134
              
              $
              41,339
              
              $
              23,154
              
              $
              13,028
              
              $
              7,468Total
                  assets
              
              $
              165,535
              
              $
              82,158
              
              $
              45,571
              
              $
              25,489
              
              $
              12,371Working
                  Capital
              
              $
              60,905
              
              $
              14,574
              
              $
              (7,584
              )
              $
              (1,326
              )
              $
              (4,020
              )Long-term
                  debt
              
              $
              -
              
              $
              6,878
              
              $
              3,152
              
              $
              7,713
              
              $
              -Total
                  Stockholder’s equity
              
              $
              120,306
              
              $
              51,105
              
              $
              11,681
              
              $
              3,421
              
              $
              883




**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION**





*This
      Annual Report on Form 10-K 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,
      our directors or its officers with respect to events, conditions, and financial
      trends that may affect our future plans of operations, business strategy,
      operating results, and financial position. Persons reviewing this Annual Report
      on Form 10-K 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 our control, is set
      forth under Part II, Item 1A, “Risk Factors,” in this Annual Report.*




28




*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 our business, actual results will almost always vary, sometimes
      materially, from any estimates, predictions, projections, assumptions or other
      future performance suggested herein. We undertake 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 us or on our behalf.*




**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. and
      our
      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 either occurred during the
                fiscal
                year ended June 30, 2008 and are important in understanding the results
                of
                operations and financial condition or disclose known
                trends.





·
            ***Results
                of Operations***-
                This section provides an analysis of our results of operations for
                the
                fiscal year ended June 30, 2008. 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 fiscal
                year ended June 30, 2008. 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.




**Overview
      of the Company’s Business**




We
      are a
      niche and high value-added steel processing company principally engaged in
      the
      manufacture and sale of high precision cold-rolled steel products, in the
      provision of heat treatment and in the cutting and slitting of medium and
      high-carbon hot-rolled steel strips. We use commodity steel to create a high
      value-added specialty premium steel. Specialty precision steel pertains to
      the
      precision of measurements and tolerances of thickness, shape, width, surface
      finish and other special quality features of highly-engineered end-use
      applications.





We
      produce and sell precision ultra-thin and high strength cold-rolled steel
      products ranging from 7.5 mm to 0.03 mm. We also provide heat treatment and
      cutting and slitting of medium and high-carbon hot-rolled steel strips not
      exceeding 7.5 mm thickness. Our process puts hot-rolled de-scaled (pickled)
      steel coils through a cold-rolling mill, utilizing our patented systems and
      high
      technology reduction processing procedures, to make steel coils and sheets
      in
      customized thicknesses according to customer specifications. Currently, our
      specialty precision products are mainly used in the manufacture of automobile
      parts and components, steel roofing, plane friction discs, appliances, food
      packaging materials, saw blades, textile needles, and
      microelectronics.





We
      conduct our operations principally in China through our wholly-owned operating
      subsidiaries, Shanghai Chengtong Precision Strip Company Limited, or Chengtong,
      and Shanghai Blessford Alloy Company Limited, or Shanghai Blessford, which,
      in
      turn, are wholly owned subsidiaries of our direct subsidiary, Partner Success
      Holdings Limited, or PSHL. Most of our sales are made domestically in China;
      however, we began exporting during fiscal 2007 and our overseas market
      currently covers Indonesia, Thailand, the Philippines, Nigeria and Ethiopia.
      We
      intend to further expand into additional overseas markets in the future,
      subject to suitable market conditions and favorable regulatory controls.





In
      the
      year ended June 30, 2007, we added three indirect subsidiaries to our corporate
      structure. On April 9, 2007, we purchased Shanghai Tuorong Precision Strip
      Company Limited, or Tuorong, through PSHL. The sole activity of Tuorong is
      the
      ownership of a land use right with respect to facilities leased to Chengtong.
      On
      April 10, 2007, PSHL purchased for nominal consideration Blessford International
      Limited, a British Virgin Islands company. Blessford International Limited
      does
      not conduct any business, but it owns a single subsidiary, Shanghai Blessford
      Alloy Company Limited, that is a wholly-foreign owned enterprise chartered
      in
      China. We intend to hold Blessford International Limited as a shell
      subsidiary.




We
      strive
      to find an appropriate sales mix that provides us with the stability and cash
      flows, along with the higher margin provided by high precision and individually
      customized cold-rolled steel products. To meet market demands in our primary
      market, China, as well as overseas market, there were increased capital
      requirements as we sought to construct additional rolling mills to accommodate
      our planned growth. In addition, our workforce has increased and, in particular,
      we have faced a growing need for experienced executive and technical staff.




29




Our
      market is highly competitive, although we have focused on a niche market that
      we
      consider allows us to compete effectively as we continue to grow our business.
      We also face significant price volatility for raw materials, the hot-rolled
      steel coils, and our financial results may be impacted by changes in the market
      prices for these materials. Given our size, we do not have the ability to
      influence the prices at which we must purchase raw materials. However, the
      nature of our high value-add products enables us to pass on all or part of
      the
      price fluctuations in raw materials to our customers.




**Results
      of Operations**





***Fiscal
      Year 2008 versus Fiscal Year 2007***




Net
      income increased by $10,279,002 or 124% year-on-year to $18,583,111 for the
      year
      ended June 30, 2008 from $8,304,109 for the year ended June 30, 2007, and gross
      profit increased by $7,463,245 or 49.6% year-on-year. The increase in net income
      is mainly attributable to the increase in sales during the year, due to
      increased production capacity.





***Gross
      Profit*** *.*  Gross
      profits in absolute terms increased by $7,463,245 or 49.6% year-on-year to
      $22,497,501 for the year ended June 30, 2008 from $15,034,256 for the year
      ended
      June 30, 2007, while gross profit margin decreased to 25.6% for the year ended
      June 30, 2008 from 27.9% for the year ended June 30, 2007. The increase in
      gross
      profits is mainly attributable to a 62.6% year-on-year increase in sales
      revenues in relation to a 67.6% year-on-year increase in cost of goods sold.
      The
      decrease in gross profit margin principally resulted from increases of raw
      material prices during the year. We passed on the majority of the increased
      cost
      to our customers through increases in selling prices.




***Sales
      Revenues.*** Sales
      volume increased by 22,101 tons or 33% year-on-year to 89,122 tons for the
      year
      ended June 30, 2008 from 67,021 tons for the year ended June 30, 2007 and,
      as a
      result, sales revenues increased by $33,779,083 or 62.6% year-on-year to
      $87,739,326 for the year ended June 30, 2008 from $53,960,243 for the year
      ended
      June 30, 2007. We believe that the increases in sales and sales revenues are
      a
      direct result of increases in our capacity and the building of our brand both
      in
      China and overseas among users of cold-rolled precision steel products.




Average
      cost per unit sold increased to $732 for the year ended June 30, 2008,
      compared to an average cost per unit sold of $581 for the year ended
      June 30, 2007, representing an increase of $151 per ton, or 26%,
      year-on-year. The increase in average cost per unit sold is mainly attributable
      to the increase in raw material prices. The 1400 mm cold-roll mill which became
      operational in October 2006 is now operating at approximately 50% of design
      capacity and is expected to reach its full operating capacity in calendar year
      2010.





Sales
      by Product Line . **** A
      break-down of our sales by product line for the years ended June 30, 2008 and
      2007 is as follows:




***2008***
            
            ***2007******Product
                category***
            
            *Quantity*
              *(tons)*
            
            *$
                Amount*
            
            *%
                of sales*
            
            *Quantity*
              *(tons)*
            
            *$
                Amount*
            
            *%
                of*
              *sales*
            
            *Year-on-year
                Qty. Variance*Low
                carbon cold-rolled
            
            
            35,163
            
            
            27,497,894
            
            
            32
            
            
            37,066
            
            
            22,072,438
            
            
            41
            
            
            (1,903
            )Low
                carbon acid wash
            
            
            -
            
            
            -
            
            
            -
            
            
            14
            
            
            5,732
            
            
            -
            
            
            (14
            )Low
                carbon hard rolled
            
            
            18,612
            
            
            15,959,415
            
            
            18
            
            
            1,149
            
            
            782,835
            
            
            1
            
            
            17,463High-carbon
                cold-rolled
            
            
            17,754
            
            
            29,029,418
            
            
            33
            
            
            5,287
            
            
            5,529,717
            
            
            10
            
            
            12,467High-carbon
                hot-rolled
            
            
            6,790
            
            
            6,291,036
            
            
            7
            
            
            11,918
            
            
            9,176,414
            
            
            17
            
            
            (5,128
            )High
                end cold-rolled
            
            
            -
            
            
            -
            
            
            -
            
            
            865
            
            
            14,618,831
            
            
            27
            
            
            (865
            )Sales
                of Scrap Metal
            
            
            -
            
            
            2,536,555
            
            
            3
            
            
            -
            
            
            851,742
            
            
            2
            
            
            -Subcontracting
                income
            
            
            10,803
            
            
            6,425,008
            
            
            7
            
            
            10,722
            
            
            922,534
            
            
            2
            
            
            81Total
            
            
            89,122
            
            
            87,739,326
            
            
            100
            
            
            67,021
            
            
            53,960,243
            
            
            100
            
            
            22,101




There
      were various changes in the break-down of sales among our product categories
      over the year ended June 30, 2008 as we have been ramping up the capacity of
      the
      second mill since October 2006 and are in the process of developing new products
      and new markets. High-carbon cold-rolled steel products accounted for 33% of
      the
      current sales mix at an average selling price of $1,635 per ton for the year
      ended June 30, 2008 compared to 10% of the sales mix at an average selling
      price
      per ton of $1,046 for the year ended June 30, 2007, as we continued to see
      our
      customers of the high-carbon hot-rolled products switch to the high-carbon
      cold-rolled products. The low-carbon cold-rolled steel products accounted for
      32% of the current sales mix at an average selling price of $782 per ton for
      the
      year ended June 30, 2008 compared to 41% of the sales mix at an
      average selling price per ton of $595 for the year ended June 30, 2007.
      This is a result of increased production of the low carbon hard rolled steel
      category, which is our exported precision steel product, from 1% of sales during
      the year ended June 30, 2007 accounting for $782,835, to now 18% of the
      current sales mix, accounting for $15,959,415, at an average selling price
      of
      $857 per ton for the year ended June 30, 2008.




30




Management
      continues to take appropriate action to develop new products and optimize our
      product mix without adversely affecting overall sales volume and margins.
      Management believes that there are high barriers to entry in the Chinese
      domestic precision cold-rolled steel industry because of the level of technology
      expertise required for operation and that our unique capabilities and know-how
      give us a competitive advantage to grow sales of higher margin products as
      we
      continuously carry out R&D and strive to launch new products that could
      potentially lead to new segments, customers and markets.


Average
                  Selling Prices
              
              *2008*
              
              *2007*
              
              *Variance**$*
              **
              *$*
              **
              *$*
              **
              *%*Low-carbon
                  cold-rolled
              
              
              782
              
              
              595
              
              
              187
              
              
              31Low-carbon
                  acid wash
              
              
              -
              
              
              409
              
              
              (409
              )
              
              (100
              )Low-carbon
                  hard rolled
              
              
              857
              
              
              681
              
              
              176
              
              
              26High-carbon
                  cold-rolled
              
              
              1,635
              
              
              1,046
              
              
              589
              
              
              56High-carbon
                  hot-rolled
              
              
              927
              
              
              770
              
              
              157
              
              
              20High-end
                  cold-rolled
              
              
              -
              
              
              16,900
              
              
              (16,900
              )
              
              (100
              )Subcontracting
                  income
              
              
              595
              
              
              86
              
              
              509
              
              
              >
                  100




The
      average selling price per ton generated increased to $984 for the year ended
      June 30, 2008 compared to the corresponding year in 2007 of $805, representing
      an increase of $179 or 22.3% year-on-year. This increase was due to both changes
      in our sales mix during the year to focus on high quality high margin products
      and rising raw material prices.





Sales
      Breakdown by Major Customer





***Customers***
            
            ***2008 ($ )***
            
            ***% to sales***
            
            ***2007 ($ )***
            
            ***% to sales***Shanghai
                Changshuo Stainless Steel Co., Ltd.
            
            
            18,513,819
            
            
            21
            
            
            5,428,110
            
            
            10Shanghai
                Bayou Industrial Co., Ltd.
            
            
            10,494,752
            
            
            12
            
            
            -*
            
            
            -*Shanghai
                Shengdejia Metal Co. Ltd
            
            
            10,414,545
            
            
            12
            
            
            -*
            
            
            -*Unimax
                and Far Corporation
            
            
            7,695,294
            
            
            9
            
            
            -*
            
            
            -*Baosteel
                Steel Products Trading Co., Ltd.
            
            
            6,758,976
            
            
            8
            
            
            -*
            
            
            -*Shanghai
                Ruixuefeng Metals Co. Ltd
            
            
            -*
            
            
            -*
            
            
            12,192,219
            
            
            23China
                Railway Materials Shanghai Company
            
            
            -*
            
            
            -*
            
            
            3,498,770
            
            
            6Hangzhou
                Relian Company Limited
            
            
            -*
            
            
            -*
            
            
            3,323,981
            
            
            6Sinosteel
                Company Limited
            
            
            -*
            
            
            -*
            
            
            3,251,450
            
            
            653,877,386
            
            
            62
            
            
            27,694,530
            
            
            51***Others***
            
            
            33,861,940
            
            
            38
            
            
            26,265,713
            
            
            49**Total**
            
            
            **87,739,326**
            
            
            **100**
            
            
            **53,960,243**
            
            
            **100**




**
      Not
      major customers for the relevant years*





Sales
      revenues generated from our top five major customers as a percentage of total
      sales increased to 62% for the year ended June 30, 2008. With the exception
      of Shanghai
      Changshuo Stainless Steel Co., Ltd. ,
      the top
      five major customers were different year-on-year. The change in customer mix
      reflects our shift in product focus during the course of the year.




***Cost
      of Goods Sold.*** **** Cost
      of
      goods sold increased by $26,315,838, or 68% year-on-year, to $65,241,825 for
      the
      year ended June 30, 2008, from $38,925,987 for the year ended June 30, 2007.
      Cost of goods sold represented 74% of sales revenues for the year ended June
      30,
      2008, compared to 72% for the year ended June 30, 2007. Average cost per unit
      sold increased by $151, or 26% year-on-year, to $732 per ton for the year ended
      June 30, 2008, from $581 per ton for the year ended June 30, 2007. Meanwhile,
      the average selling price per ton increased by $179 per ton or 22% year-on-year
      to $984 per ton for the year ended June 30, 2008, from $805 per ton for the
      year
      ended June 30, 2007.




31


***2008***
            
            ***2007***
            
            ***Variance***$
            
            $
            
            $
            
            %**Cost
                of goods sold**-
                Raw materials
            
            
            55,722,054
            
            
            33,809,809
            
            
            21,912,245
            
            
            65-
                Direct labor
            
            
            746,032
            
            
            635,885
            
            
            110,147
            
            
            17-
                Manufacturing overhead
            
            
            8,773,739
            
            
            4,480,293
            
            
            4,293,446
            
            
            9665,241,825
            
            
            38,925,987
            
            
            26,315,838
            
            
            68**Cost
                per unit sold**Total
                units sold (tons)
            
            
            89,122
            
            
            67,021
            
            
            22,101
            
            
            33Average
                cost per unit sold ($/ton)
            
            
            732
            
            
            581
            
            
            151
            
            
            26





The
      raw
      materials cost component relative to sales revenues increased to 64% for the
      year ended June 30, 2008 compared to 63% for the year ended June 30, 2007.
      Due
      to rising raw material prices over the year, average purchase price of raw
      materials per unit produced increased by $121 or 24% year-on-year to $625 for
      the year ended June 30, 2008 compared to $504 for the year ended June 30,
      2007.




Management
      believes that the increase in cost of goods sold is represented by the combined
      effect of:


§
              significant
                  increases in sales of high-carbon cold-rolled steel to 17,754 tons
                  (compared to 5,287 tons for the year ended June 30, 2007) was generated
                  at
                  an average selling price of $1,635 per ton (compared to $1,046
                  per ton for
                  the year ended June 30, 2007) for the year ended June 30, 2008;
                  and
  §
              sales
                  of 18,612 tons of low-carbon hard-rolled steel (compared to 1,149tons
                  for
                  the year ended June 30, 2007) was generated at an average selling
                  price of
                  $857 per ton (compared to $681 per ton for the year ended June
                  30, 2007)
                  for the year ended June 30,
                  2008.





The
      cost
      of raw materials consumed increased by $21,912,245, or 65% year-on-year, to
      $55,722,054 for the year ended June 30, 2008, from $33,809,809 for the year
      ended June 30, 2007. This increase was mainly attributable to increases in
      production capacity and sales volume by 22,101tons or 33% year-on-year to 89,122
      tons for the year ended June 30, 2008 from 67,021tons for the year ended June
      30, 2007 resulting in higher input of raw materials utilized in production.
      Average cost per unit sold produced increased by $151 or 26% year-on-year to
      $732 for the year ended June 30, 2008 from $581 for the year ended June 30,
      2007.




Manufacturing
      overhead costs increased by $4,293,446 or 96% year-on-year to $8,773,739 for
      the
      year ended June 30, 2008 from $4,480,293 for the year ended June 30, 2007.
      The
      increase was mainly attributable to the combined effect of an increase in cost
      of scrap sales by $1,297,751, or 100% year-on-year to $1,297,751 for the year
      ended June 30, 2008 from nil for the year ended June 30, 2007, an increase
      in
      low consumables by $1,108,432 or 150% year-on-year to $1,848,743 for the year
      ended June 30, 2008 from $740,312 for the year ended June 30, 2007, and an
      increase in depreciation by $425,050 or 27% year-on-year to $2,018,105 for
      the
      year ended June 30, 2008 from $1,593,055 for the year ended June 30, 2007,
      an
      increase in utilities by $564,660 or 64% year-on-year to $1,441,341 for the
      year
      ended June 30, 2008 from $876,681 for the year ended June 30, 2007.





***Expenses***




Selling
      Expenses .
      Selling
      expenses increased by $362,365, or 147% year-on-year, to $608,060 for the year
      ended June 30, 2008, compared to the corresponding year in 2007 of $245,695.
      The
      increase was mainly attributable to increases in transportation, which rose
      by
      $276,957, or 251% year-on-year, to $387,212, due to our increased sales volume
      of export products and related delivery charges.




Administrative
      Expenses . **** Administrative
      expenses increased by $894,542 or 48% year-on-year, to $2,758,536 for the year
      ended June 30, 2008, compared to the comparable year in 2007. This was chiefly
      due to increases in listing and compliance fees after our admission to the
      NASDAQ Capital Market in December 2006, directors’ remuneration, traveling
      expenses and salaries and wages. Increases in salaries and wages were
      principally due to increases in the average number of staff at our operating
      subsidiaries.




32


Finance
        Costs .
        Net
        finance cost increased 294% year-on-year as a result of increases in total
        interest expense by $918,818. The increases in net interest expenses were
        due a
        decrease in capitalized interest of $826,101 year-on-year and increases in
        interest rates during the year.


***Fiscal
      Year 2007 versus Fiscal Year 2006***




Net
      income decreased by $110,461, or 1.3% year-on-year to $8,304,109 for the year
      ended June 30, 2007, from $8,414,570 for the year ended June 30, 2006, even
      though gross profit increased by $5,045,269, or 50.5% year-on-year. The decrease
      in net income is mainly attributable to the creation of an allowance for
      doubtful accounts in the amount of $3,775,645. The Company created this partial
      reserve against advances to suppliers where the goods ordered were not received
      within ninety days of the advance.




***Gross
      Profit*** . Gross
      profits in absolute terms increased by $5,045,269, or 50.5% year-on-year to
      $15,034,256 for the year ended June 30, 2007, from $9,988,987 for the year
      ended
      June 30, 2006, while gross profit margin decreased to 27.9% for the year ended
      June 30, 2007, from 28.6% for the year ended June 30, 2006. The increase in
      gross profits is mainly attributable to a 54.7% year-on-year increase in sales
      revenues in relation to a 56.4% year-on-year increase in cost of goods sold.
      The
      decrease in gross profit margin principally resulted from a change in sales
      mix
      over the year ended June 30, 2007, which produced increased sales of lower
      margin low-carbon steel products, and an increase in the cost of goods
      sold.





***Sales
      Revenues*** .
      Sales
      volume increased by 24,861 tons, or 59% year-on-year, to 67,021 tons for the
      year ended June 30, 2007, from 42,160 tons for the year ended June 30, 2006
      and,
      as a result, sales revenues increased by $19,079,102, or 54.7% year-on-year,
      to
      $53,960,243 for the year ended June 30, 2007, from $34,881,141 for the year
      ended June 30, 2006. We believe that the increases in sales and sales revenues
      are a direct result of increases in our capacity and the building of our brand
      in China among users of precision steel products.





Sales
      by Product Line .
      A
      break-down of our sales by product line for the years ended June 30, 2007 and
      2006 is as follows:


***2007***
              
              
              
              
              
              ***2006******Product
                  category***
              
              *Quantity*
                *(tons)*
              
              *$
                  Amount*
              
              *%
                  of*
                *sales*
              
              *Quantity*
                *(tons)*
              
              *$
                  Amount*
              
              *%
                  of*
                *sales*
              
              *Year-on-*
                *year
                  Qty.*
                *Variance*Low
                  carbon cold-rolled
              
              
              37,066
              
              
              22,072,438
              
              
              41
              
              
              22,540
              
              
              11,482,265
              
              
              33
              
              
              14,526Low
                  carbon acid wash
              
              
              14
              
              
              5,732
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              14Low
                  carbon hard rolled
              
              
              1,149
              
              
              782,835
              
              
              1
              
              
              3,238
              
              
              1,652,638
              
              
              5
              
              
              (2,089
              )High-carbon
                  cold-rolled
              
              
              5,287
              
              
              5,529,717
              
              
              10
              
              
              6,531
              
              
              15,347,852
              
              
              44
              
              
              (1,244
              )High-carbon
                  hot-rolled
              
              
              11,918
              
              
              9,176,414
              
              
              17
              
              
              9,851
              
              
              6,398,386
              
              
              18
              
              
              2,067High
                  end cold-rolled
              
              
              865
              
              
              14,618,831
              
              
              27
              
              
              -
              
              
              -
              
              
              -
              
              
              865Sales
                  of Scrap Metal
              
              
              -
              
              
              851,742
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              -Subcontracting
                  income
              
              
              10,722
              
              
              922,534
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              10,722Total
              
              
              67,021
              
              
              53,960,243
              
              
              100
              
              
              42,160
              
              
              34,881,141
              
              
              100
              
              
              24,861




The
      break-down of sales among our product lines changed significantly during the
      year ended June 30, 2007. High-carbon cold-rolled steel products only accounted
      for 10% of the current sales mix at an average selling price of $1,046 per
      ton
      for the year ended June 30, 2007, compared to 44% of the sales mix at an average
      selling price per ton of $2,350 for the year ended June 30, 2006.




The
      lower
      priced low-carbon cold-rolled steel products accounted for 41% of the current
      sales mix at an average selling price of $595 per ton for the year ended June
      30, 2007, compared to $11,482,265, or 33% of the sales mix at an average selling
      price per ton of $509 for the year ended June 30, 2006. A new product line,
      high
      end cold-rolled steel, which was not sold during the year ended June 30, 2006,
      accounted for $14,618,831, or 27% of the current sales mix at an average selling
      price of $16,900 per ton for the year ended June 30, 2007.





We
      strive
      to find an appropriate sales mix that provides us with the stability and cash
      flows of the low-carbon cold-rolled steel products along with the higher margin
      provided by high-carbon cold-rolled products. Management continues to take
      appropriate action to optimize our product mix without adversely affecting
      overall sales volume. Management believes that there are high barriers to entry
      in the Chinese domestic precision steel industry and
      that
      our unique capabilities give us a competitive advantage to grow sales of higher
      margin products.




33




***Average
                      selling prices***
                  
                  ***2007***
                  
                  ***2006***
                  
                  ***Variance***$
                  
                  $
                  
                  $
                  
                  %Low-carbon
                      cold-rolled
                  
                  
                  595
                  
                  
                  509
                  
                  
                  86
                  
                  
                  17Low-carbon
                      acid wash
                  
                  
                  409
                  
                  
                  -
                  
                  
                  409
                  
                  
                  100Low-carbon
                      hard rolled
                  
                  
                  681
                  
                  
                  510
                  
                  
                  171
                  
                  
                  34High-carbon
                      cold-rolled
                  
                  
                  1,046
                  
                  
                  2,350
                  
                  
                  (1,304
                  )
                  
                  (55
                  )High-carbon
                      hot-rolled
                  
                  
                  770
                  
                  
                  650
                  
                  
                  120
                  
                  
                  18High-end
                      cold-rolled
                  
                  
                  16,900
                  
                  
                  -
                  
                  
                  16,900
                  
                  
                  100Subcontracting
                      income
                  
                  
                  86
                  
                  
                  -
                  
                  
                  86
                  
                  
                  100





The
      average selling price per ton generated decreased to $805 for the year ended
      June 30, 2007, compared to the corresponding year in 2006 of $827, representing
      a decrease of $22, or 3% year-on-year. This was mainly attributable to a
      decrease in average selling price of high-carbon cold-rolled steel due to
      different product specifications year-on-year. Sales of low-carbon cold-rolled
      steel products have increased by 14,526tons, or 64% year-on-year to 37,066tons
      for the year ended June 30, 2007, compared to 22,540tons for the year ended
      June
      30, 2006. This product accounted for $22,072,438, or 41% of the total sales
      mix
      for the year ended June 30, 2007, compared to $11,482,265, or 33% of the sales
      mix for the year ended June 30, 2006.





Sales
      Breakdown by Major Customer .


***Customers***
              
              ***2007
                  ($)***
              
              ***%
                  to sales***
              
              ***2006
                  ($)***
              
              ***%
                  to sales***Shanghai
                  Ruixuefeng Metals Co. Ltd
              
              
              12,192,219
              
              
              23
              
              
              4,634,521
              
              
              13Shanghai
                  Changshuo Stainless Steel Co., Ltd.
              
              
              5,428,110
              
              
              10
              
              
              -*
              
              
              -*China
                  Railway Materials Shanghai Company
              
              
              3,498,770
              
              
              6
              
              
              -*
              
              
              -*Hangzhou
                  Relian Company Limited
              
              
              3,323,981
              
              
              6
              
              
              -*
              
              
              -*Sinosteel
                  Company Limited
              
              
              3,251,450
              
              
              6
              
              
              -*
              
              
              -*Jiangsu
                  Kaiteer Industrial Stove Co. Ltd.
              
              
              -*
              
              
              -*
              
              
              5,212,171
              
              
              15Shanghai
                  Yiyi Industrial Co. Ltd.
              
              
              -*
              
              
              -*
              
              
              4,305,918
              
              
              12Ningbo
                  Eco and Tech Shuntong Trading Co. Ltd.
              
              
              -*
              
              
              -*
              
              
              2,042,191
              
              
              6Shanghai
                  Bayou Industrial Co. Ltd.
              
              
              -*
              
              
              -*
              
              
              1,555,204
              
              
              427,694,530
              
              
              51
              
              
              17,750,005
              
              
              51Others
              
              
              26,265,713
              
              
              49
              
              
              17,131,136
              
              
              49**Total**
              
              
              53,960,243
              
              
              100
              
              
              34,881,141
              
              
              100





**
      Not
      major customers for the relevant years*




Sales
      revenues generated from the top five major customers as a percentage of total
      sales remained at 51% for the year ended June 30, 2006. With the exception
      of
      Shanghai Ruixuefeng Metals Co. Ltd., the top five major customers were different
      year-on-year. The change in customer mix reflects our shift in product focus
      during the course of the year.




***Cost
      of Goods Sold.*** Cost
      of
      goods sold increased by $14,033,833, or 56% year-on-year to $38,925,987 for
      the
      year ended June 30, 2007, from $24,892,154 for the year ended June 30, 2006.
      Cost of goods sold represented 72% of sales revenues for the year ended June
      30,
      2007, compared to 71% for the year ended June 30, 2006. Average cost per unit
      sold decreased by $9, or 2% year-on-year, to $581 for the year ended June 30,
      2007, from $590 for the year ended June 30, 2006.




34




***2007***
            
            ***2006***
            
            ***Variance***$
            
            $
            
            $
            
            %**Cost
                of goods sold**-
                Raw materials
            
            
            33,809,809
            
            
            21,333,644
            
            
            12,476,165
            
            
            58-
                Direct labor
            
            
            635,885
            
            
            415,852
            
            
            220,033
            
            
            53-
                Manufacturing overhead
            
            
            4,480,293
            
            
            3,142,658
            
            
            1,337,635
            
            
            4338,925,987
            
            
            24,892,154
            
            
            14,033,833
            
            
            56**Cost
                per unit sold**Total
                units sold (tons)
            
            
            67,021
            
            
            42,160
            
            
            24,861
            
            
            59Average
                cost per unit sold ($/ton)
            
            
            581
            
            
            590
            
            
            (9
            )
            
            (2
            )





The
      raw
      materials cost component relative to sales revenues increased to 63% for the
      year ended June 30, 2007, compared to 61% for the year ended June 30, 2006,
      while the average purchase price of raw materials per unit sold
      decreased by $2, or less than 1%, year-on-year, to $504 for the year ended
      June 30, 2007, compared to $506 for the year ended June 30, 2006.




Management
      believes that the increase in cost of goods sold is represented by the combined
      effect of:


§
              significant
                  increases in sales of low-carbon cold-rolled steel to 37,066 tons
                  (compared to 22,540tons for the year ended June 30, 2006) was generated
                  at
                  an average selling price of $595 per ton (compared to $509 per
                  ton for the
                  year ended June 30, 2006) for the year ended June 30,
                  2007;
 
 §
              sales
                  of 11,918tons of high-carbon hot-rolled steel (compared to 9,851tons
                  for
                  the year ended June 30, 2006) was generated at an average selling
                  price of
                  $770 per ton (compared to $650 per ton for the year ended June
                  30, 2006)
                  for the year ended June 30, 2007;
                  and
 
 §
              sales
                  of 865tons of high end cold-rolled steel (compared to none for
                  the year
                  ended June 30, 2006) was generated at an average selling price
                  of $16,900
                  per ton for the year ended June 30,
                  2007.




The
      cost
      of raw materials consumed increased by $12,476,165, or 58% year-on-year, to
      $33,809,809 for the year ended June 30, 2007, from $21,333,644 for the year
      ended June 30, 2006. This increase was mainly attributable to increases in
      sales
      volume by 24,861tons, or 59% year-on-year to 67,021tons for the year ended
      June
      30, 2007, from 42,160tons for the year ended June 30, 2006, resulting in higher
      input of raw materials utilized in production.




Average
      unit cost of raw materials consumed based on precision products sold was $504
      per ton for the year ended June 30, 2007, compared to $506 per ton for the
      year
      ended June 30, 2006. The increase in the quantity of raw materials consumed
      was
      directly attributable to the increase in sales volume.




Manufacturing
      overhead costs increased by $1,337,635, or 43% year-on-year, to $4,480,293
      for
      the year ended June 30, 2007, from $3,142,658 for the year ended June 30, 2006.
      The increase was mainly attributable to the combined effect of an increase
      in
      depreciation by $809,198, or 103% year-on-year, to $1,593,055 for the year
      ended
      June 30, 2007, from $783,857 for the year ended June 30, 2006, an increase
      in
      utilities by $310,850, or 55% year-on-year, to $876,681 for the year ended
      June
      30, 2007, from $565,831 for the year ended June 30, 2006, and an increase in
      subcontracting fees paid by $425,732, or 93% year-on-year to $883,812 for the
      year ended June 30, 2007, from $458,080 for the year ended June 30,
      2006.




***Expenses***




Selling
      Expenses .
      Selling
      expenses increased by $123,475, or 101% year-on-year, to $245,695 for the year
      ended June 30, 2007 compared to the corresponding period in 2006 of $122,220.
      The increase was mainly attributable to increases in transportation, which
      rose
      by 2,440% year-on-year, due to our increased delivery charges of precision
      steel
      resulting from a broader customer base, including exports, as well as an
      increase in the frequency of deliveries. In response to these rising costs,
      Chengtong has adopted a policy of requiring all new customers to provide for
      transportation and delivery of goods.




Administrative
      Expenses . **** Administrative
      expenses increased by $1,358,230, or 269% year-on-year, to $1,863,994 for the
      year ended June 30, 2007, compared to the comparable period in 2006. This
      increase was chiefly due to increases in the amortization of intangible assets,
      listing fees relating to the Company’s admission to the NASDAQ Capital Market,
      directors’ remuneration, and salaries and wages. The increase in directors’
remuneration was mainly attributable to the initial distribution of remuneration
      to two directors of PSHL totaling $200,000. Increases in salaries and wages
      were
      principally due to increases in the average number of Chengtong
      staff.




35




Finance
      Costs .
      Net
      finance cost increased 15% year-on-year as a result of increases in total
      interest expense by $312,222 for 2007, compared to $271,693 for 2006, as the
      finance costs for the year ended June 30, 2007 included interest expenses for
      the loan dated September 22, 2005 for the full year.





**Liquidity
      and Capital Resources**




Our
      business is capital intensive and requires substantial expenditures for, among
      other things, the purchase and maintenance of equipment used in our operations.
      Our short-term and long-term liquidity needs arise primarily from capital
      expenditures, working capital requirements and principal and interest payments
      related to our outstanding indebtedness. We will continue to meet these
      liquidity requirements with cash provided by operations, equity financing,
      and
      bank debt.




***Current
      Assets*** .
      Current
      assets increased significantly by $66,794,928, or 162% year-on-year to
      $108,133,922 as of June 30, 2008, from $41,338,994 as of June 30, 2007
      principally as a result of increases in cash and equivalents by $13,063,980,
      or
      237% year-on-year, accounts receivable by $25,541,030, or 310% year-on-year,
      and
      net advances to suppliers by $21,327,447, or 182% year-on-year. We also raised
      net proceeds of $44,375,282 in November of 2007 through a registered direct
      offering of our common stock.




***Current
      Liabilities*** .
      Current
      liabilities increased by $18,464,626, or 69% year-on-year, to $45,229,402 as
      of
      June 30, 2008, from $26,764,776 as of June 30, 2007. The increase was due to
      increases in accounts payable, advances from customers, tax payables, amounts
      due to directors and short-term loans and was mitigated by decreases in deferred
      income taxes payable, and the current portion of long-term debt.




As
      of
      June 30, 2008, we had $17,465,799 in short term bank debt. Such debt has been
      renewed at an interest rate of 115% of the standard market rate set by the
      People’s Bank of China for Renminbi loans, due on July 31, 2009 and secured by
      land use rights, buildings, plant and machinery.





***Capital
      Expenditures*** . ** During
      the year ended June 30, 2008, we invested $14,705,362 in property, production
      plants and equipment, which included additions to buildings of $5,590,676 and
      plants and machinery of $9,114,686, including the new 1450mm cold rolling mill.
      We believe these capital investments increase our capacity, expand our product
      line, and reduce risks related to occupancy costs, thereby creating new
      opportunities to grow sales and control expenses.




**Off-Balance
      Sheet Arrangements**




For
      the
      year ended June 30, 2008, we did not have any off-balance sheet
      arrangements.




**Contractual
      Obligations**




****
            
            **Payments Due By Period****Total**
            
            **Fiscal Year**
              **2009**
            
            **Fiscal**
              **Year**
              **2010-2011**
            
            **Fiscal**
              **Year**
              **2012-2013**
            
            **Fiscal Years**
              **2014 and**
              **Beyond**Contractual obligations:Short-Term
                Debt Obligations
            
            $
            18,808,919
            
            $
            18,808,919
            
            $
            —
            
            $
            —
            
            $
            —Construction
                Commitments
            
            
            11,231,670
            
            
            11,231,670
            
            
            —
            
            
            —
            
            
            —$
            30,040,589
            
            $
            30,040,589
            
            $
            —
            
            $
            —
            
            $
            —




**Loans**




The
      following table illustrates our credit facilities, providing the name of the
      lender, the amount of the facility, the date of issuance and the maturity
      date.


Lender
              
              Date
                  of Loan
              
              Maturity
                  Date
              
              Duration
              
              Interest
                  Rate
              
              Principal
                  AmountRaiffeisen
                Zentralbank
                  Österreich AG
              
              July
                  23, 2007
              
              July
                  31, 2008
              
              1
                  year
              
              USD:
                  SIBOR + 3%;
                RMB:
                  PBOC rate*113%
              
              $5,300,000
                $2,886,952
                (RMB20,000,000)Raiffeisen
                Zentralbank
                  Österreich AG
              
              July
                  20, 2007
              
              July
                  25, 2008
              
              1
                  year
              
              PBOC
                  rate * 115%
              
              $9,278,847
                (RMB63,600,000)Total
              
              
              
              
              
              
              
              
              
              $17,465,799




36




Bank
      and
      other loans decreased by $5,418,880, or 23.7% year-on-year, to $17,465,799
      as of
      June 30, 2008, from $22,884,679 as of June 30, 2007. The decrease was due to
      the
      pay off of long-term bank loans during the year ended June 30, 2008. Short-term
      loans increased by $7,623,279, or 77% year-on-year, to $17,465,799 as of June
      30, 2008, from $9,842,520 as of June 30, 2007.  Long-term
      bank loans of $13,042,159 were paid off during the year ended June 30, 2008. The
      foregoing bank loans, outstanding as at June 30, 2008, have been renewed at
      an
      interest rate of 115% of the standard market rate set by the People’s Bank of
      China for Renminbi loans, and the new maturity date is July 31, 2009. The loans
      are secured by land use rights, buildings, plant and machinery.





**Land
      Use Rights**




In
      October 2004, Tuorong agreed to purchase a land use right from the Shanghai
      Labor and Economic Development Council with respect to a 20-acre parcel for
      a
      lease period of 50 years at a cost of $472,441. Additionally in November 2005,
      Chengtong agreed to purchase a land use right from the Shanghai Xuhang
      Industrial Development Co., Ltd. with respect to a 27.04-acre parcel for a
      lease
      period of 50 years at a cost of $497,795. In November 2006, Chengtong entered
      into an agreement with the Shanghai Labor and Economic Development Council
      which
      supersedes the aforementioned Tuorong agreement to purchase a total of
      21.34-acre parcel for a lease period of 50 years at an aggregate amount of
      $672,126. In December 2006, Tuorong entered into a Compensation Agreement with
      the Shanghai Jiading Housing, Land and Resource Management Bureau to pay an
      aggregate amount of $637,294 in connection to the two aforementioned
      parcels.




**Inflation**




We
      believe that inflation has not had a material effect on our results of
      operations. We generally manufacture our products to match orders from our
      customers. Due to the specialized nature of our products, we are able to
      purchase raw materials based upon customer orders. This operating model allows
      us to effectively pass along fluctuations in the price of raw materials to
      our
      customers. For commonly used raw materials, we purchase larger quantities when
      we believe prices are likely to increase in the short term in order to minimize
      the impact of any such price increase.




**Critical
      Accounting Policies and Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires our management to make
      assumptions, estimates and judgments that affect the amounts reported in the
      financial statements, including the notes thereto, and related disclosures
      of
      commitments and contingencies, if any. We consider our critical accounting
      policies to be those that require the more significant judgments and estimates
      in the preparation of financial statements, including the following:


§
              *Functional
                  Currency and Translating Financial Statements*--
                  The consolidated financial statements have been prepared in accordance
                  with accounting principles generally accepted in the United States
                  of
                  America. Our functional currency is Chinese Renminbi; however,
                  the
                  accompanying consolidated financial statements have been expressed
                  in USD.
                  The consolidated balance sheets have been translated into USD at
                  the
                  exchange rates prevailing at each balance sheet date. The consolidated
                  statements of operations and cash flows have been translated using
                  the
                  weighted-average exchange rates prevailing during the periods of
                  each
                  statement.
 
 §
              *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.
 
 §
              *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 June 30, 2008 and 2007,
                  the
                  Company had $1,033,479 and $273,461 of allowances for doubtful
                  accounts,
                  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.
 
 §
              *Other
                  Policies*-
                  Other accounting policies used by the Company are set forth in
                  the notes
                  accompanying our financial
                  statements.




37




**Recent
      Accounting Pronouncements**




In
      September 2006, the “FASB” issued Statement No. 157, “Fair Value
      Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how
      companies should measure fair value when they are required to use a fair value
      measure for recognition or disclosure purposes under generally accepted
      accounting principles. SFAS No. 157 defines fair value, establishes a
      framework for measuring fair value and expands the required disclosures about
      fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, with earlier adoption permitted.
      Management is assessing the impact of the adoption of
“SFAS No. 157”.





In
      September 2006, the “FASB” issued Statement No. 158, “Employers’ Accounting
      for Defined Benefit Pension and Other Postretirement Plans”
(“SFAS No. 158”), an amendment of “FASB” Statements No. 87, 88,
      106 and 132(R). SFAS No. 158 requires (a) recognition of the
      funded status (measured as the difference between the fair value of the plan
      assets and the benefit obligation) of a benefit plan as an asset or liability
      in
      the employer’s statement of financial position, (b) measurement of the
      funded status as of the employer’s fiscal year-end with limited exceptions, and
      (c) recognition of changes in the funded status in the year in which the
      changes occur through comprehensive income. The requirement to recognize the
      funded status of a benefit plan and the disclosure requirements are effective
      as
      of the end of the fiscal year ending after December 15, 2006. The
      requirement to measure the plan assets and benefit obligations as of the date
      of
      the employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. SFAS No. 158 has no
      current applicability to the Company’s financial statements.





In
      February 2007, the “FASB” issued Statement No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities” (“SFAS No. 159”), an
      amendment of “FASB” Statement No. 115. SFAS No. 159 addresses how
      companies should measure many financial instruments and certain other items
      at
      fair value. The objective is to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. SFAS No. 159 is effective for
      fiscal years beginning after November 15, 2007, with earlier adoption
      permitted. Management is assessing the impact of the adoption of
      SFAS No. 159.





In
      December 2007, the “FASB” issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) will change the accounting for
      business combinations. Under SFAS No. 141(R), an acquiring entity will be
      required to recognize all the assets acquired and liabilities assumed in a
      transaction at the acquisition-date fair value with limited exceptions. SFAS
      No. 141(R) will change the accounting treatment and disclosure for certain
      specific items in a business combination. SFAS No. 141(R) applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. SFAS 141(R) will impact the Company in the event of any
      future acquisition.




In
      December 2007, the “FASB” issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements—an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting
      standards for the noncontrolling interest in a subsidiary and for the
      deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
      beginning on or after December 15, 2008. The Company does not believe that
      SFAS 160 will have a material impact on its consolidated financial
      statements.




In
      March 2008, the “FASB” issued “SFAS No. 161”, Disclosures about
      Derivative Instruments and Hedging Activities—an amendment of “FASB” Statement
      No. 133 (“SFAS 161”). “SFAS 161” changes the disclosure requirements for
      derivative instruments and hedging activities. Entities are required to provide
      enhanced disclosures about (a) how and why an entity uses derivative
      instruments, (b) how derivative instruments and related hedged items are
      accounted for under Statement 133 and its related interpretations, and
      (c) how derivative instruments and related hedged items affect an entity’s
      financial position, financial performance, and cash flows. The guidance in
“SFAS
      161” is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008, with early application
      encouraged. This Statement encourages, but does not require, comparative
      disclosures for earlier periods at initial adoption. The Company is currently
      assessing the impact of “SFAS 161”.





**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




We
      have
      exposure to several types of market risk: changes in foreign currency exchange
      rates, interest rates and commodity prices. We neither hold nor issue financial
      instruments for trading purposes nor do we make use of derivative instruments
      to
      hedge the risks discussed below.  The
      following sections provide quantitative information on our exposure to market
      risks. Our 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
      collects revenues from operations principally in the Chinese Renminbi. Except
      for limited exports to Thailand and the Philippines, all of our local sales
      revenues are collected in and substantially all of its expenses are paid in
      the
      Chinese Renminbi. We face 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. Our 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.




38




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 valued the Renminbi at
      8.11
      per United States 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
      June 30, 2008 the exchange rate was 6.8543 Renminbi 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)
      our income and profit 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
      June
      30, 2008, the Group’s outstanding financial instruments with foreign currency
      exchange rate risk exposure had an aggregate fair value of $4.2 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 $0.42 million
      at
      June 30, 2008.




**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 June 30, 2008, the
      Group’s total bank debt outstanding was $17,465,799, all of which was
      interest-bearing. Substantially all 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, we will be liable for higher interest payments to its lenders. For
      the
      fiscal year ending June 30, 2009, annual interest on loans is anticipated to
      be
      approximately $1.3 million. The impact of a 1% increase in interest rates will
      increase interest expense by approximately $175,000. As our 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 we seek
      to
      refinance short-term borrowings may increase the cost of borrowings, which
      may
      adversely affect our earnings and cash available for distribution to its
      shareholders.




At
      June 30, 2008, the aggregate fair value of the Group’s financial
      instruments with exposure to interest rate risk was approximately $17 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
      $.1
      million at June 30, 2008.




**Commodity
      Prices**




The
      steel
      coils and other raw materials used by CPSL, 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 to produce. Additionally, CPSL also
      uses large amounts of energy in its operations. 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 June 30, 2008 and does
      not currently hedge its exposure to price fluctuations in the raw materials
      and
      energy required for the manufacture of its products.





**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





The
      consolidated financial statements for the Company and its subsidiaries are
      included at the end of this annual report.




39




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





On
      October 17, 2007, our Board of Directors accepted the resignation of Murrell,
      Hall, McIntosh & Co. PLLP, or Murrell, as our
      independent registered public accounting firm, effective as of November 27,
      2007.  Additionally, concurrent with this decision, our Board appointed the
      independent registered public accounting firm of Moore
      Stephens ,
      as our
      new auditor, effective November 29, 2007.





During
      the period that Murrell served as our independent registered public accounting
      firm and through the date of their resignation, we have not had any
      disagreements with Murrell on any matter of accounting principles or practices,
      financial disclosure, or auditing scope or procedure.  There were no
      reportable events, as described in Item 304(a)(1)(iv) of Regulation S-K, during
      our two most recent fiscal years (ended June 30, 2007 and 2006) through to
      November 27, 2007. No
      accountant's report issued by Murrell on the financial statements for either
      of
      the past two (2) years contained an adverse opinion or a disclaimer of opinion
      or was qualified or modified as to uncertainty, audit scope or accounting
      principles.





During
      the period that Moore
      Stephens has
      served as our independent
      registered public accounting firm and
      through the date of this report, (a) there were no disagreements with Moore
      Stephens on any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure, which, if not resolved to the satisfaction of Moore
      Stephens ,
      would
      have caused it to make reference to the subject matter of the disagreement(s)
      in
      connection with its report ;
      and (b) no
      accountant’s report on our financial statements issued by Moore
      Stephens contained an adverse opinion or disclaimer of opinion or was
      qualified or modified as to uncertainty, audit scope or accounting
      principles .





**ITEM
      9A. CONTROLS AND PROCEDURES**




**Disclosure
      Controls and Procedures**




As
      required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act,
      our
      management has carried out an evaluation, with the participation and under
      the
      supervision of our chief executive officer and chief financial officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of June 30, 2008.





Disclosure
      controls and procedures refer to controls and other procedures designed to
      ensure that information required to be disclosed in the reports we file or
      submit under the Securities Exchange Act is recorded, processed, summarized
      and
      reported within the time periods specified in the rules and forms of the SEC
      and
      that such information is accumulated and communicated to our management,
      including our chief executive officer and chief financial officer, as
      appropriate, to allow timely decisions regarding required disclosure. In
      designing and evaluating our disclosure controls and procedures, management
      recognizes that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives, and management is required to apply its judgment in evaluating
      and
      implementing possible controls and procedures.





Management
      conducted its evaluation of disclosure controls and procedures under the
      supervision of our chief executive officer and our chief financial officer.
      Based upon, and as of the date of this evaluation, our chief executive officer
      and chief financial officer concluded that our disclosure controls and
      procedures were effective.





**Management's
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Securities Exchange Act.  Because of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements. Also, projections of any evaluation of effectiveness to future
      periods are subject to the risk that controls may become inadequate because
      of
      changes in conditions, or that the degree of compliance with the policies and
      procedures may deteriorate.




Management
      assessed the effectiveness of our internal control over financial reporting
      as
      of June 30, 2008.  In making this assessment, we used the criteria set
      forth by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO) in Internal Control - Integrated Framework. Management’s assessment
      included an evaluation of the design of our internal control over financial
      reporting and testing of the operational effectiveness of its internal control
      over financial reporting. Management reviewed the results of its assessment
      with
      the Audit Committee of the Board of Directors. Based
      on
      our assessment ,
      management concluded that, as of June 30, 2008, our internal control over
      financial reporting is effective.





However,
      management also concluded that, although no significant deficiencies or material
      weaknesses were found, additional controls and procedures were required to
      further improve disclosures and documentations at CPSL to ensure completeness
      and more effective control over financial reporting. To address these concerns,
      we have discussed weaknesses identified during the evaluation with relevant
      departments and personnel at our subsidiaries for implementation of required
      changes, and will continue to take measures and plans to remediate these
      weaknesses in the current financial year. We also intend to continue to engage
      a
      third-party consulting firm to assist management in testing
      and improving our internal control on an as-needed basis.




40




Management’s
      assessment of the effectiveness of the internal control over financial reporting
      as of June 30, 2008 has been audited by Moore Stephens, an independent
      registered public accounting firm, as stated in their report, which appears
      herein.





**Changes
      in Internal Control over Financial Reporting**




As
      described in the current report on Form 8-K filed by the Company with the SEC
      on
      May 14, 2008, the Company announced it would restate its financial statements
      for the quarterly periods ended September 30, 2007 and December 31, 2007.
      Management has been working diligently with the Company’s current and former
      independent registered public accounting firm to be able to draw a conclusion
      on
      the matters involving complicated income tax issues, and have the restatement
      filed as soon as practical. Having considered the effect on the adequacy of
      the
      Company’s disclosure controls and procedures in light of the restatements
      mentioned above, management has determined that the Company’s disclosure
      controls and procedures are effective as of June 30, 2008.




During
      the year under review, we have engaged an outside management consultant to
      review the Company’s overall financial and accounting systems, and to document
      and implement an accounting manual that have strengthened and improved the
      systems of controls, reconciliations, procedures, books and
      records.





There
      were no other changes in our internal controls over financial reporting (as
      such
      term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act)
      during the year under review that materially affected, or are reasonably likely
      to material affect, our internal control over financial reporting.





**ITEM
      9B. OTHER INFORMATION**




None.




**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




The
      information required by this Item 10 is incorporated by reference from our
      definitive proxy statement for our 2008 annual meeting of stockholders, which
      will be filed no later than October 28, 2008 (120 days after June 30,
      2008).





**ITEM
      11. EXECUTIVE COMPENSATION**




The
      information required by this Item 11 is incorporated by reference from our
      definitive proxy statement for our 2008 annual meeting of stockholders, which
      will be filed no later than October 28, 2008 (120 days after June 30,
      2008).





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**




The
      information required by this Item 12 is incorporated by reference from our
      definitive proxy statement for our 2008 annual meeting of stockholders, which
      will be filed no later than October 28, 2008 (120 days after June 30,
      2008).





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**




The
      information required by this Item 13 is incorporated by reference from our
      definitive proxy statement for our 2008 annual meeting of stockholders, which
      will be filed no later than October 28, 2008 (120 days after June 30,
      2008).





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




The
      information required by this Item 14 is incorporated by reference from our
      definitive proxy statement for our 2008 annual meeting of stockholders, which
      will be filed no later than October 28, 2008 (120 days after June 30,
      2008).




41




**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





Exhibit
      List:




(1)
        Financial Statements and Schedules: See “Index to Consolidated Financial
      Statements” at page F-1 of this Annual Report on Form 10-K. Schedules not
      included herein are omitted because they are not applicable or the required
      information appears in the accompanying Consolidated Financial Statements or
      Notes thereto.




(2)
        The list below sets out the exhibits required by Item 601 of Regulation
      S-K to be filed as a part of this Form 10-K. The Exhibit Index following the
      signature page to this Annual Report on Form 10-K identifies those documents
      which are exhibits filed herewith or incorporated by reference.


**EXHIBIT
                  NO.**
              
              **DESCRIPTION**3.1
              
              Amended
                  and Restated Articles of Incorporation (incorporated herein by
                  reference
                  to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                  3.1)3.2
              
              Second
                  Amended and Restated Bylaws (incorporated herein by reference to
                  the
                  Company’s Form 10-KSB, dated March 31, 1999, Exhibit 3.1.II)4.1
              
              Specimen
                  Certificate for Common Stock (incorporated herein by reference
                  to the
                  Company’s Form 10-Q for the quarterly period ended December 31, 2006,
                  dated February 13, 2007, Exhibit 3.1)4.2
              
              Form
                  of Warrant (incorporated herein by reference to the Company’s Form 8-K,
                  dated February 16, 2007, Exhibit 4.1)4.3
              
              Warrant,
                  dated February 22, 2007, to Belmont Capital Group Limited (incorporated
                  herein by reference to the Company’s Form 8-K, dated February 16, 2007,
                  Exhibit 4.2)4.4
              
              Warrant,
                  dated February 22, 2007, to CCG Elite Investor Relations
                  (incorporated herein by reference to the Company’s Form 8-K, dated
                  February 16, 2007, Exhibit 4.3)10.1
              
              Redemption
                  Agreement, dated December 28, 2006 (incorporated herein by reference
                  to
                  the Company’s Form 8-K, dated 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, dated January 4, 2007, Exhibit
                  10.2)10.3
              
              2006
                  Long Term Incentive Plan (incorporated herein by reference to the
                  Company’s Form 8-K, dated January 4, 2007, Exhibit 10.3)10.4
              
              2006
                  Director Stock Plan, dated March 1, 2006 (incorporated herein by
                  reference
                  to the Company’s Definitive Proxy Statement, dated November 27, 2006,
                  Annex 3)10.5
              
              Equipment
                  Mortgage Agreement between Chengtong and Raiffeisen Zentralbank
Österreich
                  AG, dated January 12, 2005 (incorporated herein by reference to
                  the
                  Company’s Form 8-K, dated January 4, 2007, Exhibit 10.4)10.6
              
              Mortgage
                  Agreement on Immovables between Shanghai Tuorong Precision Strip
                  Company
                  Limited and Raisffesien Zentralbank Öesterreich AG, dated January 12, 2005
                  (incorporated herein by reference to the Company’s Form 8-K, dated January
                  4, 2007, Exhibit 10.5)10.7
              
              Letter
                  of Offer between Chengtong and Raiffeisen Zentralbank Österreich AG, dated
                  October 14, 2004 (incorporated herein by reference to the Company’s Form
                  8-K, dated January 4, 2007, Exhibit 10.6)10.8
              
              Amendment
                  No. 1 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                  Österreich AG, dated December 28, 2004 (incorporated herein by reference
                  to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                  10.7)10.9
              
              Amendment
                  No. 2 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                  Österreich AG, dated May 10, 2005 (incorporated herein by reference
                  to the
                  Company’s Form 8-K, dated January 4, 2007, Exhibit 10.8)10.10
              
              Amendment
                  No. 3 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                  Österreich AG,  dated July 26, 2005 (incorporated herein by reference
                  to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                  10.9)10.11
              
              Debt
                  Reduction Agreement, dated February 13, 2007, by and among the
                  Company, Wo
                  Hing Li and Partner Success Holdings Limited (incorporated herein
                  by
                  reference to the Company’s Form 8-K, dated February 13, 2007, Exhibit
                  10.1)10.12
              
              Deed
                  of Release, dated February 13, 2007, from Wo Hing Li, in favor
                  of the
                  Company, Partner Success Holdings Limited and Shanghai Chengtong
                  Precision
                  Strip Company Limited (incorporated herein by reference to the
                  Company’s
                  Form 8-K, dated February 13, 2007, Exhibit 10.2)
  42
  10.13
              
              Amendment
                  to the Debt Reduction Agreement, dated February 20, 2007, by and
                  among the
                  Company, Wo Hing Li and Partner Success Holdings Limited (incorporated
                  herein by reference to the Company’s Form 8-K, dated February 16, 2007,
                  Exhibit 10.4)10.14
              
              Form
                  of Stock Purchase Agreement, by and among the Company and the Investors,
                  dated February 16, 2007 (incorporated herein by reference to the
                  Company’s
                  Form 8-K, dated February 16, 2007, Exhibit 10.1)10.15
              
              Form
                  of Limited Standstill Agreement (incorporated herein by reference
                  to the
                  Company’s Form 8-K, dated February 16, 2007, Exhibit 10.2)10.16
              
              Form
                  of Subscription Agreement, dated November 1, 2007 (incorporated
                  herein by
                  reference to the Company’s Form 8-K filed on November 1, 2007, Exhibit
                  10.1)10.17
              
              Form
                  of Placement Agency Agreement, dated October 31, 2007 (incorporated
                  herein
                  by reference to the Company’s Form 8-K filed on November 1, 2007, Exhibit
                  10.2)21*
              
              Subsidiaries
                  of the Registrant22
              
              Published
                  report regarding matters submitted to vote of security holders
                  (Incorporated herein by reference to the Company’s Quarterly Report on
                  Form 10-Q for the quarter ended December 31, 2006, dated February
                  13,
                  2007, Exhibit 99.1)31.1*
              
              Certification
                  of President pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
                  Exchange Act.31.2*
              
              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
                  2002.


*
        Filed
        herewith


43





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this Annual Report on Form 10-K to be
      signed on its behalf by the undersigned, thereunto duly authorized.


**CHINA
                  PRECISION STEEL, INC.**By:
              /s/
                  Wo Hing LiName: Wo
                  Hing LiTitle:  
                  Chief Executive OfficerDate:  
                  September 15, 2008




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Annual Report
      on Form 10-K has been signed below by the following persons on behalf of
      the registrant and in the capacities and on the dates indicated.




**SIGNATURE**
            
            **TITLE**
            
            **DATE**Chief
                Executive Officer (Principal Executive Officer),/s/
                Wo Hing Li
            
            President
                and Director
            
            September
                15, 2008Wo
                Hing LiChief
                Financial Officer,Secretary
                and Treasurer/s/
                Leada Tak Tai Li
            
            (Principal
                Financial Officer)
            
            September
                15, 2008Leada
                Tak Tai Li/s/
                Hai Sheng Chen
            
            General
                Manager, Director
            
            September
                15, 2008Hai
                Sheng Chen/s/
                Che Kin Lui
            
            Director
            
            September
                15, 2008Che
                Kin Lui/s/
                David Peter Wong
            
            Director
            
            September
                15, 2008David
                Peter Wong/s/
                Tung Kuen Tsui
            
            Director
            
            September
                15, 2008Tung
                Kuen Tsui




44







**CHINA
      PRECISION STEEL, INC.**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2008, 200** **7
      AND 2006**




**Index
      to Financial Statements**





**Page****CONSOLIDATED
                FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2008 AND
                2007**
            
            
            F-1Reports
                of Independent Registered Public Accounting Firms
            
            
            F-2Consolidated
                Balance Sheets as of June 30, 2008 and 2007
            
            
            F-4Consolidated
                Statement of Operations for the Years Ended June 30, 2008, 2007 and
                2006
            
            
            F-5Consolidated
                Statement of Shareholders’ Equity for the Years Ended June 30, 2008, 2007
                and 2006
            
            
            F-6Consolidated
                Statement of Cash Flows for the Years Ended June 30, 2008, 2007 and
                2006
            
            
            F-7Notes
                to Consolidated Financial Statements
            
            
            F-8
                to F-23




F-1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




The
      Board
      of Directors and Shareholders




China
      Precision Steel, Inc.




We
      have
      audited the accompanying consolidated balance sheets of China Precision Steel,
      Inc. and subsidiaries (collectively, the “Company”) (see Note 1) as of June 30,
      2008, and the related consolidated statements of operations, changes in
      shareholders’ equity, and cash flows for the year ended June 30, 2008. We have
      also audited the Company’s internal control over financial reporting as of June
      30, 2008, based on criteria established in Internal Control - Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO). The Company’s management is responsible for these financial
      statements, for maintaining effective internal control over financial reporting,
      and for its assessment of the effectiveness of internal control over financial
      reporting, included in the accompanying Management’s Report on Internal Control
      Over Financial Reporting. Our responsibility is to express an opinion on these
      consolidated financial statements and an opinion on the Company’s internal
      control over financial reporting based on our audits.




We
      conducted our audits in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement and whether
      effective internal control over financial reporting was maintained in all
      material respects. Our audit of the financial statements included examining,
      on
      a test basis, evidence supporting the amounts and disclosures in the
      consolidated financial statements, assessing the accounting principles used
      and
      significant estimates made by management, and evaluating the overall financial
      statement presentation. Our audit of internal control over financial reporting
      included obtaining an understanding of internal control over financial
      reporting, assessing the risk that a material weakness exists, and testing
      and
      evaluating the design and operating effectiveness of internal control based
      on
      the assessed risk. Our audits also included performing such other procedures
      as
      we considered necessary in the circumstances. We believe that our audits provide
      a reasonable basis for our opinions.




A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of consolidated financial statements for external purposes
      in accordance with generally accepted accounting principles. A company's
      internal control over financial reporting includes those policies and procedures
      that (1) pertain to the maintenance of records that, in reasonable detail,
      accurately and fairly reflect the transactions and dispositions of the assets
      of
      the company; (2) provide reasonable assurance that transactions are recorded
      as
      necessary to permit preparation of consolidated financial statements in
      accordance with generally accepted accounting principles, and that receipts
      and
      expenditures of the company are being made only in accordance with
      authorizations of management and directors of the company; and (3) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use, or disposition of the company's assets that could have a
      material effect on the consolidated financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of the Company
      as
      of June 30, 2008, and the results of their operations and their cash flows
      for
      the year ended June 30, 2008, in conformity with accounting principles generally
      accepted in the United States of America. Also, in our opinion, the Company
      maintained, in all material respects, effective internal control over financial
      reporting as of June 30, 2008, based on criteria established in Internal Control
      - Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (COSO).





**/s/
      Moore Stephens**





*Certified
      Public Accountants*




**Hong
      Kong**




September
      10, 2008


F-2





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





We
      have
      audited the accompanying consolidated balance sheets of China Precision Steel,
      Inc. and Subsidiaries (the “Company”) as of June 30, 2007 and 2006 and the
      related consolidated statements of operations, stockholders’ equity and cash
      flows for the years ended June 30, 2007, 2006, and 2005. These consolidated
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with standards of the Public Companies
      Accounting Oversight Board (United States). The Company is not required to
      have,
      nor were we engaged to perform, an audit of its internal control over financial
      reporting. Our audit included consideration of internal control over financial
      reporting as a basis for designing audit procedures that are appropriate in
      the
      circumstances, but not for the purposes of expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. Those standards require that we plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of China Precision
      Steel, Inc. and Subsidiaries as of June 30, 2007 and 2006, and the consolidated
      results of their operations and cash flows for the years ended June 30, 2007,
      2006, and 2005 in conformity with accounting principles generally accepted
      in
      the United States of America.





**/s/Murrell,
      Hall, McIntosh & Co. PLLP**





Oklahoma
      City, Oklahoma


October
      11, 2007


(October
      15, 2007 as to subsequent events disclosed in Note 20)




F-3





**China
      Precision Steel, Inc. and Subsidiaries**


**Consolidated
      Balance Sheets**





**June 30,**
              
              **June 30,****Notes**
              
              **2008**
              
              **2007****Assets****Current
                  assets**Cash
                  and equivalents
              
              
              
              
              $
              18,568,842
              
              $
              5,504,862Accounts
                  receivableTrade,
                  net of allowances of $1,033,479 and $273,461 at June 30, 2008 and
                  2007,
                  respectively
              
              
              
              
              
              33,783,074
              
              
              8,242,044Bank
                  acceptance notes
              
              
              
              
              
              4,309,703
              
              
              -Other
              
              
              
              
              
              571,746
              
              
              85,708Inventories
              
              
              7
              
              
              17,815,087
              
              
              15,723,704Deposits
              
              
              
              
              
              -
              
              
              82,758Prepaid
                  expenses
              
              
              
              
              
              58,105
              
              
              -Advances
                  to suppliers, net of allowance of $2,522,837 and $2,269,328 at
                  June 30,
                  2008 and 2007, respectively
              
              
              
              
              
              33,027,365
              
              
              11,699,918**Total
                  current assets**
              
              
              
              
              
              108,133,922
              
              
              41,338,994**Property
                  and equipment**Property
                  and equipment, net
              
              
              8
              
              
              39,199,305
              
              
              29,238,227Construction-in-progress
              
              
              9
              
              
              16,476,454
              
              
              10,355,76355,675,759
              
              
              39,593,990**Intangible
                  assets, net**
              
              
              
              
              
              1,625,690
              
              
              1,124,583**Goodwill**
              
              
              
              
              
              99,999
              
              
              99,999**Total
                  assets**
              
              
              
              
              $
              165,535,370
              
              $
              82,157,566**Liabilities
                  and Stockholders' Equity****Current
                  liabilities**Accounts
                  payable and accrued liabilities
              
              
              
              
              $
              12,047,981
              
              $
              4,855,932Advances
                  from customers
              
              
              10
              
              
              6,996,996
              
              
              1,720,812Other
                  taxes payables
              
              
              
              
              
              3,976,239
              
              
              816,553Current
                  income taxes payable
              
              
              
              
              
              4,742,387
              
              
              1,892,866Deferred
                  income taxes payable
              
              
              
              
              
              -
              
              
              1,064,028Amounts
                  due to directors
              
              
              11
              
              
              -
              
              
              408,620Current
                  portion of long-term debt
              
              
              13
              
              
              -
              
              
              6,163,445Notes
                  payable
              
              
              12
              
              
              17,465,799
              
              
              9,842,520**Total
                  current liabilities**
              
              
              
              
              
              45,229,402
              
              
              26,764,776**Long-term
                  debt, net of current portion shown above**
              
              
              13
              
              
              -
              
              
              6,878,714**Stockholders'
                  equity:**Preferred
                  stock: $0.001 per value, 8,000,000 shares authorized, no shares
                  outstanding at June 30, 2008 and 2007;
              
              
              15Common
                  stock: $0.001 par value, 62,000,000 shares authorized, 46,472,955
                  and
                  37,378,143 issued and outstanding June 30, 2008 and 2007
              
              
              15
              
              
              46,473
              
              
              37,378Additional
                  paid-in capital
              
              
              15
              
              
              75,372,488
              
              
              31,867,063Accumulated
                  other comprehensive income
              
              
              
              
              
              9,295,658
              
              
              2,192,160Retained
                  earnings
              
              
              
              
              
              35,591,349
              
              
              17,008,238**Total
                  stockholders' equity**
              
              
              
              
              
              120,305,968
              
              
              51,104,839**Amounts
                  due from directors**
              
              
              11
              
              
              -
              
              
              (2,590,763
              )**Total
                  liabilities and stockholders' equity**
              
              
              
              
              $
              165,535,370
              
              $
              82,157,566




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


F-4





China
      Precision Steel, Inc. and Subsidiaries


Consolidated
      Statements of Operations


For
      the
      Years Ended June 30. 2008, 2007 and 2006





**Notes**
            
            **2008**
            
            **2007**
            
            **2006****Revenues**Sales
                revenues
            
            
            20
            
            $
            87,739,326
            
            $
            53,960,243
            
            $
            34,881,141Cost
                of goods sold
            
            
            
            
            
            65,241,825
            
            
            38,925,987
            
            
            24,892,154**Gross
                profit**
            
            
            
            
            
            22,497,501
            
            
            15,034,256
            
            
            9,988,987**Operating
                expenses**Selling
                expenses
            
            
            
            
            
            608,060
            
            
            245,695
            
            
            122,220Administrative
                expenses
            
            
            
            
            
            2,758,536
            
            
            1,863,994
            
            
            505,764Provision
                for bad debts
            
            
            
            
            
            686,955
            
            
            3,775,645
            
            
            -Depreciation
                and amortization expense
            
            
            
            
            
            64,253
            
            
            44,375
            
            
            40,005**Total
                operating expenses**
            
            
            
            
            
            4,117,804
            
            
            5,929,709
            
            
            667,989**Income
                from continuing operations**
            
            
            
            
            
            18,379,697
            
            
            9,104,547
            
            
            9,320,998**Other
                income (expense)**Other
                revenues
            
            
            19
            
            
            2,006,777
            
            
            103,388
            
            
            -Other
                expenses
            
            
            
            
            
            
            
            
            (1,362
            )Interest
                and finance costs
            
            
            
            
            
            (1,231,040
            )
            
            (312,222
            )
            
            (271,693
            )**Total
                other income (expense)**
            
            
            
            
            
            775,737
            
            
            (210,196
            )
            
            (271,693
            )**Net
                income from continuing operations before income
                tax**
            
            
            
            
            
            19,155,434
            
            
            8,894,351
            
            
            9,049,305**Provision
                for (benefit from) income tax**
            
            
            14Current
            
            
            
            
            
            1,636,351
            
            
            1,892,866
            
            
            -Deferred
            
            
            
            
            
            (1,064,028
            )
            
            (471,176
            )
            
            1,535,204Total
                income tax expense
            
            
            
            
            
            572,323
            
            
            1,421,690
            
            
            1,535,204**Net
                income before discontinued operations**
            
            
            
            
            
            18,583,111
            
            
            7,472,661
            
            
            7,514,101**Net
                income from discontinued operations**
            
            
            17
            
            
            -
            
            
            831,448
            
            
            900,469**Net
                income**
            
            
            
            
            $
            18,583,111
            
            $
            8,304,109
            
            $
            8,414,570**Basic
                earnings per share**
            
            
            16From
                continuing operations
            
            
            
            
            $
            0.43
            
            $
            0.26
            
            $
            0.31From
                discontinued operations
            
            
            
            
            $
            -
            
            $
            0.03
            
            $
            0.04Total
            
            
            
            
            $
            0.43
            
            $
            0.29
            
            $
            0.35**Basic
                weighted average shares outstanding**
            
            
            
            
            
            43,044,420
            
            
            28,438,313
            
            
            24,283,725**Diluted
                earnings per share**
            
            
            16From
                continuing operations
            
            
            
            
            $
            0.43
            
            $
            0.26
            
            $
            0.31From
                discontinued operations
            
            
            
            
            $
            -
            
            $
            0.03
            
            $
            0.04Total
            
            
            
            
            $
            0.43
            
            $
            0.29
            
            $
            0.35**Diluted
                weighted average shares outstanding**
            
            
            
            
            
            43,256,434
            
            
            28,759,553
            
            
            24,283,725**The
                Components of comprehensive income:**Net
                income
            
            
            
            
            $
            18,583,111
            
            $
            8,304,109
            
            $
            8,414,570Foreign
                currency translation adjustment
            
            
            
            
            
            7,103,498
            
            
            1,446,577
            
            
            745,583**Comprehensive
                income**
            
            
            
            
            $
            25,686,609
            
            $
            9,750,686
            
            $
            9,160,153





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


F-5





**China
      Precision Steel, Inc. and Subsidiaries**


**Consolidated
      Statements of Changes in Stockholders' Equity**


**For
      the Years Ended June 30, 2008, 2007 and 2006**





**Accumulated****Additional**
            
            **Other**
            
            
            
            **Total****Ordinary Shares**
            
            **Paid-in**
            
            **Comprehensive**
            
            **Retained**
            
            **Stockholders'****Share**
            
            **Amount**
            
            **Capital**
            
            **Income**
            
            **Earnings**
            
            **Equity**Balance
                at June 30, 2005
            
            
            24,283,723
            
            $
            24,284
            
            $
            1,375,716
            
            $
            -
            
            $
            2,021,476
            
            $
            3,421,476Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            745,583
            
            
            -
            
            
            745,583Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,414,570
            
            
            8,414,570Less
                discontinued operations sold to former shareholder
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            (900,469
            )
            
            (900,469
            )Balance
                at June 30, 2006
            
            
            24,283,723
            
            
            24,284
            
            
            1,375,716
            
            
            745,583
            
            
            9,535,577
            
            
            11,681,160Sale
                of common stock
            
            
            7,451,665
            
            
            7,451
            
            
            22,347,543
            
            
            -
            
            
            -
            
            
            22,354,994Syndication
                fees
            
            
            -
            
            
            -
            
            
            (3,028,116
            )
            
            -
            
            
            -
            
            
            (3,028,116
            )Stock
                issued for syndication fees
            
            
            2,798,191
            
            
            2,798
            
            
            (2,798
            )
            
            -
            
            
            -
            
            
            -Anti-dilution
                rights stock
            
            
            827,962
            
            
            828
            
            
            (828
            )
            
            -
            
            
            -
            
            
            -Conversion
                of debt to stock
            
            
            2,016,600
            
            
            2,017
            
            
            6,773,759
            
            
            
            
            
            
            
            
            6,775,776Warrants
                issued for consulting
            
            
            -
            
            
            -
            
            
            447,993
            
            
            -
            
            
            -
            
            
            447,993Capital
                contribution from waiver of dividend
            
            
            -
            
            
            -
            
            
            3,953,794
            
            
            
            
            
            
            
            
            3,953,794Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            1,446,577
            
            
            -
            
            
            1,446,577Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,304,109
            
            
            8,304,109Less
                discontinued operations sold to former shareholder
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (831,448
            )
            
            (831,448
            )Balance
                at June 30, 2007
            
            
            37,378,141
            
            
            37,378
            
            
            31,867,063
            
            
            2,192,160
            
            
            17,008,238
            
            
            51,104,839Sale
                of common stock
            
            
            7,100,000
            
            
            7,100
            
            
            44,498,650
            
            
            -
            
            
            -
            
            
            44,505,750Syndication
                fees
            
            
            -
            
            
            -
            
            
            (130,468
            )
            
            -
            
            
            -
            
            
            (130,468
            )Make
                good shares
            
            
            2,000,000
            
            
            2,000
            
            
            (2,000
            )
            
            -
            
            
            -
            
            
            -Exercise
                of warrants
            
            
            765,872
            
            
            766
            
            
            1,729,235
            
            
            -
            
            
            -
            
            
            1,730,001Cancellation
                of stock
            
            
            (771,060
            )
            
            (771
            )
            
            (2,589,992
            )
            
            -
            
            
            -
            
            
            (2,590,763
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            7,103,498
            
            
            -
            
            
            7,103,498Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            18,583,111
            
            
            18,583,111Balance
                at June 30, 2008
            
            
            46,472,953
            
            $
            46,473
            
            $
            75,372,488
            
            $
            9,295,658
            
            $
            35,591,349
            
            $
            120,305,968





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


F-6





China
      Precision Steel, Inc. and Subsidiaries


Consolidated
      Statements of Cash Flows


For
      the
      Years Ended June 30, 2008, 2007 and 2006





**2008**
            
            **2007**
            
            **2006****Cash
                flows from operating activities****Net
                Income**
            
            $
            18,583,111
            
            $
            8,304,109
            
            $
            8,414,570**Adjustments
                to reconcile net income to net cash provided by operating
                activities**Depreciation
            
            
            2,214,643
            
            
            1,527,211
            
            
            823,862Less
                income from discontinued operations - Oralabs, Inc
            
            
            -
            
            
            (831,448
            )
            
            (900,469
            )Allowance
                for bad and doubtful debts
            
            
            686,955
            
            
            3,775,645
            
            
            -Warrants
                issued for consulting
            
            
            -
            
            
            447,993
            
            
            -**Net
                changes in assets and liabilities:**Accounts
                receivable, net
            
            
            (30,186,787
            )
            
            5,523,369
            
            
            (6,790,827
            )Inventories
            
            
            (511,151
            )
            
            (9,133,893
            )
            
            (4,018,854
            )Deposits
            
            
            82,758
            
            
            (3,504
            )
            
            (75,575
            )Prepayments
            
            
            (58,105
            )
            
            -
            
            
            -Advances
                to suppliers
            
            
            (19,898,096
            )
            
            (10,677,692
            )
            
            (1,440,047
            )Accounts
                payable and accrued expenses
            
            
            6,704,028
            
            
            2,966,771
            
            
            435,337Advances
                from customers
            
            
            5,103,242
            
            
            (229,495
            )
            
            1,296,647Other
                taxes payable
            
            
            3,077,622
            
            
            (188,367
            )
            
            670,313Current
                income taxes
            
            
            2,659,288
            
            
            1,892,866
            
            
            -Deferred
                income taxes
            
            
            (1,064,028
            )
            
            (471,176
            )
            
            1,135,204**Net
                cash (used in) provided by operating activities**
            
            
            (12,606,520
            )
            
            2,902,389
            
            
            (449,839
            )**Cash
                flows from investing activities**Purchases
                of goodwill
            
            
            -
            
            
            (99,999
            )
            
            -Purchases
                of property, plant and equipment including construction in
                progress
            
            
            (14,705,302
            )
            
            (9,896,145
            )
            
            (10,049,870
            )**Net
                cash (used in) investing activities**
            
            
            (14,705,302
            )
            
            (9,996,144
            )
            
            (10,049,870
            )**Cash
                flows from financing activities**Proceeds
                from sale of common stock
            
            
            44,375,282
            
            
            19,326,878
            
            
            -Exercise
                of common stock warrants
            
            
            1,730,001
            
            
            -
            
            
            -Advances
                from/(to) directors, net
            
            
            (189,315
            )
            
            (7,610,426
            )
            
            (1,763,994
            )Notes
                payable proceeds
            
            
            16,702,976
            
            
            10,040,633
            
            
            13,245,762Repayments
                of notes payable
            
            
            (24,421,766
            )
            
            (10,157,728
            )
            
            (4,251,719
            )**Net
                cash provided by financing activities**
            
            
            38,197,178
            
            
            11,599,357
            
            
            7,230,049**Effect
                of exchange rate**
            
            
            2,178,624
            
            
            812,305
            
            
            323,289**Net
                increase in cash**
            
            
            13,063,980
            
            
            5,317,907
            
            
            (2,946,371
            )**Cash
                and cash equivalents, beginning of year**
            
            
            5,504,862
            
            
            186,955
            
            
            3,133,326**Cash
                and cash equivalents, end of year**
            
            $
            18,568,842
            
            $
            5,504,862
            
            $
            186,955**Supplemental
                disclosure of cash flow information**Cash
                paid during the period for:Interest
                paid
            
            $
            1,231,040
            
            $
            312,222
            
            $
            395,134Taxes
                paid
            
            $
            -
            
            $
            -
            
            $
            -Major
                non-cash transactions:Issuance
                of 2,798,191 shares of stock for syndication fees
            
            $
            -
            
            $
            8,394,573
            
            $
            -Issuance
                of 100,000 warrants for services
            
            $
            -
            
            $
            447,993
            
            $
            -Issuance
                of 1,216,667 warrants for syndication fees
            
            $
            -
            
            $
            2,770,349
            
            $
            -Contribution
                of director's loans to additional paid in capital
            
            $
            -
            
            $
            3,953,794
            
            $
            -Shareholder
                loans contributed for contributed construction costs
            
            $
            -
            
            $
            8,840,990
            
            $
            -




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


F-7





**China
      Precision Steel, Inc.**


Notes
      to
      the Consolidated Financial Statements





**1.   Description
      of Business**





On
      December 28, 2006, China Precision Steel, Inc. (the “Company” or “we”), under
      our former name, OraLabs Holding Corp., issued 25,363,002 shares of common
      stock
      in exchange for 100% of the registered capital of Partner Success Holdings
      Limited (“PSHL”), a British Virgin Islands Business Company 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.





PSHL,
      registered on April 30, 2002 in the Territory of the British Virgin Islands,
      had
      registered capital of $50,000 as of June 30, 2008 and 2007. It has three
      wholly-owned subsidiaries, Shanghai Chengtong Precision Strip Company Limited
      (“Chengtong”), Shanghai Tuorong Precision Strip Company Limited (“Tuorong”), and
      Blessford International Limited (“Blessford”).





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 and on December 11, 2007, the authorized registered capital was
      further increased to $42,440,000. 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.





In
      the
      year ended June 30, 2007, we added three indirect subsidiaries to our corporate
      structure. On April 9, 2007, we purchased Shanghai Tuorong Precision Strip
      Company Limited, or Tuorong, through PSHL. The sole activity of Tuorong is
      the
      ownership of a land use right with respect to facilities utilized by Chengtong.
      On April 10, 2007, PSHL purchased for $100,000 Blessford International Limited,
      a British Virgin Islands company. Blessford International Limited does not
      conduct any business, but it owns a single subsidiary, Shanghai Blessford Alloy
      Company Limited, that is a wholly-foreign owned enterprise with limited
      liabilities. Shanghai Blessford was registered on February 24, 2006 in Shanghai
      with a registered capital of $12,000,000 and a defined period of existence
      of 50
      years from February 24, 2006 to February 23, 2056. On May 27, 2008, the
      authorized registered capital was increased to $22,000,000. We intend to hold
      Blessford International Limited as a shell subsidiary.


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





The
      Company’s principal activities are conducted through its two operating
      subsidiaries, Chengtong and Shanghai Blessford. Chengtong and Shanghai Blessford
      are niche precision steel processing companies 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 have been prepared in order to present the consolidated
      financial position and consolidated results of operations in accordance with
      accounting principles generally accepted in the United States of America (“US
      GAAP”) and are expressed in terms of US dollars (see Note 3 “Foreign Currencies”
below).





The
      consolidated balance sheets as of June 30, 2008 and 2007 include CPSL, PSHL,
      Blessford International, Chengtong, Shanghai Blessford, and Tuorong,
      collectively referred to as “the Group”. The consolidated statements of
      operations for the year ended June 30, 2008 includes CPSL, PSHL, Blessford
      International, Chengtong, Shanghai Blessford and Tuorong for the full year.
      The
      consolidated statement of operations for the years ended June 30, 2007 and
      2006
      includes CPSL, PSHL, Chengtong and Tuorong for the full year, Blessford
      International and Shanghai Blessford from April 9, 2007. Intercompany items
      have
      been eliminated.




F-8


**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 period
      of
      three months or less to be cash equivalents. The carrying amounts reported
      in
      the accompanying consolidated balance sheets 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 June 30, 2008 and 2007, the Company had $1,033,479
      and $273,461 of allowances for doubtful accounts, 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 overheads, taking into account the stage of completion.





**Advances
      to Suppliers -** In
      order
      to insure a steady supply of raw materials, the Company is required from time
      to
      time to make cash advances when placing its purchase orders. Cash advances
      are
      shown net of allowances for unrecoverable advances of $2,522,837 and $2,269,328
      at June 30, 2008 and 2007, respectively.





**Intangible
      assets -** The
      Company acquired land use rights in August 2004 and December 2006 for 50 years
      that expire in August 2054 and December 2056 respectively. The land use rights
      are amortized over a fifty-year term. There was no amortization recorded for
      the
      years ended June 30, 2008 and 2007. An amortization amount of approximately
      $32,470 is to be recorded each year from the year ended June 30, 2009 for the
      remaining lease period.





Intangible
      assets of the Company are reviewed annually to determine whether their carrying
      value has become impaired. The Company also re-evaluates the periods of
      amortization to determine whether subsequent events and circumstances warrant
      revised estimates of useful lives. As of June 30, 2008, the Company expects
      these assets to be fully recoverable.





**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
            10
                yearsOffice
                equipment
            5
                yearsMotor
                vehicles
            5
                yearsPlant
                and machinery
            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 years ended June 30, 2008 and 2007.





**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 years ended June 30, 2008, 2007 and 2006, the Company
      capitalized $0, $826,101 and $749,914, respectively, of interest to
      construction-in-progress.


F-9


**Construction-in-Progress** - Plant
      and production lines 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 fixed
      assets.





**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, the contingency is then 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 a subsequent period 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 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. Transactions not conducted in
      Renminbi are translated into Renminbi at the exchange rates prevailing at the
      times of such transactions. The results of operations denominated in foreign
      currencies 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.





**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% at the
      same date.





The
      new
      Enterprise Income Tax Law was passed on March 16, 2007, and took effect on
      January 1, 2008. The new law introduces fundamental changes to the Chinese
      tax
      system for both domestic and foreign-owned entities. A new unified general
      income tax of 25% is now applicable to enterprises in China. Entities subject
      to
      a “tax holiday” prior to January 1, 2008, are able to retain the benefits of the
      reduced rates for the remaining term. As Wholly Foreign Owned Enterprises,
      or
      WFOEs, Chengtong is currently enjoying a 50% reduction in the 25% statutory
      rates that will expire on December 31, 2008, Shanghai Blessford is currently
      enjoying a full tax exemption from the enterprise income tax that will expire
      on
      December 31, 2009, and Shanghai Blessford is entitled to a 50% reduction for
      the
      three subsequent years expiring on December 31, 2012. Subsequent to the expiry
      of the tax holiday, Chengtong and Shanghai Blessford will be subject to
      enterprise income taxes at 25% or the prevailing statutory rates.





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.


F-10


In
      2006,
      the Financial Accounting Standards Board (“FASB”) issued FIN 48, which clarifies
      the application of SFAS No. 109 by defining a criterion that an individual
      income tax position must meet for any part of the benefit of that position
      to be
      recognized in an enterprise’s financial statements and provides guidance on
      measurement, derecognition, classification, accounting for interest and
      penalties, accounting in interim periods, disclosure and transition. In
      accordance with the transition provisions, the Company adopted FIN 48 effective
      January 1, 2007.





The
      Company recognizes that virtually all tax positions in the PRC are not free
      of
      some degree of uncertainty due to tax law and policy changes by the State.
      However, the Company cannot reasonably quantify political risk factors and
      thus
      must depend on guidance issued by current state officials.





Based
      on
      all known facts and circumstances and current tax law, the Company believes
      that
      the total amount of unrecognized tax benefits as of June 30, 2008, is not
      material to its results of operations, financial condition or cash flows. The
      Company also believes that the total amount of unrecognized tax benefits as
      of
      June 30, 2008, if recognized, would not have a material effect on its effective
      tax rate. The Company further believes that there are no tax positions for
      which
      it is reasonably possible, based on current Chinese tax law and policy, that
      the
      unrecognized tax benefits will significantly increase or decrease over the
      next
      12 months producing, individually or in the aggregate, a material effect on
      the
      Company’s results of operations, financial condition or cash flows.





*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.





**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
      years ended June 30, 2008, 2007 and 2006, the Company’s pension cost charged to
      the statements of operations under the plan amounted to $175,939, $149,179
      and
      $54,285, respectively, all of which have been paid to the National Social
      Security 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 June 30, 2008 and 2007 because
      of
      the relatively short-term maturity of these instruments.





**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** -





The
      Financial Accounting Standards Board recently issued the following standards
      which the Company reviewed to determine the potential impact on our financial
      statements upon adoption.


F-11


In
      September 2006, the “FASB” issued Statement No. 157, “Fair Value
      Measurements” (“SFAS No. 157”). SFAS No. 157 addresses how
      companies should measure fair value when they are required to use a fair value
      measure for recognition or disclosure purposes under generally accepted
      accounting principles. SFAS No. 157 defines fair value, establishes a
      framework for measuring fair value and expands the required disclosures about
      fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, with earlier adoption permitted.
      Management is assessing the impact of the adoption of
“SFAS No. 157”.





In
      September 2006, the “FASB” issued Statement No. 158, “Employers’ Accounting
      for Defined Benefit Pension and Other Postretirement Plans”
(“SFAS No. 158”), an amendment of “FASB” Statements No. 87, 88,
      106 and 132(R). SFAS No. 158 requires (a) recognition of the
      funded status (measured as the difference between the fair value of the plan
      assets and the benefit obligation) of a benefit plan as an asset or liability
      in
      the employer’s statement of financial position, (b) measurement of the
      funded status as of the employer’s fiscal year-end with limited exceptions, and
      (c) recognition of changes in the funded status in the year in which the
      changes occur through comprehensive income. The requirement to recognize the
      funded status of a benefit plan and the disclosure requirements are effective
      as
      of the end of the fiscal year ending after December 15, 2006. The
      requirement to measure the plan assets and benefit obligations as of the date
      of
      the employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. SFAS No. 158 has no
      current applicability to the Company’s financial statements.





In
      February 2007, the “FASB” issued Statement No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities” (“SFAS No. 159”), an
      amendment of “FASB” Statement No. 115. SFAS No. 159 addresses how
      companies should measure many financial instruments and certain other items
      at
      fair value. The objective is to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. SFAS No. 159 is effective for
      fiscal years beginning after November 15, 2007, with earlier adoption
      permitted. Management is assessing the impact of the adoption of
      SFAS No. 159.





In
      December 2007, the “FASB” issued SFAS No. 141 (revised 2007), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) will change the accounting for
      business combinations. Under SFAS No. 141(R), an acquiring entity will be
      required to recognize all the assets acquired and liabilities assumed in a
      transaction at the acquisition-date fair value with limited exceptions. SFAS
      No. 141(R) will change the accounting treatment and disclosure for certain
      specific items in a business combination. SFAS No. 141(R) applies
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. SFAS 141(R) will impact the Company in the event of any
      future acquisition.




In
      December 2007, the “FASB” issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements—an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting
      standards for the noncontrolling interest in a subsidiary and for the
      deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
      beginning on or after December 15, 2008. The Company does not believe that
      SFAS 160 will have a material impact on its consolidated financial
      statements.




In
      March 2008, the “FASB” issued “SFAS No. 161”, Disclosures about
      Derivative Instruments and Hedging Activities—an amendment of “FASB” Statement
      No. 133 (“SFAS 161”). “SFAS 161” changes the disclosure requirements for
      derivative instruments and hedging activities. Entities are required to provide
      enhanced disclosures about (a) how and why an entity uses derivative
      instruments, (b) how derivative instruments and related hedged items are
      accounted for under Statement 133 and its related interpretations, and
      (c) how derivative instruments and related hedged items affect an entity’s
      financial position, financial performance, and cash flows. The guidance in
“SFAS
      161” is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008, with early application
      encouraged. This Statement encourages, but does not require, comparative
      disclosures for earlier periods at initial adoption. The Company is currently
      assessing the impact of “SFAS 161”.





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





The
      Company provides credit in the normal course of business. The Company 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 $33,783,074 and $8,242,044 as of June 30, 2008 and 2007,
      respectively.


F-12


The
      Company’s list of customers whose purchases exceeded 10% of total sales during
      the years ended June 30, 2008, 2007 and 2006 is as follows:





***Customers***
            
            *2008*
            
            *% to*
              *sales*
            
            *2007*
            
            *% to*
              *sales*
            
            *2006*
            
            *% to*
              *sales*Shanghai
                Ruixuefeng Metals Co., Limited
            
            
            —
            
            
            —
            
            
            12,192,219
            
            
            23
            
            
            4,634,521
            
            
            13Shanghai
                Changshuo Stainless Steel Co., Ltd.
            
            
            18,513,819
            
            
            21
            
            
            5,428,110
            
            
            10
            
            
            —
            
            
            —Shanghai
                Bayou Industrial Co. Ltd.
            
            
            10,494,752
            
            
            12
            
            
            —
            
            
            —
            
            
            —
            
            
            —Shanghai
                Shengdejia Metal Co. Ltd.
            
            
            10,414,545
            
            
            12
            
            
            —
            
            
            —
            
            
            —
            
            
            —Shanghai
                Yiyi Industrial Limited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,305,918
            
            
            12Jiangsu
                Kaiteer Industrial Stove Limited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,212,171
            
            
            15








The
      Company’s list of suppliers whose sales exceeded 10% of total consumption during
      the years ended June 30, 2008, 2007 and 2006 is as follows:








***Suppliers***
            
            *2008*
            
            *% to*
              *consumption*
            
            *2007*
            
            *% to*
              *consumption*
            
            *2006*
            
            *% to*
              *consumption*BaoSteel
                Steel Products Trading Co. Ltd.
            
            
            16,439,918
            
            
            30
            
            
            4,633,054
            
            
            14
            
            
            7,138,845
            
            
            33Hangzhou
                Relian Company Limited
            
            
            11,050,813
            
            
            20
            
            
            8,598,117
            
            
            25
            
            
            -*
            
            
            -*Shanghai
                Pinyun Steel Co., Limited
            
            
            10,025,183
            
            
            18
            
            
            6,355,445
            
            
            19
            
            
            -*
            
            
            -*Shanghai
                Changshuo Stainless Steel Co., Ltd.
            
            
            -*
            
            
            -*
            
            
            3,408,301
            
            
            10
            
            
            -*
            
            
            -*Ningbo
                Dongming Co. Ltd.
            
            
            -*
            
            
            -*
            
            
            -*
            
            
            -*
            
            
            5,902,211
            
            
            28





**5.
      Valuation and Qualifying Accounts**





**Description**
            
            **Bala****nce at**
              **Beginning**
              **of Period**
            
            **Additions**
              **Charged to**
              **Costs and**
              **Expenses**
            
            **Deductions/**
              **Write-offs**
              **Charged to**
              **Allowance**
            
            **Other**
              **Additions**
            
            **Balance at**
              **End of**
              **Period****Allowance
                for Doubtful Accounts (Trade):**Year
                ended June 30, 2006
            
            $
            —
            
            $
            138,837
            
            $
            —
            
            $
            —
            
            $
            138,837Year
                ended June 30, 2007
            
            
            138,837
            
            
            134,624
            
            
            —
            
            
            —
            
            
            273,461Year
                ended June 30, 2008
            
            
            273,461
            
            
            760,018
            
            
            —
            
            
            —
            
            
            1,033,479**Allowance
                for Doubtful Accounts (Suppliers):**Year
                ended June 30, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Year
                ended June 30, 2007
            
            
            —
            
            
            2,269,328
            
            
            —
            
            
            —
            
            
            2,269,328Year
                ended June 30, 2008
            
            
            2,269,328
            
            
            253,509
            
            
            —
            
            
            —
            
            
            2,522,837**Valuation
                Allowance for Deferred Tax Assets:**Year
                ended June 30, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Year
                ended June 30, 2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Year
                ended June 30, 2008
            
            
            —
            
            
            743,286
            
            
            743,286
            
            
            —
            
            
            —


F-13





**6.
      Condensed Financial Information of Parent Company**




Payments
      of dividends may be subject to some restrictions due to the fact that the
      operating activities are conducted in subsidiaries residing in the Peoples
      Republic of China; therefore in accordance with Rule 504/4.08 (e) (3) of
      Regulation S-X, the following are condensed parent company only financial
      statements for the two years ended June 30, 2008.




CHINA
      PRECISION STEEL, INC.


CONDENSED
      PARENT COMPANY ONLY BALANCE SHEETS


JUNE
      30,
      2008 AND 2007





2008
            
            2007Cash
                and cash equivalents
            
            $
            4,333,911
            
            $
            2,034,403Prepayments
            
            
            72,463
            
            
            -Total
                current assets
            
            
            4,406,374
            
            
            2,034,403Office
                equipment
            
            
            1,459
            
            
            -Investment
                in subsidiary, reported on equity method
            
            
            52,689,184
            
            
            20,765,197Advances
                to subsidiaries
            
            
            63,588,435
            
            
            28,748,121Total
                assets
            
            $
            120,685,452
            
            $
            51,547,721Current
                liabilities:Accounts
                payable
            
            $
            298,105
            
            $
            1,505Accrued
                expenses
            
            
            81,379
            
            
            81,379Refund
                due to OraLabs, Inc
            
            
            -
            
            
            441,377Total
                current liabilities
            
            
            379,484
            
            
            442,882Stockholders'
                equity:Ordinary
                stock, $.001 par value; 62,000,000 shares authorized; 46,472,955
                and
                37,378,143 shares issued and outstanding at June 30, 2008 and 2007,
                respectively
            
            
            46,473
            
            
            37,378Additional
                paid-in capital
            
            
            75,372,488
            
            
            31,867,063Other
                comprehensive income
            
            
            9,295,658
            
            
            2,192,160Retained
                earnings
            
            
            35,591,349
            
            
            17,008,238Total
                stockholders' equity
            
            
            120,305,968
            
            
            51,104,839Total
                liabilities and stockholders' equity
            
            $
            120,685,452
            
            $
            51,547,721


F-14





CHINA
      PRECISION STEEL, INC.


CONDENSED
      PARENT COMPANY ONLY INCOME STATEMENTS


FOR
      THE
      YEARS ENDED JUNE 30, 2008 AND 2007





2008
            
            2007SALES
            
            $
            —
            
            $
            —OPERATING
                AND ADMINISTRATIVEEXPENSES:General
                and administrative expenses
            
            
            2,223,394
            
            
            883,316Income
                (loss) from operations
            
            
            (2,223,394
            )
            
            (883,316
            )OTHER
                INCOME:Interest
                income
            
            
            221,866
            
            
            103,388Equity
                in earnings of unconsolidated subsidiary
            
            
            20,251,567
            
            
            9,084,037INCOME
                BEFORE INCOME TAXES
            
            
            20,473,433
            
            
            8,304,109BENEFIT
                FROM INCOME TAXES
            
            
            333,072
            
            
            —NET
                INCOME
            
            $
            18,583,111
            
            $
            8,304,109The
                components of comprehensive income:Net
                income
            
            $
            18,583,111
            
            $
            8,304,109Foreign
                currency translation adjustment
            
            
            7,103,498
            
            
            1,446,577COMPREHENSIVE
                INCOME
            
            $
            25,686,609
            
            $
            9,750,686




F-15





CHINA
      PRECISION STEEL, INC.


CONDENSED
      PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


FOR
      THE
      YEARS ENDED JUNE 30, 2008 AND 2007





2008
            
            2007CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            18,583,111
            
            $
            8,304,109Adjustments
                to reconcile net income to operating activities - Warrants issued
                for
                consulting
            
            
            -
            
            
            447,993Less:
                Equity in earnings of unconsolidated subsidiary
            
            
            (20,251,567
            )
            
            (9,034,087
            )Net
                changes in assets and liabilitiesPrepayments
            
            
            (72,463
            )
            
            -Due
                to Oralabs
            
            
            (441,377
            )
            
            441,377Accounts
                Payable
            
            
            377,979
            
            
            1,505Net
                cash (used in) provided by operating activities
            
            
            (1,804,317
            )
            
            160,897CASH
                FLOWS USED IN INVESTING ACTIVITIES:Purchase
                of fixed assets
            
            
            (1,459
            )
            
            -Advances
                to subsidiary
            
            
            (41,999,999
            )
            
            (17,455,372
            )Net
                cash used in investing activities
            
            
            (42,001,458
            )
            
            (17,455,372
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from sale of common stock
            
            
            44,375,282
            
            
            19,328,878Cash
                from exercise of warrants
            
            
            1,730,001
            
            
            -Net
                cash provided by financing activities
            
            
            46,105,283
            
            
            19,328,878Effect
                of exchange rate change on cash and cash equivalents
            
            
            —
            
            
            —NET
                INCREASE IN CASH AND EQUIVALENTS
            
            
            2,299,508
            
            
            2,034,403CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            2,034,403
            
            
            —CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            $
            4,333,911
            
            $
            2,034,403SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Interest
                paid, net of capitalized amounts
            
            $
            —
            
            $
            —Income
                taxes paid
            
            $
            —
            
            $
            —Issuance
                of 2,798,191 shares of stock for syndication fees
            
            $
            —
            
            $
            8,394,573Issuance
                of 100,000 warrants for services
            
            $
            —
            
            $
            447,993Issuance
                of 1,216,667 warrants for syndication fees
            
            $
            —
            
            $
            2,770,349Contribution
                of directors advance to additional paid in capital
            
            $
            —
            
            $
            3,953,794





**7.**  **Inventories**





As
      of
      June 30, 2008 and 2007 inventories consisted of the following:





**At
                cost:-**
            
            **June 30,**
              **2008**
            
            **June 30,**
              **2007**Raw
                materials
            
            $
            8,376,173
            
            $
            13,026,530Work
                in progress
            
            
            3,247,093
            
            
            -Finished
                goods
            
            
            3,918,801
            
            
            2,697,174Consumable
                items
            
            
            2,273,020
            
            
            1,629,02017,815,087
            
            
            17,352,724Less:
                impairment
            
            
            -
            
            
            (1,629,020
            )$
            17,815,087
            
            $
            15,723,704





F-16


**8.**  **Property,
      Plant and Equipment**





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





**June 30,**
              **2008**
            
            **June 30,**
              **2007**Plant
                and machinery
            
            $
            22,725,528
            
            $
            21,087,245Buildings
            
            
            21,685,208
            
            
            11,361,207Motor
                vehicles
            
            
            379,885
            
            
            283,534Office
                equipment
            
            
            185,161
            
            
            85,56044,975,782
            
            
            32,817,546Less:
                Accumulated depreciation
            
            
            (5,776,477
            )
            
            (3,579,319
            )$
            39,199,305
            
            $
            29,238,227





Depreciation
      expense related to manufacturing is included as a component of cost of goods
      sold. During the years ended June 30, 2008, 2007 and 2006, depreciation totaling
      $2,018,105, $1,482,836 and $783,857, respectively, was included as a component
      of cost of goods sold.





Plant
      and
      machineries amounting to $18,972,430 (2007: $17,853,044) and land use right
      amounting to $553,404 (2007: $497,143) were pledged for bank loans totaling
      $17,465,799.





**9.  Construction-In-Progress**





As
      of
      June 30, 2008 and 2007, construction-in-progress consisted of the
      following:





**June 30,**
              **2008**
            
            **June 30,**
              **2007**Construction
                costs
            
            $
            16,476,454
            
            $
            10,355,763





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





**10.**  **Advances
      from Customers**





Advances
      from customers represent advance cash receipts from new customers and for which
      goods have not been delivered or services rendered as of the balance sheets
      dates. Advances from customers for goods to be delivered or services to be
      rendered in the subsequent period are carried forward as deferred revenue.
      As of
      June 30, 2008 and 2007, there were advances from customers of $6,996,996 and
      $1,720,812, respectively.





**11.**  **Transactions
      with Related Parties**





Amounts
      due to (from) directors as of June 30, 2008 and 2007 are as
      follows:





**Name**
            
            **June 30, 2008**
            
            **June 30, 2007**Wo
                Hing Li
            
            $
            -
            
            $
            (2,590,763
            )Hai
                Sheng Chen
            
            
            -
            
            
            408,620$
            -
            
            $
            (2,182,143
            )





Amounts
      due are unsecured, non-interest bearing and have no fixed repayment
      terms.





Wo
      Hing
      Li, a director and the President of the Company, executed an agreement with
      the
      Company and certain other parties, dated as of February 13, 2007, as amended
      (the “Debt Conversion Agreement”), such that, upon the occurrence of the
      transfer to Chengtong of Tuorong, he contributed $3,953,794 as additional paid
      in capital to the Company and agreed to convert current debt outstanding and
      payable to him of $6,775,776 into shares of the Company’s common stock at a
      price of $3.36 per share. This transaction was completed on May 19, 2007. When
      Chengtong acquired Tuorong, Tuorong had a preexisting receivable from Wo Hing
      Li, and the Group offset remaining amounts owed to Wo Hing Li against this
      receivable.





In
      conjunction with the Company’s final audit of the Tuorong acquisition, certain
      post-closing adjustments were required. In light of such adjustments and
      consistent with the purposes and intentions of the Debt Reduction Agreement,
      dated February 13, 2007, as amended February 20, 2007, it was determined that
      771,060 shares of the Company’s Common Stock issued to directors pursuant to
      such Agreement would be required to be cancelled in order to eliminate the
      $2,590,763 reflected on the June 30, 2007 audited financial statements as
      amounts due from directors. Such cancellation was effected on November 8,
      2007.


F-17


**12.  Short-Term
      Loans**





Short-term
      loans consisted of the following:





**June 30,**
              **2008**
            
            **June 30,**
              **2007**Bank
                loan dated September 22, 2005, due December 31, 2007 with a interest
                rate
                at 115% of the standard market rate set by the People’s Bank of China for
                Renminbi loans, secured by land use rights, buildings and machinery
                (Note
                8)
            
            $
            —
            
            $
            9,842,520Bank
                loan dated August 1, 2007, due in one year with an interest rate
                of the
                Singapore Interbank Offered Rate (“SIBOR”)
                plus
                3% (5.81% at June 30, 2008) (Note 8)
            
            
            5,300,000
            
            
            —Bank
                loan dated August 1, 2007, due in one year with an interest rate
                at 113%
                of the standard market rate set by the People’s Bank of China for Renminbi
                loans, secured by land use rights, buildings, plant and machinery
                (8.44%
                at June 30, 2008) (Note 8)
            
            
            2,886,952
            
            
            —Bank
                loan dated July 26, 2007, due in one year with an interest rate at
                115% of
                the standard market rate set by the People’s Bank of China for Renminbi
                loans, secured by land use rights, buildings, plant and machinery
                (8.59%
                at June 30, 2008) (Note 8)
            
            
            9,278,847
            
            
            —$
            17,465,799
            
            $
            9,842,520





The
      weighted average interest rates on short-term loans at June 30, 2008 and 2007
      was 7.72% and 6.39%, respectively.





The
      above
      bank loans outstanding as at June 30, 2008 have been renewed at
      an
      interest rate of 115% of the standard market rate set by the People’s Bank of
      China for Renminbi loans and at SIBOR plus 3% for USD loans, due on July 31,
      2009 and secured by land use rights, buildings, plant and machinery.





**13.  Long-Term
      Debts - Secured**





**June 30,**
              **2008**
            
            **June 30,**
              **2007**Long-term
                debts:Bank
                loan dated October 14, 2004, due July 31, 2007, at an interest rate
                of
                113% of the standard market rate set by the People’s Bank of China for
                Renminbi loans, secured by land use rights, buildings and
                machinery
            
            $
            —
            
            $
            6,163,445Bank
                loan dated September 22, 2005, due August 31, 2009, at an interest
                rate of
                115% of the standard market rate set by the People’s Bank of China for
                Renminbi loans, secured by land use rights, buildings and machinery
            
            
            —
            
            
            6,878,714Total
                long-term debts
            
            
            —
            
            
            13,042,159Less:
                Current portion of long-term debts
            
            
            —
            
            
            6,163,445Long-term
                debts
            
            $
            —
            
            $
            6,878,714





**14.  Income
      Taxes**





For
      enterprise income tax reporting purposes, the Company reports income and
      expenses on a cash 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 expenses.


F-18


The
      tax
      holiday resulted in tax savings as follows:




Years ended June 30,2008
            
            2007
            
            2006Tax
                savings
            
            $
            3,191,292
            
            $
            1,190,366
            
            
            908,108Benefit
                per shareBasic
            
            $
            0.07
            
            $
            0.04
            
            $
            0.04Diluted
            
            $
            0.07
            
            $
            0.04
            
            $
            0.04








Significant
      components of the Group’s deferred tax assets and liabilities as of June 30,
      2008 and 2007 are as follows:





**Deferred tax
                    assets and liabilities:**
                
                **June 30,**
                  **2008**
                
                **June 30,**
                  **2007**Book
                    depreciation in excess of tax depreciation
                
                $
                169,962
                
                $
                39,918Temporary
                    differences resulting from cash basis reporting for tax
                    purposes
                
                
                573,324
                
                
                (1,103,946
                )Net
                    deferred income tax asset (liability)
                
                
                743,286
                
                $
                (1,064,028
                )Valuation
                  allowance
                
                
                (743,286
                )
                
                --
                
                $
                (1,064,028
                )





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


**Year ended June 30,****2008**
                
                **2007**
                
                **2006**Computed tax at
                    the federal statutory rate of 34%
                
                $
                6,512,849
                
                $
                3,024,079
                
                $
                3,076,764Less
                    adjustment to EIT statutory rate of 25% in 2008 and 27% in 2007
                    and
                    2006
                
                
                (1,687,507
                )
                
                (622,604
                )
                
                (633,452
                )Tax
                    effect of US losses not deductible in PRC
                
                
                665,736
                
                
                210,581
                
                
                -Income
                    not subject to tax
                
                
                (330,361
                )
                
                -
                
                
                -Deferred
                    taxes
                
                
                (1,064,028
                )
                
                -
                
                
                -Overprovision
                    in prior year
                
                
                (333,074
                )
                
                -
                
                
                -Benefit
                    of tax holiday
                
                
                (3,191,292
                )
                
                (1,190,366
                )
                
                (908,108
                )Income
                    tax expense per books
                
                $
                572,323
                
                $
                1,421,690
                
                $
                1,535,204





Income
      tax expense (benefit) consists of:


**Year ended June 30,****2008**
              
              **2007**
              
              **2006**Income
                  tax expense for the year PRC
              
              $
              1,636,351
              
              $
              1,892,866
              
              $
              -Deferred
                  income tax expense (benefit) - PRC
              
              
              (1,064,028
              )
              
              (471,176
              )
              
              (1,535,204
              )Income
                  tax expense per books
              
              $
              572,323
              
              $
              1,421,690
              
              $
              1,535,204





**15.  Equity**





In
      connection with a Stock Purchase Agreement, dated February 16, 2007 (the “Stock
      Purchase Agreement”), on February 22, 2007, the Company issued warrants to
      the placement agents to purchase an aggregate of 1,300,059 shares of Common
      Stock as partial compensation for services rendered in connection with the
      Private Placement valued at $2,770,349. The value of the warrants was considered
      syndication fees and was recorded to additional paid-in capital.





On
      February 22, 2007, the Company issued warrants to purchase up to 100,000 shares
      of Common Stock to the Company’s investor relations consultants valued at
      $447,993. The value of these was considered syndication fees in association
      with
      the Private Placement and was recorded to additional paid-in capital.


F-19


On
      November 6, 2007, in connection with a Subscription Agreement, dated November
      1,
      2007 (the “Subscription Agreement”), the Company issued to certain institutional
      accredited investors warrants to purchase 1,420,000 shares of Common Stock
      valued at $5,374,748. In connection with the transaction, Roth Capital Partners,
      LLC, as placement agent, received warrants to purchase 225,600 shares of Common
      Stock valued at $887,504.




Information
      with respect to stock warrants outstanding is as follows:


**Exercise**
                **Price**
              
              **Outstanding**
                **June 30, 2007**
              
              **Granted**
              
              **Expired or**
                **Exercised**
              
              **Outstanding**
                **June 30,**
                **2008**
              
              **Expiration Date**$
              3.00
              
              
              1,300,059
              
              
              -0-
              
              
              (851,667
              )
              
              448,392
              
              
              02/22/2011$
              3.60
              
              
              100,000
              
              
              -0-
              
              
              -0-
              
              
              100,000
              
              
              02/22/2010$
              8.45
              
              
              -0-
              
              
              1,420,000
              
              
              -0-
              
              
              1,420,000
              
              
              11/06/2010$
              7.38
              
              
              -0-
              
              
              225,600
              
              
              -0-
              
              
              225,600
              
              
              11/06/2010





Pursuant
      to Section 5.1 of the Stock Purchase Agreement, the Company agreed to reserve
      for issuance to investors in the private placement an aggregate of 2,000,000
      shares of Common Stock if the Company’s net income for the fiscal year ended
      June 30, 2007 was less than US$10.4 million, as set forth in the Company’s
      audited financial statements as filed with the SEC in the Company’s Annual
      Report on Form 10-K for the fiscal year ended June 30, 2007. As the Company’s
      net income as set forth in its audited financial statements for the year ended
      June 30, 2007 was less than US$10.4 million, the Company was required to issue
      the 2,000,000 shares of Common Stock to such investors. Such issuance was
      effected on October 15, 2007. No additional consideration was received by the
      Company in connection with this issuance of shares of Common Stock.





In
      conjunction with the Company’s final audit of the Tuorong acquisition, certain
      post-closing adjustments were required. In light of such adjustments and
      consistent with the purposes and intentions of the Debt Reduction Agreement,
      dated February 13, 2007, as amended February 20, 2007, it was determined that
      771,060 shares of the Company’s Common Stock issued to directors pursuant to
      such Agreement would be required to be cancelled in order to eliminate the
      $2,590,763 reflected on the June 30, 2007 audited financial statements as
      amounts due from directors. Such cancellation was effected on November 8,
      2007.





Pursuant
      to the Subscription Agreement, on November 6, 2007, the Company agreed to issue
      and sell in a registered direct offering (the “Offering”) an aggregate of
      7,100,000 shares of its common stock (“Common Stock”) at a price of $6.75 per
      share (the “Purchase Price”) and an aggregate of 1,420,000 warrants to purchase
      shares of its Common Stock (“Warrants” and, together with the Common Stock, the
“Securities”). The Warrants have an exercise price of $8.45 per share. The
      Warrants may not be exercised prior to May 6, 2008. The Securities (including
      the shares issuable upon exercise of the Warrants) are registered under the
      Securities Act of 1933, as amended (the “Act”), pursuant to the Company’s
      existing effective shelf Registration Statement on Form S-3. In connection
      with
      the offer and sale of the Securities, the Company filed on November 1, 2007,
      a
      Registration Statement on Form S-3 pursuant to Rule 462(b) promulgated under
      the
      Act to register an additional $10 million of its securities relating to its
      shelf Registration Statement.





The
      Company closed the Offering on November 6, 2007 (the “Closing Date”). The net
      proceeds of the offering were approximately $44 million, after deducting
      underwriting commissions and discounts and other fees and expenses relating
      to
      the offering. The warrants were valued at $5.3 million and were recorded to
      additional paid-in capital. The Company intends to use the net proceeds for
      repayment of certain existing bank debt in the amount of approximately $22
      million, capital expenditure related to the annealing furnace and construction
      of the third reverse rolling mill and related capital expenditure in the amount
      of approximately $18 million, and the balance for general corporate purposes.
      During the year ended June 30, 2008, long-term bank loans of $13,042,159 were
      paid off, and a progress payment of $7,016,729 was made in relation to the
      third
      cold rolling mill.




On
      the
      Closing Date, pursuant to a Placement Agency Agreement entered into between
      the
      Company and Roth Capital Partners LLC on October 31, 2007, Roth Capital received
      an amount in cash equal to 7.0% of the gross proceeds of the Offering and
      warrants to purchase an amount of Common Stock equal to 3.0% of the total number
      of shares of Common Stock sold in the Offering (the “Placement Warrants”), or
      225,600 shares of Common Stock valued at $887,504 and this amount was recorded
      as syndication fees offsetting additional paid-in capital. Such Placement
      Warrants have an exercise price per share of 120% of the closing price per
      share
      of the Company’s Common Stock on the Closing Date, or $7.38, and are not
      exercisable prior to May 6, 2008. Thereafter, the Placement Warrants are
      exercisable at any time until the third anniversary of the date of issue.





**16.  Earnings
      Per Share**





SFAS
      128
      requires a reconciliation of the numerator and denominator of the basic and
      diluted earnings per share (EPS) computations.





For
      the
      year ended June 30, 2008, dilutive shares include outstanding warrants to
      purchase 1,025,059 shares of common stock at an exercise price of $3.00 and
      100,000 shares at an exercise price of $3.60. Warrants to purchase 1,420,000
      shares at an exercise price of $8.45 and 225,600 shares at an exercise price
      of
      $7.38 were not included as their effect would have been anti-dilutive, however,
      these securities could potentially dilute basic earnings per share in the
      future. For the year ended June 30, 2007, dilutive shares include outstanding
      warrants to purchase 1,300,059 shares of common stock at an exercise price
      of
      $3.00 and 100,000 shares at an exercise price of $3.60. There were no dilutive
      shares for the year ended June 30, 2006.


F-20


The
      following reconciles the components of the EPS computation:


**Income**
              
              **Shares**
              
              **Per Share****(Numerator)**
              
              **(Denominator)**
              
              **Amount**For
                  the year ended June 30, 2008:Net
                  income
              
              $
              18,583,111Less
                  Net income from discontinued operations
              
              $
              —Basic
                  EPS income available to common shareholders
              
              $
              18,583,111
              
              
              43,044,420
              
              $
              0.43Effect
                  of dilutive securities:Warrants
              
              
              
              
              
              212,014Diluted
                  EPS income available to common shareholders
              
              $
              18,583,111
              
              
              43,256,434
              
              $
              0.43For
                  the year ended June 30, 2007:Net
                  income
              
              $
              8,304,109Less
                  net income from discontinued operations
              
              $
              (831,448
              )Basic
                  EPS income available to common shareholders
              
              $
              7,472,661
              
              
              28,438,313
              
              $
              0.26Effect
                  of dilutive securities:Warrants
              
              
              
              
              
              321,240Diluted
                  EPS income available to common shareholders
              
              $
              7,472,661
              
              
              28,759,553
              
              $
              0.26For
                  the year ended June 30, 2006:Net
                  income
              
              $
              8,414,570Less
                  Net income from discontinued operations
              
              $
              (900,469
              )Basic
                  EPS income available to common shareholders
              
              $
              7,514,101
              
              
              24,283,725
              
              $
              0.31Effect
                  of dilutive securities:Warrants
              
              
              
              
              
              —Diluted
                  EPS income available to common shareholders
              
              $
              7,514,101
              
              
              24,283,725
              
              $
              0.31





**17.  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. The 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 years ended
      June 30, 2008, 2007 and 2006 is as follows:





**Years ended:****June 30,**
            
            **June 30,**
            
            **June 30,****2008**
            
            **2007**
            
            **2006**Revenues
            
            $
            —
            
            $
            9,404,000
            
            $
            16,380,000Income
                before tax
            
            
            —
            
            
            831,000
            
            
            972,000Income
                taxes
            
            
            —
            
            
            192,000
            
            
            538,000Income
                from discontinued operations
            
            $
            —
            
            $
            639,000
            
            $
            434,000





As
      of
      June 30, 2008, there were no assets or liabilities associated with OraLabs,
      Inc.





**18.  Commitments**





As
      of
      June 30, 2008, the Company had $11,231,670 in commitments for capital
      expenditures for contractual commitments of the construction projects related
      to
      expansion of Shanghai Blessford’s production facilities.


F-21


**19.**  **Other
      Revenues**





For
      the
      years ended June 30, 2008 and 2007, interest income of $301,325 and $103,388,
      respectively, was included in other revenues. Also included in other revenues
      for the year ended June 30, 2008, was a write back of impairment for consumable
      items in the amount of $1,705,452.





**20.
      Business Segment Information** ****





Operations
      for the Company are summarized below by geographic area:





**Year Ended June 30, 2008****China**
            
            **Foreign**
            
            **Total**Revenue
            
            $
            71,779,911
            
            $
            15,959,415
            
            $
            87,739,326%
                of sales
            
            
            82
            
            
            18
            
            
            100**Year Ended June 30, 2007****China**
            
            
            **Foreign**
            
            
            **Total**Revenue
            
            $
            53,177,408
            
            $
            782,835
            
            $
            53,960,243%
                of sales
            
            
            90
            
            
            10
            
            
            100**Year Ended June 30, 2006****China**
            
            
            **Foreign**
            
            
            **Total**Revenue
            
            $
            33,228,503
            
            $
            1,652,638
            
            $
            34,881,141%
                of sales
            
            
            95
            
            
            5
            
            
            100




**21.**  **Other
      Events**





On
      November 12, 2007, at the Annual Meeting of the Company’s shareholders, the
      Company’s shareholders approved the reincorporation of the Company in the state
      of Delaware. The reincorporation was effected on November 16, 2007 through
      a
      merger with and into the Company’s wholly-owned subsidiary.





**22.**  **Quarterly
      Data - Unaudited**





The
      following table sets forth certain information regarding the Company’s results
      of operations for each full quarter within the fiscal years ended June 30,
      2008 and 2007:





**Quarter Ended****June 30,**
            
            **March 31,**
            
            **December 31,**
            
            **September 30,****Fiscal
                2008:**Revenues
            
            $
            28,550,266
            
            $
            18,773,504
            
            $
            13,228,321
            
            $
            27,187,235Gross
                profit
            
            
            5,481,438
            
            
            5,374,494
            
            
            4,699,469
            
            
            6,942,100Income
                from continuing operations before income tax
            
            
            5,594,188
            
            
            4,181,523
            
            
            4,097,320
            
            
            5,282,403Net
                income
            
            
            5,618,054
            
            
            3,637,900
            
            
            3,486,451
            
            
            5,840,706Basic
                earnings per share
            
            $
            0.12
            
            $
            0.08
            
            $
            0.08
            
            $
            0.16Diluted
                earnings per share
            
            $
            0.12
            
            $
            0.08
            
            $
            0.08
            
            $
            0.15**Fiscal
                2007:**Revenues
            
            $
            16,838,640
            
            $
            11,610,673
            
            $
            15,007,582
            
            $
            10,503,348Gross
                profit
            
            
            1,451,498
            
            
            3,369,930
            
            
            3,412,730
            
            
            6,800,098Income
                from continuing operations before income tax
            
            
            1,194,934
            
            
            1,712,096
            
            
            2,723,712
            
            
            3,263,609Net
                income
            
            
            1,055,528
            
            
            1,396,217
            
            
            2,888,044
            
            
            2,964,320Basic
                earnings per share
            
            $
            0.03
            
            $
            0.05
            
            $
            0.11
            
            $
            0.12Diluted
                earnings per share
            
            $
            0.03
            
            $
            0.05
            
            $
            0.11
            
            $
            0.12





Earnings
      per share amounts for each quarter are required to be computed independently.
      As
      a result their sum may not equal the total year basic and diluted earnings
      per
      share.


F-22





**23.**  **Subsequent
      Events**





On
      July
      7, 2008, the Company received $270,000 from the exercise of 90,000 of the $3.00
      warrants expiring on February 22, 2011.




F-23


EXHIBIT
      INDEX





**EXHIBIT**
              **NO.**
            
            **DESCRIPTION**3.1
            
            Amended
                and Restated Articles of Incorporation (incorporated herein by reference
                to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                3.1)3.2
            
            Second
                Amended and Restated Bylaws (incorporated herein by reference to
                the
                Company’s Form 10-KSB, dated March 31, 1999, Exhibit
                3.1.II)4.1
            
            Specimen
                Certificate for Common Stock (incorporated herein by reference to
                the
                Company’s Form 10-Q for the quarterly period ended December 31, 2006,
                dated February 13, 2007, Exhibit 3.1)4.2
            
            Form
                of Warrant (incorporated herein by reference to the Company’s Form 8-K,
                dated February 16, 2007, Exhibit 4.1)4.3
            
            Warrant,
                dated February 22, 2007, to Belmont Capital Group Limited (incorporated
                herein by reference to the Company’s Form 8-K, dated February 16, 2007,
                Exhibit 4.2)4.4
            
            Warrant,
                dated February 22, 2007, to CCG Elite Investor Relations
                (incorporated herein by reference to the Company’s Form 8-K, dated
                February 16, 2007, Exhibit 4.3)10.1
            
            Redemption
                Agreement, dated December 28, 2006 (incorporated herein by reference
                to
                the Company’s Form 8-K, dated 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, dated January 4, 2007, Exhibit
                10.2)10.3
            
            2006
                Long Term Incentive Plan (incorporated herein by reference to the
                Company’s Form 8-K, dated January 4, 2007, Exhibit
                10.3)10.4
            
            2006
                Director Stock Plan, dated March 1, 2006 (incorporated herein by
                reference
                to the Company’s Definitive Proxy Statement, dated November 27, 2006,
                Annex 3)10.5
            
            Equipment
                Mortgage Agreement between Chengtong and Raiffeisen Zentralbank Österreich
                AG, dated January 12, 2005 (incorporated herein by reference to the
                Company’s Form 8-K, dated January 4, 2007, Exhibit
                10.4)10.6
            
            Mortgage
                Agreement on Immovables between Shanghai Tuorong Precision Strip
                Company
                Limited and Raisffesien Zentralbank Öesterreich AG, dated January 12, 2005
                (incorporated herein by reference to the Company’s Form 8-K, dated January
                4, 2007, Exhibit 10.5)10.7
            
            Letter
                of Offer between Chengtong and Raiffeisen Zentralbank Österreich AG, dated
                October 14, 2004 (incorporated herein by reference to the Company’s Form
                8-K, dated January 4, 2007, Exhibit 10.6)10.8
            
            Amendment
                No. 1 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                Österreich AG, dated December 28, 2004 (incorporated herein by reference
                to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                10.7)10.9
            
            Amendment
                No. 2 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                Österreich AG, dated May 10, 2005 (incorporated herein by reference
                to the
                Company’s Form 8-K, dated January 4, 2007, Exhibit
                10.8)10.10
            
            Amendment
                No. 3 to Letter of Offer between Chengtong and Raiffeisen Zentralbank
                Österreich AG,  dated July 26, 2005 (incorporated herein by reference
                to the Company’s Form 8-K, dated January 4, 2007, Exhibit
                10.9)10.11
            
            Debt
                Reduction Agreement, dated February 13, 2007, by and among the Company,
                Wo
                Hing Li and Partner Success Holdings Limited (incorporated herein
                by
                reference to the Company’s Form 8-K, dated February 13, 2007, Exhibit
                10.1)10.12
            
            Deed
                of Release, dated February 13, 2007, from Wo Hing Li, in favor of
                the
                Company, Partner Success Holdings Limited and Shanghai Chengtong
                Precision
                Strip Co., Ltd. (incorporated herein by reference to the Company’s Form
                8-K, dated February 13, 2007, Exhibit 10.2)10.13
            
            Amendment
                to the Debt Reduction Agreement, dated February 20, 2007, by and
                among the
                Company, Wo Hing Li and Partner Success Holdings Limited (incorporated
                herein by reference to the Company’s Form 8-K, dated February 16, 2007,
                Exhibit 10.4)10.14
            
            Form
                of Stock Purchase Agreement, by and among the Company and the Investors,
                dated February 16, 2007 (incorporated herein by reference to the
                Company’s
                Form 8-K, dated February 16, 2007, Exhibit
                10.1)









10.15
            
            Form
                of Limited Standstill Agreement (incorporated herein by reference
                to the
                Company’s Form 8-K, dated February 16, 2007, Exhibit
                10.2)10.16
            
            Form
                of Subscription Agreement, dated November 1, 2007 (incorporated herein
                by
                reference to the Company’s Form 8-K filed on November 1, 2007, Exhibit
                10.1)10.17
            
            Form
                of Placement Agency Agreement, dated October 31, 2007 (incorporated
                herein
                by reference to the Company’s Form 8-K filed on November 1, 2007, Exhibit
                10.2)21*
            
            Subsidiaries
                of the Registrant22
            
            Published
                report regarding matters submitted to vote of security holders
                (Incorporated herein by reference to the Company’s Quarterly Report on
                Form 10-Q for the quarter ended December 31, 2006, dated February
                13,
                2007, Exhibit 99.1)31.1*
            
            Certification
                of President pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
                Exchange Act.31.2*
            
            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
                2002.





*
      Filed
      herewith