ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION.

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q.

Statements in this Form 10-Q which are not statements of historical or current fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "intends," "anticipates" or "plans" to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our reports filed with the Securities and Exchange Commission.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 2 "Summary of Significant Accounting Policies" of Notes to Consolidated Financial Statements in this Form 10-Q describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes the Company's critical accounting policies and estimates are those related to revenue recognition, allowance for doubtful accounts, inventory valuation, impairment of long-lived assets, foreign currency translation and income taxes. Management considers these critical policies because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company's senior management has reviewed these critical accounting policies and related disclosures with the Company's Board of Directors.

Revenue recognition

The Company's revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Unearned revenue as of June 30, 2008 amounted to $13,869.

The Company's revenue consists of invoiced value of goods, net of a value-added tax (VAT). No product return or sales discount allowance is made as products delivered and accepted by customers are normally not returnable and sales discount is normally not granted after products are delivered.

Allowance for doubtful accounts

The Company's policy is to maintain reserves for potential credit losses for accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2008, the Company had net accounts receivable of $2,605,028, net of an allowance of $14,034

Inventory valuation

Inventories are valued at the lower of cost or market value using weighted average method. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION. - continued

Impairment of long-lived assets

The Company applies the provisions of Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

The Company tests long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making whatever estimates, judgments and projections are considered necessary. There was no impairment of long-lived assets for the three months or six months ended June 30, 2008 and June 30, 2007.

Foreign currency translation

The reporting currency of the Company is the US dollar. The Company uses their local currency, Renminbi (RMB), as their functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity included unrealized loss from available for sale securities of $65,522 and translation adjustment of $1,882,108 as of June 30, 2008.

Income taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At June 30, 2008 and 2007, there was no significant book to tax differences.

RESULTS OF OPERATIONS

We design and manufacture high-precision casting and machined parts based on blueprints supplied by our customers. To set ourselves apart from our competition, we streamline the production cycle by providing a one stop solution to include all three integral process in making high precision parts, which are molding design and fabrication, high precision investment casting and the CNC machining process. Our products are almost exclusively component parts for use in final products. Those final products which are either assembled or manufactured outside China or are manufactured and assembled in China and exported to foreign markets. We have a dedicated management team with over fifty years of combined experience in the casting and metal fabrication industries. As of June 30, 2008, we have 327 full time employees. Our primary focus during 2008 has been to increase demand for our castings and machined parts outside China, and we experienced significant growth in existing and new markets with existing and new customers. We believe there is substantial additional demand for our products and services.

In addition to the 53,819 square foot manufacturing facility in Hebei, China utilized by our subsidiary corporations, we also rent an office in Beijing, China, which is utilized by Mr. Gao and his assistants with respect to international marketing and development of the Company.

To capitalize on the increased demand for our products, we have undertaken significant capital expansion and capital improvement efforts, utilizing most of the net proceeds received from our equity financing in 2007 to expand and enhance our manufacturing capabilities. Specifically, we have a phased plan to expand our capacity. By the end of first quarter ended March 31, 2008, we completed the first phase of the expansion plan. Phase one entailed a 53,819 square foot manufacturing space, 5 turning centers and 60 CNC Mazak Lathe, 10 of which were delivered and became operational in the three months ended December 31, 2007, 9 of which were delivered and became operational in the three months ended of March 31, 2008 and the last of which became operational on or about April 1, 2008.

In March 2008, we announced we are planning to invest $3 million to build additional facilities at our Langfang manufacturing center. The new facilities mark the second phase of a three-phase plan to transform the Company's capacity and capabilities for the foreseeable future. This second phase of our three-phase expansion plan will add two buildings totaling 71,041 square feet of manufacturing space (a two story building) and 47,361 square feet for dormitory space (a five story building), increasing annual capacity for molding design and fabrication by 100%, casting products by 50% to 3,600 tons from 2,400 tons and CNC lathe capacity by 25%. Construction is due to be completed in December 2008, with full production beginning in January 2009.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION. - continued

Revenue

Revenue for the three months ended June 30, 2008 was $5,086,839 an increase of 111% as compared to $2,410,578 for the three months ended June 30, 2007. Gross profit for the three months ended June 30, 2008, was $1,779,145, or 34.98% of revenues, compared to $776,915, or 32.23% of revenues, for the same period in 2007.

Revenue for the six months ended June 30, 2008 was $9,983,353 an increase of 123% as compared to $4,472,075 for the six months ended June 30, 2007. Gross profit for the six months ended June 30, 2008, was $3,238,540, or 32.44% of revenues, compared to $1,435,618, or 32.10% of revenues, for the same period in 2007.

The increase in revenue was due to several factors, including, but not limited to, greater production output as a result of increased capacity, effective management to maximize the production capacity of our machinery, and price increases that were imposed as a result of an overall rise in commodity prices that was in turn passed on to our customers. In particular, since June 30, 2007, we have purchased and installed an additional 20 CNC MAZAK lathes, (bringing our total to 60 lathes), including 1 machine installed in April 2008. The additional machines increased our production capacity and accordingly, will increase revenues based upon orders which we were previously unable to fill. With continued efforts in implementing our business plan to expand market share, we were able to fully utilize the new production capacity with new orders and customers. We estimate that approximately 50% of our increase in revenues is related to our increase in machine capacity. In addition, our management, after a careful and thorough study of our production methods, made several changes to improve our production and efficiency. For example, we increased the turning speed of the blade in our lathe machines in order to produce more products within same time frame, and, whereas previously we employed one quality inspector for every two machines, where required we now allocate one inspector per machine. Both of these changes provide us with greater utilization of our machinery. We estimate that approximately 20% of our increase in revenue is related to such effective management to maximize our production capacity. Finally, our revenues increased as a result of pricing changes related to the overall cost of commodities which we utilize. We passed this price increase onto our customers. We estimate that the remainder of our increase in revenue and gross profit, or approximately 30%, is related to fluctuations in commodity prices.

Expenses from Operations

Total expenses, comprised mostly of general and administrative expenses were approximately $374,772 for the three month period ended June 30, 2008, a net increase of $88,846 compared to $285,926 for the three month period ended June 30, 2007.

Total expenses, comprised mostly of general and administrative expenses were approximately $871,975 for the six month period ended June 30, 2008, a net increase of $317,643 compared to $554,332 for the six month period ended June 30, 2007.

The increase in operating expenses for the three month and six month periods ended June 30, 2008 was mainly due to increased depreciation and amortization cost from the new MAZAK lathes we purchased in 2007 and during the six months ended June, 2008 and an increase in our workforce to operate the new machines.

Interest Income and Expense

Net interest income for the three months ended June 30, 2008 was $1,621 as compared to net interest income of $655 for the three months ended June 30, 2007.

Net interest income for the six months ended June 30, 2008 was $7,349 as compared to net interest income of $2,082 for the six months ended June 30, 2007

This increase is primarily due to the increase in our cash and cash equivalents.

Other Income (Expense)

Other income for the three months ended June 30, 2008 was $(12,351) as compared to other expense of $(347) for the three months ended June 30, 2007.

Other income for the six months ended June 30, 2008 was $(11,310) as compared to other expense of $(2,418) for the six months ended June 30, 2007.

Net Income

We had net income of $1,403,540 for the three months ended June 30, 2008 an increase of 188% as compared to net income of $486,946 for the three months ended June 30, 2007.

We had net income of $2,420,736 for the six months ended June 30, 2008, an increase of 176% as compared to net income of $876,179 for the six months ended June 30, 2008

The increase was mainly due to an increase in revenue which increased 111% and 123% compared with the three months and six months ended June 30, 2007, respectively, and an increase in gross profit which increased 129% and 125% compared with the three months and six months ended June 30, 2007, respectively.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION. - continued

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were $6,260,629 on June, 2008. We met our liquidity needs through the revenue derived pursuant to the sale of our precision metal castings and electronic circuit boards manufactured at facilities controlled by our subsidiary corporations in the People's Republic of China, and the issuance of shares during the full year ended 2007 of our common stock for cash.

Ultimately, our success is dependent upon our ability to generate revenues from the sale of precision metal casting and electronic circuit boards manufactured in facilities located in the People's Republic of China.

During the six month period ended June 30, 2008, net cash provided by operating activities was $955,101, and net cash provided from financing activities was $(17,728).

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Material Commitments

On March 15, 2008, we signed a letter of engagement with CCG Investor Relations Partners LLC. According to the terms of the letter of engagement, CCG agreed to assist us in the execution of its investor relations strategy. The agreement was for a twelve-month period and we agreed to pay $7,000 per month to CCG and issue warrants purchasing 50,000 shares of our common stock at an exercise price of $5 per share.

Purchase of Significant Equipment

The Company is currently executing a phased plan for growth. The first phase of the plan is now complete and the second phase is in process. We anticipate that the second phase will be complete sometime during the last quarter of 2008 or the first quarter 2009. We contemplate during this second phase the purchase of both machinery and equipment over the next 12 months and may include specialized casting equipment, CNC turning centers and additional CNC lathe machines. Ultimately however, any additional machinery we purchase shall be based upon the current and projected needs at the time of purchase. At this stage the Company contemplates spending approximately $3 million for construction for the phased growth, and between approximately $0.5 and $1 million for additional machinery and equipment.